The Development and Competitiveness of Estonian Agriculture Prior to Joining the European Union

Abstract

The present working paper aims to evaluate the current state, development and competitiveness of Estonian agriculture, based on the theoretical concept of the competitiveness of an industry. By means of analysis it is possible to predict what potential changes may occur in the agricultural sector after Estonia's EU accession. In outline, the present paper will discuss the concept of the competitiveness of an industry and the complex of factors influencing competitiveness, evaluate the impact of the implementation of Common Agricultural Policy (CAP) on the economies of candidate countries, analyse the factors determining the environment in which the Estonian agricultural production has to compete in the period prior to joining the European Union and assess the impact of foreign trade on the development of Estonian agriculture.

Since 1991 the agricultural production has been steadily declining in Estonia. Due to the tendency to ignore the need for an agricultural policy that would consider the realities of global economy, in Estonia this sector has been left without protection. A substantial competitive disadvantage, caused by the Government's economic policy, has brought about a situation in which the local producers lack capital for developing the industry, while foreign capital is not attracted. The agricultural producers, who have to dispense with government support, are unable to simultaneously handle three difficult problems:

- Transition from large-scale farming to small-scale farming that requires the introduction of modern technology and equipment;

- Loss of traditional foreign markets (Russia);

- Unfair competition with governmentally subsidised EU products, not only in foreign markets, but also in the internal market. Only equalisation of the conditions of competition in the European Union and in Estonia's agricultural sector would make it possible to use the great natural potential of Estonia for the benefit of its economic development. Resolving this problem will be the most difficult task facing Estonia's (foreign) economic policy during the negotiations for admission to the EU. A continuing agricultural decline would mean the loss of an opportunity to exploit those natural resources even after joining the EU, because the pre-accession level of production will determine the production quotas.

Keywords: Development, Competitiveness, Agriculture, European Union

JEL Classification: O13, Q17, Q18