Based on the Policy Analysis Matrix (PAM) approach this paper provides an assessment of the competitive position of the Hungarian agro-food industry in view of EU integration. The situation in the food processing sector is assessed with the use of actual cost data from representative Hungarian companies. The paper presents an assessment of the current situation prior to EU integration as well as a future outlook under various scenarios with regard to the expected policy environment and the rate of technological change. The actual measurement of competitiveness in this study focuses mainly on Private Resource Cost (PRC) which indicates competitiveness under real market conditions and Domestic Resource Cost (DRC) which gives an assessment on the social or economic efficiency of an activity, i.e. whether domestic resources are really used efficiently in current production. In the food processing sector 21 different food products have been investigated which fall into four industries: meat, poultry, dairy, and fruits and vegetables. Under current conditions only some products are competitive in private terms. The situation would improve after EU integration especially for poultry, fruits and vegetables, because agricultural policy conditions are more favourable under the CAP. If additional FDI(Foreign Direct Investments) would flow into the country after EU membership, this would boost profitability. As far as DRC values are concerned, it must be stated that only some of the production activities are clearly efficient. Dairy, fruits and vegetables, and roast goose production show relatively weak social competitiveness, while other poultry and fruit and vegetables products are more favourable from the economic point of view. As EU policies provide on average higher protection levels, the competitiveness of Hungarian food processing on world markets would deteriorate for most products after EU accession. However, these effects can be offset by additional technological change due to FDI inflows or otherwise induced technological progress.