EU has few means to calm cereal market

Only political decisions on production increases and import restrictions will
stop the soaring prices, which are at historical high levels, according to
officials and traders.
“The means available to the Commission are weak, very
weak. In the range of instruments available there is no system to prevent that
the prices go up above a certain level”, said a source close to the European
Commission to Reuters.
Different to earlier price hikes is that now there are
no stocks at EU level that can be sold on the market to ease demand and thus
keep prices more stable. To increase taxes on exports as was done in 1996/97 is
not an issue in the EU. “To put a tax (with export) is not in our intention. It
is not a solution”, said Michael Mann, EU Commission spokesman. “Our intentions
are rather to act on produced volumes”, he added.

Use set-aside
land
For harvesting year 2008 the EU foresees to remove the obligation of
10% fallow land (set-aside policy), which should increase the arable land area
with almost 4 million hectares. Sown with cereals this area could supply 10 to
17 million tonnes of cereals, according to the Commission forecast.

The
Council of Ministers of Agriculture should adopt the measure at the end of
October and this one could be made permanent within the framework of the “health check” of the
common Agricultural Policy (CAP), envisaged in 2008. Such a measure would not
come into full existence next year since October is already late for sowing
winter wheat crops. Besides that there are more technical constraints to start
re-using fallow land.

Expensive wheat
Due to bad weather in the
southeast of the EU, and also in competing countries around the Black Sea,
prices of European wheat have doubled in the last five months reaching an
absolute record of 300 euros/ton this week.

At the same time American
wheat pulverized its old price record of 1996, exceeding $8 per bushel in
Chicago, under the pressure of a strong international demand. It would thus be
necessary to consider lowering the fixed EU importation tariff of 12 euros/ton
for a quota of almost 3 million tonnes of wheat. This option is foreseen in
the regulation. “Legally yes, it is possible”, confirmed the source close to the
Commission. “But it would be extremely difficult to reinstall the rule when
necessary in the future.”

These import tariffs were installed in 2003, to
limit competition of cheap cereals from countries around the Black Sea. The
import quota for cereals with fixed right was agreed upon with the World Trade
Organization to compensate for the entry in the Union in 2004 of the 10 new
central European countries.

More GMO-imports demanded
The other
possibility, defended by many animal feed traders and the feed industry, would
be the liberalisation of GMO-corn imports. GMO-corn is abundantly available in
the world but entry in the Union remains limited to only a few varieties and
with restrictive tolerance levels, because of the strong opposition of some
EU-countries. “To balance the European corn market the import of 8 to 10 million
tons of corn is necessary, which Brazil cannot all alone provide”, a trader
said.