2 May 1997

£11/t EU export levy sends grain prices tumbling

By Philip Clarke

PROMPTED by fears of an exodus of grain out of the EU as world prices climb, the commission last week imposed an £11/t tax on Third Country exports.

The effect has been to close the world market off for the rest of the season and drop prices.

Old crop feed wheat is now quoted at about £91/t ex-farm for May, £3 less than last week.

But new crop has also been affected as traders anticipate the continued use of export taxes into next seasons campaign. Combined with recent rains and the expectation that there will now be some carryover of commercial stocks, November wheat is quoted at £94/t ex-farm, a drop of £5 on the week.

The introduction of the tax marks a dramatic turnaround.

Six months ago, export subsidies of up to £18/t were being granted to shift a record harvest and avoid a build-up of intervention stocks. Even two months ago, Brussels was paying traders £10/t to keep EU wheat competitive.

But since then, world markets have been driven up by drought fears in the EU and frost and flood damage in the US. As FW went to Press this week, US winter wheat was quoted at £100/t loaded on a boat for September, compared with £98/t for UK and French.

Initial reaction from the trade has been to condemn the tax as interfering with the free market. But EU officials say it is necessary to damp down internal prices.

Certainly it has come as little surprise, with Brussels winding down its export subsidy programme two weeks ago. "The commission has conducted a pretty good export campaign, shifting 16m tonnes of wheat and clearing the market," says the Home Grown Cereals Authoritys Stephen Thornhill.

"There is still a bit more to go in the UK – MAFF figures suggest 1m tonnes in the last quarter – but at least we are competitive with the French."

But traders are not so confident. "It is the same as last year," says David Balderson of Viking Cereals. "On paper it looks tight, but there is still plenty of grain in the physical market and old crop will struggle."

lCereal farmers in the UK have called for 5% set-aside for 1997/98, despite warnings by EU farm commissioner, Franz Fischler, that surpluses could reach 58m tonnes by 2005. Mr Fischler has hinted that, in the medium term, the full 17.5% set-aside rate allowed under the MacSharry reforms may be needed to curb surpluses. But the NFU maintains world demand for EU grain remains strong.

"The combination of recent flooding and frost in the US and dry weather in Europe has not been reflected in Mr Fischlers paper," says NFU cereals chairman, Peter Limb. &#42