23 June 1995

Beating the export restrictions

By Philip Clarke

CEREAL stocks may be at their lowest level for several years and helping to firm the market but it is only likely to be a temporary respite.

Currently EU intervention stores only hold 7.5m tonnes of grain, compared with 33m tonnes in 1993, HGCA head of marketing Stephen Thornhill told growers at last weeks Cereals 95 event at Shuttleworth, Bedfordshire.

But with the GATT deal due to start taking effect next month, EU producers face the prospect of lower import protection and, more significantly, restrictions on export subsidies.

By the year 2000 they will only be able to export 23m tonnes of subsidised grain compared with 30m tonnes now, and this with 36% lower restitutions.

Combined with a 1% estimated annual yield increase, this will result in a re-emergence of surpluses, predicted Mr Thornhill.

So though it was reasonable to expect a cut in set-aside to deal with the "near term" over-heating of the grain market, longer-term further action would be needed. This might include:

&#8226 Maintaining current support mechanisms, but raising set-aside to, say, 30%.

&#8226 Cutting support prices further so that exports no longer need subsidies.

The first of these would be unviable if the EU wanted to expand to include the former Eastern Bloc countries, quite apart from the political unacceptability of set-aside, he said.

But cutting prices would at least allow the EU to "get stuck into" the growing demand for grain from south-east Asia, north Africa and South America. But this could have a serious impact on farm incomes.

Mr Thornhill was not optimistic that stronger global demand would translate into higher world prices. The area of land currently set aside (including 36.4m hectares (90m acres) in the US conservation reserve programme) could quickly come back into production to boost supply.

Lower prices would, therefore, have to be backed up with increased compensation, but this would be politically hard to achieve. There was also a danger of support payment capping, as in the US, which would discriminate against UK growers.

"There is no easy solution," concluded Mr Thornhill. "Growers should, therefore, continue to look for ways to cut costs to prepare for the end of the century in case prices are cut and compensation is not available." &#42