15 December 1995

Export tax lowers value of EU wheat production

By Philip Clarke

WHEAT values have fallen this week, following the imposition by Brussels of a punitive export tax on sales of grain outside the EU.

The move is part of the commissions continuing effort to take the heat out of internal prices by limiting exports.

So far this season some 7.6m tonnes have left the EU – 600,000t more than the same time last year – under the system of daily "dash" licences. These carry no subsidy, but given the firm state of the world market, the sales have still been profitable.

But now Brussels has decided to call a halt to this "back door" trade, slapping on a £21/t export tax and making EU grain uncompetitive.

Exports can still continue under the EUs system of "weekly tenders". But this gives the commission almost total control over the volume of grain leaving the EU. The expectation is that it will only grant licences for limited amounts to traditional markets, and then only if the trader offers to pay a "generous" level of tax.

Last week, for example, it accepted a bid for 98,000t of German wheat for shipment to the former Soviet Union with a tax at £8.75/t.

World markets reacted strongly to the news the EU is now only a limited player, with US hard red winter wheat rising to $210/t by mid-week. This is now about $8 above the EU price before tax, but still well short of it aftertax.

In the UK, wheat prices slipped following the announcement, and were over £3 down on the week at £121/t spot as FARMERS WEEKLY went to press. But ex-farm sales remain minimal.

"I do not expect to see the market collapse, as the commission will maintain an export programme, albeit a limited one," said Mark Hughes of shipper merchant Allied Grain. "But at least we now know this market can come down."

The news was welcomed by Minister of State for Agriculture Tony Baldry, who saw it as a welcome step to improving the balance between the arable and livestock sectors.

But John Godfrey, chairman of the British Pig Association, maintained that grain prices were still too high, especially coupled with firm soya and maize gluten values. "Theres not much more the commission can do given the world market," he conceded. "Their mistake was not going for zero rotational set-aside for 1996."