30 October 1998

Grain outlook still turbulent

By Philip Clarke

GRAIN producers face the prospect of a depressed market for the next three years, as economic turmoil in importing countries continues to suppress demand.

Former US under-secretary of state for agriculture Eugene Moos does not agree with some reports closer to home which suggests prices could soon edge up. He believes there is little prospect of the situation in south-east Asia and Russia improving in the near future. It may even get worse.

"The key question is where will the investment capital and credit come from which are so sorely needed by these distressed economies?" he asked last weeks Defi Blé (Wheat Challenge) conference in Paris.

Former investors would be reluctant to risk getting their fingers burned again, unless there was serious structural reform. But Mr Moos doubted whether the political will existed in south-east Asia to achieve this. "That is the reason I am so pessimistic about a quick recovery time," he said.

The consequence of the economic slump was that more than 100m consumers, who had achieved middle class status, had now lost it. No longer able to afford high protein foods, such as white meat, demand for imported feed grain had slumped.

This followed a two-year period when producers had expanded output rapidly to meet what seemed like an insatiable demand.

Department of Agriculture estimates pointed to carryout stocks of wheat in the US this season some 120% higher than in 1996, with a 240% increase for coarse grains. "This worries me as it will put great pressure on prices going into next season, at a time we are entering a tenuous period in relation to trade liberalisation," Mr Moos told the conference.

Already there had been backtracking on the 1996 "Freedom to Farm" Act in the US. Direct income payments had already been topped up under president Clintons emergency package, and Mr Moos predicted the reintroduction of voluntary set-aside next spring to bolster prices.

"Only now, when faced with todays low prices – and a 15% drop in incomes – do US farmers realise that the income safety net provisions fall well short of their expectations."

The need for a proper safety net in Europe too was emphasised by Pierre Olivier Drege of French intervention agency, ONIC. In many ways the EU, with Agenda 2000, was following the US example, with cuts in support prices and an end to set-aside.

"These are medium-term objectives," said Mr Drege. "But we need to get to the medium term. We should not dismantle our support systems in doctrinaire way."

The French were not protectionist by nature, he insisted. "How can we be when 50% of our crop is exported?" But mechanisms such as intervention buying and export restitutions should be retained, not to set the price, but to deal with extreme situations.

This view was endorsed by chairman of French co-operative body, SIGMA, Bruno Catton. "We should not give up our safety net too soon or do away with a system that helps us win market share – that would be naive," he said.

But he believed the current market situation was just a temporary downturn and world demand would recover early next century. "So long as we remain competitive, we can afford to be confident."