10 November 2001

Imports disrupted

Analyst David Walker offers a personal perspective on how Brussels is interfering in your grain markets

THE DECISION of the EU Commission to reduce import levels for cereals from Eastern European regions is about as wrong as it could be. The immediate concern was the market disruption post harvest. The lasting concern is that the commission overstepped its mandate and ignored political opposition.

It appeared that the aim was to provide Spain, which had a short crop, with cheap grain. But theres doubt as to whether it will achieve this. If Spain does benefit, it would be a result of the whole European grain market being undermined which is hardly satisfactory.

More critical is the implication of the commission moving the goalposts set in 1999 by the Agenda 2000 reforms. These fine-tuned the balance of support, provided through market intervention, and through direct payments.

We should remember that the impact of lower intervention support was only partly offset by higher acreage payments, with the gap being made up by the market, if and when prices naturally rose above intervention support levels. Allowing this to happen was an essential part of the Agenda 2000 compromise.

Not only was there concern at the time as to whether the market would ever make up the difference, but also, as export tax provisions were retain, if and when they would be imposed. The assurance was only in "extreme circumstances" – and it was naturally assumed that this meant only after cereal producers had had the opportunity to recoup what they had lost from lower intervention prices.

As a result of Agenda 2000 and the weakness of the euro, prices have declined close to world levels, allowing some grain to be exported without subsidy. Prices have not, however, moved much above intervention. These are far from "extreme circumstances" in terms of the need to stabilise or cap prices.

Only three of the 15 member states supported the commission, but by Brussels rules, the commission was free to proceed without further consultations.

Farm income has declined substantially, due to lower intervention support. But with world grain markets tightening, particularly for wheat, the prospect for higher world prices looked possible; this would have given farmers the opportunity to recoup some of their losses.

But with the commission taking this price stabilising action not contemplated in Agenda 2000, the potential for recouping losses, before exports are taxed, looks increasingly remote.