14 March 1996

Only radical reform will put beef back on track

HUGE cuts in beef prices, of up to 33%, could be needed to bring Europes production back into line with demand and to comply with world trade rules warns the NFU.

In a discussion document, called Options for reform in the beef sector, NFU economist Tony Donaldson says long-term, radical reform of the beef regime is inevitable towards the end of the decade.

Reduced beef consumption, a trend seen over the past decade but exacerbated by the BSE crisis, coupled with the effects of GATT, means current EU production levels cannot be sustained.

Worst scenario

Without reforms, the worst scenario could see 3.5m tonnes of beef in intervention by the end of the century. That is despite the introduction of the calf slaughter scheme and early marketing scheme across Europe, and the UK removing about 210,000t a year from the market with the over 30-month scheme.

And the GATT deal means the EU can no longer use subsidies to offload intervention stocks on the world market. He says that even if consumers reversed the previous decline in beef consumption it would still leave about 1.5m tonnes in intervention by 2000.

The choice, says Mr Donaldson, is simple. Either strict supply controls can be introduced to maintain producer prices, or prices can be cut to world market levels, with compensation for farmers that is de-coupled from production.

Production cuts

The first option would allow the EU to maintain higher prices for its farmers but would require significant and progressive production cuts. And the artificially high price would also cut the EUs ability to export beef. De-coupled support payments would not distort prices or international trade opportunities.

The NFU points out that supply controls, gearing production to the EU market, could lead to a cut of up to 25% in suckler cow numbers, which would obviously be of great concern to UK farmers.

Mr Donaldson says a policy of fully compensated price cuts would be an ideal solution. To meet the World Trade Organisation rules the support would have to be decoupled from production. And full compensation would cost EU taxpayers an extra £2.69bn. &#42