18 June 1999

CAP reform criticism hypocritical

By Philip Clarke

US claims that Agenda 2000 does not go far enough towards free trade are unjustified and hypocritical, according to EU head of agriculture, Guy Legras.

Speaking at last weeks International Grains Council conference in London, he said the CAP reforms agreed in Berlin were far reaching and would result in EU grain trading at world prices, eliminating the need for export subsidies.

Mr Legras was particularly irked by US criticism of EU support systems when Washington itself had just doled out over $6bn in disaster relief and marketing assistance to its farmers. "I know there has been a crisis of farm income in the US, but it was modest and followed two years of exceptionally high prices."

US subsidies were less obvious than the EUs, but they were just as distorting, he added. For example, the loans system, which last year covered 80% of the wheat crop and 60% of maize, led to lower world market prices, while at the same time protecting farmers incomes and encouraging crops which would not otherwise be grown. "I have heard that export subsidies are the real source of evil," Mr Legras told the conference. "To a certain extent I agree. But there are other forms of support which are much cleverer, yet have the same effects."

His comments followed complaints by US deputy secretary of state for agriculture, Richard Rominger, who said export subsidies still covered 25% of world wheat trade. Washington has made it clear these refunds are at the top of its hit list in the WTO. "They must be eliminated," Mr Rominger told the conference. His fear was that the price cuts in Agenda 2000 were not deep enough. "The question is: Will high world prices come along soon enough, if at all, to bail out the EUs surplus problem. The EU has already made it clear that the modified Agenda 2000 will not be open for change in WTO. The EUs continued use of export subsidies to solve domestic policy shortcomings would be a major block in the continuum toward trade liberalisation."

Mr Rominger threatened the use of the US export enhancement program (EEP) if progress is not made in this direction.

Support keeping grain price low

DEPRESSED grain prices will persist for at least another two years as a consequence of the support systems of the EU, US and China.

Continued interference in world grain markets by these key operators was the main reason supply had failed to adjust to falling demand and low returns in 1997 and 1998, president of Cargill, Huub Spierings, told the GC conference.

As such, the world was going into the 1999/2000 season with excessive plantings and too much in store.

"Short of a real weather problem affecting the huge US spring crops there appears little chance for todays low, low grain prices to make a major move upwards before 2001/02," he said.

Carry-over stocks, which have grown to over 20% of world usage in the past three seasons, needed to fall to about 15% to ease the pressure, while governments had to resist the temptation to interfere.

Looking further ahead, grain markets should start improving after 2002. Analysis by the IGC shows that the world population is expected to grow by 450m over the next five years, leading to a marked increase in grain consumption in developing countries.

Total trade in wheat and coarse grains should grow by 20% by 2005, it predicts, compared with just 5% in the second half of the 1990s.

Demand is likely to be particularly strong in south east Asia again, once the regions financial crisis is resolved, says Trevor Flugge, chairman of AWB, Australia. Even during the past few years of economic recession, wheat exports to this region had been resilient.

"There is now a real sense that Asia has turned the corner," he said. &#42