21 June 2002

US policy puts market prospects in jeopardy

RECENT changes to US farm policy, which will boost payments to American farmers by almost 70%, have jeopardised market prospects for producers in other countries.

According to latest forecasts from Brussels, world cereal, oilseeds, beef and dairy markets are expected to emerge from their prolonged economic downturn.

Putting the new US Farm Bill to one side, the economists predict a "sustained recovery in EU cereal exports" and "more normal levels of beef production".

"The outlook for the EU cereal market would appear rather favourable for most crops, with the notable exception of rye," says the report.

Stronger demand at home, the growing world population and a relatively favourable currency environment would all combine to boost returns to wheat and maize producers. Oilseeds producers were also expected to benefit from better prices, partly due to stronger demand for meal as an alternative to meat and bonemeal.

Similarly, in the beef sector, the report points to a narrowing gap between supply and demand and a run down of stock overhangs, leading to improved prices.

But these assessments were made before a full analysis of the US Farm Bill had been completed. While this is still ongoing, the commissions report contains a "preliminary qualitative assessment" of the new policy.

"The increased level of US support implies higher production levels than market prices would generate and should therefore exert further downward pressure," it says. This would enhance the competitiveness of the US farm sector in the short term, though longer term the capitalisation of support payments in land prices would increase production costs.

"The downward pressure on world prices should affect producers around the world, with the notable exemption of US farmers," it adds. "The latter, cushioned by deficiency payments, would keep their level of production higher than market prices would normally imply."

The greatest impact would be in the cereals sector, with a lesser effect on oilseed producers. &#42