Cereal set-aside likely to survive Agenda 2000
9 October 1998
Cereal set-aside likely to survive Agenda 2000
SET-ASIDE is likely to continue playing a part in cereal market management next century, despite Agenda 2000 proposals to reduce it to zero.
Speaking at the GAFTA conference, chief economist with German grain trader Toepfer International, Klaus Schumacher, predicted the new support regime would start with set-aside at 5% or 10%.
"Brussels will be reluctant to start the new regime with big intervention stocks depressing the market," he said, adding that the actual set-aside figure would not be decided until the very last minute.
As for support prices, Dr Schumacher believed the final package would be softer than the 20% reduction called for by the commission. A 15% cut was more likely, with less than full compensation.
But the need for reform was beyond all doubt, he added. Even assuming set-aside rates of 17.5%, Brussels was anticipating grain stocks of over 70m tonnes by 2005 if the EU failed to change its policies.
Dr Schumacher believed the EU would come up against its GATT limits on subsidised exports as soon as next year. As such, prices would have to come down to world levels in order to dispose of surpluses.
"A 20% cut at todays exchange rates would bring EU grain prices down to $110-$115/t," he said. "At todays world price of $100/t, that still does not free us from export subsidies." But world prices are usually higher than this and the EU would be able to compete more often, profiting from growing demand in world markets.
These policy changes were necessary, even before taking into account next years World Trade Organisation talks and eastern enlargement.
The key for farmers was getting sufficient compensation from direct income aids.
Shifting oilseeds onto the same area aid as cereals under Agenda 2000 will not decimate production of these crops, suggested Dr Schumacher.
Putting them on a single rate would remove the need for area restrictions and subsidy scalebacks imposed by the Blair House agreement. And the arrival of new hybrid varieties in 2000 could lift oilseed yields by up to 30%, keeping them competitive against cereals.
"Longer term, world demand for oilseeds will increase faster than for grain, giving a boost to prices." Dr Schumacher believed plantings could actually increase following CAP reform.
Agenda 2000 package likely to be softer, says Toepfer International chief economist Klaus Schumacher