5 October 2001


Careless talk costs

money, as cereal

growers have


Marie Skinner

counts the cost

Random remarks can often destroy businesses. For example careless talk by the Brussels Cereals Management Committee (ManCom), part of the EU Commission, resulted in a £2/t fall in grain markets last week.

Information leaked after a ManCom meeting on Sept 20 led to an immediate fall in European grain markets. ManCom was thinking of abruptly reducing import duties because "internal prices are too high and measures should be taken to reduce them."

ManCom has the power to carry out these actions and "manage" the grain market. But doing so contradicts Agenda 2000, which was committed to reducing market interference and ensuring market prices were driven by market forces – not by politics.

With arable farm incomes already low, a sudden drop in prices is serious news. The HGCA farm model shows, before this recent drop that the average, 100ha (250-acre), combinable crop farm will make a profit of just £2,000 this season – most of which is wiped out by a £2 price reduction.

But the situation could get worse. If ManCom implements its proposals and reduces import duties for grain coming into Europe from Black Sea and Baltic ports, a further fall in UK wheat prices of £5/t could easily result.

The import levies were imposed as part of Agenda 2000 to act as a buffer, protecting the EU market from grain dumping by close neighbours. If it is now felt the levy should go, then warning should be given. To discuss removing it in mid marketing season is inappropriate and destroys orderly marketing.

So, what is behind it? According to the news agency Reuters, the commission felt the World Trade Centre bombing would have an inflationary effect on the economy. To help lessen the impact, it decided it could interfere with the markets, reduce raw material prices and counter potential increases in food prices.

These views need questioning. The commission discussion took place just nine days after the disaster when US equity markets were in free fall, when virtually all commentators talked of recession and interest rates were dropping. The analysis behind the commissions behaviour appears unsound and does not match wider economic predictions.

The effect is also inconsistent with the commissions declared objective of moving away from market management towards free market forces as the best way of controlling markets. As a result of Agenda 2000, intervention prices have fallen by 15% in two years, but the higher area aid payments, given as compensation, were set at only 50% of the price cut. That was deliberate: Farmers were expected to reclaim the rest of the cut from the market.

The changes were made to help ensure that the market ruled and intervention existed only as a market of last resort. This approach is being undermined by ManCom, which appears to be treating intervention as if it is a target price and that if market prices rise above intervention they are too high.

I cannot understand how prices can be considered to be too high when barley prices are close to intervention levels in Scotland and UK feed wheat prices, although slightly higher than this time last year, are still at historically low levels. A £2/t price difference means a lot to a farmer but not much to a consumer; it would cut the price of a loaf of bread by 0.14p.

The commission is manipulating the market. It is accepting low prices when markets are under pressure, then attacking and undermining the same markets when prices are firm. It is interfering with commercial markets in the middle of the marketing period.

The commission should be aware of its responsibilities to the commercial world and behave more responsibly.

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