open i

Reserved for magazine

The decision of the EU commission to reduce import levies for cereals from eastern European regions is about as wrong as it could be. The most immediate concern is with the disruption it has caused during the busy post harvest marketing season. The more lasting concern will be over the commission overstepping its implicit mandate and ignoring political opposition. (580 words).

While the objective of the decision seems to be to provide Spain which had a short crop this year with less expensive grain, there is real doubt as to whether it will achieve this. It appears that Spain was not importing grain from Black Sea ports, nominally the most competitive source of grain at this time. If Spain does benefit, it will be a result of the whole European grain market being undermined which is hardly satisfactory.

The outcome unfortunately will not be known until early November when the import tariff cut comes into effect. Until then, as a result of the chance that prices will fall, nobody wants to buy grain unless they absolutely have to.

More critical than this, however, is the implication of commission moving the goal posts set in 1999 by the Agenda 2000 cereal market reforms. These fine tuned the balance of support provided through market intervention and through direct transfer payments.

The impact of lower intervention support was only partly offset by higher acreage payments with the gap being made up by the market if and when prices naturally rose above intervention support levels. Allowing this to happen was an essential part of the Agenda 2000 compromise.

No only was there concern at the time as to whether the market would ever make up the difference, but also, as export taxes provisions were retained, if and when they would be imposed. The assurance was only in "extreme circumstances," and it was naturally assumed that this meant only after cereal producers had had the opportunity to recoup what they had lost from lower intervention prices

As a result of Agenda 2000 adjustments and the weakness of the Euro, European prices have declined close to international levels allowing some grain to be exported without subsidy. Prices have not, however, moved much above intervention support with the feed barley market in particular still seeming to be supported by intervention. These are far from "extreme circumstances" in terms of the need to stabilize or cap prices.

The decision by the commission to ignore the spirit of Agenda 2000 was, however, not a casual one. It received something of a political airing in the Cereals Management Committee, which in contrast to the commission has some political legitimacy in terms of it membership representing member states. It voted against the measure by 37 to 15 with 35 abstentions. In practical terms this meant only three of the 15 member states supported the commission, but by Brussels rules it is classed as "no opinion," which leaves the commission free to proceed without further consulations.

Farm income has naturally declined substantially with lower intervention support. But with world grain markets particularly for wheat tightening, the prospect for higher international prices levels and the opportunity for farmers to recoup some of their losses looked possible.

With the commission unilaterally taking price stabilizing action not contemplated in Agenda 2000, even before the opportunity to tax exports has arisen, the potential for recouping losses in any meaningful way before exports are taxed looks increasingly remote.

October 18, 2001