Saturday, May 06, 2006

Grain mountain problem grows

The arable sector was the first commodity regime within the CAP to be reformed and it is often assumed that all the major problems are behind us, particularly with the abolition of rye intervention in the Fischler reforms, a product often grown just to sell into intervention.

Unfortunately, not all the problems have been solved. Support prices have been cut by around 45 per cent, but intervention stocks at the end of the last buying season were at their highest level for twelve years, 15,482 million tonnes and they look likely to rise again this year.

Much of current grain production in Eastern Europe is being grown with intervention in mind and doing anything about it is seen as a political hot potato as there is a reluctance to cause trouble with the new member states who are already feeling sore about other issues. Hungary has invested considerable sums of money in increasing grain storage capacity in anticipation of the increase in intervention stocks.

Franz Fischler was the first major figure to question whether one can really have a common policy in such a diverse agricultural region as Europe. A recent study for the Commission by consultants LMC argues that a single intervention price is a barrier to the flow of cereal from surplus regions, particularly landlocked regions like East-Central Europe, to the main grain deficit area, the Iberian peninsula.

The report also criticises set aside (the rate is 10 per cent in western Europe) as a blunt policy instrument which mainly benefits the United States. Set aside land is generally 30 per cent less productive than land not set aside (our local farmer has chosen his worst drained and smallest field) and producers in East-Central Europe are exempt until at least 2009. The US goverment gains because set aside pushes up world prices and hence cuts their outlays on deficiency payments.

The report has some sensible but radical solutions such as having only one intervention price based on common wheat, getting rid of set aside, limiting support payments to the grain barons and purchasing only breadmaking wheat and then just in Spain and Portugal.

Unfortunately these ideas would upset the powerful big grain producers in the EU and are hence unlikely to be adopted, so the grain mountain will just keep on growing.

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