December 1, 2008

 

EU has opened the door to increased seasonal wheat price swings with its deal to cap the amount farmers can sell to the bloc's public stores, a system that has traditionally provided a safety net for growers.

 

The EU's latest farm policy revamp, agreed in Brussels last week, involved diverting part of long-standing direct subsidies linked to farm production into countryside preservation schemes.

 

It also included a ceiling of 3 million tonnes on the amount of bread-making wheat which farmers can sell into the EU's intervention stores at a fixed price of 101.31 euros a tonne.

 

Once this quota is filled, EU farmers will have to tender to sell their wheat and the EU will decide on a maximum price up to which offers will be accepted.

 

There had previously been no ceiling to intervention, which led to notorious "grain mountains" in the 1990s when low prices made the intervention system attractive to farmers.

 

Intervention storage for durum, rice, barley, sorghum and corn will be suspended, in the measures which are due to start in the 2010/2011 (July-June) season.

 

The Commission said intervention must revert to its original purpose as a real safety net, particularly today when market prices are in a good shape.

 

French wheat is trading around 135 euros a tonne.

 

But analysts expressed doubts the new system would continue to play the safety net role as in the long-term, the floor price for wheat would no longer exist. They also stressed the quota was small compared to EU output of around 135 million tonnes.

 

Emmanuel Jayet, agricultural analyst at Societe Generale said that the weakening of the 'intervention' tool is significant. 3 million tonnes is not very much and it is not sure that the system will be much used beyond that.

 

He said that while the intervention system allowed the Commission to take grain off the market when there was a surplus and sell it back later when it may needed, it also had a stabilising function.

 

The deal has angered many European farmers who said that even if intervention was not used at all last season when prices hit record highs, it could be risky to cap volumes.

 

Philippe Pinta, president of French grain and oilseed growers' group ORAMA, said limits on wheat intervention were worrying given the global food crisis and the economic gloom.

 

Intervention stores are open from November 1 to the end of May. By Nov 23, EU farmers had offered 24,248 tonnes of grain into stores, mainly from Hungary, Slovakia and Bulgaria.

 

Grain prices, which have nearly halved over the last year due to big crops worldwide and deepening economic gloom, are now below guaranteed prices in many eastern European countries.

 

Once reforms are implemented, intervention will continue to attract farmers in landlocked states more than those that have good shipping facilities and can export easily, analysts said.