Grain surplus threatens to disturb EU market

- Last updated on GMT

Related tags: European union, Eu

A bumper harvest across Eastern Europe has forced the European
Commission to intervene, buying up and moving large amounts of
surplus stocks to prevent a Europe-wide market disturbance,
reports Chris Mercer.

EU cereal stocks are now at their highest for a decade after the region produced 290 million tons in 2004, up a quarter from 2003 and largely driven by a 40 per cent increase across the ten new member states.

The problem is now, literally, where to put it all. The EU has already committed to buying up 13.5 million tons as 'intervention stocks', taking these stocks to their highest levels for six years, with about 60 per cent of this coming from the new states.

The situation is particularly acute in Eastern Europe where "producers in landlocked Hungary and the Czech Republic face falling prices because of weak, inelastic demand, inadequate private storage facilities and an inefficient and costly transportation system to export markets"​, says a circular from the US Department of Agriculture's Foreign Agricultural Service.

Hungary increased its cereal harvest by 89 per cent to more than 16 million tons during 2004, while Poland's went up by a quarter to 29 million and the Czech Republic's by 54 per cent to 8.8 million. France and Germany remain head and shoulders above the rest on almost 70 million and 51 million tons respectively.

The EU has tried to solve the surplus issue by increasing export subsidies on the free market from €4 to €10 per ton in recent weeks, covering around 1.2 million tons of wheat.

However, Hungarian and Czech grain has proved no match for French and German exporters on the free market who have a better market infrastructure and are closer to ports.

Accordingly, the Commission has offered to intervene and sell nearly 800,000 tons of wheat from the accession states, including 320,000 tons from Hungary, 300,000 from the Czech Republic and 93,000 from Poland. The deadline for the first tender is 31 March and it will run until June.

The Commission, which recognised that limited harbour access meant export tenders "have not relieved the situation in new member states"​, has also laid regulatory framework for paying the cost of transporting some of this grain to the nearest seaport, possibly either Constanza in Romania or Koper in Slovenia.

Even if this works however, a lack of storage facilities across Eastern Europe threaten to scupper the whole intervention project. "While making intervention storage space available is a national competence, the lack of intervention storage in new member states is serious, leading to important market disturbances in the whole of the EU,"​ said the Commission.

The Hungarian Ministry of Agriculture has requested the use of storage facilities in Belgium and Germany. The latter has good intervention storage space and this has also been subject of recent negotiations with the Czech government.

Sharing facilities would at least solve short-term storage issue for this year, but such a move only buys the EU and new member states a year to try and get a system in place to cope with what may become an annually recurring problem.

Related topics: Market Trends

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