SASKATOON – After an absence of more than a year, the dreaded ‘S’ word has reappeared in world grain markets.
Subsidies, the bane of Canadian grain farmers’ existence for much of the past decade, have been used on some recent export sales of European wheat and barley.
So far, the use of the export subsidies has been limited, in both dollars and grain volumes, and market watchers say there’s no need to panic.
“I think the general consensus is that this doesn’t mean the European Union is going to start subsidizing large volumes of exports yet,” said Glenn Lennox, wheat market analyst for Agriculture Canada in Winnipeg.
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In late August, subsidies of around $7 a tonne were used on sales of about 70,000 tonnes of wheat to countries in the so-called African-Caribbean-Pacific market. A small barley sale carried a subsidy of about $3 a tonne.
So far, U.S. reaction has been restrained. Agriculture secretary Dan Glickman told reporters a subsidy war is unnecessary because of tight world wheat stocks.
However, he also warned the U.S. administration won’t be shy about asking Congress to increase the $100 million (U.S.) allocated to the dormant Export Enhancement Program next year if conditions warrant.
Gregg Doud, market analyst with U.S. Wheat Associates, an industry-funded export promotion group, said that with a record grain crop, the EU could well be more aggressive in its wheat export policies.
“The U.S. decision on whether to re-institute EEP may depend on whether the EU announces other sales of subsidized wheat,” he said.
After a year in which farmers and exporters have seen wheat prices rise to unprecedented levels in a marketplace generally free of government intervention, there is bound to be nervousness about this latest development.
Forced to fight
“It’s not a full-scale subsidy assault on the market yet, but the worry is that if they escalate, then the U.S. feels it’s incumbent to engage in a war and then Canadian farmers are the losers,” said Canadian Wheat Board information officer Deanna Allen.
She added the subsidies used so far by the Europeans are small enough that they have had no impact in other world markets.
Europeans have traditionally sold wheat to the African-Caribbean-Pacific countries at a preferential price, as a kind of food aid program. When export subsidies were in general use, the subsidies to those countries were larger. And when an export tax was in place, as was the case this past year, the tax was lower for sales to those countries.
The EU export tax has been reduced to minimal levels recently, to give that market a preferred price, a small subsidy must be offered.
“This is really just a continuation of the normal treatment of those countries,” said Lennox.
And he doesn’t think Canadian farmers should worry about a return of the bad old days of an all-out subsidy war between the U.S. and the EU.
Wait and see
“Unless the Europeans all of a sudden start putting larger export refunds on, the Americans aren’t going to do anything, and I can’t see the Europeans doing that until their intervention stocks are rebuilt,” he said.
Tight wheat stocks last year led the EU to put a tax on exported grain to keep more supplies at home and prevent domestic prices from climbing too high. However, domestic prices remain well above intervention levels at which the EU buys grain from farmers to build up stockpiles.
