The winds of war are blowing, and western Canadian grain farmers could again be caught in the vortex.
There are worries that a new trade war between the European Union and the United States may be coming.
The EU has been subsidizing barley exports for the past several months and there is concern that could spread to wheat.
Meanwhile, the U.S. has resurrected its Export Enhancement Program. So far it has just been used on poultry and dairy exports, but there are rumors wheat flour could be next.
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“I don’t think we can underestimate what may happen,” says Lorne Hehn, chief commissioner of the Canadian Wheat Board. “We’re starting to go down the same sort of path we went down in the late 1980s and if we don’t start to do something about it, we could have a real problem on our hands.”
In March, the EU granted export licences for more than one million tonnes of barley subsidized by $57 (U.S.) a tonne. On April 30, licences for another 185,000 tonnes were granted with a subsidy of $60.
For Canadian farmers that means lower world prices.
Hehn said barley that was selling on the world market for $130 (U.S.) last fall is now trading for around $75. While part of the decline is due to increased barley supplies in Russia and the Baltic states, the main reason is the EU’s use of subsidies to try to reduce its burdensome stocks.
If the world wheat crop comes in at the projected level of 580 to 590 million tonnes, things could get even uglier.
“We’re seeing weaker export demand and as those domestic stock levels increase in Europe, I think we’ll see increases in subsidies,” said Hehn.
Prairie Pools Inc. issued its own warning about the prospects of a damaging grain trade war last week.
The organization representing the three grain handling pools called on the federal government to raise the issue with the Europeans and Americans at every possible opportunity, both directly and at international meetings like the upcoming G-8 summit and a ministerial meeting of the World Trading Organization.
“We are very concerned that the actions of the EU and the U.S. will trigger another trade war and we all know from the experience of the 1980s that Canadian grain producers are always among the casualties of these wars,” said PPI chair John Pearson.
Agriculture minister Lyle Vanclief and wheat board minister Ralph Goodale have both warned the Americans about the consequences of bringing back EEP subsidies.
Goodale said using EEP on grain sales will artificially depress world prices while leaving U.S. domestic prices high, which will in turn make the U.S. a more attractive market for Canadian grain exporters.
U.S. prices to blame
Meanwhile, EU agriculture commissioner Franz Fischler said high U.S. prices are the reason for the sale of subsidized barley by Finland to an American customer. The sale of 30,000 tonnes to the California processor has angered U.S. farm groups, farmers and politicians and led to some calls for retaliatory use of EEP subsidies.
In the letter to U.S. secretary of agriculture Dan Glickman, Fischler said reduced purchases by Middle East buyers left U.S. prices significantly above world levels.
“In these circumstances, there are bound to be imports into the U.S., if not from the EU then from Canada or some other third country, with a drop in U.S. domestic prices,” he said.
