Europe’s surprise subsidy will hurt malt price

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Published: October 16, 1997

There’s trouble brewing for Canadian malt exporters.

Export subsidies on malt announced last week by the European Union will drive down world prices, put a financial squeeze on Canadian malting companies and hurt farmers, say industry officials.

The EU last week announced an export subsidy on malt exports of about $27 a tonne. The malt subsidy is pegged by formula at 1.3 times the subsidy on feed and malting barley, which was set at about $21 a tonne.

The refund is paid directly to malting companies, who can then reduce the price at which they sell to overseas customers.

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The announcement came just a week after a delegation of Canadian government and industry officials met with European Commission officials in Brussels to argue against any export subsidy.

“It comes as a complete surprise,” said Phil de Kemp, president of the Malting Industry Association of Canada. “We’re extremely disappointed, if not shocked, very upset and dismayed.”

Because the Europeans dominate world malt trade with about 55 percent of total exports, the world price will drop by that amount, said de Kemp. Canada has about 14 percent of the market (about 500,000 tonnes a year) and follows the EU’s lead on prices.

“They have basically just re-set the world price for everyone else and it’s going to hurt everyone, including Canadian and Australian barley farmers,” he said. Malt is currently trading for around $300 a tonne.

De Kemp said the malting industry will meet with federal officials as soon as possible to figure out a response to the EU action. While nothing can be done to change the subsidy, he said it’s important Canada make known its disapproval.

“I’d like to see the bureaucrats in Europe put on notice,” he said. “They just put $60 million of Europeans’ taxpayers money into the pockets of European maltsters that they didn’t have to.”

Officials from the office of Canadian Wheat Board minister Ralph Goodale could not be reached for comment on whether Ottawa will take any action.

However during meetings in Brussels two weeks ago, federal officials urged their EU counterparts not to subsidize malt.

“We said don’t have subsidies at all, but if they have them at least use them carefully,” said a federal official familiar with the issue. “They don’t need to be as high as they have been.”

Criticism for CWB

European maltsters say they need export refunds in order to compete with what they call the secretive pricing tactics of state trading agencies like the CWB. They say the board colludes with Canadian maltsters to undercut EU prices and steal markets, a charge denied by the board.

A year ago the EU subsidy on malt was about twice as high as this year, but that is small comfort to Canadian malting companies.

“The refund is lower but world malt prices are quite a bit lower than they were last year, so they’re still squeezing the margins for Canadian maltsters,” said CWB market analyst Larry Sawatzky.

The board says it recognizes that maltsters’ margins will be squeezed by the EU subsidy, but the agency is not about to cut the price of malting barley.

“There’s no formula that says there’s a subsidy of $20 so we knock $20 off the maltsters’ price,” said Bob Cuthbert, the board’s marketing manager for malt and malting barley. “That’s not done at all. It’s essentially their problem.”

However, he added the board can adjust the price to reflect freight disadvantages facing Canadian malt exporters.

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Adrian Ewins

Saskatoon newsroom

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