Peter Watts sees an upside and a downside to the European Union’s move to lower support prices for grain.
The move away from the subsidy means there should be less price distortion in world grain markets, said Watts, a Canadian Wheat Board market analyst for Western Europe.
“The fact that Europe is moving away from subsidies is positive for Canadian farmers.”
On the other hand, said Watts, the EU currency has weakened over the past year and the cut in support prices on all European Union grain could make it easier to export grain from the 15-nation bloc.
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“The fact that they don’t need subsidies (to export) means there’s the potential for more European product to move onto the world market.”
The EU will lower support prices by 7.5 percent as of July 1. The support prices, also known as intervention prices, will fall another 7.5 percent on July 1, 2001.
The cutbacks are part of the EU’s Agenda 2000 reforms, measures that are being taken as it prepares to expand eastward.
Maintaining current support prices would become more burdensome if less affluent countries join the EU.
Earlier this year, the European Commission promised wide-ranging reforms to its agricultural policy.
The commission believes that burgeoning grain production in Europe and around the world, coupled with the EU’s high internal prices, would force it to buy and store huge amounts of grain that could not be sold, raising the spectre of publicly funded grain mountains across the continent.
European subsidies are also under attack from EU trading partners, including Canada and the United States.
But Fred Oleson, chief of Agriculture Canada’s market analysis division in Winnipeg, doubts the rollback in support prices will have much impact.
Although prices are being trimmed, EU farmers will be gaining on direct payments, he said. The direct per-hectare payments are based on historical yields.
The increase in direct payments will pretty much offset the effects of declining support prices, Oleson predicted.
And he noted the shifting sands of European subsidies did nothing to discourage wheat plantings in the EU this spring.
The U.S. Department of Agriculture predicts the EU will grow 106 million tonnes of wheat this year, an increase of 9.2 percent.
