Cereal supply shortage puts crunch on processors

Mariann Fischer Boel, the EU's commissioner for agriculture and rural development, announced yesterday she would propose that the bloc's farmers be allowed to plant to their maximum capacity for the autumn 2007 and spring 2008 sowings. Also yesterday, the Confederation of European Food and Drink Industries (CIAA) said that the recent increase in the cost of raw materials has forced manufacturers to increase the price of their products around the world. The CIAA said that over the past year the price of wheat has risen by 35 per cent, for dairy products by an average 50 per cent, and by 25 per cent for sunflower oil in the EU. The CIAA blamed the increase in commodity prices on drought-related supply shortfalls as well as long-term and structural changes in supply and demand. "Short term climate drought has pushed prices above historical level however long-term shifts, such as increasing food demand in large Asian emerging markets, increased feedstock demand for biofuel production and the reduction of support following agricultural policy reforms, have increased price volatility and may keep prices firm over time," the CIAA stated. Boel's proposal is an attempt to meet the crunch being put on the food manufacturing sector and a bid to keep prices down. According to Commission estimates, removing the restrictions on the set-aside rate could encourage European Union farmers to produce an additional 10 to 17m tonnes in 2008, which could contribute to easing the market shortage. In the EU's 27 member countries, a lower than expected harvest in 2006 of 265.5m tonnes has led to tightening supplies at the end of the growing season in 2007. The shortage has led to high prices. The bloc's stocks in storage have shrunk to 2.5 million tons now from 14 million tonnes, mainly composed of maize held in Hungary. This year, the initial results of the barley and wheat harvests are moderate, except in Spain, and the wet weather continues to disrupt or delay the harvests in western member states, Boel said. At global level, worldwide stocks are forecast to fall to their lowest level in 28 years, to 111m tonnes, including only 31m tonnes held by the five major exporters. "Exceptionally high prices are likely to persist due to a combination of bad harvests in important cereal producing countries as well as growing demand for cereals and in particular maize for the production of bio-ethanol,"​ Boel said. In particular the strong development of the bio-ethanol industry in the US is having a snowball effect on the price of other cereals. The set-aside policy was introduced to limit production of cereals in the EU and applied on a voluntary basis from 1988. After reforms were made in 1992, it became obligatory. Producers under the general scheme were required to set-aside a defined percentage of their declared areas in order to be eligible to direct payments. With the 2003 reform, they received set-aside entitlements, which give the right to a payment if they are accompanied by one ha of eligible land put into set-aside. Some new members of the EU have opted out of the system and instead receive one-off payments.