European Commission proposes suspension of import duties on most cereals - opens opportunities for developing countries

The European Commission has proposed the suspension of import duties on all cereals except oats for the current marketing year - which ends on June 30, 2008. This is a reaction to the exceptionally tight situation on the world and EU cereals markets and the record price levels. Although the current levels of border protection for cereals are rather low, import duties are still applied for certain types of grains that are relevant for the balance of the EU market. The proposal won unanimous support from EU farm ministers, but will have to be approved by the Council of Ministers at its meeting starting on 18 December. The move comes after a recent decision to reduce the subsidy for energy crops, after it emerged that farmers had already surpassed the target for which the original aid scheme was intended, much sooner than expected (previous post).

The European Union has traditionally been a major cereals exporter, and has been accused of dumping its heavily subsidised grains on the markets of developing countries, thereby destroying the productive capacity of millions of smaller farmers. Import duties and non-tariff barriers kept them out of the market as well. Now, the situation is being reversed - an almost historic event. With the increase in biofuel production in both the EU and the US, this could be the first sign of a new trend that offers hope to the millions of poor farmers in the Global South. Some analysts have predicted that the bioenergy revolution will at last transform global agriculture, with a major shift of investments towards developing countries - precisely what is needed to boost economic development there.

In the near future, the EU might well have to abandon its import duties not only on cereals but on biofuels permanently, and thus one of the critical factors needed for a 'Biopact' to emerge would fall into place. Such a win-win pact would benefit African, South American and South East Asian farmers.

I hope this proposal will help facilitate cereals imports from outside the EU and reduce tensions on European grains markets. We have seen a modest harvest in Europe and high prices both at home and on world markets. Border protection for cereals is relatively low, but import duties still apply to certain cereals which are key to assuring EU market balance. - Mariann Fischer Boel, Commissioner for Agriculture and Rural Development

Cereals market situation
At the start of the 2007/08 marketing year in July, total stocks (private + intervention) were 13.2 million tonnes below levels at the same time the previous year. This is the result of the modest harvest in 2006/07 and significant withdrawals from EU intervention stocks. In 2007, unfavourable weather conditions reduced the harvest and overall EU production is estimated at 256 million tonnes, a fall of10 million tonnes or 3.5 % on the already modest 2006/07 harvest. Output is declining at a time when EU stocks are already low. As a result, the EU will need more imports in 2007/08 than in 2006/07. Traditionally a net exporter, in 2007/08 the EU has become a net importer since 1st July 2007 (5.2 million tonnes by 20th November).

European cereals markets have seen a spectacular upsurge in prices since the start of 2007/08. There are tensions on the small-grain cereals and maize markets, as a result of reduced stocks of common wheat and maize, poorer than forecast quality, and the exhaustion of intervention stocks (currently down to 0.5 million tonnes):
energy :: sustainability :: ethanol :: biodiesel :: biomass :: bioenergy :: biofuels :: agriculture :: cereals :: duties :: tariffs :: European Union ::

Since the start of the new marketing year, the price of milling wheat in Rouen has risen from €179 per tonne to almost €300 per tonne at the start of September 2007. In Germany bread-making wheat was selling at 70% higher than the previous year by mid-August. Market prices for feed barley have increased in the wake of rising wheat prices. On the French market, feed barley has more than doubled over the summer 2006 rate, listing at up to €270 per tonne in Rouen at the end of September 2007. The high price of barley has triggered a rise in demand for maize for animal feed. French maize prices in Bayonne followed the same trend, rising from €183 per tonne at the start of the new marketing year on 2 July 2007 to a peak of €255 per tonne in mid-September 2007.

Background on import duties
The EU has bound tariffs for all cereals set under the GATT agreement. However, applied rates are different. The system originates in the Blair House Agreement between the US and the EU and involves setting tariffs on the basis of separate world reference prices for clearly defined cereals types. The duty is fixed on the basis of the difference between the effective EU intervention price for cereals including monthly increments, multiplied by 1.55 and a representative CIF import price for cereals at Rotterdam.

The resulting duty is currently set at 0 for durum wheat, high quality soft wheat, rye and sorghum. The duty for maize has fluctuated since the beginning of the current marketing year, from a peak of €16.21 per tonne to 0 since 1 October 2007. Outside these quotas, a maximum duty of €93 and €95 per tonne respectively applies.

Tariff rate quotas were introduced in 2003 on barley and low and medium quality wheat in response to large imports from Community of Independent States countries.

For medium and low quality soft wheat, annual Tariff Rate Quota of 2,989,240 tonnes is open, including a country-specific quota of 572,000 tonnes earmarked for imports originating in the United States and 38,853 tonnes for Canada. The remaining 2,378,387 million tonnes is split into four equal tranches of 594,597 tonnes, one of which is open each quarter to other third countries. The duty payable on imports under the quota is set at €12/tonne.

For barley, annual Tariff Rate Quota of 306,215 tonnes is open with €16/tonne duty payable. There is another quota of 50,000 tonnes of malting barley at a duty of €8/tonne.

A duty-free quota of 242,074 tonnes of maize was introduced in 2006 which is split into two equal tranches open to all third countries. This quota has been entirely used for 2007.

For maize and sorghum imported into Spain and Portugal, there are reduced tariff import quotas since Spain and Portugal’s accession to the EU.

For oats, the import tariff is €89/tonne.

References:
European Commission: Commission proposes suspension of import duties on most cereals - November 26, 2007.

Biopact: EU cuts back on energy crop subsidies - October 18, 2007