By emptying its grain stores due to expectations for a bumper crop this year, the European Union may have left itself with few means to cool down soaring wheat prices as concerns over so-called "agflation" flare up.
Wheat prices have more than doubled in most parts of the world in recent months due to disappointing harvests in key producer countries, rising demand from emerging markets and world stocks at their lowest level in more than 25 years. The surge has started to have an impact on food prices, raising concern that it could hit consumers purchasing power and increase inflation rates.
Until last year, the EU had millions of tonnes of grain stocks at its disposal, which could be sold onto the market to offset supply squeezes. But the so-called intervention stores are now empty after the EU sold the lion's share of the grain onto the internal market during the 2006/07 marketing campaign.
Europe's farm policy allows farmers to sell grain into intervention at a guaranteed price of just over 100 euros. But the rise in prices has made the system unattractive and not a single tonne of wheat was sold into intervention last season. The only options left open now to cool the sharp rally are boosting internal output or opening EU borders to imports, officials said.
"The Commission has only limited, very limited, tools to act," a source close to the European Commission told Reuters. "In the panel of available instruments, there is no system to prevent prices to rise above a certain level," he added.
"To impose a tax (on exports) is not our intention. It wouldn't be a solution," said Commission spokesman Michael Mann. "We prefer to act on the volumes produced," he added. The Commission has proposed to suspend, at least during next season, the obligation for European farmers to leave 10 percent of their land fallow, a move seen increasing grain supplies by 10 to 17 million tonnes.
The proposal is set to be voted by the Council of Ministers late October and many expect the EU to extend the measure when it reviews its Common Agricultural Policy (CAP) later this year. But food and feed makers, who largely depend on farm commodities, say other measures should be envisaged, like opening Europe's doors to imports.
"Grain prices have reached prohibitive levels for the entire sector. We must find answers up to the problem," one European feed maker said. One of the options could be to scrap the 12-euro per tonne tariff on wheat imports within the 3 million tonnes quotas set up in 2003 to counter the massive imports from eastern Europe and approved at the World Trade Organisation a year later.
The official close to the Commission said the move was feasible but dangerous. "Legally it's possible, yes," he said. "But it would then be extremely difficult to move back if there was a need for it."
Last but not least, many traders and feed makers asked the EU to reconsider its restrictions on imports of genetically modified (GMO) crops, which are abundant in the world and could rapidly relieve shortages on the European market. "The real solution, the one that would have a quick impact, is the import of GMO maize, even if it provokes a general outcry," a feed maker said. Few GMO crops are currently authorised within the bloc due to fierce opposition in many EU countries.