Brussels, Belgium
February 15, 2007
USDA/FAS GAIN report E40005
Source:
http://www.fas.usda.gov/gainfiles/200702/146280168.pdf
Report Highlights
On 15 December 2006,
the European Commission proposed to abolish the system of
public intervention purchases for corn with effect from
2007/08 marketing year. The proposal seems to be based on
increasingly outlets for intervention corn stocks.
Historically, the EU was a net importer of corn, but at the
end of the 2005/06 marketing year corn interventions stocks
reached a record 5,6 million MT (representing 40 percent of
total intervention stocks). Commission forecasts suggest
that stocks would rise to as much as 15,6 million MT by 2013
under a status quo scenario.
Background
On 15 December 2006, the
European Commission proposed to abolish the system of public
intervention purchases for corn (maize) with effect from the
2007/2008 marketing year. In most Member States cereals market
prices tend to be above the level of the buying-in price, offers
to intervention are moderate and stocks are therefore kept at
manageable levels. In southern Member States where consumption
surpasses production, prevailing market prices tend to be higher
and there is barely any offer to intervention.
However, the buying-in price
is attractive in EU regions with lower production costs. These
regions tend to be far from the main areas of consumption, and
operators are faced with high transport costs and logistical
difficulties. In these regions the buying-in scheme no longer
serves as a safety net, and has turned into a commercial outlet
for which part of the harvest is systematically destined.
In the 2005/2006 marketing
year, EU corn production reached almost 50 million MT with two
thirds of the total output originating in France (28 percent),
Italy (20 percent) and Hungary (18 percent). In the EU 27,
Romania will have a leading position as a corn producer, second
only to France, with a 17 percent share of total EU production.
Historically, the EU was a
net importer of corn and at the end of the 2003/2004 marketing
year there were no stocks of corn in intervention. At the end of
the 2004/2005 marketing year, total intervention stocks of corn
in the EU 25 reached 2.8 million MT. One year later, the total
reached a record 5.6 million MT accounting for 40 percent of
total intervention stocks, despite the corn harvest in the EU
being 5 million MT less than in the previous year. Commission
forecasts suggest that stocks would rise to as much as 15.6
million MT by 2013 under a status quo scenario.
The Commission’s proposal
appears to be based on the increasingly limited outlets for
intervention corn stocks. International corn prices are
typically the lowest of all major cereals, and resale on the
world market would therefore yield less profit margin relative
to other grains. Regions that prior to accession exported corn
with export subsidies now offer a large part of their harvest to
intervention which is relatively attractive. Most (about 93
percent) corn intervention stocks are located in Hungary.
Disposal within the EU, often constrained by high transport
costs, could potentially disrupt the efficient functioning of
the internal market.
Additionally, corn is not
suited to long-term storage as quality can decline rapidly.
Although the Commission recently adopted stricter eligibility
criteria to ensure that corn entering intervention is more
suited to storage, that does not solve the problem of rising
stocks. Details of the Commission’s resultant proposal to end
public intervention for corn from the 2007/2008 marketing year
are given in the linked press release and proposal for a Council
Regulation.
The Commission asserts that
the ending of intervention as an accepted destination for corn
in the Central European region would lead to the crop grown in
that region regaining its competitiveness both on the domestic
and world markets. The consequent reduction in the cost of
feedstuffs would have a beneficial impact on the competitiveness
of pig and poultry production in these regions.
The proposal has now been
sent to the Council and the European Parliament for their
consideration. The Council had its first exchange of views on
the proposal on 29 January, with several Member States voicing
their opposition to the plan as they consider intervention to be
a useful market management tool. Opponents to the Commission
proposal requested that any decision should be postponed at
least until the review of the quality requirements for
intervention corn (which was adopted in 2006) can demonstrate
the effects on the market. The Council invited the Special
Committee on Agriculture to continue the examination of the
proposal and to report to the Council. Agriculture Commissioner
Mariann Fischer-Boel noted that there was not a majority in
favor of the proposal at this stage, but asserted that it was
necessary to change the current system and that she would be
cooperating with the German Presidency to explore alternatives
to the proposed abolition.
Poland has already expressed
its opposition to the Commission’s plan as a matter of
principle. While Poland is not a major corn producer and has
little corn in intervention stocks, the intervention system for
rye (one of Poland’s major grains) was eliminated immediately
prior to Polish accession to the EU.
Hungarian reactions to the
proposal
The Hungarian Department of
Agricultural Markets, Ministry of Agriculture and Rural
Development (MARD) and the Intervention Office, Agricultural and
Rural Development Office (MVH) suggest that the Commission
proposal to end corn intervention will very likely succeed in
the end.
Hungarian interests however
will push for some form of compensation, with no immediate
consensus on the exact formula. The GOH receives interest
support from Brussels on loans to procure commodities offered
for intervention. This support expires at the end of 2006 but
could be prolonged. Similar compensation could be in the form of
a specific “envelope” when Hungary starts its new SPS (Sanitary
and Phytosanitary) system, more flexibility in use of rural
development funds, or the reduction of the “abatimento”1. The
Commission published a
proposal in January 2007 to ease Hungary’s financial burden in
intervention costs. More specifically, the Commission proposal
aims to reduce the burden on Member States for advancing the
cost of intervention purchases and storage (before it is
reimbursed from the EU budget) in those Member States where
interest rates are exceptionally high (ie Hungary).
This would be achieved by
bridging the gap between the costs felt in Hungary and those
that would have been felt under the uniform interest rate in
2007 and 2008 (starting retroactively from October 2006). Given
the large volumes of grain bought into intervention in Hungary,
the Commission estimates that this will cost the EU budget 9.3
million Euro in 2007 and 10.4 million Euro in 2008. The
proposal, which seems to be a concession to Hungarian (Taxation
and Customs Union) Commissioner Laszlo Kovacs after he attempted
to block the Commission proposal to end corn intervention, will
now be forwarded to the Council and European Parliament. Given
this budgetary cost, it may be difficult to obtain a qualified
majority of Member States to support the move in the Council.
Actual corn intervention
stocks in Hungary are at 4.2 million MT. During the last month
282,000 MT of corn was bought from intervention stocks for the
EU domestic market (at a price of 113.70 Euro/MT) and for Spain
(at 79.39 Euro/MT). Even those who forecast some intervention
sales on the grounds of slow removal of export lots from the
country expect 100,000 to 150,000 MT offered.
Zoltan Gogos, State Secretary
of the MOA, stressed at a recent press conference that planted
area devoted to corn will not change this spring as a result of
the cuts in intervention. Corn prices are high, farms have made
their crop rotation plans for next spring, and they have ordered
or purchased the seed for planting. Additionally, there is no
alternative crop for corn in the medium term. The extremely dry
fall-winter, however, leads to a forecast lower than average
corn yield in Hungary for 2007.
On domestic corn consumption,
the GOH wishes to enhance animal production because of losses in
production since EU membership and high feed grain prices. Corn
use destined for bioethanol production may also increase, but
major investments will not be completed until the end of 2008.
* An abatement relating to corn
imports, granted within the framework of the GATT resulting from
the accession of Spain and Portugal to the EU on 1 January 1986
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