In another move to ease the supply shortage of cereals in the EU, the European Commission yesterday called for the suspension of all import duties on cereals.
The proposal was put to EU agriculture ministers at their meeting this week and is a reaction to the exceptionally tight supply situation on the cereals markets and record price levels.
In a statement, EU agriculture commissioner Mariann Fischer Boel said she has proposed the total suspension of cereal import duties for the current marketing year - which ends on 30 June 2008 - unless market conditions justify their reintroduction before that date.
The proposal would have to be approved by the Council of Ministers.
Although the actual levels of border controls for cereals are currently low, the EU still imposes import duties for certain types of grains. There are no export refunds on cereal exports.
The EU has set tariffs for all cereals under the international General Agreement on Trade and Tarrifs (GATT). However, the rates applied at borders are different.
The system originates in an 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 import price for cereals at the port of Rotterdam.
Currently durum wheat, high quality soft wheat, rye and sorghum face no duty. The duty for maize was set at €1.93 per tonne since 16 September 2007. It has been fluctuating for several months due to the volatility of the US market reference prices for maize, the Commission stated.
Tariff rate quotas were introduced in 2003 on barley and low and medium quality wheat in response to large imports from members of the Community of Independent States.
Quotas have been set for medium and low quality soft wheat. The duty payable on imports under the quota is set at €12 per tonne.
For barley, the duty is €16 per tonne depending on the quota. There is another quota of 50,000 tonnes of malting barley at a duty of €8 per 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. The quota has been entirely used for 2007, the Commission reported.
The Commission has also proposed duty measures for maize and sorghum imported into Spain and Portugal.
The Commission's proposal is in reaction to record high prices for cereals, a factor that is squeezing margins for processors. Difficulties in finding supply is also a factor, as weather and growing demand in the east are reducing stocks.
In the EU, the Commission estimates the 2007 cereals crop will be below last year's level because of dry and unusually hot weather in April followed by adverse summer weather in western member states. Drought and heat-waves in the southeast of Europe also affected crops.
The shortfall is likely to lead to a further reduction in the EU of private cereal stocks by the end of the 2007/2008 marketing year. At global level, closing stocks in 2007/2008 are expected to fall to a historically low level, especially in the major exporting countries, the Commission stated.
In July Boel proposed that the bloc's farmers be allowed to plant to their maximum capacity for the autumn 2007 and spring 2008 sowings.
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.
Earlier this year 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.