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They're at it again

Posted by Richard Saturday, January 29, 2005

Despite the honeyed words which regularly emanate from the EU about reducing – or even eliminating – export subsidies, it has once again shown its true colours.

Faced with a surplus of grain on the world market, with production expected to reach a record 621 million tons in 2004-2005, 13 million tons more than forecast consumption, the EU has reintroduced export subsidies on grain, in anticipation of a price slump on the world market.

Australia, which is the world's second-largest wheat exporter, has registered its "serious concern'' with EU trade commissioner Peter Mandelson in Davros. And prime minister John Howard has lashed out at the EU, saying the subsidies runs counter to all the rhetoric at the World Economic Forum of more open trade. "If this is their idea of more open trade then Australia is deeply disappointed," he said.

The subsidies do in fact go against the EU’s commitment to eliminate export subsidies, introduced because EU and U.S. exporters are facing more competition from cheaper grain from Argentina and former Soviet Union countries. Their larger harvests have swelled global output to a record, causing wheat prices to fall 24 percent on the world market.

The fear is now that the US might retaliate with its own subsidies, which could send prices into free-fall.

David Ginns, chief operating officer of the Australian Grains Council, a lobby representing the country's 30,000 grain farmers, summed up his members’ feelings: "These export subsidies are a sop to the European farm lobby,'' he said. They show that the EU has yet to be genuine "about its often-stated desire to control its massive domestic and international market corrupting subsidy program."

Nevertheless, the EU commission – as might be expected – is unrepentant. Says Claude Veron-Reville, the Mandelson’s spokeswoman for trade: "The alternative would have involved the EU buying the grain and then stocking it in public warehouses… this would have been unsustainable for the EU budget."

So that’s all right then. Let’s see how Mandelson spins this one.