Sunday, September 09, 2007

The law of unintended consequences

The Eurocrats deep in their Brussels bunkers must be wondering if they can ever get anything right – poor things.

For years and years, their CAP (Common Agricultural Policy, to you and me) has been a by-word for excess, with wine lakes, butter mountains and grain stores bulging to capacity, as taxpayers' money went into subsidising excess production that simply went into "intervention" stores.

Thus hard did they labour and, apart from a wine lake that is having to be turned into industrial alcohol, the stores are empty … just at a time when reserve stocks are badly needed.

In fact, according to a Reuters report, the error is even more spectacular than that as, in expectation of a bumper grain crop this year, the commission deliberately ran down grain stocks by setting the intervention price so low that there were no takers when it came to putting grain into store.

But, with increasing demand and a poor harvest in the Northern hemisphere grain prices have soared and the Commission – which prides itself on being able to regulate the market by releasing product back onto the market, when prices rise too rapidly - has been left with no tools at its disposal.

Thus, the current surge in prices is starting to have an impact on food prices, raising concern that it could hit consumers purchasing power and increase inflation rates.

Ironically, until last year, the EU had millions of tons 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.

The only options left open now to cool the sharp rally are boosting internal output or opening EU borders to imports, officials say, although there is limited scope for the former. The rush to meet biofuels quotas is soaking up any spare capacity and even the release of set-aside back into food production will have little effect as much of it is already devoted to biofuel production.

However, while the "barley barons" are rejoicing at the increased prices, the livestock sectors are groaning under the burden of increased feed costs and feed producers are demanding a solution to the "problem".

One option, we are told, would be to scrap the €12-euro per ton tariff on wheat imports within the three million tons quotas set up in 2003 to counter the massive imports from eastern Europe. This is regarded as "feasible but dangerous", on the basis that it would be extremely difficult to reinstate, if ever there was a need.

Thus, some traders and feed producers asked the EU to reconsider its restrictions on imports of genetically modified (GMO) crops, which – for the moment - are abundant in the world and could rapidly relieve shortages on the European market.

And that is yet another of those delicious ironies. In their drive to promote renewable energy sources, the Greenies are inadvertently increasing the pressure to introduce the very things they absolutely detest – genetically modified crops.

It would appear that they are entirely unfamiliar with that universal concept – the law of unintended consequences.

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