EU to increase cereal production as prices soar – biofuel and bad weather blamed

On Thursday, the European Union announced that it would suspend the 10 percent set-aside quota on cereal production — the land farmers must normally leave uncultivated. This should add at least 10 million tons to EU cereal output.

The EU introduced the compulsory leaving of agricultural land fallow (set-aside) in 1992 to address overproduction.

Mariann Fischer Boel, commissioner for agriculture and rural development, said, “Cereal prices have hit historically high levels as the supply situation has grown increasingly tight.”

EU expects adverse weather conditions to reduce this year’s cereals harvest. Intervention stocks have dropped from 14 million tons to around 1 million tons. Estimates of private stocks vary but suggest significant falls for the 2006-07 marketing year. Global stocks are expected to fall to historically low levels by the end of 2007-08, especially in the major exporting countries.

‘Green’ Policy to Drive Further Price Rises

Things could get worse. Last Tuesday, the Organization for Economic Cooperation and Development (OECD) released a highly critical report on its member state’s rush into biofuels.

The report — “Biofuels: Is the Cure Worse Than the Disease?” — was presented to the Round Table on Sustainable Development in Paris. It states, “The current push to expand the use of biofuels is creating unsustainable tensions that will disrupt markets without generating significant environmental benefits.”

The authors estimate that the present biofuels strategies of member states will lead to an increase in food prices of between 20 and 50 percent over the next decade. Presently, the EU intends a 5.75 percent market share for biofuels by 2010 with a 10 percent share by 2020.

Europe’s Consumers Are Not Happy

Some Europeans have already had enough of high food prices. On Friday, angry Italians staged a boycott of pasta, their iconic national food.

In the last two months, the price of pasta has risen by 20 percent. The price of durum flour, its main ingredient, has risen from 0.26 euros (US$0.36) per kilogram to 0.45 euros ($0.62) per kilogram over the same period.

According to Italy’s four largest consumer groups, the average household in the Bel Paese will have to find an extra 1,000 euros ($750) this year for their food shopping.

Manufacturers blame global warming and the growing switch to biofuel production in North America for the steep price rises.

Nor Are Environmentalists

Happy The OECD reports that the cost of CO2 reduction through subsidies to biofuels is extremely high. In the United States, this is well over $500 per ton of CO2-equivalent avoided for corn-based ethanol. Figures up to 10 times higher are reported in the EU.

Adrian Bebb, of Friends of the Earth Europe, said, “Hurtling headfirst down the agrofuels path will be a big mistake and the OECD is the latest of a series of respected international bodies to warn against it. The EU risks stimulating further destruction and poverty in developing countries if it sticks with its current agrofuels target.”

The OECD proposes an end to subsidies for biofuels and the uptake of technologically neutral measures such as a carbon tax. Europe’s powerful farmers’ lobby will likely resist this.

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