Price support mechanisms in the grain sector History and current situation Michel Ferret FranceAgriMer Paris

Overview of the presentation I-Intervention agencies II-Price support mechanisms in the European Union III-Historical background Others

I-Intervention agencies

What is an Intervention agency ? Public body entrusted with the implementation of the intervention scheme in a Member state –Poland : ARR –Germany : BLE –France : FranceAgriMer Generally competent for intervention ( + private storage) in all relevant sectors (grains, milk…) Generally entrusted with other EU – tasks Manages money from the national budget and from the UE (EAGF) Must be « accredited » (= deemed able to manage public money) Conditions for accreditation

II-Price support mechanisms in the EU

How are market prices supported in the European Union ? (1) In the EU all transactions on the internal (= EU-) market concerning grains are free : –No authorization from the State required –No compulsory sale to the State Difference between « producer price » and « market price » –Producer price : price paid to the producer by the cooperative, the merchant or the processor (miller, compounder..) –Market price : price agreed upon by seller and buyer on the wholesale level –Note : the cooperatives are not production cooperatives ; they are storage and marketing entities and belong to the « private sector » ; no obligation to become a member The market price is determined by the interaction of supply and demand

How are market prices supported in the European Union ? (2) In the EU the market prices for cereals are supported by 3 main tools : –The import duty Collected at the EU-border by the national customs authorities Note that nearly all imported quantities enter the EU under a reduced levy –Exports To other EU member states On the world market (since the beginning of the 2000’s without subsidies in the grain sector) –Intervention (for milling wheat and in certain circumstances barley, maize, sorghum, durum wheat and rice) « Public purchases », operated by an Intervention agency On the sellers initiative (coops, merchants)

When does intervention take place ? Reminder : –Only for cereals eligibile –and suitable- (quantity and quality conditions) –Intervention period : Rice : April-July Others : November-May When in a region the (wholesale) market price falls below the intervention (reference) price –Intervention/reference price : see Slide on this matter On the sellers inititiative (holder of the cereals)

III-Historical background -How was the intervention price set in 1962 ? -Evolution of the intervention price -The reforms of the intervention scheme

A-From 1962 to 1967 (6 Member states) CMO for Cereals : First CMO of the Common Agricultural Policy –1962 : « Transition period » (Council Reg 120/67) Gradual creation of the basic mechanisms of the CMO Convergence of the national (6 countries) support prices for grain towards a common intervention price. Objective : a common price in the summer In fact : 1 July 1967 – : discussions in the Council (6 ministers of Agriculture) on the level of the intervention price Germany does not accept to lower its support price (20 % higher than the French price, because of high cereals deficit situation in Germany) December 1964 : agreement on a common price (Intervention price) One intervention price for each cereal (soft wheat, durum wheat, barley, rye)

A-From 1962 to 1967 (2) Entry into force : summer 1967 The level of the common intervention price is very close to the (former) German price –This décision will have far reaching consequences : European grain prices are much higher than the world prices Need for a strong border protection towards imports from third countries Need for high export subventions >>> strained relationships with the competitors (Americans/Canadians)

B-From 1967 to 1992 (1) Yearly modification of the intervention prices (Increases) by the Council During the 1970’s, the intervention prices increase in line with the (high) inflation First corrective measures taken by the Council in the1980’s : insufficient and inadequate Conséquences : –Gradual building-up of large >>> huge intervention stocks, notably in Germany (barley, wheat and rye) –See next slide

Grain intervention stocks in the EU between 1968 and 2007

C-The reforms in the grain sector First reform of the CMO : 1 July 1993 –The intervention prices (I.P) are cut by more than 30 % over 3 years (at the end of 1992/93 the I.P for wheat amounted to 180 € / ton) In the case of wheat, feed wheat is no longer admitted to intervention –The cut is compensated by « area payments » given to the farmers 3 additional reforms in 2000, 2003, 2009 : –the final intervention price is now 101 € / ton From 1 July 2008 : the intervention price becomes the REFERENCE price (Reg 1234/2007, Article 18) –limitation of the number of cereals eligible for intervention –limitation of the volumes eligible for intervention at the price of 101 €/ ton

The result : Gradual dismantling of the intervention scheme Suppression of intervention for rye in 2004 (just before the accession of Poland, the biggest rye producer in the world) From 2006, introduction of intervention quotas for barley, maize, sorghum : –These quotas are gradually reduced to 0, but intervention can be reactivated if market situation critical. From 2009 –Milling wheat : 3 Mt quota at the fixed price (Reference price : 101 €/t) –Intervention tender for the (milling wheat) quantities above 3 Mt –Quota « 0 » for durum wheat, barley, maize, sorghum, rice, but intervention can be reactivated if market situation critical. In this case buying-in by tenders.

IV-Others

Intervention price / Reference price On the occasion of the creation of the Single Common Market Organisation (Reg Council 1234/2007) introduction of the Reference price in the Cereals sector Reminder : in other sectors (milk, meat, sugar), before Reg 1234/2007, there was a difference between the Reference price and the Intervention price. In these sectors the Reference price is a « theoretical » support price ; the price at which level the State « intervenes » (public purchase) is lower. It is the « intervention » price. –For ex. Butter : Intervention price = 90 % of the Reference price Current situation in the cereals sector : –For milling wheat, within the 3 Mt quota : Intervention price = 100 % of the Reference price (101 €/ton) –For the other grains : intervention takes place at the price decided at the tender (max.101 €/ton)

Price reporting procedures The Members states report market prices (wholesale prices) to the Commission for various places every Tuesday In France FranceAgriMer is responsible for this task –Network of informers (brokers, exporters, merchants, coops..) –Cross-check with Futures market in Paris (NYSE-Euronext)

Thank you for your attention Any questions ?