EU opens Czech, Hungarian grain surplus relief

At the start of a special export tender set up by the Commission, the EU Management Committee for Cereals rejected bids to sell surplus grain from Poland and Hungary and only accepted 8,150 tons of wheat from the Czech Republic.

The first round of talks represents a dismal start to the process, set to last until June, after the Commission offered to intervene and sell nearly 800,000 tons of wheat from the ten accession states, including 320,000 from Hungary, 300,000 from the Czech Republic and 93,000 from Poland.

The problem, according to one Commission spokesperson, is that the prices for export offered by these countries were too far below the EU's intervention price of €101 per ton. The Czech Republic offered an export price of almost €90 per ton and so were more successful, yet Hungary came in at €79 per ton.

"The difference between the set EU price and what the countries offer must be made up by the Commission and we have limited funds available,"​ he said.

And the initial lack of action could mean the EU market remaining flooded for now. EU cereal stocks are now at their highest for a decade after the region produced 290 million tons in 2004, up a quarter from 2003 and largely driven by a 40 per cent increase across the ten new member states.

But, the Commission spokesperson added that there would be weekly meetings to give member states a chance to improve their offers and that it was normal for countries to barter for the best price at first. "Offers are always made at the last minute and the market changes from hour to hour,"​ he said.

Vilem Frcek, of the Czech Republic's State Agriculture Intervention Fund, said he thought the special tender would help to pump away surplus grain. He said the Czech grain surplus was about two million tons and that the Intervention Fund had so far bought around 390,000 tons out of a proposed 1.1 million.

In the mean time, wheat surpluses continue to push down market prices. The latest information from the Czech Bureau of Statistics says that Czech wheat sold at around €96 per ton in February, compared to €144 per ton at the same time last year.

A recent circular from the US Department of Agriculture's Foreign Agriculture Service said that: "Producers in landlocked Hungary and the Czech Republic face falling prices because of weak, inelastic demand, inadequate private storage facilities and an inefficient and costly transportation system to export markets."​

The Commission has now agreed to repay the costs of transporting some of these countries' surplus grain to the nearest sea port, after it became clear that increasing export subsidies on the free market were mainly benefiting the EU's biggest producers Germany and France due to their better transport and port facilities.

But, a lack of storage facilities across Eastern Europe has also threatened to scupper the intervention project and may have repercussions for future grain production in the region.

EU intervention stocks alone are set to reach 13.5 million tons, their highest for six years, with 60 per cent of this coming from the ten new member states.

Frcek said the Czech State Intervention Fund had planned ahead by pre-negotiating the use of storage capacity for 420,000 tons of grain in Germany and Belgium, yet he added that diversification among growers might be a more sensible solution than building more domestic storage space.

"Foreign experience tells us that building new storage is not ideal. Czech farmers will, in time, have to accustom themselves to the fact that intervention buyout is there as a last resort and not a main selling outlet. At the present time there is overproduction in the Czech Republic and our farmers will need to adapt,"​ he said.

Hungary increased its cereal harvest by 89 per cent to more than 16 million tons during 2004, while Poland's went up by a quarter to 29 million and the Czech Republic's by 54 per cent to 8.8 million. France and Germany remain head and shoulders above the rest on almost 70 million and 51 million tons respectively.