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To: long-gone who wrote (18410)	9/12/1998 10:34:00 AM
From: goldsnow	Respond to of 116901

Richard, the whole farm issue is really serious national, and world business....Aside that most of the power derives from that strength of being able to feed nation with ease, it reminds me off "Three piglettes"..How happy we are that inflation is low (thanks to commodities deflation...never mind Big Bad Wolfe... ANALYSIS-EU pays dearly for commodity price tumble 09:06 a.m. Sep 11, 1998 Eastern By David Evans BRUSSELS, Sept 11 (Reuters) - Depressed world commodity markets are forcing the European Union to pay sky-high subsidies on its sugar exports and take large amounts of grain into storage, putting increasing pressure on the bloc's farm budget. On Wednesday the European Commission authorised 107,000 tonnes of sugar for export with a maximum subsidy of $585 a tonne, more than double the world price. Subsidies are needed to bridge the gap between artificially high EU prices and a world sugar market languishing at a 10-1/2 year low, depressed by rising global output and stagnant demand. Similar factors are affecting the world grain market, which has recently plunged to its lowest levels for more than two decades. Faced with shrinking export outlets, the EU's internal publicly-funded grain stocks could swell to near 30 million tonnes in the coming season. In the Commission's latest budget update, issued in August, it admits this year's farm budget will probably be pushing close to its pre-set limits. ''This is due to high expenditure from now until the end of the year on public storage of cereals and export refunds for sugar...,'' the report states. Financial crises in Asia and Russia -- themselves partly a result of low commodity prices -- have exacerbated the problem, bringing the shutters down on key export markets and increasing the need for higher EU export subsidies. Russia accounts for 45 percent of the EU's third country beef exports and took one third of its pigmeat and poultry shipments to non-EU members. Exports in recent weeks are reported to have dried up completely. The Asian crisis has had a particularly damaging impact as meat consumption has stalled, leading to a dramatic tail-off in demand for grains that go into animal feed. ''The great motor of expansion in agricultural trade has been Asian demand. That driving force has now gone,'' independent agricultural analyst Brian Gardner said. This year's EU farm budget, which runs to mid-October, looks to have enough slack in other areas to cope with higher spending on sugar and cereals. But the warning signs are there for next year. ''The (agriculture) budget for 1999 was always going to be tight and the Russian and Asian crises have a potentially negative rather than positive effect,'' Gerry Kiely, spokesman for EU Farm Commissioner Franz Fischler told Reuters. The EU is heading for a bumper grain crop this season at nearly 210 million tonnes. And the workings of the Common Agriculture Policy (CAP) mean there is little incentive for farmers to cut back at a time of over-production. ''Farmers are locked into a production system whereby they can still maximise profit by maximising the area sown,'' Gardner said. The CAP swallows up half the bloc's total expenditure with an annual budget of just over 40 billion Ecus ($46.5 billion). Around 20 percent is usually spent on export subsidies, the rest on direct aid payments and other market support measures. In one way, the depressed markets could play into the Commission's hands as it tries to push through radical reform of the EU's farm policy in the next few months, although they also threaten to make the negotiations even tougher. Fischler has proposed slashing the EU's internal prices for beef, cereals and dairy products by up to 30 percent to bring them more into line with world markets. The idea is to cut back on subsidised farm exports, which are also bound to be attacked in the next round of world trade talks, due to start at the end of next year. But the proposals include only partial compensation for the lower prices, in the form of direct aid payments to farmers. Low world markets mean internal price cuts are now real rather than theoretical and calls from farmers and some national governments for full compensation are likely to get louder. Copyright 1998 Reuters Limited.