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Set-aside Reduction in EU Proposed to Boost Grain Production

European Union farm commission suggests move to reduce shortages in light of rising demand, bad weather.

For the last 14 years farmers in the European Union have been required to set aside 10% of their fields. The program was designed to control an issue with surplus crops at a time when ag policies promoted production. The program was maintained as farm payments were decoupled from production because the farmers were maintaining the land for environmental purposes and animal habitat.

"It was originally introduced as a measure to control overproduction," says Michael Mann, European Commission spokesperson. "Obviously we have not overproduction anymore; we actually have a shortage of grain on the market."

During a meeting this week in Brussels, Mann told Farm Futures that EU leaders felt the measures were "inappropriate" given the tighter supplies. The current setaside involves 3.8 million hectares - or just over 12 million acres. Mann says as much as 2.6 million hectares - 5.7 million acres could be put into production for 2008.

Heavy rains in the north and drought in the south have estimates of this year's crop even lower than last year's poor harvest. Reserves have shrunk from 14 million tons to 1 million.

Farmers will continue to get the same payments for their farms, but they will no longer be required to set aside the acreage, if the measure is approved. The European Parliament will vote on the measure in two weeks, and Mann is confident it will pass. "And farmers will be able to get the added profit from the crops they raise," he notes.

Mann explains that the nature of the measure does not require a unanimous vote of the commission, which will assure passage for this year. While the measure is being proposed as a one-year event, Mann told Farm Futures that it is the intention of the Ag Commissioner that this set-aside not return for the future.

"We are releasing a document in November on the health of the common agricultural policy, and this measure will be covered there," he notes.

Several groups do oppose the move, including environmental groups that lament the loss of wildlife habitat that may occur as this land moves back into production. In addition, EU officials we spoke with were not sure if the setaside was counted as part of the carbon credit system for the region as part of meeting requirements of the Kyoto Protocol regarding climate change. However, the measure is moving ahead.

Most likely the acreage will return to cereal production, but rising interest in biofuels could change the crop mix too. The measure would take effect immediately, impacting crops sold in 2008.

It was tighter supplies, poor weather, and greater demand from emerging markets such as China have caused many EU producers and retailers to raise the price of staple foods, prompting EU Farm Commissioner Marian Fischer Boel to propose lowering set-aside rates to zero for fall and spring plantings. In wire reports, Boel says the plan could lead to the production of 17 million additional tons of cereal grains.

Grain prices in the U.S. have risen significantly because of the demand for biofuel crops. Only 1.7 percent of European land has been used for biofuels, although that is likely to change with the target of 2020 to have ten percent of energy come from biofuels.


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