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 * Price support suspended for feedgrains
 * Remaining milling wheat support will cushion
 * Southern Europeans wary of competition

 
By Martin Roberts

MADRID, March 4 (Reuters) - European grain farmers can expect volatile prices after Brussels partially removes a safety net in May, and cannot readily switch to other crops and will have to deal with market forces as best they can. As part of a drive towards a free market, from  May 31 the European Union will suspend automatic "intervention", the traditional way it has supported the market by offering to buy feed grains if prices fall below a set level.

"The (European) Commission wants to create a free market, but this will hit Spain, Portugal and Greece very hard. Our agriculture cannot compete, with small farms and low yields," Francisco Alvarez, president of Spanish grain traders' association Accoe said.

In France, Europe's top grain producer, farmers are estimated to have sown about 4 percent more wheat this winter despite falling prices and rising stocks. That compares with a provisional estimate for a 7 percent drop in the United States.  "In France we're a bit stuck because we're the country of wheat," said Emmanuel Jayet, head of agricultural research at Societe Generale. "Farmers do not have alternatives that are as profitable on a large scale."
 
Intervention will remain for milling wheat, however -- up to a limit of 3 million tonnes -- and Jayet said this could soften the impact of bearish market fundamentals for at least a year. "If we fill it (the 3 million tonnes) that will already provide a sort of cushion. It will absorb most of the surplus," he said. "The problem could maybe come in the following year, but we're not there yet."

French and German farmers have begun to react to market signals by cutting back on barley planting for the 2010/11 market year, after a mountain of the unwanted feedgrain built up since last summer's harvest. 

"This is an impact of the intervention changes," a spokesman for the German farmers' association DBV said. German farmers have sent more than 1 million tonnes of barley in the current 2009/10 market year.  Hungarian farmers have likewise offered wheat and barley into intervention, but cut down on wheat planting for this summer by about 9 percent.
 
WEANING

Eastern European farmers have spent a relatively short time under the intervention system and expect that will make weaning off price support easier.  "Intervention purchasing was more effective before Poland joined the EU (in 2004). It shaped grain prices. This (the EU) system only supports them," said Izabela Dabrowska-Kasiewicz an agricultural analyst at BGZ Bank.
 
Grain farmers in southern Europe are already struggling with prices which they say have fallen so low they cannot cover costs, and fear they may not be able to compete with big exporters after reform.

Spanish farmers can only harvest 3 tonnes a hectare from their poor soil even in a good year, while their northern and eastern European counterparts can reap 8 tonnes or more.

Diego Pazos, spokesman for Spanish grain importers' association Aecec, recalled Spain's structural deficit had traditionally bolstered prices and he doubted they would fall below current intervention levels.

As an example, French barley has recently been sold at 89 euros a tonne, ex-store, or well below the intervention price of 103.15 euros ($140.1), but transport costs raise it to 118 euros by the time it reaches consumers in Spain.

Italian farmers hope to be able to weather the expected market storm by adding value to their grain by cashing in on the country's image.

"This is the time to invest in "Made in Italy" projects and gradually reduce dependence on imports by valuing, for example, Italian pasta by labelling the origin of the grain," said Paolo Aballe, grain specialist at farmers group Coldiretti.

(Additional reporting by Valerie Parent and Gus Trompiz in Paris, Michael Hogan in Hamburg, Svetlana Kovalyova in Milan, Nigel Hunt in London, Barbara Sladkowska in Warsaw, Gergely Szakacs in Budapest)
martin.roberts@thomsonreuters.com; +34 91 585 2130; 
Reuters Messaging: martin.roberts1.reuters.com@reuters.net 

 

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