EU taxes its food exports

AMID mounting evidence of world food shortages, the European Union is preparing to impose strict taxes on Europe's wheat exporters for the first time since 1974.

As an emergency measure aimed at maintaining Europe's wheat supply and holding down prices here, EU cereal managers have agreed new regulations which allow taxes on exports.

Despite the penalties, traders in the grain exchanges are queuing up to sell their grain on the lucrative world market - a sure sign that the markets think prices will continue to rise. A likely swoop on the world market by Russia, which has had a poor harvest, is heightening speculation. The first export licences under the new system of taxes are expected to be granted to European traders in the next few days, according to officials in Brussels.

Pressure from wheat farmers and meat and poultry producers, fearful of rising prices of feed, has forced the European Commission to act. Without the taxes, there was a "real danger of dangerous escalation" in European prices, said a senior official.

The move demonstrates just how serious the world shortage has become. Throughout the 1980s and early 1990s, the Brussels system of farm subsidies was famous for creating wheat mountains and milk lakes. Farmers were encouraged to produce food because the EU offered a guaranteed price. At the same time, as Europe's stocks of wheat rose, traders were encouraged to export through subsidies. Because prices on the world market were lower than artificially supported European prices, Brussels made up the difference.

However, since 1992 the EU has slashed subsidies by 35 per cent, and the mountains and lakes have swiftly disappeared. The wheat surplus has been reduced from 32 million tons about three years ago to 5 million. Meanwhile, worldwide shortages, caused partly by drought, have driven up world wheat prices, which are now similar to Europe's and rising.

So instead of giving hand-outs to traders to export, Brussels is now setting penalties that are meant to reflect the difference between the world price and the European market price.

The level of the tax is fixed, in a bidding system, at the time the export licence is issued. The trader offers to accept a specific penalty, based on speculation about what prices will be at the time of delivery. Brussels has so far refused the traders' bids, which suggests EU cereal managers believe prices are likely to continue to rise. However, deals are now about to be agreed.