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IP/07/1329

Brussels, 13 September 2007

Cereals: Commission proposes to set at zero the set-aside rate for autumn 2007 and spring 2008 sowings

The European Commission today proposed to set at 0% the obligatory set-aside rate for autumn 2007 and spring 2008 sowings, in response to the increasingly tight situation on the cereals market. In the EU-27, a lower than expected harvest in 2006 (265.5 million tonnes) led to tightening supplies at the end of marketing year 2006/2007 and to historically high prices. Intervention stocks have shrunk from 14 million tonnes at the beginning of 2006/2007 to around 1 million tonnes now in September, mainly composed of maize held in Hungary. Reducing the set-aside rate from 10% to 0% is expected to increase output by at least 10 million tonnes. The future of the set-aside system will form part of the debate to be kicked off by the Communication on the CAP 'Health Check' in November. This will also address the issue of how to retain the environmental benefits which set-aside has brought. Setting the rate at zero does not oblige farmers to cultivate all their land. They can continue with voluntary set-aside and apply environmental schemes.

Mariann Fischer Boel, Commissioner for Agriculture and Rural Development, said: "Cereals prices have hit historically high levels as the supply situation has grown increasingly tight. A poor 2008 harvest combined with 10% set-aside would expose the internal market to potentially serious risks. Setting the rate at zero should add at least 10 million tonnes to EU output and help to ease the market situation. Looking further ahead, in the 'Health Check', I want to take a good look at whether set-aside is still an appropriate tool. But I also want to ensure that we retain the environmental benefits it has brought."

The cereals market is currently characterised by historically high prices. The 2006 crop was lower than expected, at 266 million tons, due to adverse meteorological conditions. Intervention stocks have considerably tightened during the campaign 2006/2007, from 14 million tonnes to around 1 million tonnes. The estimate of private stocks varies, but all analysts agree they significantly decreased in 2006/2007.

The 2007 cereals crop is now estimated below last year's level because of dry and unusually hot weather in April followed by adverse summer weather in western Member States and drought and heat-waves in the Southeast of Europe.. This outlook is likely to lead to a further reduction in the EU of private cereal stocks by the end of the 2007/2008 marketing year. At global level, closing stocks in 2007/2008 are expected to fall to a historically low level, especially in the major exporting countries.

The current area under obligatory set-aside amounts to 3.8 million hectares in the EU. If the set-aside rate was set to 0 %, the effective return of land could be between 1.6 and 2.9 million hectares. Considering average trends, it is likely to bring around 10 million tonnes of grains onto the market. If farmers decide to use the maximum amount of land possible to produce cereals at the expense of other crops especially oilseeds, this quantity could reach 17 million tonnes.

Background

Set-aside was introduced to limit production of cereals in the EU and applied on a voluntary basis from 1988/89. After the 1992 reform, it became obligatory i.e. producers under the general scheme were required to set-aside a defined percentage of their declared areas in order to be eligible to direct payments. With the 2003 reform, they received set-aside entitlements, which give the right to a payment if they are accompanied by eligible land put into set-aside.

The rate of obligatory set-aside was initially decided every year but in 1999/2000 it was set permanently at 10 % for simplification purposes. In the new Member States that opted for the Single Area Payment Scheme (SAPS), farmers are exempted from the obligation of set-aside (Poland, Czech Republic, Slovak Republic, Hungary, Lithuania, Latvia, Estonia, Cyprus, Bulgaria and Romania).

Commissioner Fischer Boel already announced to the Council on 16 July her intention to submit the present proposal. Since then the estimate for the EU cereals crop has been revised down and prices have kept rising.


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