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Return of Russia as major producer will push wheat prices even lower; Record harvest in crops like corn from Eastern Europe worries EU.

Byline: Steve Dube Farming Editor

A FUTURE of price boom and bust faces farmers with the arrival of Russia as a major player in the grain market.

Former EUFarmCommissioner Franz Fischler haswarnedthat a massive European cereal harvest this year will force prices down this autumn.

And prices will plunge even further with the rise of cereal production in the Black Sea region, Ukraine, Moldova and Russia.

"Europe's main competitors in crop production at themoment are South America and the US but the Russian oligarchs are buying up hundreds of thousands of hectares following three missed harvests in three years in Australia," said Dr Fischler, who is now a freelance agricultural adviser.

"In the 19th century these countrieswere called theWheat Chamber and they are coming back. The weakness is that the altitude is much higher than Europe and they don't have the storage facilities.

"In a good harvest year like this year they can't store their cereals so theyhaveto sell at anypriceand this causes a kind of dumping.

"I'm sure that we will see very much lower corn prices later this yearwhen the cornharvest is completed in these regions and in land-locked countries like Austria."

Dr Fischler was speaking amid news that EU cereal production increased by 20% - 50 million tonnes - this year and amid warnings from Copa and Cogeca, the organisations representing European farming, of a boom-bust cycle for producers.

The short-term fall in prices is good news for livestock farmers who sawfeed prices soar to a peak in April this year.

Cereal prices have already halved since then.

But the longer term remains uncertain with the mixed quality of the current UK cereal harvest and the possibility of shortages next year because farmers may plant less in the light of falling returns.

Copa and Cogeca have now called for import tariffs to be reinstated against the countries of the former SovietUnion to avoid a dramatic price collapse when new sources of grain flood the market in the late autumn.

Dr Fischler said observers were mistaken to forecast the end of the era of cheap food at the peak of cereal prices last spring.

The European Organisation for Economic Co-operation and Development and the UN Food and Agriculture Organisation had recorded five price peaks since 1973.

"But the April 2008 peak was still verymuch lower thanthe peak of 1973withthe first oil shock,"he said. "Many economists said then that the period of lower prices is over and they got it wrong five times. In the long term the price trend was decreasing."

The OECD and the FAO both saythe peak is over andthe pattern is downwards.

"But in the future the long-term trend will be higher because we expect higher oil prices and a high value of the euro with the dollar," he said.

Future agricultural development and prices would be driven by population growth and urbanisation in many countries.

"The UN expects 60% of the world's population to live in cities in the near future," he said.

"At the moment it's 50% but one billionpeoplewillmove to the cities by 2030, and that matters because if people are living in the countryside they produce some of their food in the back yard.

"If you live in the city you need traded food."

Dr Fischler said Europe needed to find solutions on how to deal with market volatility in the light of climate change, increasing speculation and more frequent market breakdowns.

"All those risks are increased now and will grow in the future," he said.

"After 2013 we will see increased market volatility.

"It will happen more frequently and there will be greater ups and downs in the market.

"The issue is how to protect farmers fromvolatility so they can do proper farm management and planning, and how to protect against natural disasters."
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Title Annotation:Features
Publication:Western Mail (Cardiff, Wales)
Date:Oct 7, 2008
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