The price of wheat

The drought and fires in Russia, the heavy rain in Canada and the fear of shortages in international markets have driven up the price of wheat, including in Greece, and will lead to higher prices for staples such as bread, pasta and so on. On the other hand, Greek farmers will get better prices for their wheat, and, even more importantly, the higher prices and market turmoil may strengthen the hand of those who want the European Union to maintain its Common Agricultural Policy (CAP), with its subsidies and other means of support, beyond 2013, when it is slated to change radically. In short, European farmers might still find a way to remain on their land. In just a few weeks, the price of wheat shot up about 70 percent, reaching 224 euros per ton last Friday, raising with it the prices of other cereals. The most prominent reason is that Russia temporarily suspended wheat exports because of the drought that has devastated its crops. This is just the latest indication of how volatile the agricultural economy is. Last year this time, wheat was selling for just 140 euros per ton. In 2007, it had hit the unprecedented high of 450 euros per ton because of a sudden panic that there were not enough supplies of wheat, rice and other basics to satisfy the needs of rapidly developing nations. At that time, several producing countries prohibited exports in order to safeguard their own supplies, prompting greater competition and panic in the markets and driving prices higher. At that time, though, the price of fuel had also gone through the roof, creating greater need for biofuels, which meant that less land went toward cultivating foodstuffs. Then the global financial crisis brought the price of both fuel and foodstuffs crashing down. The UN’s Food and Agriculture Organization (FAO) does not foresee a crisis such as that of 2007. Last Wednesday, the organization noted that two good years had allowed large amounts of wheat to be stockpiled, which reduced the risk of a crisis. It added, however, that if the Russian drought were to continue, this could affect next year’s production, with serious consequences for 2011/12. Much depends on whether Ukraine and Kazakhstan follow Russia’s lead and stop exports. Canada’s production is also down, because of heavy rains. This leaves the major producers of the southern hemisphere, mainly Australia and Argentina, who harvest in December as a variable. Countries that import wheat are therefore forced to turn to the United States and the European Union for their wheat – two producers who subsidize their farmers heavily so that they can stay in business against farmers whose products are cheaper. The subsidies have provoked strong reaction from other regions – and from the EU countries whose money subsidizes the farmers of other countries. The World Trade Organization has demanded an end to the subsidies, forcing the EU to promise that these will stop in 2013. The markets’ volatility, though, strengthens the argument of those who are fighting to maintain today’s system of supporting EU farmers. The EU-wide body representing farmers and agri-cooperatives (Copa-Cogeca) has called on EU politicians to ensure that there is a strong CAP after 2013, to ensure food security and respond to increased volatility in the market. For Greece, developments are most interesting. Although it is an important producer and exporter of durum wheat, used in semolina and pasta, it needs twice the amount of soft wheat it produces. Consumers will have to pay higher prices but farmers can expect a windfall. Farmers who in 2009/10 produced about 1.2 million tons of durum wheat and 500,000 tons of soft wheat, have stockpiles of about 83,000 tons of durum wheat. In July they complained that the prices they were getting for good durum wheat was 15-16 cents per kilo and 10-11 cents for animal feed. Now, with the international price at 22 cents per kilo and rising, conditions for Greek farmers have changed drastically. If prices remain at this level, they could stay in business after 2013. This is an unexpected, positive development which Greece should be able to exploit at a time when every sector of the economy has to find ways out of the crisis.