The Hindu Business Line : Cereal output may rise on enlargement of EU

ONE of the significant developments likely to emerge from the enlargement of the European Union (EU) from next month is the increase in cereal production and an increase in its role in the global cereal market.

Agricultural yields in the new member states are lower than in Western Europe, but with the application of new technologies and additional funding, production is expected to rise.

Ten new countries— Poland, Hungary, Slovenia, Slovakia, the Czech Republic, Estonia, Latvia, Lithuania, Malta and Cyprus— will join the EU on May 1 raising its membership to 25.

The new members will add 38 million hectares to the agricultural area of the EU, an increase of around one-third. The population of EU will increase by about 80 million, to just under 500 million.

The European Commission has forecast that cereal output could reach 312 million tonnes (mt) by 2007 in the enlarged EU, compared to less than 200 mt in the existing EU-15 last year. By 2012, the production of cereals is expected to exceed 320 mt with surpluses of 23 mt wheat and 12 mt barley. In recent years, the EU exported about 15 mt wheat and 6 mt barley.

Enlargement is likely to make the EU an even bigger player in the world market, according to Mr. David Halligan, immediate past president of the London-based Grain and Feed Trade Association.

One of the direct consequences of this will be more pressure on the EU's Common Agricultural Policy, in terms of both budget restrictions and international WTO obligations.

"Within the EU, we might expect to see a developing production base for livestock products in the mew member states. Notwithstanding the argument that labour costs will rise in the new member states, it is fairly obvious that they will be competitive producers. Indeed. Western European meat producers have already begun to set up operations in Eastern Europe,'' Mr. Halligan said.

Interestingly, the EU has been through the process of enlargement before and there has generally been a trend towards convergence of income levels. The European Integration Consortium calculates that the income gap between the existing EU-15 and the new members is likely to last less than 15 years.

However, there are marked differences between the present EU members and the 10 new members. In the EU-15, four per cent of the workforce is employed in agriculture, while in the new member States, the percentage of agricultural employment ranges from 2.1 per cent (Malta) to 19.6 per cent (Poland).

There are also major differences between the EU-15 and new member states in economic wealth. Wage rates in the latter are only 15 per cent of levels in EU-15, which gives these countries a clear competitive advantage.

However, while the new countries will be able to capitalise on this through tariff-free access to Western Europe, the adoption of the single market rules will also even out labour costs across Europe, thereby reducing this competitive advantage.