Changes to EU farm guidelines will have an impact on Australian grain and oilseed producers.
The European Union is generally at the forefront of environmental legislation, something Australian producers have experienced first-hand with canola sales into Europe.
We sell canola to Europe for biofuels and have to sign up for a sustainability scheme to prove we didn’t cut down the rainforest to plant canola (a simplification of the scheme, but indicative).
Many Australian farmers and industry bodies are concerned about this. Still, the reality is that European farmers are not always happy about the additional burden of green tape on their businesses.
In recent months, there have been increased farmer protests in European nations. These protests have been largely concerned with three issues.
- Rising costs
The cost of farming has dramatically increased, especially since the Russian invasion of Ukraine.
- Environmental policies
The EU commission has introduced many environmental policies around chemical usage, hampering the ability to produce crops.
- Cheap imports
The reduction in Black Sea grain trade has meant higher levels of grain being transported from Ukraine into Europe by road, competing against EU producers with higher cost bases.
The European Commission has capitulated to some of the demands of these farmer protests, and it may have an impact on Australian producers. The policy change is related to the EU set-aside policy.
The EU set-aside policy was a measure introduced to help control agricultural production and stabilise markets. In simple terms, the policy paid farmers for not growing any crops on a portion of their land.
The idea was to reduce crop tonnages, which would help increase or stabilise prices by preventing a surplus. By having less produce on the market, it was hoped prices would not fall too low, making farming more sustainable for EU farmers.
This was part of the Common Agricultural Policy, aimed at managing agricultural markets and supporting farmers’ incomes. Over time, the policy has evolved, and set-aside requirements have undergone changes, reflecting shifts in agricultural policy goals, including environmental considerations.
Farmers in Europe have to set aside 4 per cent of their arable land and keep it unproductive each year. This is to allow the land to regenerate and forms a major component of policies tied to their subsidies.
The European Commission has proposed to remove this 4 per cent set aside and allow farmers to crop 100 per cent of their farms.
There is a caveat (there always is) to this proposal. Farmers are only exempt from set aside if they plant 7 per cent of their area to nitrogen-fixing crops such as lentils. Another caveat is that these crops are to be grown without plant protection product.
So what does it mean for Australian farmers? Europe has huge cropping areas, about 50 million hectares, and 4 per cent is a significant area to add to production.
In theory, and to be taken as a very general guide, we could see up to 5 million tonnes of wheat added to the global balance sheet and 800,000mt of canola.
It must be noted, however, that there are many variables and this is just a very high-level view of the change.
The other impact could be that farmers will want to take advantage of this 4 per cent increase and, therefore, must plant pulses. Europe produces about 4mt of pulses per year, so if farmers use their 4 per cent they will need to increase nitrogen-fixing crops.
The result is that Europe will be producing crops on a larger parcel of land, allowing for greater production. This may have a flow-on effect on food pricing in Europe, but in Australia it will reduce demand for Australian grain and oilseeds.
• Andrew Whitelaw is co-founder and director of Episode 3 (EP3)
