Proposal for a Council Regulation amending Regulation (EC) No 1784/2003 on the common organisation of the market in cereals
Date: 2006-12-15
Institutions: European Commission
Subjects: cereals, common organisation of markets, intervention agency, intervention price, market intervention

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 15.12.2006 
COM(2006) 755 final 

2006/0256 (CNS) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1784/2003  
on the common organisation of the market in cereals 

(presented by the Commission) 

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EXPLANATORY MEMORANDUM 

1. 

INTRODUCTION 

In 2005 world cereal production totalled 1,599 Mt, slightly less than consumption (1,614 Mt) 
while world maize production and consumption amounted, respectively, to 693 and 699 Mt. 
Maize accounts for slightly less than half of the world's total production and consumption of 
cereals. While maize is used in a wide range of food and industrial products, it is still mainly 
used  as  animal  feed,  although  its  use  as  a  feedstock  for  the  production  of  bioethanol  is 
growing rapidly, especially in the United States.  

In  the  2005/06  campaign,  the  area  under  maize  in  the  EU  exceeded  6  million  hectares, 
representing almost 12% of the total cereal area. Production reached almost 50 Mt, with two-
thirds of the total output originating in France (28%), Italy (20%) and Hungary (18%). In the 
EU-27,  Romania  will  have  a  leading  position  as  a  maize  producer,  second  only  to  France, 
with a 17% share of total EU production. 

In the medium term, the future of the cereal sector in the EU will be shaped by the following 
developments: 

– 

– 

– 

increased international competition due to the liberalisation of international trade; 

development  of  biofuel  production.  In  2004,  the  EU  used  around  1.2 Mt  of  cereals 
for  the  production  of  bioethanol  or  0.4%  of  the  total  EU-25  harvest.  The  use  of 
cereals for biofuel production is increasing at a rapid pace in the Community but the 
setting up of new processing plants is a lengthy process; 

with  the  accession  of  Romania  and  Bulgaria,  the  current  domestic  imbalance  in 
cereal markets due to high internal transport costs will be further aggravated. 

2. 

THE EU CEREAL INTERVENTION SYSTEM 

The EU intervention system for cereals is a single floor price of €101.31/t1 applicable to all 
major cereals across the EU2. In most Member States market prices tend to be above the level 
of  this  buying-in  price,  offers  to  intervention  are  moderate  and,  as  a  result,  stocks  are 
normally  kept  at  manageable  levels.  In  southern  MS,  where  consumption  surpasses 
production,  prevailing  market  prices  tend  to  be  higher  and  there  is  barely  any  offer  to 
intervention. 

However, the current intervention price is attractive in regions of the Community with lower 
production costs. Far from the main areas of consumption, these are generally regions where 
operators are faced with high transport costs and logistical difficulties. In these regions the EU 
buying-in  scheme  no  longer  serves  the  purpose  of  a  safety  net  and  has  turned  into  a  real 
commercial outlet, for which part of the harvest is systematically destined. As a result, deficit 
areas in the Community suffer from high prices for cereals, while large quantities of cereals 
are bought into intervention in surplus regions. 

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2 

With monthly increases. 
Available  for  breadmaking  wheat,  durum  wheat,  barley,  maize  and  sorghum;  not  available  for  feed 
wheat, rye and oats.  

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At  the  end  of  the  2003/2004  harvest,  total  intervention  stocks  in  the  EU-25  had  fallen  to  a 
historically  low  level  of  3.6 Mt.  In  2004/05,  as  a  consequence  of  the  large  harvest  of  more 
than 285 Mt, they rapidly rose to 15.5 Mt, in spite of several measures taken on the internal 
and external markets to dismantle intervention stocks. In 2005/2006, end stocks show only a 
slight trend downwards (14 Mt) and this following a significantly smaller harvest (253 Mt). 

The  accession  of  Bulgaria  and  Romania  is  likely  to  aggravate  this  situation.  Climatic  and 
structural  conditions  in  these  countries  are  ideal  for  producing  cereals  and  low  production 
costs  mean  that  the  current  intervention  price  will  be  extremely  attractive  to  producers  in 
these  countries.  Although  both  Bulgaria  and  Romania  have  seaports,  the  inland  transport 
infrastructure from the growing areas to the port facilities is generally underdeveloped and the 
systematic disposal of large quantities of cereals into intervention can be a profitable option 
for operators. 

3. 

THE PROBLEMS ASSOCIATED WITH MAIZE INTERVENTION 

Historically the EU was a net importer of maize and at the end of the 2003/04 marketing year 
– as for many years before – there were no stocks of maize in intervention. Today maize has 
become the main problem for the intervention system.  

At  the  end  of  the  2004/2005  campaign,  total  EU  intervention  stocks  of  maize  in  the  EU-25 
reached 2.8 Mt. One year later the total amount reached a record 5.6 Mt, already accounting 
for 40% of total intervention stocks, despite the maize harvest in the Community being 5 Mt 
less that the previous year. Regions that prior to accession exported maize to the international 
market  now  offer  a  large  part  of  their  harvest  to  intervention.  The  bulk  (93%)  of  maize 
intervention stocks are at present located in Hungary.  

According  to  every  market  indication  the  share  of  maize  in  intervention  stocks  will  keep 
growing and at the end of the current marketing year, with a maize harvest comparable to the 
last campaign, more than 2/3 of total intervention stocks will consist of maize. Commission 
estimates show that, in the absence of any change in the current intervention system, by 2013 
public stocks of maize could amount to 15.6 Mt. 

Possible outlets for the soaring intervention stocks of maize are limited. International maize 
prices are the lowest of all major cereals and resale on the international market would imply a 
high  financial  cost.  On  the  other  hand,  the  disposal  of  intervention  stocks  on  the  internal 
market is constrained by the high transport costs between surplus and deficit areas and might 
have  disruptive  effects  on  the  functioning  of  an  internal  market  already  suffering  from  a 
severe lack of fluidity.  

Technically,  the  long-term  storage  of  maize  entails  some  difficulties  not  experienced  with 
other  cereals  such  as  wheat  or  barley.  Maize  is  not  suited  to  intervention  and  long-term 
storage.  During  storage  the  quality  parameters  of  maize  can  decline  rapidly,  triggering  the 
biological  deterioration  of  the  grains,  including  the  proliferation  of  various  fungi  and  pests. 
Some of the critical elements in this process are the maximum moisture content at buying-in 
as well as the presence of broken and overheated grains. 

The Commission has recently adopted stricter eligibility criteria to ensure that maize entering 
intervention  is  more  suitable  for  long-term  storage,  namely  the  reduction  of  the  maximum 
moisture content to 13.5% and the percentage of broken and overheated grains down to 5% 
and 0.5% respectively. This is however not a definitive solution to this problem, as it will not 
prevent maize intervention stocks building up in future. 

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4. 

PROPOSED MEASURES  

The  EU  cereal  intervention  system  requires  an  urgent  adjustment  for  maize  as,  otherwise, 
farmers in certain regions of the Community will continue to grow this cereal for intervention 
and public stocks will not stop rising. Along the lines of the 2003 CAP reform, farmers should 
base their decisions on market signals, including demand by private operators. This principle 
applies equally to cereal farmers in maize surplus areas, who ought to produce for the market, 
not for public buying-in.  

The  Commission  is  of  the  view  that  intervention  purchases  of  maize  have  to  be  abandoned 
from  the  2007/08  marketing  year.  This  would  allow  the  EU  cereal  market  to  find  a  new 
balance  and  cereal  intervention  to  resume  its  intended  role  as  a  safety  net.  Throughout  the 
Community  cereal  growers  will  continue  to  benefit  from  an  intervention  scheme  for  major 
cereals including wheat and  barley.  Experience with rye has shown that the removal of this 
cereal  from  intervention  in  2003  has  resulted  in  a  more  dynamic  market,  more  market-
oriented production and better prices for farmers.  

Maize  sowings  are  carried  out  only  in  spring.  The  timing  of  this  proposal  is  therefore  fully 
appropriate for farmers taking their decisions in view of the 2007 maize sowings. 

To  complement  this  proposal  the  Commission  will  submit  without  delay  to  the  Council  a 
proposal  for  a  temporary  amendment  of  the  financing  conditions  by  EAGF  for  cost  of  the 
funds  mobilised  by  Member  States  for  public storage  operations. This measure will  provide 
alleviation  in  2007  and  2008  for  additional  costs  for  such  operations  incurred  by  Member 
States with very high internal interest rates. The Commission considers that the proposal for 
abolition of the Maize intervention and the proposal for the temporary financial alleviation are 
interlinked and should be adopted by the Council at the same time. 

5. 

IMPACT OF THE MEASURES PROPOSED 

Once  the  proposed  reform  enters  into  force  the  price  received  by  maize  growers  in  surplus 
Central European regions would not change significantly, as today there is already a big gap 
between the intervention price and the prices actually paid to farmers in these regions. As a 
result, the proposal is not expected to lead to any significant reduction in maize production in 
the Community. 

The implementation of this proposal would contribute to enhancing the integration of the EU 
cereal  market.  Maize  grown  in  the  surplus  Central  European  regions  will  regain  its 
competitiveness, both domestically and on world markets, to which it would be exported with 
no support as in the past. The proposal would also help boost the competitiveness of pig and 
poultry  production  in  these  regions  by  reducing  the  cost  of  feedstuffs  and  so  underpin  the 
economic development of the areas concerned. 

The overall level of intervention stocks would diminish substantially. While maintenance of 
the  current  system  would  lead  in  2013  to  a  total  volume  of  18.9 Mt  (of  which  15.6 Mt  of 
maize) the removal of maize from intervention would result in total stocks amounting to only 
about  10 Mt  that  year.  Moreover,  stocks  would  consist  exclusively  of  cereals  suitable  for 
long-term storage (soft wheat and barley) and they would almost certainly be better located 
for trading purposes. 

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6. 

BUDGETARY IMPACT 

For  the  EU  budget,  public  storage  of  cereals  entailed  an  expenditure  of  €442  million  in  the 
2005 budget year. For 2006 expenditure of around €350 million is expected and the amending 
letter  to  the  preliminary  draft  budget  sets  the  need  for  cereal  intervention  in  2007  at 
€316 million, of which €136.9 million only for maize. 

Whereas  the  status  quo  would  keep  the  annual  level  of  cereal  public  storage  expenditure 
above €300 million, this proposal would entail a global economy of €617.8 million over the 
period  2008–2014.  Annual  expenditure  would  fall  below  €300  million  as  from  the  2008 
budget year and below €200 million as from 2012.  

7. 

SIMPLIFICATION 

By  making  cereal  intervention  simpler  and  more  effective,  this  proposal  is  to  be  seen  as  a 
further contribution towards the simplification of the CAP. 

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2006/0256 (CNS) 

Proposal for a 

COUNCIL REGULATION 

amending Regulation (EC) No 1784/2003  
on the common organisation of the market in cereals 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty establishing the European Community, and in particular the third 
subparagraph of Article 37(2) thereof, 

Having regard to the proposal from the Commission, 

Having regard to the opinion of the European Parliament, 

Whereas: 

(1) 

(2) 

(3) 

The  measures  concerning  the  common  organisation  of  the  market  in  cereals,  as 
adopted  under  Council  Regulation  (EC)  No  1784/20033,  comprise  in  the  case  of  the 
internal  market  an  intervention  system,  the  main  aim  of  which  is  to  stabilise  the 
markets  and  ensure  a  fair  standard  of  living  for  the  agricultural  community  in  this 
sector.  

The application of this system over the last two marketing years has had the effect of 
creating  very  substantial  intervention  stocks  of  maize  which,  by  virtue  of  their 
location,  are  proving  particularly  difficult  to  dispose  of  on  the  Community  and 
international markets. In addition, maize is a cereal which is not easy to preserve and 
which,  by  virtue  of  the  gradual  deterioration  in  its  quality,  becomes  increasingly 
difficult to market the longer it is stored. 

Furthermore, at the end of this period, it was established that, under the intervention 
system as applied hitherto, it is no longer possible to achieve the objectives pursued, 
particularly  as  regards  the  position  of  maize  producers  in  certain  regions  of  the 
Community.  Indeed,  this  system  has  become  in  those  regions  an  alternative  to  the 
direct  disposal  of  products  on  the  market,  despite  the  fact  that  the  price  actually 
received  by  these  producers  for  the  harvested  maize  has  often  been  lower  than  the 
intervention price. 

(4) 

Under  these  circumstances,  and  specifically  as  far  as  maize  is  concerned,  the 
intervention  system  no  longer  fulfils  the  purpose  for  which  it  was  set  up  while 
moreover preventing production from being geared towards the needs of the market. 

3 

OJ  L  270,  21.10.2003,  p. 78.  Regulation  as  amended  by  Regulation  (EC)  No 1154/2005  (OJ L 187, 
19.7.2005, p. 11). 

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(5) 

(6) 

The maintenance of the intervention system as such entails the risk of increasing the 
intervention stocks of maize still further without bringing any benefits to the producers 
concerned. 

It  is  therefore  necessary  to  adopt  appropriate  measures  to  guarantee  the  proper 
functioning  of  the  Community  market  in  cereals.  To  this  end,  the  discontinuation  of 
the  intervention  arrangements  for  maize,  as  provided  for  under  Regulation  (EC) 
No 1784/2003, would appear to be the most appropriate measure taking into account 
the facts set out above and the outlets available to producers on the market. 

(7) 

Regulation (EC) No 1784/2003 should therefore be amended accordingly, 

HAS ADOPTED THIS REGULATION: 

Article 1 

Regulation (EC) No 1784/2003 is hereby amended as follows: 

1. 

In Article 4(1), the second subparagraph is replaced by the following: 

"The intervention price valid for sorghum in May shall remain valid in July, August 
and September of the same year." 

2. 

In Article 5, paragraph (1) is replaced by the following: 

"1.  The  intervention  agencies  designated  by  the  Member  States  shall  buy  in  any 
common  wheat,  durum  wheat,  barley  or  sorghum  offered  to  them  and 
harvested  in  the  Community,  provided  that  the  offers  comply  with  the 
conditions laid down, in particular in respect of quality and quantity." 

Article 2 

This Regulation shall enter into force on the seventh day following that of its publication in 
the Official Journal of the European Union. 

It shall apply from the 2007/2008 marketing year. 

This Regulation shall be binding in its entirety and directly applicable in all Member States. 

Done at Brussels,  

For the Council 
The President 

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FINANCIAL STATEMENT 

1. 

BUDGET HEADING: (nomenclature 2007) 

05 02 01 02 

APPROPRIATIONS 
(LR 2007): 
€316 Mio 

2. 

3. 

4. 

TITLE: 
Council  Regulation  amending  Regulation  (EC)  No  1784/2003  on  the  common  organisation  of  the 
markets in cereals.  

LEGAL BASIS: 
Article 37 of the Treaty establishing the European Community 

AIMS: 
Removal of maize from the intervention scheme foreseen in Council Regulation (EC) No 1784/2003 on 
the common organisation of the markets in cereals. 

5. 

FINANCIAL IMPLICATIONS 

12 MONTH 
PERIOD 
(EUR million) 

FINANCIAL 
YEAR 2007 
(EUR million) 

FINANCIAL 
YEAR 2008 
(EUR million) 

5.0 

CHARGED TO THE EC BUDGET 

EXPENDITURE 
– 
(REFUNDS / INTERVENTIONS) 
– 
– 

NATIONAL AUTHORITIES 
OTHER 

5.1  REVENUE 

OWN RESOURCES OF THE EC  

– 
(LEVIES / CUSTOMS DUTIES) 
– 

NATIONAL 

5.0.1  ESTIMATED EXPENDITURE 
5.1.1  ESTIMATED REVENUE 

5.2  METHOD OF CALCULATION: 

See Annex. 

– 

– 

–35,1 

– 

2009 

2010 

2011 

2012 

2013 

2014 

–57,9 

–40,7 

–68,0  –120,6  –132,1 

–163,4 

6.0  CAN THE PROJECT BE FINANCED FROM APPROPRIATIONS ENTERED IN THE 

RELEVANT CHAPTER OF THE CURRENT BUDGET? 

6.1  CAN THE PROJECT BE FINANCED BY TRANSFER BETWEEN CHAPTERS OF 

THE CURRENT BUDGET? 

6.2  WILL A SUPPLEMENTARY BUDGET BE NECESSARY? 

6.3  WILL APPROPRIATIONS NEED TO BE ENTERED IN FUTURE BUDGETS? 

OBSERVATIONS: 
This proposal would entail a global economy of €617,8 Mio on the period 2008–2014. 

YES NO 

YES NO 

YES NO 

YES NO 

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Annex 

EUR Mio 

1 –  Status quo 

Total intervention 

of which soft wheat 
of which barley 
of which maize 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

Total 

323,9 
54,1 
73,2 
196,7 

326,9
36,4
69,0
221,5

313,7
28,3
38,0
247,4

304,7
19,2
21,8
263,8

314,0
12,9
23,8
277,3

315,9 
12,2 
17,2 
286,6 

337,9 
9,0 
40,9 
288,0 

2 237,1
171,9
283,9
1 781,3

2 –  Reform 

Total intervention 

of which soft wheat 
of which barley 
of which maize 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

Total 

287,6 
50,4 
89,5 
147,7 

267,7
36,0
114,4
117,4

257,7
40,6
128,1
89,0

226,6
59,3
122,9
44,4

188,4
70,1
113,1
5,2

181,1 
77,0 
104,1 
0,0 

174,2 
66,2 
108,0 
0,0 

1 583,2
399,5
780,0
403,7

3 –  Impact proposal =  

(2) – (1) 

Total intervention 

of which soft wheat 
of which barley 
of which maize 

4 –  Additional expenditure 

– export refunds 

2008 

2009 

2010 

2011 

2012 

2013 

2014 

Total 

–36,4 
–3,7 
16,2 

–59,2
–0,5
45,5
–48,9  –104,2

–56,0
12,3
90,1
–158,4

–78,2
40,1
101,2
–219,4

–125,6
57,2
89,3
–272,1

–134,8  –163,8 
57,2 
67,0 
–286,6  –288,0 

64,8 
86,9 

–653,9
227,6
496,2
–1 377,6

2008 

2009 

2010 

2011 

2012 

2013 

2014 

Total 

1,2 

1,3

15,3

10,1

5,0

2,7 

0,4 

36,1

Total impact = 3 + 4  

2008 

2009 

2010 

2011 

2012 

2013 

2014 

Total 

–35,1 

–57,9

–40,7

–68,0

–120,6

–132,1  –163,4 

–617,8

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