Commodities & Futures: Oilseed rape sows discord

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OILSEED rape has an image problem. Its name, frankly, is not nice. Some people take offence at the colour, saying that the garish yellow squares mar the beauty of the English countryside. Others complain that the crop in flower is a menace for allergy sufferers.

Now, to add to its unpopularity, oilseed rape is threatening the successful completion of the six- year-long Uruguay round of world trade talks.

A four-year dispute over oilseeds, including rape, between the United States and the European Community has blossomed into a full-blown row, amid efforts to conclude the General Agreement on Tariffs and Trade (Gatt). The negotiations aim to eliminate many barriers to free trade.

Britain is the third-largest oilseed producer in the EC, after France and Germany. The British crop has grown from next to nothing 20 years ago, when Britain joined the EC and attractive subsidies suddenly gave farmers a reason to grow the crop.

About 1 million tonnes of oilseed rape is produced each year in Britain. Most farmers with suitable land grow it in addition to wheat, barley or sugar beet. In terms of land used in the country, it takes up 400,000 hectares, third behind wheat and barley.

For such a widely grown crop, it is not much in evidence in the supermarkets. Its main use is as an edible oil, obtained after the seeds are crushed, and is found in generic vegetable oils, margarine and many processed foods. It has a limited application as an industrial oil: it greases the parts of Formula One racing cars.

After crushing, the by-products are used as cattle feed.

According to Martin Haworth of the National Farmers' Union, oilseed rape is attractive to British growers because it is a good 'break crop', giving the land a breather from other crops and improving the soil for wheat production the following year. The same machinery can be used for planting and harvesting rape as is used for wheat or barley. It is also a money-making alternative to cereal crops, which are in surplus.

Farmers also like the generous subsidies. Even though rape yields (the amount grown per hectare) are lower than for wheat, the subsidies are higher - pounds 384 per hectare for oilseeds compared with pounds 121 for cereals. That makes it just as profitable, if not more.

In 1986, for example, the subsidies meant the price was equivalent to pounds 320 a tonne, which worked out to pounds 400 an acre. Today the price is about pounds 120 per tonne and farmers are still getting about pounds 295 an acre.

The long-running argument between the US and EC is over the EC oilseed subsidies, which US farmers claim unfairly shut them out of a traditional market for US soybean exports.

Since the late 1980s, two Gatt panels have heard the dispute and ruled in the Americans' favour. The most recent decision this year instructed the EC to reduce the subsidies and cut production of oilseeds, or pay compensation to US farmers in the form of lower tariffs on other traded products.

The compensation option does not appeal to US soybean farmers, as they would not directly benefit.

But UK farmers are firmly against subsidy cuts. Rad Thomas, a Leicestershire grower who manages several farms totalling 180 acres, said it 'would mean oilseed rape would not be profitable to grow any more and we would have to drop it. We would grow more wheat instead, which is in surplus in the EC, whereas oilseeds are not in surplus.'

During protracted talks in Geneva, the EC has refused to cut the oilseeds subsidies. Though the EC agreed reforms in its Common Agricultural Policy farm subsidy system earlier this year, the Gatt talks remain stalled because Washington says the cuts were not deep enough.

The US claims that its farmers suffer dollars 2bn in lost exports per year, but the EC acknowledges only dollars 400,000 worth. In the war of words, the US has threatened to impose duties on EC food and wine imports if it continues to subsidise oilseeds.

Last week the oilseeds fight went to the Gatt council, where acrimonious debate continued. A compromise was reached, with the EC proposing a special panel to look at American demands for compensation and EC technical concerns, with a 30-day deadline.

It seems certain that the US will end up the victor, with two judgements behind it. The losers will be UK and EC farmers, who have had to adjust to politicians' whims over time. Some of these will face financial difficulties as a result of the change, though others have clearly reaped handsome benefits from the status quo.