Estimates and Crop Assessment Division
July 22, 2002
Rye production in the European Union is well in excess of demand, with unused product piling up in ever increasing stocks (see figure 1). Germany is currently the largest producer. The Common Agriculture Policy (CAP) has helped maintain Germanyís level of rye production over time while consumption has decreased (figure 2). Germany produces some 2 million metric tons of surplus rye annually that is either stored in government (intervention) facilities or exported to countries such as South Korea, Japan, and China.
Poland, which will accede to the European Union in 2004 is also a very significant producer of rye. Production there has declined since the 1970ís in response to market forces. Polish farmers see little or no profit from rye, and this is reflected in the shift to other grains in the most fertile areas of the country. New financial incentives such as an intervention program or direct payment could change that situation and stimulate production. Polish farmers might reverse that nationís downward trending rye production (figure 3.)
Last week, the EU Farm Commissioner, Franz Fischler, called for the complete abolition of the intervention program for rye under the CAP. The proposal would also set a maximum payment of euro 300,000 per farm. If the EU ends the intervention payment program, circumstances for German farmers may not shift much, since few crop alternatives exist. The major factor in determining farmersí choices will depend on whether the new direct payment would cover costs of production and storage.
Rye once was a primary food and feed source in Germany, however, utilization has been decreasing since the early 1960ís. Non-feed consumption (which includes use in food, seed, industrial and waste) decreased 60 percent over the last thirty years. Feed use dropped 24 percent.
Although rye is inferior in many ways to the predominant cereal crops such as wheat, rice, and maize, rye remains the third most important crop in Germany. Planting rye has significant advantages over other crops. It is considerably more winter hardy than wheat and produces economical yields on poor sandy soils where no other useful crop can grow. It is grown in many areas that have no alternative and is a good rotational crop because of its ability to compete effectively with weeds. Rye used as livestock feed has a low feed value compared to other feed grains and is mixed only in small proportions in feed. On occasion, the international market price of rye, generally below milling wheat prices, makes it an attractive feed grain despite its low feed value.
Germany produces an average 4.5 million tons a year with an average yield of 5.5 tons per hectare. The area for rye has been on an increasing trend over the past ten years from a three-year average 0.66 million to a three-year average 0.81 million hectares, with a record area of 0.94 million hectares in 1998. Yield trend has been increasing in the past decade with a record yield in 2001 (6.13 tons per hectare). For 2002, Germany is forecast to produce 4.5 million tons of rye.
Over the years, the EU has slashed its intervention prices, however producer incomes have not fallen because of direct payment compensations. The CAP proposals would still guarantee farmers a stable income but free them from having to gear their production towards subsidies. With these reforms, the hope is that farmers will not be paid for overproduction, but for responding to what consumers want.
Currently 40 percent of total production ends up purchased by the EU Commission in intervention stocks. Now that rye may become a commodity sensitive to market forces, German farmers will become concerned with the lack of demand and the cost of holding rye in storage. If compensatory payments are not enough to cover storage, then cutting intervention will be effective in passing market signals to German rye producers. German farmers would need to drop production to meet current demand. Most of this drop would probably come from the Northwestern part of Germany where soils are fertile and share land with wheat, barley and rapeseed.
From a crop production perspective, German farmers have a handful of alternatives to rye, including wheat, barley and triticale. Also, it may be possible to grow rapeseed without support payments if a proposed EU bio-fuels initiative provides attractive prices. In some places in northern Germany rye does not have an adequate crop alternative.
With respect to rapeseed as an alternate to rye, in recent years, rapeseed area and production has been steadily increasing. In 1997/98, total rapeseed area (for food and industrial use) was less than one million hectares. In 2002/03, it is forecast to be 1.28 million. This corresponds with an increase in production from under three million tons in 1997/98 to a forecast of 4.5 million this year. The increase in rapeseed area occurred despite a reduction in compensation payments, and is in contrast to the overall decrease in EU oilseed area. According reports from the U.S. agricultural attachť, the rise is due to high demand for rapeseed oil from the food industry and bio-fuel plants in Germany and increased prices for oilseeds vis-ŗ-vis grains. Some manufacturers say they avoid soybean oil because of the potential for genetically modified (GMO) content, which makes rapeseed an attractive alternative.
As a large producer of rye, Polandís accession may further exacerbate the existing surplus production of EU rye. Rye is the second largest crop in Poland. Poland produces an average of 5 million tons of rye per crop year, slightly higher than Germany. The average yield is 2.3 tons per hectare, which is about one-third the yield Germany can achieve. Rye area has been fairly constant in the past decade ranging from 2.0 to 2.5 million hectares, almost three times the area Germany needs to produce a similar quantity. Polish yields increased slightly but not significantly over the past decade, from 2.1 to 2.2 tons per hectare and production has been relatively level in the last ten years but with a long term decreasing trend since the 1960s.
Historically, Polandís production of rye has been much higher. During the 1960ís rye accounted for one-half of all grain production, but now it accounts for less than one-fifth of the grain harvest. During the sixties and early seventies, rye production hovered between 7 and 8 million tons before falling to 6.0 million during the late seventies. Output again peaked in the mid-eighties but has been falling ever since. At its high point in 1984, 9.5 million tons were collected at harvest. For 2002/03, Poland is forecast to produce 4.8 million tons of rye.
The bulk of Polish agriculture lies in the lowlands of the North European Plain. This area is a poorly drained region comprised of sandy or clay soils suited more for tolerant rye plants than for the more demanding wheat varieties. The large central region (away from the rain- producing effect of the Baltic Sea and the mountains to the south) receives the least amount of moisture, just 400 to 600 millimeters of annual precipitation. Another problem for the Polish farmer is that the heaviest precipitation occurs during the summer months of June, July and August when winter grains donít need much moisture and at a time when rain can impede harvest activities. If new cropping patterns become more lucrative because of Polandís entrance into the European Union's agricultural program, it is on the vast, low-lying lands in north and central Poland that most of the changes will take place.
Currently, Polish farmers see little or no profit from rye on the open market as is evident in its declining production level. If no intervention program for rye were offered with its EU accession, demand for rye would drop even further and entice farmers to shift to alternative commodities.
According to reports from the U.S. agricultural attachť, some alternatives for rye would include wheat, barley, oats, rapeseed and sugar beet crops, which may not be very good alternatives as these crops are grown on much more fertile soils. Better alternatives include potatoes and/or triticale. Triticale is part of mixed grains and is used for bread wheat. Another possible alternative may be that of shifting area to forested land, since this is within one of the EU support programs. In addition, a new legislation initiative for Bio-fuel use is being proposed. If the new law is approved, a significant amount of rapeseed production may be used for bio-diesel production. Rye processing for ethanol is already used in Poland and in addition will also be supported by the proposed legislation. The amount of rye used for such purposes was close to half a million tons in recent years.