VZCZCXRO2242
RR RUEHAG RUEHAST RUEHBW RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRL #0562/01 1211515
ZNR UUUUU ZZH
R 301515Z APR 08
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC 1093
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 BERLIN 000562 
 
SIPDIS 
 
USDA FOR FAS DYOUNG, RCURTIS, ACHAUDRY, FLEE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL FAS
SUBJECT:  RESPONSE:  IMPACT OF RISING FOOD/COMMODITY PRICES - 
GERMANY 
 
REF: SECSTATE 39410 
 
¶1.  (U) Summary: The recent press coverage of rising food prices has 
prompted the German Government to review its current policies 
affecting food and feed supplies.  Domestically, there are a variety 
of factors contributing to rising food and feed prices.  As 
expected, farmers have responded to higher commodity prices and have 
or are planning to expand output.  Specifically, Germany's biofuels 
policy is coming under fire and receiving increased scrutiny. 
Germany recently increased its pledges to the World Food Program. 
End Summary. 
¶2.  (U) Agricultural and Food Demand:  The German food and 
agricultural industry is in general self-sufficient with net imports 
only for protein meals, fruits and vegetables, fish, vegetable oils, 
eggs and to a lesser extent pork and poultry.  Primary suppliers are 
neighboring European countries and to a growing extent countries 
such as Brazil, Argentina and Thailand.  In general, food prices in 
Germany rose in 2007 as a result of increased demand on the world 
market and reduced domestic supplies for grains and oilseeds.  The 
largest food price increases were observed in the dairy sector.  For 
example, prices for fresh full-cream milk jumped 31 percent. 
(However, Aldi, a leading discount retailer which often sets the 
trend in milk prices, reduced them last week.)   Consumers also paid 
more for other products such as fruits (+11 percent) and bread and 
cereals (+9 percent).  In contrast, prices for pork products have 
remained relatively stable due to large market supplies. 
 
¶3.  (U) Despite the overall price increase, it does not appear that 
German consumers have significantly altered their food consumption 
patterns and have largely accepted the current situation.  On 
average only about 12.5 percent of Germans disposable income is 
spent on food, thus, the issue of rising food prices has not yet 
significantly cut into consumers' pocketbooks. 
 
¶4. (U) The demand impact of biofuels, predominantly biodiesel, on 
vegetable oil market has grown in Germany over the past 5 years. 
Biodiesel currently accounts for about 50 percent of total vegetable 
oil demand (from both domestic and imported sources).  This has 
increased from about 30 percent five years ago.  The viability of 
this market is currently under assault from reduced tax breaks, 
imported biodiesel, and the relative prices of petroleum and 
vegetable oil.  There are also growing public sector and NGO 
concerns about the impact of this demand on food prices. 
 
¶5.  (U) Supply:  Market prices received by farmers have influenced 
land and crop allocation in Germany over the past several years. 
Given the bright outlook for biodiesel in Germany and surging prices 
in 2006, farmers planted a relatively larger area (approximately 
110,000 hectares or about 8 percent) of winter rapeseed at the 
expense of grains.  In making winter planting decisions in 2007, 
farmers switched an equivalent amount of area (110,000 hectares) 
from oilseed production back into grains.  In addition, the 
elimination of the set-aside requirement brought about 200,000 
hectares of land into production with a majority returning to grain 
or silage production.  Current weather prospects indicate a 
significantly increased grain crop in Germany for 2008.  In the 
livestock sector, relatively high milk prices in 2007 encouraged 
herd expansion and increased milk production.  As a result, milk 
prices have begun to fall to farmers and to consumers. 
 
¶6.  (U) Germany no longer has sizable public-owned commodity stocks 
to buffer the market from price fluctuations.  Since reform of the 
Common Agricultural Policy, Germany reduced its publicly held stocks 
to almost zero.  This has resulted in a rise in the market 
importance of privately-held stocks and increased price 
variability. 
 
¶7. (U) The high price of petroleum products has impacted the cost 
for transportation and the processing of input materials (i.e. 
energy and fertilizers).  However, reports indicate that farmers 
have been maximizing the use of inputs in 2008 in order to increase 
yields to the maximum and reap the benefits of higher prices. 
 
¶8. (U) The EU's agricultural biotech policies have increased animal 
feed costs for the German livestock industry.  This has been due the 
inability to import corn and corn gluten feed from the United States 
and increased demand for corn from those suppliers only producing 
EU-approved events. 
 
¶9. (U) POLITICAL IMPACT:  During the fall of 2007, increasing food 
prices, particularly dairy, caught consumers' eyes and were cited by 
some labor unions as an additional reason for wage increases in 
contract negotiations, but overall did not result in any noticeable 
political impact.  However, front page coverage of the global food 
market conditions, as well as a growing debate over the negative 
environmental impact of some biofuels, has fed a public perception 
that biofuels are a major cause of rising global food prices, 
 
BERLIN 00000562  002 OF 002 
 
 
especially in developing countries.  German politicians and 
government officials are increasingly positioning themselves to 
appear responsive to these concerns.   Most notably, Environmental 
Minister Sigmar Gabriel (Social Democratic Party), recently launched 
a review of the current biofuels policy.  Others, such as Christian 
Democratic Union/Christian Social Union Bundestag faction leader 
Volker Kauder, are calling for a re-evaluation of German and EU 
policies regarding the use of new technologies in farming. 
 
¶10.  (U) Economic Impact:  In 2007, Germany's inflation rate climbed 
to 2.2 percent, the highest level in 13 years. Higher costs for 
food, fuel and energy largely accounted for this increase.  Although 
consumers spent more on staple products recently, no dramatic food 
substitution has occurred.  Rising food prices contribute to the 
debate over whether social inequality is rising in Germany.  Some 
observers argue that past wage moderation has caused a decline in 
real incomes, especially among low-wage groups who are 
disproportionately affected by food price increases.   However, with 
only an average 12.5 percent of disposable income spent on food in 
Germany, the increases have not yet significantly affected 
consumers' pocketbooks. 
 
¶11.  U) Environmental Impact:  There have been no reported impacts 
from the elimination of set aside requirements for farmers. 
However, there has been an increase in the use of farm chemicals in 
the past year to take maximum advantage of production potentials. 
 
¶12.  (U) Government Policy Response:  On April 21, the German 
Government created a "Food Crisis Task Force."  The group consists 
of high-level members of the ministries of Agriculture, 
International Development, and Economy, under the leadership of the 
Chancellor's Office.  The Task Force is charged with reviewing all 
German policies that might be contributing to increased food prices 
including biofuels and agricultural biotechnology.  The first 
outputs from this discussion are expected to be available prior to 
the G-8 Summit. 
 
¶13.  (U) During the past year, German agricultural, food and feed 
industry representatives have been warning the German Government 
that the EU policy on biotechnology may contribute to the rising of 
food production costs.  German Agriculture Minister Horst Seehofer 
has a different view on this issues and has publically stated that 
industry statements about the potential market impact of not 
addressing the EU agricultural biotechnology regulatory system are 
overblown and that German and EU importers should work more closely 
with other grain producers such as Ukraine, Russia, and Brazil to 
meet import needs. 
 
¶14.  (U) In responding to international calls from additional 
resources for the World Food Program, Germany recently pledged an 
additional $16 million on top of the estimated $5 million it 
contributed in March.  Normally, Germany's annual contribution to 
the WFP is estimated at $36 million. 
 
¶15.  (U) Impact on Post Programs: Post has significantly increased 
attention to coordination efforts associated with international 
agricultural organizations including FAO and the Food Aid 
Convention.  These efforts have paid dividends in creating 
consultation opportunities on important initiatives such as upcoming 
FAO conferences.  Post continues to take advantage of Department 
programs such as the biotech outreach fund to share U.S. farmer 
experiences with biotechnology at a grass roots level.  In FY 2007, 
three teams were funded to visit Germany.  In FY 2008, two 
additional teams are expected. 
 
¶16.  (U) Policy Proposals:  The creation of the Food Crisis Task 
Force provides an opportunity to establish a closer relationship on 
issues of U.S. interests with senior Germany officials on a wide 
range of policies that affect the global food/feed situation 
including FAO priorities, WFP needs and progress on the 
acceptability of agricultural biotechnology. 
 
 
TIMKEN, JR.