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Iowa Ag Review

Abstract

ln response to high world grain prices, the European Union (EU) introduced wheat export taxes in November 1995 for the first time in more than a decade. Normally, the EU offers export subsidies to make up the difference between their high internal grain prices and world market prices. However, EU internal support prices have been reduced over the last three years as a result of policy reforms. Recent high world grain prices have exceeded the EU support prices since early in the 1995/96 crop year. Rather than let internal prices follow world market prices upward, the EU decided to protect its domestic grain users and levy an export tax to prevent internal prices [rom rising to world levels (Figure 1). The major impacts of this tax were to reduce EU wheat production and exports from what they would have been without the tax, reduce internal grain prices, and increase wheat feed use. These changes directly impact the U.S. and world wheat markets and indirectly influence feed grain markets.