€471b

The Cost of Tighter European Border Security

Permanent controls would destroy the business model of German industry, says Rainer Hundsdörfer, chief executive officer of Ebm-papst. It’s essential to move parts quickly from one factory to another (page 24). “That’s why the trucks go nonstop,” he says. “They come here, they unload, they load, and off they go.” Based in Mulfingen in central Germany, his company has factories in the Czech Republic, Hungary, and Slovakia. The parts Unczorg is carrying originated in Tapolca and Celldömölk, Hungary, and traveled more than 800 kilometers (500 miles) before being offloaded in Mulfingen for further manufacturing. Whether controls are here to stay depends on migrant flows. German Federal Minister of the Interior Thomas de Maizière said earlier in April that his country may end passport monitoring on the Austrian border by May 12 if the number of refugees trying to cross remains low. But Austria is considering new checks on the Brenner Pass route, a crucial highway link with northern Italy. Thousands of migrants are expected to cross the Mediterranean to Italy alone, especially from Libya, in coming months, Italian officials say. On April 13, European Union President Donald Tusk told the European Parliament in Strasbourg, France, that the EU would be “unable to prevent political catastrophes” if it failed to stem irregular migration or restore authority over migration policy. “Here I mean the collapse of Schengen, loss of control over our external borders with all its implications for our security, political chaos in the EU, a widespread feeling of insecurity, and ultimately the triumph of populism and extremism,” he said.

At the Austria-germany checkpoint where Unczorg is stuck, a line of trucks stretches back some 6 kilometers, exhaust fumes mixing with the stench of manure spread on nearby fields. Under a big white canvas tent, four police officers search a large gray van. Two are armed with machine guns in addition to their service pistols, under orders issued following the terror attacks in Brussels. “You have no idea how many ways I’ve seen the smugglers hide people,” says Karsten Eberhardt, a German police commissioner. “If you carve out a hollow space under the seat and put a board in front, you can hide a pretty large person.”

Michala Marcussen, chief economist at Société Générale in Paris, says the political cost of Schengen’s collapse would be as dramatic as the economic fallout. “We’ve just been through the euro crisis and rebuilding institutions,” she says. “It’s better to fix Schengen, as it shows the

Projected value of gross domestic product lost from 2016 to 2025, assuming new border controls raise import prices on intra-european trade by 1 percent in EU member states* U.K. € 87b France € 81b Germany € 77b Italy € 49b Spain € 46b Poland € 18b Austria € 14b

capacity to do things. That would give people confidence we could deal with shocks in the future.” � John Follain, Carolynn Look, and Matthew Campbell, with Simon Kennedy and Jones Hayden

The bottom line Border-free movement, which has done more than any other initiative to unify Europe, is being constrained by the refugee crisis.

concerns. “If we open these compounds, lower-quality people would come in and steal the flowers and throw garbage all over the place,” she says. “And if cars come through the garden, they’ll be honking their horns all the time. It will totally disturb the peace.” �Bloomberg News

The bottom line China’s gated suburbs are being threatened by an urbanization plan to increase population density and reduce traffic and smog.

competitive, and the U.S. may fall to third place among wheat exporters this year, behind Russia and Canada. In 2014, the U.S. was the No. 1 exporter. Wheat-sown acreage in the U.S. has fallen steadily for decades. Over time, that’s given U.S. wheat less sway over global markets. The result is a changed landscape for farmers like Penner—an ex-president of the National Association of Wheat Growers who this year plans to plant as much corn as wheat. “People are voting with their pocketbooks,” says Penner, whose 660 acres are about 50 miles north of Wichita. In the 1970s, 90 percent of what he planted was wheat. “Our product remains very highquality, but technology has improved for corn and soybeans. When you look at where you can make money, wheat is a less attractive choice.”

U.S. wheat exports are projected to drop 9.3 percent this year, to 21.1 million metric tons, in the season ending May 31. That’s the lowest since 1972, government data show. Stored domestic wheat, at a five-year high, discourages planting. Acreage for winter wheat fell to the second-lowest since 1913, according to the Agriculture Department.

Ukraine and Russia’s Black Sea region boast some of the best land for wheat. Czarist Russia was the world’s top shipper. By 1972, however, wheat production had fallen so far because of communist mismanagement that the Soviet Union had to buy from America.

Today, Russia is again the No. 1 exporter, while Ukraine is in fifth place. They’re swallowing the Middle Eastern markets, once American wheat’s top destination. The weather in Canada, the second-biggest exporter, has gotten warmer, resulting in longer growing seasons and bumper crops. Argentina, Australia, France, Germany, Kazakhstan, and players in Eastern Europe are stepping up shipments.

The result is an end to clear U.S. leadership in global markets, says Alan Tracy, president of U.S. Wheat Associates, the industry’s export promotion arm. “We’re no longer going to lead in volume every year,” he says. “The saving grace for us is that total global wheat trade has increased, and we can still sell plenty of what our farmers produce.”

Wheat lost some of its appeal for U.S. farmers because the grain has missed out on both the biotech and biofuels revolutions that have made corn and soybeans the preeminent crops. From 1990, the last time wheat acreage topped corn, to this year’s forecast crop, wheat plantings fell 36 percent, to 49.6 million acres. Corn rose 26 percent, to 93.6 million acres, and soybeans increased 42 percent, to 82.2 million acres.

Almost all corn and soy in the U.S. since the late 1990s has been genetically modified (GM) to better combat pests and weather stress. The result is a boost in yields (bushels per acre) and profits. GM crops need less water, expanding the range for wheat’s rivals to drier regions in the North and West.

Wheat can be genetically modified, too. But consumers don’t want to eat staples such as bread that are based on genetically modified organisms (GMOS), and biotech wheat hasn’t been approved for commercial sale anywhere in the world. That ban has prevented controversy but has also kept yields stagnant. “The wheat industry never wanted GMOS, because they worried about how consumers would react,” says Allen Featherstone, an agricultural economist at Kansas State University in Manhattan. “You can see over time how it made farmers turn to other crops.”

Quality U.S. wheat still commands a dollar a bushel more than rival wheat. “We’re not selling a commodity so much as we’re selling an ingredient” that bakes better in cookies, cakes, and high-quality breads, says U.S. Wheat Associates’ Tracy.

While GMO adoption remains

Acreage planted in the U.S. Soybeans First genetically modified corn and soybeans planted in the U.S. Wheat Russia becomes a net exporter of wheat