IGC 2004 conference in review: Seeking a fair deal

by Emily Buckley
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This year, the focus of the International Grain’s Council meeting was on the importers — and some of them think they should be combining their market muscle to gain a competitive edge

"Towards a More Demanding Market Place," was the IGC’s theme, but according to the keynote speaker, Egyptian minister Dr. Hassan Khedr, the market is not getting enough choice.

Egypt buys almost 8 million tonnes of wheat a year, and Khedr, who is minister of supply and internal trade, reckons his country is paying too much. "Most of the importing countries are buying wheat at prices that are higher than those that a competitive market would allow," he said.

One reason why the international market is not competitive, in Khedr’s view, was the high level of concentration among suppliers. "Although there are many producers of wheat worldwide, the portion that is actually channeled for international trade comes from a limited number of suppliers," he said.

Five countries are responsible for 76% of the international wheat trade. With India and Russia added in, that share rises to 84%. "Moreover only two of these countries, namely the United States and Australia, contribute about one half of the world trade in wheat," he said.

The concentration is made worse by the fact that the U.S. and Australia grow a different mix of wheat, Khedr said. "The effect of this product differentiation is amplified by the fact that the five main suppliers have different wheat production seasons spread throughout the year," he said.

"Between the small number of suppliers, product differentiation, and different production seasons, there is tremendous concentration in the international wheat market," he said.

He was also very concerned that some countries were limiting supply, keeping prices artificially high. "Wheat importers hope that the producing countries will reconsider supply limitation, not only because of its adverse effect on wheat prices, but also in light of its humanitarian ramifications," Khedr said.

He quoted the recent call by the Group of Eight industrialized countries to oil producers to "produce enough oil to support the world’s current rapid economic growth pace."

"We, the developing wheat importing countries, now call on all wheat producers to provide adequate supplies to ensure that world wheat prices return to levels consistent with lasting global economic prosperity and stability," he said.

In contrast, the demand side of the wheat market is highly dispersed. "Consumer nations are not organized and a large number of them are developing countries with a severe lack of coordination among themselves," he said. "There is no doubt that this situation is outrageously unbalanced, which inevitably results in suppliers capitalizing on consumers’ non-competitive situation."

Dr. Khedr called on the wheat importing countries to work together to improve their position. "I would like to call for launching a new forum for wheat importers in which different countries would meet regularly to exchange views and coordinate policies," he said. "The objective of this forum is to pool our efforts and to enhance the competitiveness of the international wheat trade."

He also called on the developed countries to avoid releasing GM products on the world market, unless they were prepared to accept those products on their own markets. "We will not be the world’s guinea pigs," he said. "The vast majority of consumers are against GM wheat."

A surprise speaker at the conference was Mohammad K. Nezar, the Chairman and Director General of the Iraqi Grain Board.

"I would like to tell you that Iraq is back," he said. "The Iraqi market is open to everyone who can offer good quality, good price and timing of delivery. Suppliers who can develop a reputation will do well."

There is a big Iraqi market for wheat, with bread a vital part of the diet in a country where agriculture has suffered. "We put bread on the table morning and afternoon, lunch and dinner," he said.

After his short presentation, Nezar told reporters that Iraq will need to import 2.5 million tonnes of good quality wheat every year. "We don’t import feed wheat," he said. "Australia is already supplying us, but as I said, we are open."

Iraq plans to buy the wheat in a series of tenders, starting with one for 100,000 tonnes for delivery in August, he said. The preference is for wheat from the new crop.

More criticism for the developed world came from Jannie de Villiers, the Executive Director of South Africa’s Chamber of Milling, who placed great hope for the Doha round of trade talks to open market access.

"From the milling industry’s perspective, all free trade agreements that South Africa entered into or is still entering into, seem to improve market access for non-agricultural products, but create more opposition than markets for our agricultural products," he said.

South Africa’s free trade agreement with the European Union gives E.U. products 81% access to the South African market, while South African products only have 61% access to the E.U. market. He hoped the Doha round of trade negotiations would give the South African industry the chance to become much more of a global player.

The U.S. Department of Agriculture’s deputy chief economist, Joseph Glauber, made the same call for the Doha round to increase market access. "Doha really does present an opportunity for the world in terms of leading to a substantial reduction in trade distorting support," he said.

The deregulation of the South African industry during the 1990s was the right thing to do, de Villiers said. "This period was the time when the value chain actually realized that in order to function properly it has to be pulled and not pushed," he said. "We are still overall confident that we took the right decision to deregulate the market."

Jannie de Villiers looked hard at the awful cost of HIV/AIDS to Southern Africa and its effect on consumption. "It would be very difficult not to mention the HIV/AIDS epidemic in Southern Africa when one looks at the latest developments concerning staple food consumption in our region," he said.

The effects of HIV/AIDS in southern Africa on demand for food are dramatic.

"It is clear that the growth in sales will be much slower because of the AIDS epidemic than what it would have been under normal circumstances," he said. By 2011 wheat flour sales will be down by 7% on the predicted figure without AIDS, maize meal sales down 12%.

"This is more than half a million tonnes of maize meal that we stand to lose per annum," he said. "This will probably cause the industry to reconsider its capacity."

South Africa takes a positive attitude to genetic modification but the speed of introduction of new products means that some of the newest developments are often unavailable. "Currently, as soon as we approve a new GMO trait to allow maize to be imported, a new one is registered in the country of origin, which disqualifies that country as a potential supplier to our market," de Villiers said. "At the moment, South Africa is not in a position to import any yellow maize from the U.S. because of this approval gap. Should Argentina follow the same route, we will probably be in a position where we will not be able to import maize at all."

The E.U.’s attitude to GMOs came under attack from Miguel Santiago Campos, Argentina’s Minister of Agriculture. "We are not willing to continue accepting the moratorium on GMOs imposed by the E.U.," he said. Argentina is the second largest producer of genetically modified food in the world. "We believe that the introduction of biotechnology is one extra factor which allows Argentinean products to be competitive," he said.

He expected a sharp rise in his country’s grain and oilseed production. "We hope that in 2010 production of grains and oilseeds in Argentina will exceed 100 million tonnes," he said. In 2002-03 Argentina had a record grain harvest of 71 million tonnes.

But Argentina as an exporter echoed the complaint of importers that the developing world is not getting a fair deal.

"International trade has been the most important engine of growth, but the benefits of this have not been received by a vast swathe of the developing world," Campos said. "We think it’s very urgent that the developed countries bring down their subsidies to agriculture and give us better access to their markets."

Argentina’s role in the world market is likely to keep a lid on Brazilian wheat production, according to Antenor Barros Leal, executive vice-president of Abitrigo, the Brazilian millers association. "Brazilian wheat production, however, doesn’t have a big future in terms of quantity and quality like soybeans and corn," he said. "Argentina’s presence as a large wheat producer that improves its quality every year and the definitive implementation of Mercosur, are important obstacles to Brazil becoming a world player."

But that does not mean the milling industry can’t grow. With 50% overcapacity, Brazil’s mills are working hard to find new outlets. "Brazil consumes approximately ten million tonnes of wheat a year, although it has the capacity to mill fifteen million tonnes," he said. "Brazil is entering the by-products export market, mainly exporting to Africa, and this will enable mill production to soar."

Not all importers of grain are developing countries. Antonio Costato, the Chairman of Italy’s largest milling group Grandi Molini, expressed the view of a European importer. Italy’s need to buy 1.2 to 1.3 million tonnes of wheat each year means competing with the big importers like Brazil, China or Iraq. "We can’t live without imports," he said.

But Italy faces a severe demographic problem, with an aging population eating less. "If we don’t have children it’s more difficult to grow," he said. "Consumption is made by young people. I have two grandmothers. I do love them, but they eat 30 grams of bread a week."

The International Grains Council’s director Germain Denis was pleased that so many of the conference speakers came from developing countries. "Developing countries now account for the largest share of the world grain market and offer the greatest growth potential," he said. "The international marketplace is about enhancing the economic development of the countries involved, in terms of investment, technology, as well as enhancing food security."

"Flour and feed millers have to meet increasingly demanding customer preferences and quality requirements," he said. "If these add to the challenges facing traders, they also offer new trading opportunities."

Food Aid Committee will renegotiate 1999 Convention, IGC names new leaders

Reflecting the debate that is under way within the World Trade Organization about food aid structure, the Food Aid Committee of the IGC, which gathered at the annual conference, said it would renegotiate the Food Aid Convention of 1999.

Some committee member countries, particularly the European Union, are dissatisfied over the way that the present food aid program works. The E.U. is calling for — within the IGC and WTO — monetary aid instead of food shipments, saying that commodity aid falls short of realizing the goal of encouraging self-sufficiency in recipient countries. The United States insists that its participating constituency favors food distribution.

A working group was established with the responsibility of making detailed recommendations as to the content of a new Convention to the next committee session in December. Since the same topic is being debated within the WTO as part of the Doha Round of trade negotiations, the new IGC Convention may likely follow suit with WTO decisions.

The committee did note that food aid provided in 2003-04 by donor members would total some 9.6 million tonnes (wheat equivalent).

Also during the IGC meeting, the group named Mohammed Kacem, director-general, OAIC (National Cereals Office) Algiers, to chairman for 2004-05. Vice chairman will be Russell Mildon, director, Markets in Crop Products, European Commission.

Frank van der Staaij, Ministry of Foreign Affairs, the Netherlands, was re-appointed chairman of the Food Aid Committee for 2004-05.

— Chris Lyddon is World Grain’s European editor. He may be contacted at chris.lyddon@ntlworld.com.

Look for a review of the Flour Fortification Meeting held after the IGC Conference in the upcoming September WG issue.