Wanted: more feed grain

by World Grain Staff
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IGC Conference speakers say demand is growing, but trade barriers still exist

by Chris Lyddon

With "Expanding global markets — removing the obstacles" as the general theme, the International Grains Council’s Grains Conference 2005 focused on the prospects for greater international trade, while delegates from around the world got to air their complaints about what the others are doing wrong. Speakers from the U.S. and Europe criticized monopoly trading enterprises, while an Australian defended a single-desk system he said was popular with farmers.

The developing countries are the ones driving demand, IGC Executive Director Germain Denis told the audience, which gathered in London for the June 15 meeting.

"Their increasing requirements are the main drivers of global grain demand," he said. "This is where almost all future population expansion will take place, with more than half of all people living in urban areas. Put as simply as possible, when people, wherever they may be, enjoy higher living standards, they tend to have larger and more diverse food requirements, and this generates new trading opportunities."

Global grain use for feed has risen 60 million tonnes in the past decade and more meat production means, indirectly, more trade in grain. "IGC Secretariat estimates that as much as 45 million tonnes of feed grain is traded annually in the form of meat," Denis said. "This continues to rise."

Grain demand continues to expand in other sectors, with grain-based biofuels emerging as a particularly dynamic market segment, he noted. But trade growth is still hampered by government imposed barriers and distortions.

Paul Williams, chairman of the U.S. Grains Council (USGC), also focused on increased demand in developing countries. "Coarse grain demand worldwide is primarily a function of economic success," he said. "As families’ incomes grow, they choose to spend their marginal income first to improve their diets. That means shifting to meat, milk and eggs."

In the past, that shift took place in countries that are the major coarse grain markets of today: Japan, Korea, Taiwan, Egypt and Mexico. "Today, we are looking at new markets in countries with large and growing populations, where growing incomes foretell of that same shift in diets: China, Indonesia, India, Iran, Iraq, and in the future, Africa," he said.

The USGC knows how to help build the industries in those countries to meet growing consumer demand for meat, milk and eggs, he said. "But those efforts can be derailed by barriers to trade that inhibit the dynamics of supply and demand."

He identified trade barriers, which distort market forces and prices, consumer fears about quality and safety of the food they consume and opposition to the application of biotechnology in agriculture as three problems.

"Reducing trade barriers will increase market opportunities for everyone – rich and poor, developed and developing," he said. "High tariffs in developed and developing countries curtail economic activity and investment."

Williams quoted a World Bank study which showed that eliminating tariffs in agricultural and non-agricultural goods would increase world income by $832 billion a year, with 65% of that increase occurring in developing countries.

"Now, I am not a trained economist, but I just wonder what that would mean for the average family in many countries around the world," he said. "What would they have on their dinner table each evening? I can’t help but think it would be more of the meats, milk and eggs I spoke of before, and as a result, more coarse grains demand in the world market."

He commended the E.U. for agreeing to eliminate export subsidies in the Doha Round of trade negotiations.

"In return, U.S. producers like myself will have to accept disciplines on export credits while countries with state trading entities, or STEs, also will need to accept further disciplines placed on them – and potentially the elimination of STE monopoly control," he said.

Argentina’s minister of agriculture Miguel Santiago Campos, focused on the increase in demand he says is coming from the developing countries.

"Population growth in developing countries will generate most of the increase in global food demand," he said. "The future is one of market expansion, particularly driven by the increases in the developing countries."

He complained that there had been a move to non-tariff barriers, with unjustified consumer protection measures often put in place without any scientific justification.

Argentina is moving to promote quality, product differentiation and added value, he said. As an example of producing different products for different markets, he pointed out that Argentina is the world’s second-largest producer of organic food and its second largest producer of genetically modified products.

He attacked barriers to trade, particularly concerning GMOs.

"We know that there are still markets with restrictions that are not justified in terms of trade in GMOs," he said. "The first thing we should do if we wish to expand world trade is to be consistent. In the case of GM cereals, many importing countries have started to use market distorting labeling regulations without any basis in science."

He singled out the E.U. and Brazil as among the worst culprits.

Russel Mildon, the European Commission’s director of Common Market Organization, said although Europe is now spending much less on supporting agriculture, it would go on subsidizing farmers.

"There is a general commitment in western Europe that we’re not going to abandon our farmers," he said. "These assurances have been taken seriously by the electorates in many of our member states."

Despite the subsidies, Mildon insisted that the E.U. did have a good record on free trade, particularly in agriculture.

Even though it is a major exporter, the E.U. does import wheat and he expects demand to rise.

"In the longer term we expect to be producing more meat, which will mean more demand for wheat," he said.

E.U. reforms have made European farmers much closer to the market. "Our farmers are increasingly in a position where they will produce what they think they can sell," he said.

One result was that they were no longer simply chasing the highest possible production.

"The rate of growth in our yields has sharply declined over the last 10 years," he said. "Our agricultural policy of today bears no relation to our agricultural policy of 20 years ago."

The E.U. was open to imports from developing countries, having opened its borders to imports of most products, except sugar, from the 50 poorest countries in 2001.

Mildon did complain about unfair competition from some countries on export markets.

"Some of our competitors use food aid as a market management tool," he said. "Sometimes it’s as much as 20%. Our aid is cash. The food comes from somewhere else."

József Gráf, Hungarian Minister for Agriculture and Rural Development, explained what it feels like for a new entrant to the European Union to apply E.U. farm policy.

"After accession, the Hungarian government was left with minimal room to maneuver in regulating the market," he said. "Decisions of vital importance are made in Brussels, and Hungary has little influence over them."

High E.U. internal market prices had made Hungarian grain uncompetitive on the world market.

"This means that, due to the lack of export incentive measures, the majority of the excess produce remains in the country and is offered for intervention," he said.

Michael Iwaniw, managing director of Australia’s ABB Grain Ltd., defended the system in Australia.

"If you looked at Australia today and compared it with 20 years ago, it is almost unrecognizable," he said. "The transition in our grain companies has been enormous. Yet, at the end of the day, grain is still grain. It must be grown, marketed, moved to customers, processed and eaten."

ABB, formerly the Australian Barley Board, was privatized six years ago and ownership transferred to the grain growers.

"Our challenge has been to try and make this supply chain as efficient as possible, a challenge that is never ending," he said. "The single-desk system for barley and similarly Australia’s single desk for wheat exports exist quite simply because our growers want them to.

"Australian growers individually are mostly small operators, sowing an average of just over 400 hectares of wheat and 140 hectares of barley. That’s quite a large area by E.U. standards you might think, but when the average yield is less than two tonnes per hectare, it’s not so much after all."

Most growers see their core business as grain production, not export marketing.

"This is why the majority of our growers believe in the benefits of single-desk selling and managing their sales risk through our export pools," he said. "It is very much their system, with companies like ABB merely the operators.

"There is ample opportunity for trading companies to operate in the Australian domestic grain market as well as a range of export opportunities that are pursued by international companies. This blend of activity seems to be well supported by Australian growers, which is perhaps why political support for single-desk marketing continues in Australia."

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