A major force in wheat and flour trade

by Meyer Sosland
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The Middle East is home to some of the world’s biggest wheat and flour trading nations. The milling industry is seen as having a vital strategic role, but international political problems and uncertainty about wheat supplies mean that millers have plenty to contend with.

One of the region’s major wheat exporters is Syria. The International Grains Council (IGC) predicted at the end of May that Syria would export 700,000 tonnes of wheat in 2007-08, the same level it reached in 2006-07.

However, the U.S. Department of Agriculture (USDA), in a report published in February, put Syria’s wheat exports in 2006-07 at a record 1.5 million tonnes, because of the country’s strong sales to Egypt — Syria’s biggest customer — and Jordan.

The USDA estimate was based on shipments up to that point and the commitments of the Syrian government’s General Establishment for Cereal Processing and Trade (HOBOOB).

Bread consumption in Syria is increasing by around 3% a year, in line with population growth, and the USDA’s report notes that milling capacity greatly exceeds the country’s milling requirement.

Syria’s exports include 700,000 tonnes contracted for under a swap deal for Egyptian rice and 500,000 tonnes sold to Jordan for 2007.

The USDA is expecting Syria’s wheat exports to fall to 800,000 tonnes in 2007-08, as HOBOOB maintains stocks after two years of decreased crop production due to drought. The agency maintains stocks of over 4 million tonnes, more than the country’s annual milling requirement, as a national reserve.

However, HOBOOB was reported recently to have told its customers it may have to cancel export contracts for soft wheat and hard durum wheat because of a poor harvest. According to the Reuters news agency, possible cancellations could involve up to 550,000 tonnes of soft milling wheat sold to a large number of European and Middle East buyers, plus between 200,000 and 300,000 tonnes of durum, largely sold to Italy, traders said.

"The reason is the poor crop they have just harvested," Reuters quoted one trader as saying. "They have indicated that they just will not be able to deliver."

Even so, Nizar Kayali, operations manager of Aleppo-based Union Mills, was optimistic that Syrian millers would be able to supply some of the approximately 600,000 tonnes of flour he expects Iraq to import this year. "We are hoping to get a big share of that," Kayali told World Grain.

He believes Turkish exporters will be at a major disadvantage because of disturbances in the northern part of Iraq closest to Turkey. "Iraq is very unstable," he said. "In Zaho, the city in Iraq where the flour is going in, there has been a clash between the Turkish army and the Kurds. So the flour has stopped for the moment."

Reuters reported on July 13 that Turkey has boosted its troop numbers in the southeast to more than 200,000, most of them stationed along the border with Iraq. Security sources said the build up, which included tanks, heavy artillery and aircraft, was part of a security crackdown on Kurdish rebels hiding in southeast Turkey and northern Iraq. Turkey has refused to rule out a possible cross-border operation against Kurdistan Workers Party (PKK) rebels, despite opposition from the United States (U.S.) and Iraq, the agency said.

However, in early July Iraq was reported to be on the verge of buying 400,000 tonnes of flour from Turkish exporters.

Earlier this year, the USDA office in Turkey’s capital city of Ankara put Turkish sales of flour to Iraq in 2006-07 (June-May) at 518,966 tonnes and predicted that similar or slightly larger quantities would be shipped in 2007-08.

However, these figures are lower than the 1.15 million tonnes shipped to Iraq in 2005, which helped make Turkey the world’s biggest flour exporter with a total of around 2 million tonnes going abroad.

"There is no change," Edip Aktus, secretary general of the Turkish Flour Milling Association, told World Grain. "Turkey is still the number one flour exporter in the world. We export to Iraq, Libya, Western Africa and Sri Lanka."

According to the USDA, Turkey had been limiting imports of wheat for flour production in order to reduce the stocks of the Turkish Grain Board (TMO). But with the TMO’s stocks largely eliminated, millers can now import wheat to produce flour for export.

Following a sharp increase in prices at the beginning of 2007, millers asked for permission to import wheat for milling for the domestic market. However, imports were limited by high world market prices.

Another country with a vested interest in Iraq’s market is Iran, but Turkey’s long-established grip on the market is hard to break, Merzad Jamshidi, chief executive officer of KFF Mills in Tehran, told World Grain.

Iran is expected to import 700,000 tonnes of wheat in 2006-07, according to the IGC, but Iran’s flour millers are now in a position to export. "We are exporting," Jamshidi said. "We export to Afghanistan and Iraq."

He predicted growing Iranian exports of flour to Iraq. "They are a big customer, but for some reason the millers are not yet shipping much flour," he said. "For many years there were no exports. The Turks have been there forever. You will see more."

According to the IGC, a slowdown in Iraq’s flour imports will mean a sharp reduction in world flour trade in 2006-07. It now puts total global flour trade at 9.975 million tonnes, compared with 10.775 million in 2005-06. Iraq’s imports are set to fall to 800,000 tonnes from 1.5 million in 2005-06.

The IGC puts Turkey’s flour exports for 2006-07 at 1.1 million tonnes, which the IGC pointed out was less than half the 2.25 million tonnes exported the year before. However, Turkey’s shipments maintained a steady pace over the first nine months of the year, the IGC said.

Farther south on the Mediterranean Sea, Israel is highly dependent on wheat imports, according to Meir Barel, the head of Israel’s Flour Manufacturer’s Association. "We are using in Israel 800,000 tonnes of wheat," he said. "What comes from Israel is between 160,000 tonnes and a maximum of 220,000 tonnes. The rest is mainly from the U.S."

"Of around 600,000 tonnes (that is imported), 400,000 tonnes are from the U.S. and the rest is from Europe," he explained. "There are 20 milling companies, and we mill all kinds of flour."

High U.S. wheat prices have made Jordan rely on its domestic hard wheat crop and on Black Sea origins for soft wheat, although it has adversely affected bread quality, according to the USDA’s office there. Wheat imports are predicted to remain unchanged at 900,000 tonnes in 2007-08.

Set to overtake Brazil to become the world’s biggest wheat importer this year is Egypt, according to the IGC, which puts its imports at 7.2 million tonnes, compared with 7 million last year. The change, however, has more to do with improved domestic supplies in Brazil than any long-term expansion in Egypt. In 2005-06, Egyptian imports were 7.8 million tonnes.

Its central wheat buying authority (GASC) purchased 475,000 tonnes of U.S. and former Soviet Union wheat for June/July mainly on a landed-cost basis from local traders, the IGC said.

Egypt’s milling industry has more than adequate capacity to cover the country’s need for 72% extraction flour, according to the most recent USDA report on the topic. Total consumption of 72% extracted flour is estimated at 1.8 million tonnes, or 2.5 million tonnes of wheat. Total milling capacity is estimated at 2.7 million tonnes of 72% flour, or 3.76 million tonnes of wheat.

There are 126 mills in Egypt that combine for a total capacity of around 7 million tonnes a year. The mills are operated by seven public sector companies, all affiliated with the Food Industries Holding Company. According to the report, of the 126 public sector mills, 109 produce 82% flour and seven produce 72% flour with total capacity of 6,230 tonnes per day (1.86 million tonnes annually).

There are also 36 privately held commercial mills with a combined capacity of 9,000 tonnes per day (2.8 million tonnes a year). They are only allowed to produce 72% flour, although some have gained approval to produce 82% flour for the government in return for a fee.

Saudi Arabia, despite being home to the largest sand desert in the world and having one of the lowest rates of rainfall, still managed to produce an estimated 2.7 million tonnes of wheat in 2006-07, according to the USDA The IGC puts a more conservative figure of 2.1 million tonnes on the crop, predicting the same level for 2007-08.

The main factor in Saudi Arabia’s wheat-growing success is irrigation. Massive investment, based on oil revenues, brought Saudi Arabia’s wheat production to the point where the country was a significant exporter in the 1990s before the authorities, namely the Grain Silos and Flour Mills Organization, decided to hold back.

But it is in barley imports that Saudi Arabia is world champion. The USDA puts Saudi Arabia’s 2006-07 barley imports at 6 million tonnes, down from the previous year’s IGC figure of 7.1 million. Improved pasture conditions and lower exportable supplies of Australian barley are behind the fall, according to the USDA. The IGC has 2006-07 imports at 5.8 million tonnes but predicts a recovery to 6 million for 2007-08.

The IGC places Saudi Arabia way out in front of the world’s other barley importers. Total world barley imports, according to the Council, are set to reach 17.9 million tonnes in 2007-08. Saudi Arabia’s projected barley import total is three times greater than the second-largest importer, China, which is expected to take in about 2 million tonnes, followed by Japan at 1.4 million.

On the basis of the USDA’s figures for the first three months of calendar 2007, Saudi Arabia’s biggest barley supplier was Ukraine with 724,000 tonnes, followed by Germany with 387,000. The figures make Australia’s decline as a supplier obvious. In the first three months of 2006, it sent 1.23 million tonnes of barley to Saudi Arabia. The figure for the first three months of 2007 was 61,000 tonnes. Total Saudi Arabian barley imports for the first three months of this year were 2.085 million tonnes, down from 2.691 million the year before.

Australia does plan on remaining an important supplier of barley to Saudi Arabia. At the end of June, ABB Grain, an Australian barley trading organization, announced a five-year feed barley supply agreement valued at A$1 billion (U.S.$872 million) with Saudi Arabia’s United Feed Company. "This agreement provides a solid, long-term support base for Australian barley growers and their grain, which is highly regarded by customers in the Middle East," said ABB chairman, Perry Gunner.

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