Acceptance by the world’s leading grain producers of the need to segregate genetically modified crops was probably the most significant trend to emerge from the International Grains Council conference in London this past June. The theme of the conference was adapting to new market realities.
In a marked change from the negative attitude of most producers only a few years ago, Alan Tracy, president of U.S. Wheat Associates, Washington, D.C., said that growers would be facing a very serious political problem when Monsanto’s Round-up Ready wheat came on the market in 2004-05.
Pointing out that scientists were working on the use of genetic modification to produce more obvious benefits to consumers, such as improvements in protein and gluten quality, Tracy said, "We certainly don’t want to stand in the way of scientific progress but we cannot force food down the throats of people who don’t want it. But at the same time, we are certainly not ready to lose market share."
The U.S. and Canada have a lot of work to do before their customers are ready to accept GM wheat, Tracy said. Over the next two years, he added, it will be essential to put in place internationally accepted levels of tolerances, and to adapt wheat handling systems to segregate grain in the way customers wanted.
The Canadian Wheat Board is taking a similar attitude. Greg Arason, CWB president and chief executive, said the board’s policy was that the entry of biotech varieties into the Canadian marketplace must be a positive one.
"This means we do not want genetically modified varieties to be produced or registered for production in Canada unless there are markets for them and unless they can be kept separate from conventional varieties," Arason said. "Both market acceptance and appropriate segregation are huge and complex issues in Canada and globally and they will not be easily resolved."
He said the challenge would be to design a global grain trading system that met the needs of consumers and was commercially practical, enabling both farmers and marketers to deliver conventional non-GM wheat to consumers as cost-effectively as possible.
Leaving the U.S. and Canada in no doubt about Japan’s attitude to GM crops, Dr. Seiichi Nagao, counselor to the Flour Milling Industry Development Foundation, said GM wheat would not be accepted by Japanese consumers unless its safety was clearly proved.
Nagao highlighted the impact of changes in consumer tastes on market developments in Japan. He explained how wheat had become an important part of his country’s diet in recent years. Wheat flour consumption has increased by 0.7kg per year over the past 10 years to 32.4kg per head per year while rice consumption has gradually decreased.
Although boiled rice is still nearly always eaten by Japanese families in the evening, wheat-based products were now the major source of carbohydrates during the rest of day, while noodles are eaten on special occasions, Nagao said.
New baking technology using bake-off methods and the practice of two or three daily deliveries of fresh-baked products to chain stores are boosting consumption of wheat-based products, he added. This has also led to an increase in imports of prepared mixes, dough and finished products.
Other developments in noodle production and prepared dishes are creating a strong demand for Australian wheat, and pasta consumption in Japan also is increasing, Nagao said. The mix of boiled rice, bread and noodles is a unique pattern of consumption, he added. These products all demand high quality wheats to produce the different types of flour specifically for the wide range of products on the market.
In 1999, Japan imported 5.3 million tonnes of wheat, of which 2.8 million came from the U.S., 1.4 million from Canada and 1.1 million from Australia. Domestic production amounted to 600,000 tonnes.
While the expanding demand provided many market opportunities, other changes are putting the Japanese flour milling industry under a great deal of pressure and companies are having to make structural changes to survive, Nagao said. The mills need to improve their performance in sales, milling techniques, cost reduction, quality, product development and technical services, he said.
Currently, there are 160 mills in Japan operated by 128 companies. The four largest companies account for nearly 69% of the market.
Nisshin, Japan’s largest flour milling company, is already in the process of dividing into several subsidiaries under the umbrella of the Nisshin Flour Milling Group.
The bakery industry, Nagao said, will segregate into large industrial bakeries and small bakeries or bake-off shops.
WHEAT USE UP IN CHINA. China also is expected to see an increase in consumption of wheat-based products, according to Xubo Wu, vice-president of COFCO, the country’s national corporation for the import and export of cereals, oils and foodstuffs. As the world’s largest producer and consumer of grain, China is aiming for more than 95% self sufficiency, with grain production increasing by 2.57% a year — significantly higher than the annual increase in population, Wu said.
Total grain production in China in 1999 totaled 508 million tonnes, of which 198.5 million was rice, 113.9 million wheat, 128 million maize and 18.9 million tonnes soybeans. Trading patterns have changed significantly in recent years with a big increase in maize exports and a decrease in wheat imports.
But China faces the challenge of shrinking area of farmland, Wu said, as the population increased and non-agricultural businesses developed in rural areas. Agriculture will become less important in the national economy and resources will be switched to other sectors.
However, China is committed to stabilizing grain production and will encourage the use of technology and more inputs to increase production levels, Wu said.
Patterns of consumption also will change with the movement of people away from farms to the towns and cities. Direct consumption of grain in the cities fell to 84.9 kg per head in 1999, down dramatically from 145.4 kg per head per year in 1981. In rural areas, direct consumption over the same period dropped to 247.5 kg, from 256 kg per head. People in the cities are eating more animal products, processed and prepared foods, Wu explained.
NEW POLICY STRATEGIES. Two countries which have recently established new policies with the aim of making major changes in farming patterns to meet changing markets are Algeria and Turkey.
Algeria recently introduced a National Plan for Agricultural Development designed to increase production while maintaining rural communities. Key to the plan means moving production to the most suitable areas for the type of crop.
Abdessamed Chelghoum, general director of Algeria’s interprofessional office for cereals, OAIC, said the new plan was encouraging grain production only in appropriate areas rather than in all parts of the country. As a result, the area of cereals fell last year from 3.5 million hectares to 3.2 million hectares while use of fertilizers and pesticides increased.
Commercial arrangements also are being reorganized, Chelghoum said. Markets have been deregulated and an increase in the number of suppliers of inputs encouraged.
In the medium term, OAIC is planning to transfer the co-operative system into an economic group to encourage investment from outside organizations, Chelghoum said. This would enable new investment to be channelled into other projects, such as upgrading port storage facilities, he said.
Similar changes are being made in Turkey, where 34% (22 million) of the total population are employed in agriculture — the highest total in Europe. One of the most important products is grain, with output amounting to 32 million tonnes, of which 20 million is wheat, 7.5 million barley and 2.5 million corn.
The country’s grain policies are handled by the Turkish Grain Board, which buys an average of 11% of the crop each year, although this is decreasing as more private organizations take an increasing proportion of trade.
Yavuz Kocce, deputy general manager of the Turkish Grain Board, said Turkey introduced an agricultural reform implementation project to increase productivity. This included phasing out distorting subsidies on production in favor of direct income subsidies and encouraging farmers to switch from crops which were in surplus to alternative products. Research also is being carried out into ways of producing better quality crops.
Kocce said the Turkish Grain Board will operate as an intervention agency to regulate markets, fixing support prices and buying up surplus grain. Commodity exchange boards will be set up to operate in grain markets.
An example of how the milling industry has changed once government organizations handed over responsibility to commercial companies came from Brazil. Antenor Barros Leal, vice-president of ABITRIGO, said that before 1990 the federal government in Brazil controlled grain purchases and flour production. Mills were allocated production quotas and there were no quality standards.
Since 1990, when commercial companies took over, there have been dramatic changes. Trade depends on buying and selling skills, not the size of gifts offered by suppliers.
Despite financing problems, improvements in quality and product ranges have led to fantastic growth in flour consumption in the shape of bread, pasta and crackers.
Only two foreign groups are involved in the Brazilian market: Bunge, with nine mills and 20% of the market, and Cargill, with one mill and less than 1% of the market.
WTO AND GLOBALIZATION.
One of the most important influences in the development of world grain markets will inevitably be the next round of WTO negotiations and the discussions on globalization. Despite the riots in Seattle in 1999 and in Gothenberg, Sweden, which began just as this year’s IGC conference was taking place, Trevor Flugge, chairman of the Australian Wheat Board, said he was convinced that the advantages of globalization far outweighed the disadvantages.
Flugge said Australian farmers have had to make huge adjustments to survive in the changing world situation. The rural population had fallen to less than 15% in the late 1990s, from 40% in the 1900s. But Australian grain exports to Asia and the Far East had boomed generating A$4 billion of export revenue each year, which was passed back to growers.
As sectors in the Far East shifted from agriculture to manufacturing, dietary changes led to increased demand for grain-based products and particularly those based on wheat.
Globalization has already delivered undeniable and significant benefits to the global economy in the form of greater market access, Flugge said. But the Uruguay reforms have not gone far enough and further changes are needed, he said.
"To my mind the pros of globalization can clearly outweigh the cons in this situation if they are handled effectively," Flugge said. "The current discontent lies not in the process of globalization itself but how it is being managed. To date government responses to the situation — primarily to insulate those affected — have contributed to the problem rather than being part of the solution."
The answer is not to throw "buckets of money" at the problem, he said.
"The proper way to deal with this situation is to encourage and foster an industry which is capable of responding to the changing market requirements and structure itself in such a way that it can take advantage of the benefits and minimise the downside," said Flugge.
Globalization and rationalization are not the result of international trade forums like the WTO or multinational companies, he said, but rather the product of technological advancement and progress, which is unstoppable.
Outlining the E.U. perspective on priorities for next round of WTO talks, David Roberts, deputy director general for agriculture at the European Commission, said the Seattle demonstrations had thrown all attempts to produce an end date into confusion so it was impossible to guess when the negotiations would end. He said it was crucial, however, not to regard the next round of talks simply as Uruguay Round, mark II.
The whole emphasis must move away from the concept of export refunds towards the use of tariffs, Roberts said.
The E.U. began moving away from the use of export refunds in 1992 when support prices were cut by 30% and compensate for by direct payments. This change continued with Agenda 2000 when prices were cut by a further 15%.
Roberts said the E.U. was criticized unfairly because the system of export subsidies it operates were by far the largest component of the total notified to the WTO each year while other forms of export assistance are not notified in the same way.
Roberts said that he believed that adopting a similar approach to that of the Uruguay Round by using minimum and average tariff cuts was the simplest way of solving the problem and more likely to allow for an agreement between the 140 players involved.