E.U. could capture world wheat gluten market, U.S.D.A. report says

by Teresa Acklin
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   Without a change in internal European Union policy, E.U. wheat starch and gluten “could eventually capture virtually the entire global market for these products,” the Grain and Feed Division of the U.S. Department of Agriculture says in its February “Grains: World Markets and Trade” report.

   “It is possible that wheat gluten supplies could become so large and prices so low that they would begin to seriously affect protein premiums currently paid on high quality wheats,” the report says of the possible impact of E.U. gluten on the U.S. market.

   Exports of wheat gluten from the E.U. to the United States, which have been of growing concern to U.S. producers in recent months, now account for about 20% of total U.S. wheat gluten consumption, according to the U.S.D.A. report.

   “In 1984, the E.U. exported about 1,300 tons of wheat gluten to the United States,” it notes. “This increased to an estimated 25,000 tons in 1994.”

   Several U.S. companies, a few days before the U.S.D.A. report was released, moved to narrow the price gap between U.S. and E.U. vital wheat gluten by about U.S.$0.13 per kilogram. Even with the cut, industry sources said U.S. wheat gluten remained as much as U.S.$0.09 above the price of about U.S.$1.38 per kg for E.U. gluten.

   “E.U. gluten exports have been a problem for some time,” a spokesman for one U.S. wheat gluten producer said last week. “The tone of the U.S.D.A. analysis adds to our industry's concern.”

   The U.S.D.A. attributed the increase in E.U. production and exports of wheat starch and gluten to “Common Agricultural Policy reform, previously existing subsidies, domestic market protection and restrictions on potato starch production.”

   The report points out that E.U. wheat starch prices are maintained at levels several times greater than those in the United States by import levies that are more than U.S.$230 per tonne — “a level sufficient to discourage any wheat starch imports.”

   This price structure has encouraged a 60% increase in wheat starch production capacity since 1990 and, with it, wheat gluten production capacity. “In addition,” it says, “recent reforms to the CAP have reduced domestic wheat, lowering input costs to wheat starch and gluten manufacturers and increasing profit margins.

   “With the recent increase in capacity, current E.U. wheat starch production exceeds domestic needs by about 20%, while wheat gluten production exceeds E.U. consumption by about 30%. These product surpluses, as in the case of bulk grains, are disposed of through exports.”

   The U.S.D.A. report explains that export restitutions of more than U.S.$50 per tonne are required to reduce E.U. wheat starch prices to world levels. “Because E.U. wheat gluten domestic prices are substantially below those in the world market, the current export restitution is zero,” it adds.

   Subsidized E.U. exports of wheat starch and wheat gluten are considered coarse grains under the E.U.'s Uruguay Round commitment to reduce the value and quantity of subsidized grain and grain product exports, the U.S.D.A. report observes. “As a group, the E.U.'s subsidized exports of coarse grains must be reduced by 21% in terms of quantity and by 36% in terms of budgetary outlays by the end of the six-year implementation period.

   “Increased E.U. exports to the United States are likely to continue, given that E.U. wheat starch and gluten manufacturers are reportedly planning to double production over the next several years. A portion of the increase in wheat starch production will replace expected decreases in E.U. corn starch production. However, E.U. wheat gluten demand is not expected to increase as rapidly as wheat starch demand, exacerbating the E.U. over-supply situation for wheat gluten and continuing to fuel exports.”

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