September 01, 1998
by Teresa Acklin
Despite low prices and anxiety over the Asian crisis, the global agricultural industry is on the brink of a golden era, according to Alan Tracy, president of U.S. Wheat Associates. In an upbeat overview of world economic and trade prospects, Mr. Tracy said increasing demand, rising production and disappearing trade barriers would provide great opportunities for producers.
Mr. Tracy acknowledged that world wheat stocks had increased to 26 million tonnes from 15 million in only two years, resulting in a rapid decline in prices. But that situation could just as easily change again to one of tight stocks and higher prices, he noted.
Grain stocks have increased significantly in China and all the major exporting countries, he said, adding that it was unlikely the former Soviet Union would come into the market in any significant way at the moment. But he said the end of the Cold War meant that economies were beginning to grow and more people would have the ability to purchase food on a regular basis.
Mr. Tracy said one of the most significant factors contributing to rising world prosperity was the development of information technology. In general, its benefits have been grossly underestimated so far, yet it has the potential to add value to business and improve efficiency, he said. These developments will have the effect of raising incomes and expanding demand for food, Mr. Tracy said.
Both buyers and sellers will benefit from a global food system free from export subsidies, he said. State-regulated trade is disappearing, as are single desk sellers and export monopolies, leaving producers increasingly free to sell where they please, competing against other suppliers simply on price. Because regulated trade agreements are giving way to market-oriented global trade, buyers must become more knowledgeable about markets and put more emphasis on marketing, financing and risk management, he said.
WHEAT DEMAND GROWTH.
The potential growth in demand for wheat was underlined by speakers from Japan, India and Pakistan. One of the most dramatic changes taking place is in eating patterns in Japan, where demand for Mediterranean-style food is booming despite stagnant demand for traditional Japanese foods.
Shoichiro Matsubayashi, general manager of Mitsui & Co. in Germany, said that “Itameshi” food “Ita” meaning Italian and “meshi” meaning food in general was becoming very popular in Japan. Imports of wine are up by 200% in the first four months of 1998 compared with 1997, while olive oil imports are “sky-rocketing” and have increased ten-fold since 1991 to 30,000 tonnes in 1997, he said.
Imports of durum wheat and pasta products have increased to 275,000 tonnes in 1997 from 175,000 in 1990, Mr. Matsubayashi said, and durum wheat imports alone are expected to top 200,000 tonnes in 1998. Reasons for the trend are diet consciousness, reduced spending on food and diversification of meals. “I do not know how long and to what extent this trend will continue,” said Mr. Matsubayashi, “but I do not think it will reverse.”
In addition, Japan's demand for coarse grains and compound feed is likely to continue on the rising trend of recent years, Mr. Matsubayashi said. Already the world's largest importer of maize and meat, Japan's imported feed requirements will increase to 25 million tonnes from 20 million as domestic feed production falls to 20 million tonnes from 24 million, he said.
Mr. Matsubayashi said Japan's eating habits had changed dramatically, and he expected a similar trend would be followed by developing countries. If realized, he said, the trend would lead to an increasing demand for wine, olive oil, durum wheat, feed ingredients, compound feed and meat.
Although the changes in India will not be so dramatic, Surjie Singh Barnala, Minister of Food and Consumer Affairs for India, said his country was determined to increase food grain production. Achieving this goal will require a massive investment in the food sector, he said, adding that India in the meantime would import wheat to tide her over temporary shortages.
The sheer size of the food grains sector of around 210 million tonnes makes it simultaneously a very attractive marketing opportunity as well as a major challenge for policy planners, Mr. Barnala said.
However, India's plans to become an active player in the international grain trade are being thwarted by certain practices, said Mr. Barnala. He said that the action of an American company to patent basmati rice was “a classic case of economic hijack” (see story on Page 16).
“To say that the ‘novel' basmati variety developed by RiceTec can be grown in America and therefore justifies a patent is like saying that Scotch whisky can be made in India,” he said.
Mr. Barnala added that these practices would be a huge set-back to the process of creating conditions for a just and fair international trade environment.
Plans to increase wheat production also were outlined by Mian Riaz Samee, the High Commissioner for Pakistan. He said current wheat production was between 16 million and 18 million tonnes a year.
Yields on non-irrigated land average only 1.1 tonnes per hectare compared with 2.2 tonnes from irrigated land, he said, and at present, only 9% of the 8 million hectares sown to wheat were irrigated. However, Pakistan's government plans to increase the area under irrigation as well as providing better seed supplies, more fertilizer and cheap credit to raise wheat production to total requirements of 21.75 million tonnes, Mr. Samee said.
MARKET AND TRADE REFORMS.
The changes made by South Africa from a highly controlled grain trade to one based on free enterprise appear to have been successful so far, despite getting off to a slow start, according to Eckart Kassier, chairman of the National Agricultural Marketing Council.
Since 1937, Mr. Kassier said, all agricultural commodities had been controlled by 24 boards whose responsibility stretched right through the production and marketing chain. The system began to change in the late 1980s as the boards' involvement in commodity trading began to decrease and the number of boards fell to 14.
Under the 1996 Marketing Act, all remaining boards had to be phased out by January 1997, and private enterprise was encouraged to start filling the gaps. The essential work of collecting and publishing statistical information on grain and oilseeds production, imports, exports and stocks is now handled by a new organization called the South African Grain Information Service.
An agricultural markets division was established as part of the South African Futures Exchange, which is now handling a steady flow of maize futures contracts, he said. Wheat futures business also is beginning to build up since trading started in November 1997, and plans are in hand for the establishment of a sunflower seed contract.
Mr. Kassier said the changes underlined the need for producers and processors to manage their respective price risks and had revealed the importance of treating yellow and white maize as two distinct crops. The need for distinction arises because white maize can be substituted relatively easily for yellow maize, but it is rarely possible to substitute yellow maize for white, he said.
Optimistic views for the grain trade were endorsed by Gus Schumacher, U.S. Under Secretary of Agriculture. He said world wheat trade would increase to 120 million tonnes from 100 million by 2005, with the U.S. share rising to 34% from 28% by 2001 and through to 2003.
Trade in coarse grains will increase to 125 million tonnes from 87 million by 2005, Mr. Schumacher predicted. The U.S. share of this market should rise to 70% from 64% by 2000 before dropping slightly to 68% by 2005, he added.
These forecasts were made taking account of the difficult situation in the Far East, which is an important reminder of the implications of being part of a global economy, he said. The crisis in South Korea and Indonesia, economic problems in Japan and the climatic problems caused by El Nino in India and the Philippines all had an impact on world trade, he said. Mr. Schumacher attacked the European Union for its decision to subsidize the sale of 30,000 tonnes of Finnish barley to Canada with an export grant of U.S.$50 per tonne. All that did, he said, was to shift the cost to the E.U.'s trade competitors. He also said he hoped the trade reforms to be negotiated at the next round of World Trade Organization session would result in reductions to the E.U.'s “exceptionally high level of import protection.” Mr. Schumacher acknowledged that the Common Agricultural Policy was designed to provide both a cultural and economic function related to the European Union's commitment to preserve small family farms. Nonetheless, Mr. Schumacher stated that protection should not be maintained at the expense of vital trade reforms and that prices should not be set at a level designed to protect small producers. Mr. Schumacher said U.S. goals in the next W.T.O. round included a phase-out of export subsidies, a gradual reduction and elimination of import tariffs, the final decoupling of farm payments from production so that income support did not distort trade, a clearer definition of the use of phytosanitary and scientific measures to encourage trade using agricultural technology and greater restraint of state trading organizations. Despite the hopes pinned on the next W.T.O. round, Mr. Schumacher said evidence was abundant that a rebuilding of trade barriers and a return to protectionism among the major trading bloc remained a threat. Mr. Schumacher said that even though the United States wanted to exercise restraint in the use of export subsidies, it reserved the right of self-defense to retaliate against activities such as the E.U.'s subsidized sale of Finnish barley.
However, taking a robust line on European trade reforms, Jean Jacques Vorimore, Secretary General of the General Assembly of French Wheat Producers, said he felt Europe had achieved a way of giving limited protection to internal markets without affecting developing countries. “I am in favor of freedom,” he said, “but it must be organized freedom. It is necessary to temper market volatility.” Intervention mechanisms should be retained, Mr. Vorimore said, and it should be possible to bring back set-aside in certain circumstances to regulate production.
India, Pakistan upset over U.S. patent on basmati rice strain
Stormey Wylie, Editor
Rice farmers in India and Pakistan are steaming over a U.S. patent on a new strain of basmati rice. RiceTec, Inc., a rice producer and breeder in Alvin, Texas, U.S., was issued a patent last September that protects the company's breeding methods and seeds for a new variety of basmati, an aromatic strain of rice that originated in the foothills of the Himalayas.
Since then, hundreds of angry rice farmers in India and Pakistan have held demonstrations, worried that the patent acquired by the Texas company would threaten their exports of basmati rice. The Indian government has said it would ask the U.S. Patent and Trademark Office for a reexamination of the patent, in order to safeguard the interests of its growers and exporters.
The international controversy over the patent has been fueled by misunderstandings and misconceptions, according to Robin Andrews, president and chief executive officer of RiceTec. “This whole flap is totally unnecessary,” Mr. Andrews said, “and has happened only because of the laws we have in the United States which allow companies to protect their inventions.” RiceTec, a company with about U.S.$10 million in annual revenues, has produced and sold Texas basmati and American basmati rice for 20 years and exported the products for 15 years with no objections, according to Mr. Andrews. The single biggest misunderstanding over the patent, he said, was that RiceTec had trademarked the name “basmati” and could charge other companies for importing basmati rice into the United States. “RiceTec's patent protects the company's seeds and breeding methods in the United States, and does not, in any way, patent or trademark the word ‘basmati,'” he said.
Basmati is a class of rice, much as durum is a class of wheat, Mr. Andrews said. He added that many other companies outside of India and Pakistan have produced and marketed basmati rice for decades and that India's own rice authorities have used the word “basmati” as a generic term for rice.
A spokesperson for the All India Rice Exporters Association said RiceTec was “stealing our heritage.” India annually grows about 650,000 tonnes of basmati rice, mainly in the foothills of northern Uttar Pradesh, Punjab and Harlan, and exports from 400,000 tonnes to 500,000 tonnes annually.
As of early August, no formal complaint had been filed with the U.S. Patent and Trademark Office. But it would not be the first patent revoked after a complaint by the Indian government. The U.S. Patent Office in August 1997 cancelled a patent for the use of turmeric powder as a healing agent after the India protested that the technique was not new.