The International Grains Council’s (IGC) annual conference in London, England, which this year celebrated 60 years since the International Wheat Agreement of 1949, featured impassioned speeches from free market supporters who said it’s the only way to feed the world’s growing population. Delegates also heard speakers insist that government action is the only way to defend vital food supplies.
"Free and open trade is vital to the food industries of every country," Ken Hobbie, president and chief executive officer of the U.S. Grains Council, told the conference on June 9. "Trade restricting and trade distorting policies are the greatest obstacles to obtaining the full benefits of the marketplace and satisfying the growing food demand of consumers around the world. The marketplace works, and U.S. and world agriculture are resilient in responding to shocks and changes."
The argument for government intervention was made by Mohammad Ismet, director for planning and business development at Indonesia’s food marketing agency, BULOG. "Some economists argue that government market interventions are costly and inspire inefficiency," he said. "However, since rice remains the most important commodity in Indonesia, both economically and politically, and food security underpins domestic law and order, the government has a legitimate reason to be concerned about adequacy of food supply."
An unexpected speaker was Morton Sosland, editor-inchief of World Grain magazine and the only person at the conference who had been there when the original International Wheat Agreement was signed. "It is a privilege to have one of the great figures in the grain world," the IGC’s executive director, Etsuo Kitahara, told the conference. "He has been a friend of the council over the past 60 years."
Sosland highlighted the failure of the original agreement. "The wheat agreement fell quickly apart in the ‘60s and ‘70s when we all started to produce too much wheat," he told the conference in a short speech added to the conference agenda at the last minute. "The council is a world symbol of how cartels, price agreements, agreements not to sell wheat, and agreements not to buy wheat do not work."
While there are many people who lack adequate nutrition, Sosland said it was wrong to blame the market. "It’s not the markets that have deprived a billion people of enough food, it is the actions of national governments," he said. "The grain economy is one of the strongest parts of a world which, on the industrial and financial side, we thought was near collapse."
He congratulated the IGC on its role in helping to create and maintain that global grain industry. "We have an industry we ought to be very proud of. I congratulate the IGC on making that happen," he said. "What the International Grains Council turns out is among the finest analysis."
Hobbie issued a strong call for every country to make the most of biotechnology to help tackle the problems facing the grain industry. "Biotechnology perhaps shows the greatest promise to enhance crop production in the United States, in the poorest developing country, and in every country in between," he said. "We have just begun to tap the potential of science to improve productivity, safety, quality and variety in our food supply."
He outlined the range of advantages it could offer. "Biotechnology reduces input requirements of energy and chemicals," he said. "Biotechnology improves and stabilizes crop yields, reducing the amount of land required to feed our growing population. Biotechnology extends our ability to grow vital food supplies with less water, in less fertile soils, where some of the poorest people live and seek to provide their basic food needs."
He also stressed the safety of biotechnology. "We know how to regulate the application of science," he said. "I urge every country to acknowledge the established safety record of biotechnology and to establish transparent, sciencebased and timely procedures for approving new biotech events."
Gustavo Idigoras, minister counselor for agricultural affairs at the Argentine Mission to the E.U., predicted grain shortages for those countries that do not have a clear and fair genetically modified (GM) crop approvals system. "We would like to encourage them to modify their regulatory process," he said. "If not, their meat industries will face shortages of supply."
That could move the meat industry to South America. "The countries of Mercosur will shift from exporting raw materials to being meat exporters."
From Rolf Brack, president of the European Flour Millers, the body which unites Europe’s national flour milling organizations, there was a more cautious approach. He believed that GM wheat would be available before very long. "I fear it’s really coming up in the next three years," he said.
He attacked governments for leaving the job of reassuring Europe’s hesitant consumers that GM crops are safe to the industry. "Politicians stand aside and let us do the job to persuade consumers on GM," he said.
That left him wishing it wouldn’t be his problem. "It will come, hopefully not in my company," he said.
He also criticized lawmakers for insisting on zero GM products. "Every scientist knows in this world that nothing is at zero," he said. "It’s a real, severe threat to the milling industry that one of the NGOs (non-governmental organizations) catch a GM product on the shelf and you have to withdraw."
IGC Executive Director Etsuo Kitahara acknowledged the controversial nature of biotechnology. "This sensitive issue will require further review to achieve public acceptance," he said.
Brack was also concerned about the effect of sharp moves in price on millers’ financial stability. "It’s not the absolute price which is the big issue," he said. "It’s the volatile price."
He pointed out that 80% of the total cost to the milling industry is grain. "It’s set by the market," he said.
Brack noted that 90% of Europe’s milling industry is composed of companies with less than 50 employees, and that it is losing significance in the global flour market.
Overall, Europe’s mills have 65% capacity utilization, although some places achieve a level much higher. Brack, who is from Germany, was envious of the U.K. position. "They have 100% usage," he said. "The U.K. is a nice island. Everything is OK."
SHIPPING VOLATILITY EXPLAINED
Jan Dieleman, Deskhead Panamax Trading at Cargill in Switzerland, outlined the huge swings in the shipping market which are having a dramatic effect on grain trade flows. One reason for the markets volatility was the enormous lead times, which meant that any response by the shipping industry to market conditions was often way out of date by the time it actually turned into real, available capacity. "It normally takes four to five years between when you order a ship and when you get one delivered," he explained.
The cost of bulk cargo had gone down from a peak of $150,000 a day to a low of $3,000 a day. "At $3,000 a day, people started to put ships in lay-ups," he said. "You started to see some scrapping."
There was a bounce recently, as Chinese buyers of the commodities which compete with grains for cargo capacity — coal and iron ore — came back into the market to take advantage of low prices. "We’ve seen an enormous appetite from the Chinese side to load up on commodities," he said. "That has created a lot of congestion. It’s estimated today that there are 80 ships in China waiting to discharge."
To an audience drawn mainly from grain specialists, he explained that the shipping industry was not as used as the grain trade to managing risk. "Risk management in this industry is something that has been mostly ignored," he said.
That meant surprises and disputes. "If someone wants to look at another career, I would recommend maritime law here in London," he said. "Just trusting someone on his blue eyes is over in this industry."
Unlike the grain trade, shipping operators do not use standard contracts, something which leads to additional confusion. "In shipping, every contract is completely different," he said.
While prices were high, operators put in a huge volume of orders for new vessels. "The order book for 2010 and 2011 will be 50 percent of the fleet," he said.
Now that there is much less money in shipping, many of them want to back out of those deals. "The industry is talking about 30% cancellation," he said. "But even without 30%, we still have a lot of ships coming."
"It’s going to be tough times," he said. "Rough seas ahead, I would say."
FOOD VERSUS FUEL
Hobbie was emphatic about the food-versus-fuel debate with regards to grain and oilseeds used for food production and that used to produce ethanol and biodiesel. "The foodversus-fuel debate is settled," he said. "The most rapid growth of the U.S. corn-based ethanol industry is past, while the most rapid growth of U.S. corn yields is in front of us. The productive capacity of U.S. agriculture ensures a plentiful and growing supply of coarse grains that will satisfy demand for domestic feed use, ethanol production and exports," he said.
"The marketplace works, and U.S. and world agriculture are resilient in responding to new areas of demand."
Chris Lyddon is World Grain’s European editor. He may be contacted at: