Fluctuations in world trade in wheat flour are usually looked upon as a reflection of the volatility in global demand for flour. The impact from the rare increases and the more persistent decreases is seen as falling mainly on the principal exporting countries like the European Union and the United States. Thus, recent data from the International Grains Council showing that world flour trade in the current 2002-03 crop season will decrease for the third successive year, to 7,740,000 tonnes in wheat equivalent, is commonly interpreted as causing a severe problem for mills in exporting nations that are losing the crutch that exports provide. And there’s no doubt that the loss of export business — with shipments from the E.U., the global leader, falling to less than half of their peak in the mid-1990s — has caused severe problems for mills that count on export demand to provide their running time.
This view of exports as solely reflected in the prosperity or lack thereof among exporting mills is also encouraged by the relatively minor role seen for flour trade from a global point of view. Currently, flour exports account for less than 8% of total world wheat and flour trade. This is the smallest share since the early 1990s and represents a significant drop from the mid 1990s when flour represented nearly 11% of the combined trade total. From another perspective, measuring flour exports as a share of what the I.G.C. estimates as global consumption of wheat for food, the relative importance is further diminished. Currently, flour exports represent only 2% of this consumption total, the smallest share of the past several decades.
Yet, these trade variations have another important facet. In a way, these fluctuations provide an index of flour mill construction activity, particularly in areas where a sharp fall in flour imports is explained by mill expansion. Indeed, the close tie between trade volume and mill construction is intensified by the relatively recent development that has flour-importing nations, including some that grow no wheat, develop a milling industry that is not only large enough to supply domestic needs, but also becomes a major participant in export trade.
A prime example is the United Arab Emirates, which not too many years ago imported modest quantities of flour. Now, the U.A.E. no longer is an importer but instead has emerged as an annual exporter of 500,000 tonnes of flour in wheat equivalent. That gives it 6% of world shipments and is a reflection of how a country, willing to expand its milling industry and to pay for wheat imports to be ground for export, may capture a significant share of what is shrinking trade.
Along a similar line, the I.G.C. warns that new mill building proposed in Libya, the world’s largest flour importer, points to further shrinkage in volume. In 2002-03, Libya is expected to import 1,250,000 tonnes in grain equivalent, making it not only the leader, at 16% of the world total, but the only importer of more than 1 million tonnes. That prospect is similar to what happened in neighboring Yemen, which during the late 1990s was a consistent importer of more than 1 million tonnes of flour a year. This year, as the result of new mill construction, Yemen will import 225,000 tonnes.
While shrinking demand has curtailed flour imports, it is becoming increasingly apparent that drops in flour exports relate to mill construction in countries that might once have been good-sized importers. Yes, this relationship also ruled in the past, but it would appear that the reverse ratio between flour trade and new mill building has become increasingly tight. The major factor in accounting for a further decrease in flour import volume will be new capacity, not just to supply domestic needs but to build enough to become an export competitor.
Morton I. Sosland