No end in sight for high grain prices
July 01, 2008
by World Grain Staff
The International Grains Council’s annual annual conference conference this year focused on volatile markets, with a strong consensus among its international panel of speakers that while grain prices may ease back from recent record levels, a return to the much lower levels of a few years ago is highly unlikely.
Several speakers at the June 10 meeting in London, England highlighted the potential role of genetically modified (GM) crops in feeding the world’s growing population, and there was a dire warning for the European livestock industry of what might happen if the European Union (E.U.) does not sort out its approach to GM feed ingredients.
Mark Keenum, the U.S. Undersecretary of Agriculture, set the scene. "Population numbers around the world continue to grow," he said. "We must ensure that production of staple grains increases to meet growing demand."
For now, agriculture is supplying enough grain. "We have adequate supplies to meet demand in the near short term," he said. "For the first time in four years, a surplus is forecast between world wheat consumption and production."
He promised more money from the United States (U.S.) to help the poorer countries of the world feed their populations, with a commitment to spend over $5 billion. "The U.S. is increasingly concerned by rising food prices," he said. "The U.S. has committed to an immediate and expanded response."
Keenum said it was more important than ever that markets be kept open, giving farmers the right price signals to respond to tight supply. "An era of tightening food supplies demands more open markets," he said.
"We strongly encourage countries to lift trade restrictive policies and measures. These policies exacerbate the situation."
He added that the world would also have to use technology to solve its food problem.
"We have seen a reduction in global agricultural research and development, a trend we should all work to reverse," he said. "Biotechnology is one of the most promising tools in increasing productivity. For example, in the U.S. in the past 15 years corn (maize) yields have increased from 6.2 to 9.7 metric tonnes a hectare."
Other speakers backed Keenum’s call for the world to take advantage of technology.
"We need technology under development both today and tomorrow to maximize yields of traditional crops like corn and soybeans and develop new genetics for higher yields and other traits to support both food and fuel needs," said John D. Johnson, president & chief executive officer of the U.S.-based farmers cooperative CHS. "I firmly believe these are achievable."
He pointed out that higher prices were not undiluted good news for agriculture. "Even as farmers and grain companies experience the upside of record prices, they are already feeling the pressures of higher input prices, working capital requirements, land values and freight rates."
Prices are likely to stay high, in his view. "While ultimately I think things will settle down from these tremendous peaks in price and demand we’ve experienced lately, clearly we have reached a new price plateau," he said. "Even if values drop slightly, I don’t expect prices for grain – or energy, for that matter – to retreat to the much lower levels of a few years back.
"There have been too many fundamental changes in the world for that, and projections show continued tight supplies and robust demand."
Another believer in biotechnology was Akio Shibuta, director of Japan’s Marubeni Research Institute.
"If it works as well as expected, then GM crops will be a savior for our situation," he said.
However, Shibuta cautioned that GM crops would not be the only solution to the food shortage. "This technology was commercialized in 1996, so we don’t have enough experience," he said. "We can’t fully depend on GM food. That would be a risk."
Bernhard Dahmen, head of the grain and feed department at German-based ethanol producer CropEnergies AG, said research and development could help cure volatility.
In addition to increasing crop production, Dahmen said it was important to focus on making the most efficient use of them.
"The increase of processing yields is important to watch," he said, noting that Brazil’s ethanol industry has made good progress. "Their productivity has increased sharply."
THREAT TO LIVESTOCK INDUSTRYEurope’s foot dragging on GMOs could have dramatic effects on its livestock industry, according to Chantal Fauth, secretary general of the E.U. grain trade body, COCERAL.
Unless the E.U. sorts out its approvals system backlog for GM products and changes its policy of zero tolerance on the presence of unapproved GM material in feed, it could destroy its own livestock sector, she warned.
"The E.U. livestock would no longer be economically viable and would be exported," she said. "The European Union would then become increasingly dependent on meat and meat products imports, especially for poultry and pork.
"The whole farming sector would incur severe losses, and this would, of course, not go without consequences up and downstream," she said.
Recently, the European feed industry was affected by the small-scale commercialization in the U.S. of a new type of maize, Herculex.
Traces were found in some samples of corn gluten feed (CGF) and distillers’ dried grains (DDGS) exported to the E.U.
"Exports dropped drastically," she said. "The cut in supply had immediate effects on the price of the commodity, which increased by over 100%. So this meant loss for the producer, loss for the trade and loss for the E.U. feed industry. In 2008, CGF and DDGS imports (have been) reduced to nil further to the occurrence of new GM traits.
"The delay in approving new events and the strict zero tolerance will have dramatic consequences for the E.U., should the policy not be changed rapidly.
"Not only maize-derived products as those mentioned before will have to be substituted, but the supply of soy will be endangered as new varieties are being developed in the U.S."
She said two varieties of second generation soybeans are scheduled to be marketed and harvested next year. Seeds are already multiplied and an accidental presence of the new traits cannot be excluded this autumn, which could halt imports of U.S. soybeans and lead to raw materials shortages in the E.U.
"This is the reason why the whole European food and feed chain requests the speeding up of the approval process," she said.
Henk-Jan Brinkman, head of Food Security and Markets at the World Food Programme, presented predictions from a range of international organizations, including the U.S. Department of Agriculture, the United Nations Food and Agriculture Organization and the World Bank, which showed that although prices are likely to fall from their peaks, it will be a small fall, and the new higher level is likely to last at least until 2017.
"Prices are probably peaking in 2008 or 2009, but will remain high," he said. "They will remain high for almost the entire forecasting period that these organizations are covering."
"What we have seen over the last few years is somewhat different to previous high prices," he said. "It affects many more commodities and it has lasted longer."
EFFECT ON THE POORHigh food prices could adversely affect the diet of people in some of the world’s poorest countries. Brinkman said the factors which determine the level of risk included a government’s ability to respond, the proportion of household income spent on food and the state of a country’s foreign exchange reserves.
"Almost entire sub-Saharan Africa is vulnerable to high food prices," he said. "When households are faced with high food prices of staple foods like rice, what they do is maintain rice consumption and cut consumption of more nutritious/expensive foods."
That meant cutting down on things like fruit, vegetables and meat, which could mean a long term adverse impact on health.
"Food prices are likely to remain high, but even if they come down somewhat they will have significant long-term effects on vulnerable people throughout the world," he said.
The impact of nutrition in the early stages is lifelong, and he cited a study of Guatemalans who had been given a nutritious drink as children in the 1970s. Researchers managed to find the same group of children in adult life. Their wages proved to be 46% above those of people who had not received the drink.
"Interventions are very cost effective," he said. "For one dollar of investment, you can get a return of 200 or even 500 dollars."
In addition to the children, pregnant or lactating mothers, the rural landless and the urban poor, his list of groups most at risk included small-scale agricultural producers.
"When prices rise you would think that farmers would benefit," Brinkman said. "But if you look at farmers across the world, many are net buyers of food. They sell low at harvest time and buy high in the period before harvest."
He also stressed the importance of making sure that farmers in poor countries are in a position to respond to high prices.
"Farmers should have the fertilizers and the seed needed to start the next growing period," he said.