Shifting shape of grain trade

by Emily Buckley
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By Diane Montague

Day Robinson, a U.K.-based international consulting firm for the commodities, banking and finance sectors, held its conference in London earlier this year on the theme, "Doing Business in Changing World Grain Markets" and presented strategies and outlooks for the grain industry.

Delegates at the GAFTA-sponsored conference learned that reviving barter, the oldest trading method in the world, is one of the novel solutions introduced by motor manufacturer DaimlerChrylser to overcome the economic problems in Argentina. Faced with the seemingly impossible situation of raging inflation, a collapsing economy and unsold stocks, DaimlerChrylser has introduced a way for farmers to swap soybeans or wheat for cars or trucks. The project — set up between the car manufacturer and Louis Dreyfus’ Argentine subsidiary, SACEIF Louis Dreyfus & Cia — is called Plan Cereals.

Juan Otero, zone manager of DaimlerChrysler Argentina, said the company was faced with a very difficult trading environment. There was a high degree of political uncertainty coupled with unemployment at 25% and rising, while 50% of people were living below the poverty line. Inflation in 2002 was between 50% and 70%, and there was

a substantial devaluation of the peso. With the collapse of several major banks it was almost impossible to arrange credit. Not surprisingly total industry sales of motor vehicles slumped from 307,000 in 2000 to 70,000 in 2002. Yet farmers were producing large crops of soybeans and wheat, and prices for these products on world markets were rising.

Under Plan Cereals, farmers could sell their crops to Louis Dreyfus who then paid DaimlerChrysler for the cost of the vehicle. DaimlerChrysler then invoiced the farmer and supplied him with the vehicle. A farm truck could be exchanged for 200 tonnes of soybeans while a Mercedes sedan would be worth 400 tonnes. Otero said the advantages of the system were its simplicity, reduced cost of transactions and reduced risk, most of which was taken by Louis Dreyfus. He said they were planning to extend the idea to wool, fruit and honey.

DNA PROFILING FOR ADDED-VALUE CROPS

John Howie, cereal business manager for Europe and Africa for the agrochemical giant Monsanto, described how the company was using DNA profiling to improve crop characteristics for growers and processors.

Although the company is committed to biotechnology, Howie said Monsanto was also developing conventional techniques to speed up its breeding programs. These could be used to take costs out of the commodity wheat sector and to create added value products. However, he said that complex breeding programs cost a lot of money and there was insufficient margin in the European seed market to fund the research.

So instead the company is using DNA profiling to identify specific characteristics, such as yield, disease resistance and quality, to develop improved varieties. The advantages of this technique are that no field-testing is needed, it is quicker than the 10-year time scale of conventional breeding and gene loss is reduced. He said these programs are leading to several improvements, such as in starch characteristics that would affect quality, taste, texture, shelf life and calorie concepts, in proteins to improve extensibility and allergy problems, and in disease resistance and color.

"At some time GM technology will come in and will add another layer to the research," said Howie, "but because we are working in Europe we cannot utilize it at the moment."

CHANGES IN TRADING PATTERNS

Highlighting emerging markets, Bernard Valluis, a member of the executive board of the Soufflet Group, said the changes in the markets would see more first users buying direct while sellers would have to provide more marketing and technical assistance.

Valluis said there has been a huge change in the pattern of flour and wheat importing as many countries, such as Egypt, Algeria, Yemen, Sudan, the Gulf Emirates and Mauritania, invested in their own mills. This change had come about partly because of the development of intensive livestock production units that provided a feed outlet for the milling by-products and were an essential part of the economics of flour milling.

New markets for feed grains were also emerging in China, the Middle East and North Africa. Valluis said more people in these areas have moved to towns and cities to work in industry. With this shift came changes in diets and an increase in consumption of meat and dairy products. On the industrial side, use of grain to produce starch and ethanol was increasing. He said he believed there would be big opportunities for the starch industry in the new European Union of 25 countries.

Alastair Dickie, director of crop marketing for the U.K.’s Home-Grown Cereals Authority, said he believed biofuels would provide an important cereals market for the enlarged Europe of 25 states due to come into being in May 2004. He said the 10 new member states would add another 38 million hectares to the existing E.U.-15’s 132 million hectares. Agriculture is an important part of the economy in all the new states, and with the E.U.’s market support measures, cereal production would increase dramatically, leaving a large cereal surplus.

At the same time, said Dickie, former Soviet Union countries, such as Ukraine and Kazakhstan, are able to produce and ship wheat to major users such as Egypt and Iran at less than half the cost of other major exporters. Ukraine could produce and ship wheat to these countries at just over U.S.$89/tonne and Kazakhstan at $108.60 — compared with $182.20 from Canada, $172.60 from France and $155.40 from the U.K. This could result in substantially reduced export outlets.

With the added pressure of WTO rules on subsidized exports, bioethanol could become a crucial outlet for the E.U.-25’s cereal surplus.

Underlining the development of Russia, Ukraine and Kazakhstan as new suppliers of grain to world markets, Daniel Marx, general manager of WJ Grain Ltd. said the countries could produce big crops although their export potential could vary considerably from an estimated 4.2 million to nearly 30 million tonnes depending on the weather. If exports were restricted because of quotas, Ukraine could produce meat products instead. "The FSU is the cheapest area in the world to produce grain," said Marx, "and this will not change."

Paul Harrison, dry cargo director of BSI-Inspectorate (Suisse), said that although most of these countries’ storage, handling and transport systems were old, they were functional and were beginning to be upgraded under private ownership. (See also "Building For Exports," page 34, World Grain, October 2003.)

The next Day Robinson Conference will be "Inventory Finance and Control in the Commodities Sector," slated to take place January 13-14 in Singapore. For more information, visit www.dayrobinson.co.uk.

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