The future for feedstuffs in Europe
March 01, 1995
by Teresa Acklin
Part II examines how factors outside of CAP reform and the Uruguay Round will influence feed ingredient markets.
BY LEON VAN LINGEN
Several variables and unknowns in addition to reform of the Common Agriculture Policy and the General Agreement on Tariffs and Trade should be taken into account when looking at the future of non-grain feed ingredients in the European Union. These are not all encompassing, but demonstrate the complexity of the market situation.
First, the E.U. must cope with the addition of Austria, Finland and Sweden. Although they do not have large compound feed/livestock sectors, their agricultural policies must be made compatible with the E.U., which implies non-grain feed ingredients might be able to find new markets in these countries.
As long as E.U. grain intervention prices are substantially higher than world grain market prices, the E.U. will remain the market to which non-grain feed ingredient producers look for marketing their products. This situation is likely to persist, especially because the 55 Ecu community preference will preclude cheap grain imports. At the same time, non-grain feed ingredient producing countries will be able to buy grain for their domestic markets at or near world market price levels.
THE U.S. FACTOR.
Because the U.S. is the largest producer of non-grain feed ingredients exported to the E.U. and provides almost all the E.U.'s imported corn gluten feed, I would like to share some thoughts on its feed market.
A recent study by the U.S. consulting firm Abel, Daft & Earley noted the explosive growth in U.S. meat, poultry and dairy exports since 1985 and predicted additional growth in U.S. exports from this sector. This pattern might be extended further because of the changes taking place in the former Soviet Union.
Total F.S.U. cattle numbers from January 1990 to January 1993 are estimated to have declined by 13%, with swine populations down by 21% and poultry by 14%. At the same time, egg production has dropped by 13% and meat production by 19%.
These numbers indicate that the F.S.U. probably will become a bigger importer of finished products rather than raw materials such as grain and soybean meal. Without animals but with 285 million mouths to fill (and this total grows by 3 million every year), the F.S.U. will need to rely on imports of meat and eggs.
Because food product prices are likely to decline as a result of GATT, it also will become cheaper for the F.S.U. to buy if it has the money. I believe money will be provided, as I do not think the West wants to see the F.S.U. revert to the old economic system. Also, providing credit for finished products supports value-added exports, benefiting the livestock and slaughter industries, not just farmers.
The importance of the U.S. and F.S.U. situations is that the U.S. domestic feed market probably will experience good growth on the back of its finished product sector. Assuming the U.S. also wants to continue to export bulk maize and soybean meal, it may face a need for alternative feedstuffs to meet increased domestic feed demand. Non-grain feed ingredients produced locally can become this alternative feedstuff.
A further supporting element for the growth in U.S. markets is the ongoing decline in the U.S. dollar's exchange rate, which will continue to make U.S. products more competitive on world markets.
Because E.U. grain support prices are expressed in E.U. currencies, the declining U.S. dollar also means that non-grain feed ingredient exporters will receive more dollars for sales to the E.U. But if the trend in the U.S. dollar is reversed, prices of non-grain feed ingredients must decline in U.S. dollar terms, implying a stronger competitve position for the E.U. in respect to both exporting grains and exporting finished food products with or without substantially reduced subsidies. A higher dollar will create a real world market.
Another trend, which is not reversible, is the drive to procure quality. “Quality” is an umbrella word for various aspects of the compounder-trader/shipper relationship. Pure-product specifications, delivery of product ordered, logistical service, market information and price protection now are important to E.U. compounders.
This development implies that producers, traders and shippers of non-grain feed ingredients must look at new tools to market their products. Pipeline management, maximum price contracts and other flexible tools to assure consistency in product and service are issues for the future.
We also see the development in the E.U. of general manufacturing codes, such as ISO certification, for all links in the grain and feed chain, including compound feed manufacturers, importers, traders, distributors and handlers. It is important that the E.U. adopt uniform legislation governing the industry to avoid discrimination.
A last issue is the environment, or rather, environmental constraints. A clear example of this is what is happening in the Netherlands; in support of reducing nitrogen pollution, the Dutch government no longer opposes policies that imply cuts in livestock, primarily because other policies to address manure pollution seem to have failed.
Ultimately, these policies may affect the total number of livestock fed, as well as where the animals are fed. Product mixes may need adjustment to meet more stringent environmental requirements, and feed manufacturing cost-price ratios may increase. It is therefore imperative that the Commission develop uniform standards and legislation for all E.U. member countries to avoid inter-member discrimination.
THE FUTURE OF NON-GRAIN FEED INGREDIENTS IN THE E.U.
What I think remains a certainty is that non-grain feed ingredients will find their way to the E.U. In fact, from a compounder/livestock farmer/consumer viewpoint, we should even hope that this continues. It will allow for the least-cost production of finished products like meat and eggs.
This is very important, as product exports then will require smaller subsidies to compete. Even a reduction in the set-aside within the E.U. should not change this forecast.
But we definitely will import fewer non-grain feed ingredients, assuming that the U.S. dollar does not drop substantially further. Increased grain use in the range of 5 million to perhaps 10 million tonnes a year, compared with the pre-CAP reform period, is realistic.
The focus of our business will change further in the years to come. The trend toward direct partnerships between users and producers will continue. Producers, shippers and traders will need to change how they offer their products to the compounder.
Quality management in all its aspects is the key for the future. This implies that traders will need to perform a real function over and above that of a passer-on of cheap prices.
The price for the commodity will not and should not be the sole guide to the service a compounder receives. But an increase in trust between suppliers and compounders is required if partnerships are to work.
As compounder requirements are derived from retailer and consumer needs, it becomes obvious that the whole chain needs to change its focus. What we need to do, together, is create clear win/win situations for all involved in our business.
Leon van Lingen currently is account manager of General Cocoa Holland, a subsidiary of Cargill BV, in Amsterdam, the Netherlands. Previously, he was European account manager for Cargill, responsible for the import, trade and distribution of non-grain feed ingredients in the European Union. During that period, he was chairman of COCERAL's feedstuffs section. This article is based on his October presentation to the AgraEurope/Sosland Publishing Co. conference on “The Grain Market in the post-GATT World” in Brussels, Belgium.