IGC hears calls for predictable market

by Chris Lyddon
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Grain consumers in Europe and Asia need more stability in prices, a series of international experts said at the recent International Grains Council (IGC) Conference in London, England. The European feed industry wants policies to make the market predictable, while Asia has to be equipped to face huge demographic changes.

The compound feed industry needs policies designed to deal with cyclical markets, according to Aurelio Sebastia, the chairman of Europe’s trade body, the Industrial Compound Feed Committee (FEFAC).

“In Europe at the moment, we have lost anti-cycle policies,” he said. “We need this to ensure our investments. What is important to us is the predictability of the grain market.”

FEFAC President Patrick Vanden Avenne raised a series of issues which face the European compound feed industry. He pointed out that with Russia newly joined as an observer, FEFAC now stretches from the Atlantic Ocean to the Pacific Ocean. “We are still the largest bloc in the world for the production of compound feed, followed by the U.S.,” he said.

However, it is a mature industry. “Europe and the U.S. are almost not growing at all,” he said.

Changes in consumption are affecting how the industry works. “Poultry and eggs have overtaken — for the first time ever in Europe — pig meat in terms of compound feed production,” he said.

He highlighted a series of issues facing the feed industry. Vanden Avenne was particularly concerned of asynchronous GM approvals.

“There are now about 130 GM events in the pipeline,” he said. “In the U.S. and South America, GM events are approved much faster than in Europe.”

He pointed out that shipments of feed ingredients to Europe with even minutely low levels of non-approved GM material have, in theory, to be sent back or destroyed. Now the E.U. has come up with a 0.1% threshold, but the change is strictly limited in scope.

“It’s only for feed. EFSA (the European Food Safety Authority) should have concluded there is no adverse effect on health or the environment from that GM event,” he said. “This is a small victory but we still have a long way to go.”

He also referred to the potential lifting of the feed ban on processed animal protein, “or to put it another way, meat and bone meal. They are talking about reintroducing it, but in a way that is almost too complicated.”

One provision is that there should be no cannibalism. “This has nothing to do with health, but everything to do with ethical reasons,” he said. “Europe is a very ethical area.

“My estimate is that we won’t have anything before 2012. And even then we are only talking about a million tonnes of protein compared with 30 million tonnes of soybean imports. So it’s much ado about nothing.”

Another issue he looked at was the recent scandal over dioxin contamination in feed, found in Germany. He pointed out that it was the industry, not the regulators, who had discovered the problem. “It wasn’t discovered by the government of Germany, but by one of their compound feed producers,” he said. “We still don’t know exactly what caused this dioxin contamination. It came from a biodiesel plant, probably from a cleaning medium.”

The feed industry wants to make very sure that its suppliers are made responsible for supplying uncontaminated ingredients. “We think the onus should be on the fat blenders, on our suppliers but not on us,” he said.

He’s all in favor of sustainability, but he issued a call for more transparent and widely agreed definitions.

“We believe that for our industry to keep being in business we should stay on a sustainable path,” he said. “We would like to come to a common methodology and a common database for the calculation of the carbon footprint of food.”

He accepted the important role of the feed industry in the sustainability of the livestock-based sectors. “Feed represents between 60 and 70 percent of the carbon footprint of meat, eggs and milk,” he said.

Angelito Banayo, administrator of the National Food Authority of the Philippines, also stressed the need to deal with volatility. He questioned his country’s response to the price spike of 2008, when it bought rice amid concern over domestic food supplies.

BUYING PUSHED UP THE PRICE

“It bought and pushed the price up to $1,000 a tonne,” Banayo said. “There probably wasn’t any shortage but the Philippines suffered a crisis. The surge brought domestic food prices up to an all- time high.”

He described the system used in the Philippines to manage supplies.

“The National Food Authority is regulated by law to maintain a 15-day staple cereal supply. The two-week buffer stock is augmented by another 15 days. At the beginning of every July we are required to buy a 30-day stock of rice,” he said. “To get our farmers to keep planting rice, the NFA seeks to give them better prices than the private sector. Consumer price subsidies are now gradually being lifted to approach market levels. What we are unable to produce, we import.

“This year we are only going to import 860,000 tonnes compared with 2.4 million tonnes before. The NFA will import only 200,000 tonnes.”

The Philippines is also taking part in international efforts to avoid or tackle severe market shocks. “We are actively participating in the ASEAN plus-3 emergency or rice and reserve program (APTERR),” he said.

One reason why the issue is so important is the shortage of land in a country in which 95 million people live on 7,100 islands. “We have a very small land area compared to some other countries,” he said. “Thirty-million hectares or 15 percent is dedicated to rice.”

The Philippines has a particular problem with the weather. “We are visited by roughly 22 typhoons each year,” he said. “The growth in rice output all over the world has not been so big. The volume that was traded last year was a mere 31.4 million tonnes.”

The country depends on the world market. “We have gained since 2008 the notoriety of being the world’s largest importer of rice,” he said. “The production of rice is generally affected by strong typhoons. A strong typhoon generally sets us back by 200,000 tonnes. If it hits at the wrong time, it could rise to 400,000 tonnes.”

The Philippine government is also tackling the demand side of the equation. “Our president is now pushing for legislation that would tend to curb population growth,” he said. “That hasn’t been successful for three presidencies primarily because of the Catholic Church, which is opposed to any form of population management. The Philippines is about 85 percent Catholic.”

Alejandro Daly, executive president of the Latin American Millers´ Association (ALIM), stressed the importance of grain prices to the living standards of populations in some regions of the world. “Let us not forget that Latin America is a region where the majority of income in households has been used for food,” he said.

The fundamentals are not the only factors. “We see the price rises as a problem but we also see it as an opportunity,” he said. “What we have to do is to try to avoid excessive volatility in prices.”

Tetsuhide Mikamo, director of the Research Institute of Japanese trader Marubeni, was not expecting an end to high prices. “It is not so easy to imagine a future easing in the grain supply and demand situation,” he said.

Marubeni handles about 20 million tonnes of grain annually. “Much of this goes to Japan, which has a 30 percent self-sufficiency ratio,” he said. “Much of the rest goes to fast-growing Asian countries. Marubeni has been able to create a virtuous cycle of large volume and increase competitiveness. We have built a strong supply chain in Japan.”

However, because Japan has an aging population, its grain consumption is not likely to rise. In response, the company is looking to markets outside Japan. He said grain is becoming a core business for Marubeni in the Asian market. The company is hoping to become an important supplier to Asia’s most populous country.

“We are hoping to supply China with a staple supply of soybeans,” he said.

He pointed out that Asia is expected to account for 1 billion of the expected 2 billion increase in world population by 2050. India, Pakistan and Indonesia’s contribution to this population growth will be particularly large.

“Another factor in rising demand is per capita grain consumption, which is strongly linked to income levels,” he said. “The distinguishing feature in a number of developing countries in Asia is that they are catching up (in wealth) to the developed nations. Korea and Taiwan have been catching up to Japan, while Korea and Taiwan are now being followed by ASEAN and China. This catch-up development model is giving rise to large middle classes and increasing per capita demand for grain.”
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