Global Grain
Emily French, managing director of ConsiliAgra, gives a presentation at Global Grain Asia 2018 in Singapore.
Photo by Michael King.
The staging of Global Grain Asia 2018 at Singapore’s Novotel Clarke Quay hotel March 12-14 was dominated by the growing prospect of a trade war between China and the United States as President Trump’s promise to “Put America First” took solid policy form. Yet apart from examining what “Soy Wars” between the United States and China might look like for global agricultural markets, almost 300 conference delegates also heard just how important Asia is to global grain demand, and how the mushrooming of the region’s middle classes will further push global procurement power eastward.

It was underlined by a number of speakers that as families attain middle class status they generally consume more grain products such as noodles and bread, and meat consumption tends to surge, driving feed demand. Asia’s importance to the global grains market was laid bare by OECD forecasts, which predict the global middle class, defined as households with daily expenditures of $10 to $100 per person in 2005 purchasing power parity (PPP) terms, will reach 4.9 billion people by 2030, up from 1.8 billion in 2009. Significantly, two-thirds of them will be located in Asia, up from just 28% in 2009.

“It’s pretty simple, the future of grains markets is Asia,” commented one delegate.

China, of course, is already the dominant buyer in many grains markets, a point no doubt bemoaned by U.S. farmers as they contemplate what a trade war with China means for them. The OECD expects China’s middle class to exceed 1 billion people in 2030, up from 157 million in 2009, so demand for grains is unlikely to slow in the coming years, a point driven home on day one of Global Grains Asia 2018 – the China Briefing Day.

Gavin Maguire, a commodities and energy analyst for Thomson Reuters, stressed that “China’s share of protein consumption is unmatched, is still growing, and is a matter of national security.”

He said China’s share of world crop consumption continued to surge and its imports now dominated the international trade of many commodities, including soybeans, almonds, rice, barley and sorghum.

“China has a broad and growing reach,” he added. “China consumes half of the world’s pork, a third of all rice, fish meal and soy products and key imports are needed to support these big industries. China’s food needs are unmatched and require global origination.”

Emily French, managing director of ConsiliAgra, said it was impossible to emphasize enough just how important China now is as a food and agricultural market, and just what the U.S. agricultural industry could be foregoing in the future if a trade war commences.

“By 2033, three quarters of Chinese households will be considered middle class,” she told delegates. “Food and agricultural imports are projected to grow by 11%, while presently the U.S. captures about 11% of total food and agri import share.”

China already accounts for 33% of the world’s population with annual income in the range of $10,000 to $100,000, over 200 million of its households have real annual PPP incomes greater than $20,000, while a further 151 million households are projected to join this group by 2026, French said.

Turning to the Belt and Road Initiative (BRI), launched in 2013 by President Xi Jinping to bolster trade and infrastructure links to Europe, the Middle East and Central Asia, French said it now connected China to 80 countries via its various components — the Silk Road Economic Belt, the Maritime Silk Road and the Arctic Silk Road. And it is still being extended, not least to South America as BRI’s role in ensuring China’s food security becomes clear.

“China has 20% of the world’s population but only 7% of arable land so food security is a pillar of BRI and Chinese policy,” she added.

Soybean demand keeps growing

J.Y. Chow, senior vice-president for food and agri coverage at Mizuho Bank, said BRI was evident in China’s efforts to control supplies of soybeans from Brazil via Cofco, its trading house, and also how it links China to countries with high growth levels for feed use. Indeed, although most speakers focused on where China would in the future source its soybean requirements if a trade war with the United States forced it to find alternatives, Chow took a different line. He noted that China’s imports of soybeans were set to top 100 million tonnes this year even though domestic feed demand growth had decelerated.

“Feed demand growth started slowing from 2012, so why does soy demand keep going up when feed demand is flat?” he asked. Answering his own question, he said there were multiple domestic reasons for this, including better feed conversion rates and the industrialization of farming, but he also noted China’s huge excess of crushing capacity. French added that currently only 93 million to 94 million tonnes of capacity was in use out of 150 million tonnes of capacity.

“China could potentially import more soybean and export crushed soymeal to Southeast Asia while consuming soy oil instead of palm oil,” Chow concluded.

With that possibility in mind, Chow told World Grain on the sidelines of the conference that China’s imports of soybeans could potentially rise further in the future, with meal then exported to Japan, South Korea, Vietnam and the Philippines.

“All the crushing plants are on the coast so it’s doable if they import at the right price,” he explained. “Another factor, of course, is the middle-class profile — people want more healthy oil, so the demand profile favors soy versus palm oil. There might be a phasing out of palm oil.

“China could easily import another 10% to 15%, so another 10 million to 15 million tonnes of soybeans. It won’t happen overnight, but I expect there will be movement on this.”

Juhui Huang, vice-president of corporate affairs for Greater China at BRF Asia, said China could also be proactive in other markets in the near term.

“China may do something on rice trading to alleviate stock pressure this year,” he said. “It may not restrict rice imports to avoid hurting its BRI partners, but it may encourage exports of rice and corn in 2018 by playing a price game. China will also continue to expand the import of agri products, especially high-quality, high-value products like soybeans, meal and aqua products for environmental and cost reasons.

“China may also soon become a large corn importer — corn stocks have been drained in the last two to three years.”

Other expanding markets

Of course, China is not the only expanding grains market. India’s middle class is currently small compared to China’s, but some 150 million additional households are due to achieve real PPP incomes of more than $20,000 by 2026, almost tripling the 2016 total. Indonesia is forecast to add another 28 million households to its middle class with real annual PPP income of $20,000 over the same period, while Pakistan and Bangladesh also have rapidly expanding middle classes that are expected to consume more grains in the future.

Sumit Gupta, a business manager at McDonald Pelz India, said India’s population was still growing and, with rising incomes, prosperity and urbanization would come more demand for proteins and better food. He also noted that India’s ground water levels in many parts of the country were causing long-term grain production challenges and making harvests more erratic with pulse production particularly volatile.

While at present India was a relatively low per capita consumer of meat, Gupta said it was a myth that all Indians were vegetarian. While much would depend on pricing support for India’s farmers because this stimulated the level of domestic production and therefore dictated import requirements, he said more imports of grains would be needed in the future as demand soared and India’s rising middle class consumed more protein via rising demand for meat.

“As we move toward 2020, India will need more imports — it’s not a matter of when, it’s a matter of how much,” he added.

Diaa Ghaly, managing director, food and nutrition at Abu Dhabi’s Al Dahra Holding, said the company was set up to partner with the government to help the emirate and the Middle East improve its food security. Al Dahra is already established in 20 countries and has an “active foreign investments strategy” to secure food supplies at origin. This includes investments in the United States, Europe, Australia and Africa to secure animal feed requirements, and rice investments in India and Pakistan supported by a partnership arrangement with Agility Logistics to ensure the supply chain back to the UAE functions efficiently.

He said Saudi Arabia also was looking to secure its own food supplies for a domestic market that was a major consumer of meat and needed to import all its feed requirements.

“The Middle East doesn’t produce a lot of grains, and that means imports,” he said. “Countries are trying to increase self-sufficiency, but they need to guarantee food resources, so they diversify origins, for example, in the U.S. and Black Sea. They are also investing in farm produce around the world, buying land in South America and the Black Sea so they are secure in the long term from a food perspective.”

David Ross, general manager of Alphamar Agencia Maritima, and fellow director Arthur Neto, outlined how Brazil was ramping up its exports of soybeans and corn, and how investors were urgently bolstering infrastructure capacity in the country’s fast-growing northern ports to meet growing demand from Asia.

“Regarding export numbers, when we look at soybeans in the last 10 years we have seen a steady growth of more than 65%, with the majority of this growth happening in the last five years,” he said.

He noted that investments to improve capacity were ongoing at the ports of Santos and Paranagua in the south, while supply chains to “northern arc” ports were increasingly important. Northern ports already have 14 elevators, four more are set to be built in the coming years and two more concessions have been announced, although the schedule for bids is currently unknown.

“New ports in the north are helping to reduce the pressure in the ports in the south, but ports are still seeing some bottlenecks,” said Ross, who added that most delays at ports were currently caused by logistics difficulties in the hinterland rather than at the terminal itself.

He also noted that vessel-waiting times in Brazil depended on numerous factors, including long delays on roads north, which adds to pressure on southern ports and drives up loaded soybean costs.

“Our internal logistics delivering the cargo to the port would need to be improved in order to really see the full return of any investments made at the ports,” he added. “The system still depends on trucks. Farmers use them as silos on wheels during the peak season owing to the lack of internal storage.

“Although we have some major rail concessions due to be announced that will deliver cargo from the heart of Mato Grosso region to Miritituba in the north, this capacity is expected to be absorbed by existing and expected terminals in Barcarena. It is worth pointing out, also, that in almost all our export terminals the limitations around cargo reception means that the loading rates are superior to that of the reception.”

While multiple speakers noted that Black Sea grains exporters had gained an increasingly solid foothold in Asian markets and were continuing to ramp up production, Australian wheat suppliers increasingly have found themselves squeezed.

Ben Gliddon, group pricing manager at Interflour Holdings, said Black Sea suppliers of wheat set the pricing in Asia, and Australian farmers had been “stubborn” about discounting.

Michael King is a multi-award winning journalist as well as a shipping and logistics consultant. He also supplies an array of corporate services - For more information, e-mail [email protected].