Since man began producing grain many centuries ago, there has been a need to trade it — with a neighbor, a neighboring village or a nearby region. As technology improved, infrastructure built, communication refined and crops burgeoned beyond demand, nations started looking beyond their borders for trade partners.
While there was global trade here and there a century ago, significant amounts of trade started in the 1960s and have continued to ramp up into the billions of dollars and millions of tonnes that move about the globe in today’s marketplace.
“Trade, in general, has moved from a regional relationship to a much more global intercontinental relationship that’s been facilitated by technology and transportation,” said Gary McGuigan, president of Archer Daniels Midland’s Global Trade group. “It’s just the globalization of what we do; it really is interconnected fully. While the formal tariff-free agreements have increased as well in those 100 years, we’ve also seen governments wanting to get involved either to limit exports or to buy imports into government reserves.
The global trade of grain has increased exponentially from 1921 to an estimated 576 million tonnes in 2021, according to data from the Foreign Agricultural Trade of the United States (FATUS).
“We’ve had strong growth in trade, particularly for the last 20 years,” said Stefan Vogel, head of commodities for Rabobank, UK. “That trend will continue because production of all crops is increasing in regions that have land but not the most population. Other regions in the world where the population is growing, land and water resources are scarce.”
Along with the amount of global trade, the flow of commodities in and out of countries has fluctuated. Technological advances, along with protectionist policies and domestic subsidies starting before World War II and accelerating in the early 1970s after food price spikes, changed the geographic distribution of trade flows. Population growth in developing countries and the availability of cheap food encouraged reliance on imports, according to a Food and Agriculture Organization report on global trends and challenges.
Brazil emerged as a major exporter in the 1970s and continues to play a significant role in today’s global marketplace, one that likely will continue in decades to come. While the United States remains a key exporter, its No. 1 position has been supplanted by Russia in wheat exports and by Brazil with soybeans, most of which are destined for China.
China has become a major grain importer as it tries to feed 22% of the world’s population with only 7% of its arable land. Imports first surged in the 1970s, following economic reforms, and continued in the 1980s and 1990s as the nation emerged from isolation. In the first decade following its 2001 accession into the World Trade Organization, China’s imports were led by soybeans and sorghum.
Now, as it looks to rebuild its hog sector following an African swine fever outbreak and supplement tight domestic corn supplies, the nation is expected to import 24 million tonnes of corn, 10 million tonnes of wheat and 100 million tonnes of soybeans in 2020-21.
Looking ahead, while some factors that influenced changing global trade patterns over the last 100 years will remain, such as trade policies and population growth, several new disruptors are on the horizon that could permanently alter the flow of agricultural commodities. These include climate change, an increasing focus on sustainable production, the rising popularity of plant-based protein and a push for electric over fossil fuel use in vehicles.
Following the first wave of globalization, led by steam and the telegraph, world market prices started to drop in the 1920s. At that time, nearly 90% of the world’s wheat trade came from four countries — the United States, Canada, Argentina and Australia. But only 18% of global wheat production entered international trade. Nations started pushing for increased tariff protection and world trade plunged, according to the 20th Century Transformation of US Agriculture and Farm Policy report by the USDA’s Economic Research Service.
In the United States, agricultural exports fell by more than 20% from the previous decade. Agricultural exports remained flat until the 1960s and began to rise dramatically in the 1970s, fueled by adjustments in exchange rates and demand from the Soviet Union for imported grains and oilseeds, the ERS said.
Following World War II and into the 1990s, the United States was the world’s grain superpower, the ERS said, by leading in corn and wheat production as well as exports. Before the start of the 21st century, the United States annually exported one-third of the globally traded wheat and 70% of corn.
Two major disruptions in the 1970s led to lasting changes in global trade patterns: the Russian grain “robbery” and the US embargo on soybeans, said Dan Basse, president of AgResource Company.
“We’ve become a global agriculture market and it started with Russia (Soviet Union),” he said. “They were massive buyers because of the failure of the collective farming system. It really changed the landscape in the 1970s and it lasted until the Berlin Wall came down (in 1989).”
Prior to that, the Soviet Union had purchased some wheat from the United States in 1963 and in the 1970s implemented a policy of importing grain every year to feed its increasing livestock herds. In 1971, the Soviet Union bought some feed grains and the following year, faced with shortages, it quietly bought one-fourth of the US wheat crop in what has become known as the Great Grain Robbery. The United States subsidized the purchases, causing domestic prices to rise, and lost revenue while spending $300 million in public funds.
The shortage in the Soviet Union turned out to be part of an overall grain production shortage. As a result, wheat prices sky-rocketed and stocks were decimated. Global food prices in 1973 increased as much as 30%. But a new trade flow was created, and the Soviets would continue for decades to be a major importer of grain.
Over the next 20 years, the Soviet Union continued to import large amounts of grain, growing from 27 million tonnes in 1975 to a record-high of 47 million tonnes in 1985.
As food prices continued to rise in the United States, then-President Richard Nixon announced in June 1973 an export embargo on grains, including soybeans. This led to a huge surplus in the United States and dropped the price of soybeans by almost half. Farmers were not pleased and by October, the restrictions were gone. But the market already had responded.
Japan, which relied heavily on the United States for its soybeans for feed as well as use in tofu, was shocked by the embargo and realized it needed to diversify its supply to insulate against any future events. It turned to Brazil, which at the time had a small soybean industry.
Introduced to Brazil in 1882, soy was mainly used as feed for pigs. By the end of the 1940s, it started to be used as a feedstock and for cooking oil, according to the Land journal article, “Soy Expansion and Socioeconomic Development in Municipalities of Brazil.” In the 1960s, soy was cultivated in two states and the harvested area was 300,000 hectares.
As buyers sought out Brazil for their soybean needs, production expanded so that by the end of the 1970s, it had reached 8.5 million hectares.
In 1980, Japan and Brazil initiated the Japanese-Brazilian Cooperation Program for the Development of the Cerrados. During the 21-year program, Japan financed the expansion of farming into the cerrados, the tropical savanna region, while Brazil covered the cost of infrastructure improvements. Japan also helped finance the development of soybean varieties and pest management. Brazil, now the world’s leading soybean exporter, is expected to harvest 38.6 million hectares of soybeans in 2020-21.
Starting in the 1990s, a second wave of globalization was in full swing and the agriculture market was seeing significant increases in imports and exports. New competitors were emerging as nations reformed policies and adopted new technologies that lowered the cost of production and increased yields.
International attention turned to China’s demand for agricultural imports as the country emerged from isolation and allowed economic forces to allocate resources, said the ERS in its report, “China’s Growing Demand for Agricultural Imports.”
China’s accession to the WTO also generated additional projections, based on the principle of comparative advantage, that China would import more land-intensive crops and export labor-intensive products, the ERS said. Rising income and living standards, increasing urbanization and food safety concerns fueled China’s imports. It has been a major source of growth in world demand for soybeans since the 1990s, the ERS said, but the nation also brings significant volatility to the market.
“Sudden and dramatic policy shifts, and their subsequent effect on China’s international trade profile, make the country a relatively volatile player,” the ERS said. For example, in 1994 and 1995, China abruptly increased its grain imports and cut off corn exports as concerns about grain shortages and inflation became widespread. Then, from 1997 to 2003, China stopped importing wheat and boosted grain exports.
Overall, the value of agricultural goods traded tripled from 1995 to 2014 and the estimated inflation-adjusted value roughly doubled, said the ERS in its report, “The Global Landscape of Agricultural Trade, 1995-2014.” Trade grew to accommodate an increase of more than 25% in global population and a 75% increase in real gross domestic product.
In that 20-year timeframe, developing countries started participating more in global agricultural trade, particularly imports. The share of import value by developing countries increased from 28% in 1995-99 to 42% in 2010-14, the ERS said. Vietnam, India and the United Arab Emirates became more substantial importers during that time, as did Saudi Arabia and Iran.
The sources and destinations of agricultural trade also became more diverse in that 20 years, with the top five countries accounting for 63% of total imports in 1995 but only 48% in 2012-14.
The top five exporting countries — the EU, the United States, China, Russia and Japan — shifted positions slightly in the 20-year span but they remained at the top of the list. The share of the top five exporters fell from 85% in 1995 to 75% in 2012-14, the ERS said.
With new low-cost producers and exporters, the global grain trade was set again for transformation. Traditional importers now had excess product to move and nations started looking for new trading partners, resulting in the global grain trade flows of today.
Today’s trade flows
Perhaps one of the biggest transformations in the recent past and into today is Russia’s, and to a lesser extent Ukraine’s, move from major grain importer to exporter. Russian grain output started increasing in 2000, creating substantial surpluses for export. The nation moved from a net grain importer of 3 million tonnes per year on average from 1996-2000 to a net exporter of an estimated 49 million tonnes of wheat and coarse grains in 2020-21.
In the last 30 years, grain production in Russia and Ukraine has increased 66%. While new land was brought into production, it was higher yields that fueled the increase. Average yield in the two nations increased by 76% over 30 years.
After the Soviet Union broke up, new technologies were available and production incentives changed. When meat production subsidies stopped, output dropped significantly and therefore so did the amount of grain fed to livestock.
Russia is now the world’s largest wheat exporter and is expected to produce 85.3 million tonnes in 2020-21. While its recently announced wheat export tax and grain export quota is expected to temper exports later in the marketing year, the USDA is still expecting Russia to export 39 million tonnes of wheat.
“The Black Sea will continue to be significant exporters for the foreseeable future,” Basse said. “They’re having problems with domestic food inflation, but they will continue to produce crops of 90 million tonnes or more. We’re still looking at a substantial ramp up in production. They’ll accomplish this through the weak ruble. Plus, there’s still another 27 million acres of the collective farming system that can be brought into production.”
All eyes are on Russia given its massive crop, Vogel said. But an export duty on wheat means farmers and grain handlers will not be able to participate much in global wheat price advantages.
“It opens up ways for other regions to take some more market share in the future away from Russia, if prices would remain really high,” he said. “Russia’s on a level playing field if prices are low. With prices above $200, Russia is at a disadvantage in the future.”
Ukraine is replacing barley with corn and is not only increasing the area of grains, but also the yield per hectare, Vogel said. It made the change after the government liberalized the export market for corn. In the last 10 years, exports have increased from about 5 million tonnes to 25 million tonnes today.
Throughout the last century, and particularly in modern times, government policies have had a siginificant impact on the the flow of grain around the world.
“Trade policies, protectionism, tariffs or barriers to trade, whatever you want to call it, ultimately they have caused disruptions in the trade flows,” McGuigan said.
Government policies in China, and the continued volatility of how and when they are applied, has swayed the market for decades. The United States continues to feel the strain from its trade war with China that dropped soybean exports by 70% in 2018 and now Australia is reeling from an 80.5% tariff on its barley exports to the nation. In the 2018-19 marketing year, more than half of Australia’s barley went to China.
“Disruptions like these are opportunities for bigger players,” McGuigan said. “Ultimately the grain will flow, the traditional route may change, but the grain will flow. So, China will buy more from the US, Ukraine, Argentina and less from Australia. Australia is still producing the same grain so it will have to ship it somewhere else, to Africa, other places in Asia.
“It just comes back to the global connectivity of all these trade flows. I don’t think anybody can really manage those trade flows 100% anymore. They may have been able to do it 100 years ago, but not anymore.”
While China did increase its imports of US soybeans as part of the phase one trade agreement, it did not reach the first target, which called for the purchase of $36.5 million in farm goods. Estimates showed China would have had to import 40 million tonnes of soybeans to reach that target, but only imported 25.89 million tonnes. That was still higher than 2019, when it imported 16.94 million tonnes of soybeans from the United States. Brazil stepped in as China’s top supplier, exporting 64.28 million tonnes of soybeans to China in 2020, up from 2019 and will export an estimated 57.67 million tonnes in the current market year.
In addition to soybeans, China likely will remain an importer of corn for a few years and has the potential to be the No. 1 corn importer in the world very soon, Vogel said. In fact, the February World Agricultural Supply and Demand Estimates showed import demand from the EU at 19 million tonnes, Mexico at 16.5 million tonnes, Japan at 16 million tonnes, and China at 24 million tonnes.
“That’s not driven by politicians,” Vogel said. “They’re having to supply those corn needs for the livestock sector. At the same time, it has reduced corn stocks over the last five years, so there’s not much they can easily bring on to calm down the market. China needs a high number of corn imports, and the US is a good supplier. South America will always play a role in that also.
“It will take a few more years for it to recover from African swine fever. It’s a positive sign for the future that the country will have very strong import numbers going forward.”
Along with losing a major share of soybean exports to Brazil, the United States has felt pressure from other regions in corn and wheat exports. Competition from Russia, Ukraine and Australia has weighed down wheat exports, while Brazil, Argentina and Ukraine are driving down its corn export share. The trade war with China boosted Brazil into the No. 1 export spot for soybeans.
The emergence of new low-cost producers and exporters in global, wheat and soybean markets are transforming global grain trade, the ERS said.
For example, Indian wheat exports are returning to the global market in a significant way for the first time in several years, the FAS said in its February “Grain: World Markets and Trade” report.
“India’s ample supplies are poised to reach additional markets as stocks tighten among many of the top exporters,” the FAS said. “India’s domestic support programs have a history of periodically expanding wheat production and burgeoning government-held stocks.”
Even with record consumption, stocks are at record levels. Several years ago, when stocks reached a high level, relatively high Russian export prices opened opportunities for India to supply Asia and Middle East markets, the FAS said. In recent months, Indian export prices have eased while prices for major suppliers have risen,
“This will afford India the opportunity to seize greater market share in Bangladesh and expand to additional markets,” the FAS said. “However, the scale of exports from India is not likely to match that of several years ago, since a larger Australian crop will provide formidable competition in Southeast Asian markets.”
McGuigan agrees India will be more present in global trade flows, which likely will include pulses of which India accounts for 25% of global production. As people’s diets change toward more vegan or plant-based protein, he said pulses will be more present in global trade flows.
“I do think India will be very important in those trade flows,” he said. “There is a big potential for much increased trade in pulses globally. The industry is set up for it. They use the same transportation, both across the sea and going in and out of ports.”
Africa could also become a bright beacon for trade in the years ahead, Basse said. Some believe Africa is moving toward self-sufficiency while others say because of a failed political system, the region will be importing more.
“Africa agriculture could improve; they have potential,” he said. “Somewhere there is an opportunity on the demand side, looking at 2025 and beyond.”
North Africa is a big importer of grain and oilseeds and will continue to be, McGuigan said, while sub-Saharan Africa has the potential to be a huge producer of grains.
“For whatever reason, they’ve not been able to harness that potential,” he said. “Fifty years ago, Zimbabwe was the breadbasket of the continent and now it’s not. The land is still there, the soil is still some of the best in the world but unfortunately it hasn’t been harnessed and I don’t see that happening anytime soon.”
History has shown that grain flows can shift, sometimes rather quickly, and impact global trade for years and even decades to come. While it’s not possible to precisely identify what the next disruptors may be and how flows may shift, analysts see a few potential issues on the horizon.
One factor that Vogel said grain and oilseed producers should be worried about is the uptick of alternative proteins. Much innovation is happening in that field, whether it’s plant-based or through a fermentation process or cell cultured meat, and there is significant investment.
“If it got to the point where those proteins are accepted by the population, are considered safe and are price competitive, it could be a big disruption,” Vogel said. “We would still have protein isolating concentrates and capacity expansion of pulses and so on, but that is a scary picture if we can produce meat without using a lot of grains. It’s going to get very challenging for those producers of soy and corn. But who knows if and when, and to what extent that occurs?”
McGuigan said alternative proteins may displace wheat and corn because of less demand for feed, but growers could pivot to growing more soybeans and pulses.
“It’s still agriculture,” he said. “The overall demand for protein would continue to increase, the mix will just change.”
Falling demand for biofuels in the future, as governments push electric vehicles over fossil fuel, could also cause a major shift in corn and soybean markets. In the United States, California has banned the sale of new gasoline-powered vehicles by 2035 and other states have legislation pending. Other countries have their own initiatives, such as Sweden, which has pledged to stop using fossil fuels by 2050 and Norway, which plans to ban the sale of fossil fuel cars by 2025.
“It will be a transition,” McGuigan said. “It depends on how quickly we ramp up on the electric side. The market share will grow over the next 10 years, and that will lead to a reduction in the demand for fuel. But you may see governments then mandating for more ethanol and biodiesel. So, you may have less fossil fuel going in and more ethanol and biodiesel, to keep the demand for those products the same overall.
“From the political point of view, the farm lobby from North and South America is pretty strong and they won’t want the mandate of biofuels to go away.”
Climate change could push soybean production northward, opening up further opportunities for regions such as Canada and the Black Sea, Basse said. Shorter variety soybeans are already making it possible to grow soybeans in Canada and encouraging construction of crush facilities in the Black Sea.
“Those kinds of things will keep happening,” Basse said. “Climate variability is something that will be with us. We’re only understanding a little bit of it today.”
Data has shown that severe climate events, whether it’s flooding, drought, or something else, seem more robust than the world has experienced in the last three or four decades, he said.
Hand-in-hand with climate change is the increasing focus on sustainability. Countries and regions are setting targets, as are individual companies, so it’s not a one-size-fits-all policy, Vogel said.
“Sustainability will remain a very important piece of global agriculture in the future,” he said. “It will have an impact on certain regions in the world.”
ADM has made serious commitments around responsible land use, no deforestation and no employee exploitation, said McGuigan, noting that the company launched its Strive 35 plan to reduce greenhouse gas emissions by 25%, energy intensity by 15%, water intensity by 10% and achieve 90% landfill diversion rate by 2035.
“We’ve already committed to not buying from deforested areas,” he said. “I do think that will have an impact on the land use in areas like South America where potentially people think there may be further expansion.”
Increased production will have to come from increased yields from the land already in use. Yields, in general, over the last 100 years are off the chart in terms of efficiency, McGuigan said.
“We’ve got to continue to look at that in an agronomic way to improve yields going forward,” he said.
Editor’s Note: As Sosland Publishing gears up to celebrate 100 years of providing food industry professionals timely information, news and commentary, we will be publishing a series of feature articles across all our titles to celebrate the past, present and future of the people and industry that feeds the world.