The Middle East and Africa play a hugely important role in the world’s wheat market. Delegates at the 2015 Global Grain Conference in Geneva, Switzerland heard about the challenges the region faces and what’s needed to supply its buyers.

Merzad Jamshidi, chief executive officer and managing director of Iran’s KFF Mills and chairman of the International Association of Operative Millers’ Mideast and Africa District, explained the size and needs of the region.

“There are 15 countries in the Middle East,” he said. “There are over 50 countries in Africa. I did not include Turkey, because depending on the agenda we don’t know where Turkey belongs. We import about 46% of all wheat that is exported. We like U.S. hard red but due to price it doesn’t look too attractive.

“Australian wheat is very popular, but for a lot of reasons we don’t get as much as we used to.”

He explained that wheat purchases account for more than 80% of the typical costs of an average mill, although that varies from country to country.

“For example, in Iran, finance charges are 28%,” he said. “What is important here is the value of the wheat we buy. It relies on three values: price, quality, service. The key value is based on the mills demand, current performance and geopolitical factors.

“Most important is the price of the wheat, the fob price, of course. There has never been a more critical need for a clear corporate understanding of where value lies in wheat purchasing.”

The value of wheat to a buyer is a function of the price and the quality received from, and service given by, the seller and focused on the overall cumulative value of the wheat to the mill.

“Millability is extremely important to us,” Jamshidi said. “Also, what we have to think about is the end user quality. Are we producing the exact flour that the baker wants?”

What it boils down to is the economic viability of the wheat that you buy, he said.

“The cheapest wheat is not necessarily the best wheat for a mill. In pasta, a lot of hi-pro soft wheat is being used. A lot of Black Sea is used. They need to use improvers.

“White wheat is preferred in the region. In the Gulf Cooperation Council (GCC), all the Indian subcontinent white wheat is considered the best quality or superior wheat.”

A large Indian population in the GCC means that Indian bread and hence white wheat were popular there.

He noted increasing consumption in sub-Saharan Africa, up by 0.35 kilograms a person a year between 2000 and 2013, attributing it to “rising income, growing population, and, of course, the declining price of wheat.”

Consumption is expected to increase at an even faster rate in the future, with the potential drivers of demand including rising incomes, growing populations and urbanization. Women’s participation in the labor force and the opportunity costs of time are also likely to play a part, as is food aid in the form of wheat. The declining price of wheat relative to other staples in countries such as Kenya and Nigeria also had the potential to push up demand.

“What is unique and sad about our region is the lack of water,” he said. That means that more wheat must be imported.

Conditions in Iran

The conference was held before a recent deal paving the way for increased trade with Iran. Jamshidi and Ali Ghane, who is head of all foreign procurement, bi-lateral trade and business development at Overseas Trade Development Corporation, with one of the largest crushing plants in Iran, talked about the impact of the deal.

Jamshidi explained that his company has 4,000 customers in Iran.

“We have imported our own wheat rather than milling the government’s wheat,” he explained.

Because of the sanctions that Iran had been facing, a lot of companies have been scared off by the way the U.S. has gone after banks.

“This was the first time ever that the banks were used to reinforce a political objective,” he said. “It’s a bit vague on the scope of the licences the U.S. issues. It’s difficult to get advice on how to do business with Iran.”

He expects international banks to be cautious, but he noted there are advantages to dealing with Iran. It has great infrastructure and opportunities.

“The Rohani regime is about improving the economy, opening markets and rejoining the international community,” Ghane said. “It’s quite important that we remember that we deal in humanitarian trade. You can never sanction pharmaceuticals or food.”

“We have been importing a lot of wheat this year, simply because the government has a policy of protecting farmers with exaggerated prices,” Jamshidi said. “This government sits on wheat, but the private companies are still importing.”

In the future, Ghane expects the role of the government to be limited with the private sector becoming more important.

“It’s a $15 billion market for international sellers,” Ghane said. “The largest trading houses never left Iran. They never will.”

The industry is there for the long term, he said.

“This is a 5,000-year-old industry,” he said. “We have one of the highest higher education rates in the world. There’s 4.5 million tonnes of crushing capacity a year. The biggest asset is the geographical location of Iran. It is the crossroads of Asia and Europe.”

Jamshidi said there are significant obstacles to overcome, however.

“Iran has a huge water problem,” he said. “We have farms now in places in Iran when the government restricts farmers from planting. The big companies know what they want and go after it. They don’t need a trade delegation. The medium-sized companies are just afraid.”

It all comes down to corporate will, said Ghane.

“Your biggest risk as a food industry is whether the Iranian population will wake up tomorrow morning and eat breakfast, lunch and dinner.”

Added Jamshidi, “The U.S. government never said you are not allowed to do business in Iran. They said that if you do business there is a price to pay.”

David Blumberg, CEO of Blumberg Grain, Middle East and North Africa, considered the problem of food wasted around the world which he put at a trillion dollars.

“It’s certainly a lot of money – equivalent to about the GDP of much of the Middle East and North Africa,” he said. “If you’ve got a trillion dollars, you’d be able to buy 63 million Swiss army knives.

“Every year across the globe, we lose about a trillion dollars in food waste. The bulk of that is lost before the food gets to market. It’s lost because of lack of infrastructure.”

He gave an example of one particular year in which India lost 30% of its crop post-harvest and the problem is not limited to India, with about 50% of the production harvested in emerging markets never making it onto the market due to challenges of logistics and infrastructure.

“The company decided first and foremost to bring in the best of the best in agricultural engineering,” he said.

They would set out to develop technology targeted at emerging economies. “We knew we had to educate the agricultural engineers and other experts in our team and acclimatize them,” he said.

They developed a warehouse system with effective cold storage. “One can store grain literally for decades at an end,” he said.

Blumberg talked about a project in Egypt to develop the largest grain storage facility in Middle East and North Africa as part of that country’s subsidized bread system and stressed the political importance of bread supply.

“The day people took to the streets in Egypt coincided with the day (former Egyptian president) Mubarak had to raise the price of baladi bread,” he aid.

The Shouna Development Project was put in place to help safeguard a supply chain that was losing 50% of its crop.

“It was under the leadership of (current Egyptian) President Sisi that this Shouna project finally got its wings,” he said. “It’s a project that does much more than revamp the Shouna system. It enables the government to have modern storage and processing for its grain.”

The new system can segregate quality grains, for example durum, which the Egyptian storage system was not able to do before. It includes a command center which can track stock levels.

“It is the first time the government has had an understanding of the wheat that it has,” he said. “The company is able to monitor the entire network – 294 sites spanning Upper Egypt all along the Nile Delta up to Alexandria, 2.35 million tonnes of static storage and 11 million tonnes of processing capacity a year.”

In its final state, the system will allow for the storage of 27 kilograms of grain per Egyptian.

“The government will be able to identify any leakages that occur in this system,” he said. “Value addition will occur throughout the system.”

It would cut the amount of foreign currency that goes abroad, Blumberg said.

Governments in the developing world are extremely aware that with a lack of food security there’s a susceptibility to its citizens turning to extremism.

“President Sisi is aware of this and aware of the linkage between food security and national security,” he said.

The system could handle a move away from a state-controlled system, he said. “Our program and our technology are easily transferred into the private sector,” he said. “Our systems are designed to be developed incredibly rapidly. An 8,000-tonne grain warehouse is able to go up in a matter of weeks.

“It’s important that we safeguard product that is produced and ameliorate the trillion dollars of food that is lost.”