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Government global grain reserves

Despite arguments of liberal market economists, many governments, especially in Asia and the Middle East, continue to buy and stockpile wheat and rice.

Government involvement in grain markets probably goes back to the beginnings of settled agriculture. Egyptian and Chinese records document the role of dynastic administrations in collecting and storing grain thousands of years ago.

Nowadays governments worldwide may buy 10% to 20% of all the rice and wheat produced in a given year, so up to 240 million tonnes out of about 1.2 billion tonnes for the combined crops of the two cereals, but the variation in procurement from country to country is huge. Not just domestic purchases figure into the tally. State wheat importers in Japan, the Middle East and North Africa, and elsewhere may account for around 35 million tonnes.

Global reserves of cereals in government hands at any given time could be in the range of 200 to 250 million tonnes. The International Grains Council (IGC) forecasts 2013-14 ending wheat stocks at 188 million tonnes and rice at 108 million tonnes. China and India traditionally account for the lion’s share, but Thailand stockpiled a peak of 18 million tonnes of rice over the last two years before selling at a loss. Governments of Middle Eastern and North African nations may hold 15 to 25 million tonnes of wheat at any time.

Problems of government grain

In every country the issues surrounding government grain procurement are economically complex and highly political. And, of course, they are fraught with potential problems of poor governance.

There is a standard set of arguments against strategic grain reserves. First of all they require large investments to build the storage facilities, and even more to fill them. Grain markets are volatile and risky but state agencies must constantly decide how much to buy and when, and how to rotate the stocks through sales or other distribution.

Case against strategic grain reserves

  • Expensive and risky to operate
  • Without profit motive,inefficient management practices and waste
  • Creates market distortions
  • Guesswork in estimating need and setting prices - Market does a better job
  • Requires transparency and good governance

Efficient management of public grain stocks is extremely difficult. Most government grain facilities have at least two or three times the personnel of similar private operations. Often they are vehicles for political patronage through jobs. Operational costs can be high. Storage losses from infestation, moisture and pilferage can be an even greater cost.

Let’s go on a quick world tour and see what goes on with governments when it comes to grain reserves. This will be a very high level view.

East Asia

East Asia is a region where governments are very involved in buying and storing grain from the poorest country (North Korea) to the richest (Japan).

China has the world’s largest production of both wheat at 122 million tonnes and rice at 142 million tonnes on a milled basis based on IGC forecasts for 2013-14. Maize production is 218 million tonnes and is mainly for feed use, but some is also held in the government grain reserve.

Data about public grain stocks are treated as a state secret in China, but IGC projects total ending stocks of wheat in China at 57 million tonnes and rice at 50 million tonnes for 2013-14. It is probably safe to say that 90% is held by state grain companies. Grain traders sell mainly to these state companies and large millers depend on them for supply.

In China, two main policy goals have been at play: self-sufficiency in the two staple cereals and higher incomes for farmers. In February 2014, China officially announced the target of domestic production of 95% of the country’s grain consumption would be abandoned.

It is likely that state grain agencies will still buy a significant portion of both wheat and rice - from one third to one half. The government sets prices significantly higher than the international market price to ensure production targets are met. The grain is auctioned off to private millers and traders through central government auctions.

The public grain stocks are not used for food safety nets or for retail market intervention. The idea is to pay prices high enough to help close the income gap between poor farmers and the average city dweller. This in turn promotes social stability by slowing the massive migration of rural poor to cities.

Elsewhere in East Asia, governments buy large parts of the rice crop to keep prices high enough to sustain farm households, even while per capita rice consumption has gone down substantially with economic prosperity. Japan’s Ministry of Agriculture, Forestry and Fisheries maintains a monopoly over wheat imports, and often doubles the price when reselling to domestic mills, thus generating funds to subsidize domestic wheat production.

South Asia

India ranks number two in the world in production of both wheat, at 93 million tonnes, and rice at 103 million tonnes, according to an IGC estimate. State governments buy much of the surplus and public grain stocks at times may be as large as China’s.

In 2013-14 government procurement of rice will be about 32 million tonnes. For wheat it was 25 million tonnes, down one third from 38 million tonnes the year before.

Government ending rice stocks are forecast to be 20 million tonnes for 2013-14. The target stock level is 11.8 million tonnes. Wheat stocks were estimated at 22 million tonnes, down 10% from a year ago but still much higher than the official target level. This is one hazard of intervention. Once started it is difficult to limit.

India’s government frequently experiences well-publicized problems with management of these excessive stocks including tremendous losses from insects, moisture and pilferage, much of which results from traditional bagged storage practices.

India’s grain policy goals are quite different from China’s. The main purpose of state grain purchases is for distribution of food rations to the poor. This is done through state level Pubic Distribution Systems that supply cereals to Fair Price shops in every village and city district. Poor households holding ration cards pay just a fraction of the market price for several kg of wheat and rice per month. The Food Corporation of India coordinates the movement of both rice and wheat from surplus to deficit states. This scheme is estimated to cost the Indian government $20 billion per year. Most economists would argue this money could be better spent on infrastructure.

Bangladesh (population — 160 million) and Pakistan (population — 200 million) are large countries whose governments buy only limited amounts of grain. Nevertheless, despite still high levels of poverty, both have attained a satisfactory degree of food security.

Why governments hold grain?

  1. Emergency reserves
    • Sudden onset disaster
    • Slow onset disaster
    • Food safety nets
    • Public distribution system - India
    • Subsidized bread – Egypt, Tunisia, Turkey
  2. Market intervention
    • Buying to support farm prices
    • Sales to dampen price spikes

Bangladesh’s government buys 1 to 1.5 million tonnes of the annual rice crop that is now close to 35 million tonnes. The country no longer needs to import rice. Rather it may soon have to start exporting large quantities. The government does buy from abroad up to 1 million tonnes of wheat per year, mostly from India. The private sector imports in an average year another 2 to 3 million tonnes of wheat. The government stocks are rotated via distribution to the poor through a myriad of programs and as well as through open market sales if prices rise.

Southeast Asia and Australia

In Thailand, Vietnam and Myanmar governments procure surplus rice that eventually gets exported. In most other Southeast Asian countries, government grain agencies import rice. In the case of Indonesia, rice importation is a monopoly of Bulog, but the country is now on the verge of self-sufficiency with imports at just 1 million tonnes equivalent to around 3% of consumption. In the Philippines, the National Food Agency (NFA) imports some rice and gives licenses to private companies to also buy.

The Thai government has a long history of buying some surplus rice from farmers that it has then sold for export. In 2011, an election year, the Shinawatra government greatly expanded rice purchases at prices 30% to 50% above international prices. Forty percent of Thai households grow rice and the government was re-elected, but controversy, scandal and massprotests have ensued. The Thai government has owned up to a record 18 million tonnes of rice due to its “rice pledging scheme.” Thailand produces about 21 million tonnes but consumes only 10 million tonnes. Peak exports were 12 million tonnes but fell to 6.7 million tonnes two years ago due to the misguided policy. Many observers expect the government to fall as a result of the scandal surrounding its rice buying.

Since Australian Wheat Board’s loss of its single desk status, direct local government intervention in the wheat sector is minimal, though Australian wheat is purchased by many state-trading enterprises.

Middle East and North Africa

The Middle East and North Africa is the world’s most important wheat importing region. It is also the region where governments are most dominant in procuring and holding food grains. These countries are the ones that have been the most aggressive in recent years in expanding their strategic grain reserves.

The region’s imports account for 48 million tonnes of the international wheat trade of 142 million tonnes. These imports are split evenly between the North African countries and those in the Middle East.

The bulk of imports are handled by state-owned grain import monopolies. The largest government wheat importers are Egypt, Iraq, Saudi Arabia and Algeria. Government agencies in each country are major owners and operators of grain storage facilities, though there is some reliance on the private sector, too, especially in Egypt. Smaller countries in the region whose governments operate wheat import monopolies are Tunisia, Kuwait and Qatar.

Western Hemisphere

The United States has no public grain procurement or government stocks. Grain reserves were halted in the U.S. in 1996. The Canadian government gave up its wheat buying monopoly through the Canadian Wheat Board in the western provinces just two years ago.

The U.S. government still subsidizes farmers through federal crop insurance programs and direct payments costing taxpayers several billion dollars per year. And it provides food assistance via debit cards to 45 million low-income people. But this is done without government grain buying.

The only Latin American countries where governments are heavily involved in grain purchasing are Cuba and Venezuela. In effect, the huge stocks of high quality grain always available in the U.S. from Gulf ports serve as a de-facto strategic reserve for these two countries and others in the region.

European Union and Turkey

The 28 countries of the European Union produced 143 million tonnes of wheat and 301 million tonnes of total cereals (IGC 2013-14 estimates). The net wheat surplus is 20 to 25 million tonnes in most years.

The E.U. protects its markets with import quotas and tariffs and still has a system of minimum support prices for certain cereals. This means governments may buy grain from farmers when market prices are below a fixed level, which is the officially set as the E.U. intervention price of €101.

Because of high international grain prices, there has been no basis for intervention purchases by the E.U. in recent years. Surpluses could be exported profitability outside the E.U. Therefore E.U. grain holdings have been at a minimum.

Each E.U. country has a so-called paying agency that is funded directly from the European Union budget when intervention is done. However, E.U. rules do not allow governments to own and operate their own grain storage facilities. All E.U. grain is kept in leased private storages.

Turkey has a well-organized grain market where the government through the Turkish Grain Board (TMO) plays an important role. TMO is a state enterprise whose role is to hold emergency reserves and to intervene in the market to stabilize prices. It buys from farmers when the crop is large and prices are low. It may import when the crop is small to replenish its reserves. TMO has about 4 million tonnes in storage capacity at its own facilities.

Turkey is a candidate for accession to the European Union. It therefore must take some steps to harmonize its grain market policies with those of the E.U. TMO will have to be split into a paying agency on the one hand and a grain storage operator on the other once it is granted E.U. membership.

Sub-Saharan Africa

Among the 50 or so countries of sub-Saharan Africa, there are just a handful where there is public ownership of grain stocks. Eritrea, a closed country with a centrally planned economy, is the only one where the government completely monopolizes procurement of surplus grain and imports.

Zambia’s Food Reserve Agency buys most of the surplus maize to support incomes of small farmers but at a huge cost to the national budget when the maize eventually must be exported at a loss. Annual purchases have been up to 1 million tonnes.

Ethiopia has limited holdings. The government has privatized all grain processing companies but maintains a wheat import monopoly and cooperates with international food aid donors to operate a grain reserve holding 400,000 tonnes in a country that consumes about 20 million tonnes of food grains per year. Sudan’s government holds reserves of millet and sorghum purchased from farmers through the Agricultural Bank.

South Africa’s government abandoned its wheat marketing board in the early 1990s. There are no more public grain stocks in the country. The country is the major exporter of white maize to other countries in Africa and even to Mexico in some years. Large carry-over stocks held by private traders in the country serve as a reserve for the region.

Conclusion

Despite the arguments of liberal market economists, many governments, especially in Asia and the Middle East, continue to buy and stockpile wheat and rice. With the exception of Japan, most rich countries avoid the practice, and few of the poorest countries of Africa can afford to hold reserves either. Some nations may cut their stocks, but others are just as likely to create a new reserve or expand their holdings. Thus state reserves will continue to be an important factor in global grain markets for the foreseeable future.

Millers gather in Middle East

One of the world’s premier wheat milling industry events, the 2012 IAOM Mideast and Africa Conference and Expo, was held Dec. 5-8 in the cavernous, ultra-modern Abu Dhabi National Exhibition Center. The 23rd version of the highly anticipated trade show was a resounding success in the newly opened facility, with booth space and registration slots selling out well in advance.

Over the three days more than 600 participants from companies and organizations based in 45 countries visited the 100 exhibitors from 20 countries and sat through management and educational sessions featuring nearly 50 speakers on topics ranging from innovations in milling to the global economy and leadership skills.

Old friendships were renewed and new relationships initiated at the conference’s dinners, lunches and coffee breaks, generously sponsored by leading players in the international wheat industry.

On behalf of the joint hosts, H.H. Sheikh Mansoor bin Zayed Al Nahyan, chairman of the Abu Dhabi Food Control Authority, gave the welcoming address and Agthia Group’s CEO, Ilias Assimakopoulous, closed the proceedings.

Exhibition

Exhibitors covered all sectors from grain traders to manufacturers of packaging machinery but included a large core group of mill manufacturers. The strong presence of a dozen steel silo companies reflected the trend of several years running for private grain millers and government organizations in the world’s number one wheat importing region to enlarge their storage capacity in response to the increasing precariousness of supply and price volatility.

Similarly, rising dependence on wheat of variable quality from the Black Sea countries and more recently India and Pakistan has led to greater demand for flour additives which were offered by another 12 firms exhibiting this year. Many of these same companies also offer vitamin and mineral premixes since most Middle Eastern countries have embraced mandatory flour fortification as a public health measure.

Companies and organizations from six continents displayed products and services. As in the past, Turkish suppliers accounted for one quarter of all booth space. Twenty European firms, half of them German, were the second largest contingent. A new trend is the larger number of exhibitors from companies in the region besides Turkey. This year there were 11 including six from the United Arab Emirates, the host country.

Trading Session

The speakers at the trading session on the final day enjoyed an especially large audience as millers sought to understand the circumstances surrounding the sudden spike in wheat prices again this year and the relentless market volatility of the past five years.

Six speakers focused on six major grain exporting countries and regions, all of which supply wheat to the Middle East and Africa with Bill Tierney, chief economist of AgResources, as moderator. In his own presentation on the global market outlook, Tierney focused on the “historic decline in wheat production and historic decline in stocks.” He emphasized that “essentially there is no stocks cushion to stop prices from moving sharply higher.”

Countries are depleting their stocks through exports, said Tierney, citing USDA’s forecast that India will export 6 million tonnes of wheat this year. “If E.U. wheat exports do not slow down, the E.U. will have to import more corn to replace wheat for feed.”

Swithun Still, director and senior trader of Solaris Commodities, Switzerland, covered the Black Sea countries, which in the last decade have emerged as a vital supplier of wheat to Middle East and African countries, after being a net grain importer during most of the 1980s and much of the 1990s.

Bill Tierney of AgResources moderating the Trading Session at the IAOM Mideast and Africa Conference. Photo courtesy of David McKee.

Bill Tierney of AgResources moderating the Trading Session at the IAOM Mideast and Africa Conference. Photo courtesy of David McKee.

“Egypt is almost a captive market for Russia,” Still noted. “It is almost a symbiotic relationship. Russia needs Egypt’s market, and Egypt needs Russian wheat.”

After exporting 26 million tonnes in 2011-12, Russia exported only 9 million tonnes through the first 11 months of 2012, with a maximum of 2 million tonnes expected in the final month. “Russia’s domestic price is now more attractive than the export price,” Still said, adding that ice and cold weather hinder logistics in the Black Sea, so that exports could slow even further.

Neither Russia nor Ukraine will outright ban exports as happened in 2010, but Ukraine could take “unofficial measures” to slow the outflow, he predicted.

Joe Woodward, past president, IAOM presents a plaque of appreciation to Ilias Assimakopoulos, CEO,Agthia Group, the host company at the Gala dinner.

Joe Woodward, past president, IAOM presents a plaque of appreciation to Ilias Assimakopoulos, CEO,
Agthia Group, the host company at the Gala dinner.

Despite harvest shortfalls in two of the last three years, “it is expected and hoped that RKU (Russian, Kazakhstan and Ukraine) will be the world’s number one grain exporter during 2020-40,” Still said.

Nick Poutney, GrainCorp regional manager, presented the crop picture in his country. “Australia has done a lot of work in terms of making its export program more efficient in the last few years,” he said, noting that in 2011-12 wheat exports were a record 27 million tonnes out of a record 29 million-tonne crop. For 2012-13, his company’s crop estimate was for a more normal 20.3 million tonnes but with a higher share of milling quality.

Port grain terminal operators “will be allowed to sell up to 60% of port capacity up to three years in advance. Up to now it was only one year,” Poutney said. This will encourage investments in rail infrastructure, helping to relieve transportation bottlenecks, he said.

Returning to the theme of crop shortages, Jean-Benoit Gauthier of the Canadian Wheat Board (CWB) said that precipitation in Canada for the new crop is only 40% to 50% of normal, and Ontario is the only production area in the country that did not encounter major weather problems.

Though it has lost its monopoly on exports of wheat from the Canadian prairie provinces, CWB still operates 130 wheat purchasing stations and remains a key partner for many wheat growers, Gauthier told the audience.

Nebraska grain grower Dan Hughes, vice-chairman of U.S. Wheat Associates, touched upon the critical shortage of ground moisture, particularly due to lack of snow in much of the central Midwest and especially in his home state. However, he emphasized that “the U.S. wheat store is always open,” and he repeated the familiar U.S. Wheat refrain of “contract sanctity, market competition, transparent pricing and assured quality,” as reasons to buy American wheat.

Hughes encouraged the millers of the region to use higher priced but better quality wheat from the U.S. to blend with low-cost wheat from other origins to obtain the best possible price-to-quality mix, an argument developed in depth by Peter Lloyd, regional technical director of U.S. Wheat, during the educational session. Mark Samson, regional vice-president of U.S. Wheat, showed his country’s share of Middle East and Africa wheat imports at around 5% of a total of 37 million tonnes.

Moving on to Europe, there has been an increase of exports outside of the E.U. at the expense of intra-E.U. trade, noted Francois Gatel, director of France Export Cereales.

“Wheat is by far the largest crop in France with about 10 percent of all area, or roughly 5 million hectares,” he explained. French wheat yield was 7.4 tonnes per hectare in 2012 thanks to “high spring temperatures, a long growth period and an oceanic climate with a high spring temperature but not too hot summer.”

France ranks number five as a world wheat exporter with 11 million tonnes, half of which went to Algeria and Morocco in the most recent year.

Glencore trader Joost Viehoff introduced the South American crop situation which was very unclear at conference time. Every year a certain share of Argentina’s and Brazil’s wheat exports is delivered to ports in southern and east Africa and the Middle East. Brazil, at 7 million tonnes per year, is one of the world’s top wheat importers, but it nevertheless exported 500,000 tonnes to Iran in 2012.

Viehoff explained that exports are possible due to the different quality needed by mills at different times, adding that much of Brazil’s production is feed wheat quality.

The first day, Indrek Aigro of Copenhagen Merchants, Denmark, discussed how the Baltic region, including the former Soviet states of Estonia, Latvia and Ltihuania as well as Poland and northern Germany, had become a major wheat surplus zone.

IAOM MEA’s growing emphasis on management issues came out in the initial topics of the day. Hedging solutions were presented by Dr. Abedlatif Abada of Morgan Stanley, UAE. On this theme, Tierney suggested that millers cover some of their purchase risk with options contracts whose prices are unexplainably very low in relation to the current market volatility.

Former GAFTA President Wayne Bacon gave a talk entitled “The Hidden Contract,” focusing on the GAFTA 27 rules which form a part of every grain contract. They are “very seller biased, so buyers really have to understand what their risks are.”

The BBC’s Spencer Kelly offered an entertaining keynote speech that capped off the first day’s management session with highlights from his popular television show, “Click,” about technological innovations that are changing the lives of even the world’s poorest people. Session moderator Martin Schlauri, managing director of Bühler’s Grain Milling Business Unit, thanked him and commented, “The milling industry is high tech, too. Go to our booth.”

Participants were pleased by the continuously refined formula of the conference.

“I have attended since the second one in Yemen, where there were 200 people,” said Mustafa Mustafa, group head of milling for Dangote Flour Mills, Nigeria. “It has been very good for my professional development as it has kept me up to date year by year about innovations. I appreciate the addition of managerial issues to the program.”

In his closing remarks, Assimakopoulous of Agthia Group congratulated IAOM for the “diverse and valuable insights from some of the industry’s most esteemed and influential professionals.” He then handed over the IAOM MEA banner to the Kamel Belkhiria, president of La Rose Blanche Group, Tunisia, where the 24th annual conference will take place Nov. 5-8, 2013 in the Mediterranean city of Sousse.

Photo Galleria from the event

Focus on the Netherlands

Compound feed production, on a per capita basis, ranks among the highest in the world.

Two things distinguish the Netherlands demographically. It is the most densely populated country in Europe (among those with over 500,000 inhabitants), and somewhat counter-intuitively for such a crowded land, its people are the tallest in the world. From these facts one might conclude another two things: that the Dutch are particularly well-nourished and food production is intensive.

And, indeed, this is the case. According to United Nations Food and Agriculture Organization (FAO) data, the people of the Netherlands get 30% of their calories from animal products, compared to an average of 20% in all developed countries. Milk production, at more than 11 million tonnes per year, exceeds grain production (1.7 million tonnes) by nearly six times, and food processing is a U.S.$20 billion industry.

A large, highly sophisticated feed industry is a crucial link in the food chain that enables the country not just to put meat, eggs and cheese on its tables but to also generate significant surpluses for export. Total compound feed production is 12.5 million tonnes, which on a per capita basis is one of the highest in the world. It has been stable for several years.

About 45% of industrially produced feed goes to pigs, 25% to cattle and 25% to poultry, according to the Nevedi, the feed producers association whose members account for nearly all domestic output. The industry generates €2.5 billion (U.S.$3.25 billion) in annual sales and employs 5,000 people.

Cooperatives and private companies make up nearly equal parts of production. Competition is fierce, with no entity holding more than a 15% share. However, six of the seven largest producers have formed an alliance called Trusq, which has developed a set of safety standards for feed ingredients and inspects and certifies suppliers around the world. These six Trusq members, consisting of two private companies and four cooperatives, control about two-thirds of the Dutch feed supply.

Thanks in part to the intense competition on their own soil, Dutch feed companies do well outside their borders. A significant share of production is exported to Belgium and Germany, and in recent years Poland and Hungary have become important markets. Some companies have established manufacturing subsidiaries in the new European Union (E.U.) member states to the east.

Provimi, a publicly listed company based in Rotterdam, is one of the largest international suppliers of premixes, concentrates and specialty feeds, with more than 100 plants in 30 countries and 9,000 employees. It has a strong presence in central and eastern Europe and owns seven feed producers in Russia, where it is a market leader. The company boasts that its products are used in 40 million tonnes of feed annually.

Further burnishing the international credentials of the Netherlands’ feed industry is a large number of feed equipment manufacturers doing business globally. Finally, the city of Utrecht hosts the triennial Victam International feed industry conference and trade exhibition, the premier event of its kind, which took place May 8-10 this year.

At first glance the relatively small amount of grain and oilseed production in the Netherlands would seem to be a competitive disadvantage for feed production. But as resource-poor places are prone to do, the country has lived by its wits and turned this shortage into an advantage. Due to E.U. price supports for grain growers, feed grain prices have traditionally been high in relation to imported ingredients, not just grains and oilseeds, but also alternative sources of starch and proteins like corn gluten, tapioca meal, copra, palm expellers, sugar beet pulp and citrus pulp. Consequently, the short distance of most feed companies to the country’s two major ports, Rotterdam and Amsterdam, has played a key role in the industry’s growth. Two other major ports, Gent and Antwerp in Belgium, are nearby.

Rotterdam, the world’s largest bulk port, with 250 million tonnes per year of total cargo, is especially important. The port handles 10 million tonnes of so-called "agribulk," the biggest part of which is for feed use. The port features 450,000 tonnes of grain silo capacity, including 18 floating grain elevators.

It is not surprising that the world’s two biggest grain and oilseed trading and processing companies have staked out major positions at the largest Dutch ports. Archer Daniels Midland Co. (ADM) owns a large oilseed crushing plant in Rotterdam that was originally built by Unilever. In 2004, ADM acquired one of the Rotterdam port’s largest grain and oilseed terminals, adjacent to its oilseed plant at Europoort, which is the western portion of the Rotterdam port where grain and oilseeds are concentrated.

Cargill has a multi-faceted presence in the country, with much of it clustered at or near the port of Amsterdam. This includes the Netherlands’ other large oilseed crushing plant and the IGMA grain terminal, not to mention major corn and cocoa bean processing plants, a malting plant and a food ingredients company.

A big part of the edible oil and oilseed meal producted locally by both companies is sent in river barges up the Rhine and its network of canals, or it is re-exported to Scandinavian and Baltic countries, including Russia.

Total grain imports to the Netherlands are about 8 million tonnes, to go with 1.7 million tonnes of domestic production. About 2 million tonnes of grain is exported. The competitive advantage enjoyed by the Dutch feed industry rests on twin pillars. The first is the proximity to major ports and imported ingredients from around the world. The other is the availability of a wide range of by-products from the Netherlands’ diversified food processing industry. Potatoes, maize, sugar beets and processing in many oth- er sectors generate low-cost substitutes for grains and oilseed meals in animal feed. FLOUR MILLING

One industry where Netherlands does not enjoy a particular advantage is flour milling. In fact, the country accounts for nearly half of the 1 million tonnes of intra-European trade in flour, importing 450,000 tonnes annually, primarily from mills in Germany and Belgium.

Despite this import competition, the three biggest milling companies hold a 75% market share, making the Dutch industry the most consolidated in Europe. The number one player, Meneba, ranks third among European flour millers with 1.3 million tonnes in annual production at just three mills, which are among the largest in the E.U. Closure of a mill in 2005 has raised the company’s capacity utilization to close to 90%. The rapid decline in export demand for European flour in the last 10 years has hurt the Dutch millers as it has other European producers. However, restructuring has been swifter in the Netherlands, as witnessed by the current high levels of industry concentration and capacity utilization.

Myriad domestic food processors provide Meneba with a wide customer base for all kinds of higher-value specialty flours, and the feed industry means steady local demand for bran.

BIOFUELS

The biofuels fever sweeping Europe has not left the Netherlands untouched. There are at least six ethanol projects in various stages. While these are mostly based on traditional grain feedstocks, the Netherlands may take a course different than other European countries. Rather than importing barley, feed wheat and triticale, which are the normal feedstocks for ethanol in Europe, Dutch ethanol producers could join the feed industry as a consumer of by-products of the food processing industry. A recent Rabobank report estimates that the Netherlands’ output of 6.7 million tonnes per year of potato waste, citrus and sugar beet pulp, molasses and many other types of agribusiness biomass sidestreams could yield enough ethanol to replace 3% to 4% of the gasoline burned in the country. Cattle numbers have fallen steadily since 1997, and the food industry would certainly welcome a new source of demand for its secondary products.

Will greater demand and higher prices for these by-products improve profitability of food processors and help keep prices stable for their main products? At the same time, could they result in increased prices for meat and dairy products via higher feed ingredient prices? The food-for-fuel debate could take a new twist in the land of wooden shoes and windmills.

Focus on the Netherlands PDF version.