David McKee

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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.

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The Canadian Wheat Board is in an intense battle to maintain its wheat and barley trading monopoly.

The Canadian prairie provinces of Alberta, Saskatchewan and Manitoba have been the source of 15% of all wheat, 55% of durum wheat and 10% of barley in world trade during the last 10 years. A single organization, the Canadian Wheat Board (CWB), is the sole supplier of these grains and can thus lay claim to being the biggest international seller of wheat and barley.

But like its counterpart, the Australian Wheat Board (AWB), the CWB has been under increasing attack, both domestically and internationally, as a single-desk monopolist. The pressure on the CWB has increased since Canada’s ruling Conservative Party came to power at the beginning of 2006 on a platform that included granting marketing choice to western Canadian grain growers (i.e., removing the legal obligation that they sell their entire non-feed wheat and barley production to the CWB).

To date, Prime Minister Stephen Harper has not made good on his campaign promise, but it has not been for lack of trying. The Conservative party, though exercising executive power, does not enjoy a majority in parliament and would need the support of one of the two main opposition parties to put through the necessary legislation. Both of these parties oppose elimination of the single desk.

In place of lawmaking, the government in Ottawa has used other tactics such as firing of the CWB’s chief executive officer and placing a gag order on the organization that prevents it from us- ing any of its funds to lobby for continuation of the single desk.

The latest development in this highly politicized struggle was the government’s announcement at the end of March that it will terminate the single desk for barley exports, effective Aug. 1 of this year. This came after a vote in favor of marketing choice for barley by Prairie farmers. The government-called plebiscite gave farmers three choices: continuation of the single desk system for barley; a dual marketing system with the right to sell outside the CWB; and elimination of the CWB role in barley. The second option received 48% of the vote from farmers, while 14% chose the third option. The government can argue that the Canadian Wheat Board Act gives it such administrative authority provided a majority of farmers express support for the change, but there are sure to be all sorts of legal challenges.

With the ballot issue limited to barley, the government may have had an easier time getting a majority of farmers to vote for marketing choice. Barley represents only 12% of the grain handled by the CWB, so farmers have less at stake. Furthermore, farmers already are in the habit of selling their feed barley and feed wheat on the open market, while domestic wheat sales are still under the CWB monopoly.

Proponents of further reform hope the single desk for wheat can then be dismantled by Aug. 1, 2008, either based on a subsequent farmers’ plebiscite, this time on wheat, or thanks to new parliamentary elections yielding a Conservative Party majority.

PROS AND CONS

Both sides provide compelling arguments for their positions. The federal government’s case is true to its pro-business orientation and is based on classic free trade ideology. This makes sense for a country whose economy thrives on access to overseas markets. The Conservatives see no need for a governmentowned company, which was founded in the Great Depression of the 1930s and received its monopoly powers during World War II, to market Canada’s grain when private companies could do it more efficiently. The mere existence of the CWB as a state trading enterprise has made Canada vulnerable to repeated trade actions from the U.S., including a ban on some wheat exports from Canada to the U.S. that was lifted at the beginning of 2006.

It is unclear whether a majority of western Canadian grain growers also want to see the CWB wheat monopoly ended. Those near the U.S. generally favor marketing choice, since they would like the option to truck their grain to elevators south of the border when prices are better there. Under the CWB’s single desk, grain growers must rely on the Canadian railroads to get their grain to ocean ports. But there is a long history of railroad strikes, including some this year, that have caused congestion and delays, making farmers wish for the option to deliver grain to northern-tier elevators in the U.S. that have lower transportation costs to port. Opponents of the single desk often argue that western Canadian farmers are “held hostage” by an expensive and inefficient transportation system.

Farmers in Alberta are thought to support marketing choice more than their brethren in the two Prairie states further east. As noted, they plant more barley and are already used to selling on their own. Being closer to the Pacific Ocean perhaps makes them more open to the options that would be presented by freer trade. In Saskatchewan and Manitoba, which are further inland and where mainly wheat is grown, support for the CWB is stronger among farmers. This is reflected in the makeup of the two provincial governments, as they support the single desk while Alberta’s government opposes it.

The CWB argues that its sole mission is to serve the interests of western Canadian grain growers. Its goal is to generate the highest possible return in domestic and international markets on the sale of their wheat and barley. All revenues, after subtracting marketing costs, are distributed to the farmers at the end of the year. There are no retained earnings.

The CWB, based in Winnipeg, Manitoba, has a lean staff of about 400 to manage an average turnover of nearly 20 million tonnes of grain per year. It does this by owning few assets beyond its own office buildings and computer systems, and by contracting with transport and grain storage companies to handle the entire crop.

In marketing Canadian grain domestically and to 70 countries, the CWB’s special status presents certain advantages to Canadian farmers. One is that its borrowings are guaranteed by the Canadian government, ensuring lowest possible interest rates to finance grain inventories and to carry receivables. Another is that the initial payment they receive from the CWB, normally about 75% of the total payment, is guaranteed by the government, even if world grain markets suddenly collapse.

The CWB also enjoys government guarantees of overseas credit risk, freeing it of the need to write off bad debt. The CWB carries on its books about U.S.$1.7 billion of sovereign debt from a group of eight nations that have rescheduled their payments over five- to 25-year terms through the Paris Club. These long-term credits are a major source of income for the CWB, since it collects interest payments while obtaining funding at lower rates. However, this income has fallen sharply from C$92 million (U.S.$75 million) five years ago to C$36 million in 2005-06, as some countries have been rapidly paying down this old debt. In August 2006, Russia prepaid its remaining U.S.$827 million. Over the same period, CWB’s administrative costs have risen from C$50 million to C$70 million.

It is such underwriting by the government that is cited as an unfair trade practice in the negotiations for liberalized trade in agriculture products at the struggling Doha Round of the World Trade Organization. In an attempt to revive the talks, both the U.S. and E.U. have put on the table offers to dramatically reduce their farm subsidies, but on the condition that both Canada and Australia terminate their single desks.

International pressures aside, the current government says it seeks reform of the single desk structure for purely domestic reasons, the most important being to give farmers the freedom to sell their grain in any way they please by putting in place a dual marketing structure. Farmers would have the option to either commit their grain to the CWB operated pools, or they could choose to sell to traders outside the CWB system.

The CWB counters that a dual marketing system is a false concept, since, without its single desk powers, the CWB could not exist as the kind of entity it is today, selling grains “on behalf of ” Canadian grain growers.

LIFE AFTER THE SINGLE DESK

Despite its network of grain suppliers and overseas customers, the CWB would have to overcome several major obstacles to convert itself into a viable grain trading company.

Perhaps its biggest drawback is its lack of grain storage and transportation assets. In a free market, it would suddenly have to start competing with the same grain companies with whom it contracts for services now.

Another problem is the lack of a capital base. Through 70 years of existence, the CWB has returned all of its trading profits to its farmer constituents year in and year out, and has only a small amount of equity capital compared to the revenues it generates. Government guarantees on borrowing and overseas receivables means the CWB can operate on nearly 100% debt financing, but reform of the system would also mean withdrawal of these guarantees and require it to raise nearly U.S.$2.5 billion in operating funds through other means.

Though there are some parallels between the CWB and AWB, the Canadian organization is more dependent on its single desk. At its founding, the CWB was modeled after the AWB, but it has remained purely a state trading enterprise. The AWB has evolved a couple of stages beyond, having first made the transition to a farmer-owned corporation about 10 years ago, followed by a public share offering in 2002. These two moves provided the legal and financial basis for the AWB to diversify horizontally and vertically, such that the bulk of its revenues come from operations other than management of Australia’s wheat pool. These include the supply of all kinds of inputs and services to farmers, and even the trading of non-Australian grains.

The most important reform of the CWB was in 1998, when farmers were granted the right to elect 10 of the 15 seats on the CWB board of directors. The remaining five, including the chief executive officer, are selected in Ottawa. Previously the CWB functioned as an agent of the Crown, with all govern- ment-appointed commissioners.

Prior to the accession of the Conservative Party, the CWB had its own plans to transform itself somewhat along the lines of the AWB, in order to move into higher-margin processed products, so that farmers could share in the profits of some of the value-added activities that international grain companies often specialize in. However, just as the AWB depended on the single desk as a basis for its public share offering and entry into synergistic areas, the CWB’s retention of its monopoly is a prerequisite for planning any such transformation.

With the single desk in doubt, the CWB has begun a series of management reforms to better track its performance as part of an undeclared campaign to convince farmers that it does indeed operate efficiently, even in the absence of competition from other buyers.

The future of the CWB monopoly is of particular interest to the biggest users of Canadian wheat. Canada’s 10-year export average is 15.8 million tonnes, and the world’s largest wheat exporter, the U.S., has been Canada’s biggest customer in that period, taking 10% of the total. The second-biggest customer is Japan, with an average of 1.4 million tonnes per year, and Iran is the third largest at 1.2 million tonnes per year. However, Iran’s purchases peaked at 3.5 million tonnes in 2000-01, the most by any country in 10 years, and have fallen dramatically since.

It is notable that a number of the largest customers for Canadian wheat, with the U.S. being the main exception, are countries with government wheat import monopolies like Japan and Iran. Algeria, in theory, has liberalized wheat imports, but its state grain company acts as a de facto single desk for durum imports. Such large government-to-government contracts are naturally a prime target for an organization like the CWB, which must move almost 16 million tonnes of wheat per year. But with so many non-commercial factors at play, the question Canada’s farmers must ask themselves is whether they truly are getting the best possible deal enough of the time.

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North African nation is experiencing rapid growth in its feed and meat industries.

An hour’s drive inland from the rapidly growing metropolis of Agadir, Morocco, a major agricultural cooperative, Copag, has begun a pilot program for confined feeding of cattle. The goal is to increase the quality and volume of local beef production, which still relies on grazing in a semi-desert zone south of the Atlas Mountains. In addition to increasing per capita meat consumption by Moroccans, rising numbers of tourists are expected to create even greater demand for maize-fed beef.

The program has received technical and financial support from the U.S. Grains Council, which seeks to increase the use of imported maize. Development of this entirely new sector is just one example of the dynamism of Morocco’s feed industry.

The rapid evolution of feed and poultry production must be counted as a success story in Moroccan agribusiness. Mixed feed production, which is still 90% for poultry, climbed from less than 1 million tonnes in 1996 to 1.8 million tonnes in 2005 before declining slightly in 2006 due to bird flu worries. The industry is highly competitive, partly because it is free from most forms of government control, such as production quotas and import restrictions. As meat consumption (primarily poultry) has steadily risen, there has been an influx of investment into larger and more integrated feed plants throughout the country. The main beneficiary has been the Moroccan consumer, who sees chicken and turkey increasingly available and affordable at street roasters as well as in restaurants and supermarkets. Poultry and eggs now account for about 40% of animal protein consumption in Morocco.

Though the industry is regionally based and fragmented, there are already three feed mills producing more than 15,000 tonnes per month. The largest feed producer is Alf Sahel in Casablanca, which was already the largest poultry producer when it built its own feed mill about five years ago. There are about 30 feed mills in the country producing over 2,000 tonnes per month — nearly all are independent, family-owned enterprises. No feed milling groups have yet appeared; organic growth in an expanding market seems to be the best formula for success. Margins are thin, however, and industry sources predict that several of the smaller mills producing less than 5,000 tonnes per month will disappear. Only a few companies are fully integrated from feed to slaugh- tering and further processing. But at least two-thirds of the larger feed producers have gone into chick production, and some of the largest chick producers are building their own feed mills.

The industry depends heavily on imported ingredients. Maize, primarily from the U.S., is the most important at 1.5 million tonnes per year. Two soybean crushing plants, in Casablanca (1,300 tonnes per day) and Meknes (1,000 tonnes per day), provide 400,000 tonnes of soybean meal annually from beans imported in nearly equal volumes from the U.S. and South America. This local crushing capacity had benefited from a 25% duty on imported meal, which has now been cut in half and will be phased out over five years as part of the Free Trade Agreement with the U.S., which went into effect in January of this year. The first multiple shipments of soybean meal in several years arrived in Morocco in 2006.

Rising importation of sunflower seed meal from Ukraine, approaching100,000 tonnes, has kept the level of soybean meal consumption stable. There is a large sardine industry in southern Morocco that produces up to 40,000 tonnes of fish meal per year. Some of it stays in Morocco for feed use, but increasingly it is being exported for fish farming.

There are four main domestic grain traders who, along with Cargill (the only major international player with a direct presence in Morocco), import boatloads of feed ingredients and wheat, often on behalf of semi-formalized buyers’ groups.

FLOUR MILLING

Moroccans consume about 7 million tonnes of wheat per year, the equivalent of over 200 kilograms per capita, one of the highest levels in the world. Up until 1980, Morocco was mostly self-sufficient in wheat production, but rapid population growth now means that in most years 2.5 million tonnes of wheat must be imported. However, 2006 was a year of exceptional rainfall in Morocco, which only irrigates 10% of its cropland. The high levels of moisture resulted in a wheat harvest of 6.5 million, including a record 4.2 million tonnes of non-durum wheat.

In contrast to feed, the wheat milling industry is relatively static. Though wholly in private hands, it is subject to government controls at several levels from wheat production, to storage and distribution, to price controls on 1 million tonnes of subsidized wheat flour. This system has enabled weaker companies to stay in business and reduced the incentive for stronger, better-run companies to invest.

There are about 100 industrial wheat flour mills now operating in Morocco, according to the national millers federation. They mill about 4 million tonnes of wheat per year, but just a dozen mills are grinding more than 100,000 tonnes of wheat annually, and the largest mill has a share of only about 5% of industrial flour production. As in feed milling, nearly all the wheat flour mills are independent, family-owned entities.

In addition to heavy government controls, the industrial mills must also contend with a very large informal milling sector that is untaxed and unregulated. There are thousands of these so-called “artisanal” mills, which are thought to produce one-third to one-half of the flour consumed in the country. Some are stone mills and water-powered.

Morocco’s population is 40% rural, mostly growing their own wheat and relying on these village mills for flour. But small mills also operate in storefronts in commercial areas of the biggest cities, where customers either bring them sacks of wheat bought in the market or simply buy the mill’s flour. As subsistence farming decreases and urban lifestyles change, the number of these mills is said to be decreasing.

The government formerly operated a single desk monopoly for wheat and barley imports but gave this up several years ago in a round of liberalization. The largest mills rely on imported and domestic wheat. They have formed a number of buyers’ groups, each consisting of several mills usually from different regions. These groups make joint purchases of whole vessels of wheat, generally of 25,000 tonnes, the maximum grain vessel size for Moroccan ports. However, there are plans underway to expand three Moroccan ports to take larger Panamax vessels.

In order to protect domestic growers, the Moroccan government has traditionally controlled both domestic and imported wheat prices. About 1 million tonnes of domestic wheat is purchased each year by the government at a fixed per-tonne price of 2,500 Moroccan dirhams (U.S.$280). Imported wheat is subject to a variable duty that brings its landed cost up to the fixed price paid to Moroccan farmers. If international wheat prices are low, the duty collected is more.

The import duty on wheat is used to fund the subsidy on 1 million tonnes of wheat flour, ostensibly for distribution to the poorest part of the population. Almost all operating mills receive a quota of soft white wheat, the kind that is subsidized. The government Cereals Office (ONICL) directs where the wheat is to be sold. The customer pays the mill the subsidized price, and the government pays the flour mill the difference between that and the higher fixed wheat price paid to farmers, including a low milling margin that has been increased only once in 20 years.

This system keeps in business a large number of inefficient mills, which survive only because of their subsidized flour production quota. International organizations like the World Bank have recommended for years that Morocco abandon or at least reform this system, which in most years costs the central government over $200 million per year in subsidies.

Some reforms are now being attempted on the wheat purchasing side of the program. In 2006, the ONICL for the first time stopped guaranteeing its purchases from licensed grain traders who buy up the domestic crop, and it has put a time limit on payment of storage fees. There are up to 150 companies licensed to buy and sell wheat to the government, with the biggest concentration in Meknes, in the heart of Morocco’s central wheat belt.

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Potential of grain-based biofuels production could change agricultural dynamics in the U.K.

The United Kingdom (U.K.) is extraordinarily productive when it comes to one grain crop — wheat. A gentle, moist, maritime climate allows yields of seven to eight tonnes per hectare (ha) for a crop of 15 million tonnes, accounting for roughly 75% of the UK’s total grain and oilseed production.

Stable feed and flour milling industries consume 12 million tonnes annually, but as much as 3 million tonnes of the U.K.’s high-starch soft wheat is usually exported to other European Union (E.U.) countries — primarily for feed use — with over half of that going to Spain. To limit the surplus, farmers have been paid to take 600,000 ha of land out of production under E.U. programs known as “set-aside.”

The addition of a new variable — biofuels production — has the potential to change this equation radically. The U.K. government has recently mandated the inclusion of 2.5% biofuels by 2008 and 5% by 2010. Suddenly the country, which has been something of a laggard behind continental Europe in biofuels production and consumption, has the potential to take a leading role. So far, Brussels has only issued directives (i.e. suggested guidelines for its member countries regarding biofuels), but the U.K. is one of the first countries to make them mandatory.

Alastair Dickie, director of crop marketing for the Home Grown Cereals Authority (HGCA) predicts that if the U.K.’s first ethanol plants are built as planned within the next two years, much of the wheat that is currently exported could stay in the U.K. There is also the potential for up to two-thirds of the land now in set-aside to come back into production. The 3 million tonnes of wheat that could be grown on these 400,000 ha would become feedstock for ethanol production, and thereby not violate E.U. limitations on wheat production for food.

But Dickie also points out that “the U.K. government is trade-oriented,” meaning it won’t likely subsidize or otherwise protect domestic biofuels production. Imported products will enter the market and be sold on an equal footing as domestic ethanol or biodiesel. However, he adds the caveat that imported biofuels “must be sustainable,” making reference to the environmental consequences of expansion of palm plantations for biodiesel in Southeast Asia.

It is still too early to say when large-scale biofuels production will come on line in the U.K. Currently, only small amounts of recycled vegetable oil are turned into biofuel. At least five or six ethanol plant projects have been announced, a couple with financing from planned stock market flotations. However, none have broken ground, and investors have become wary as wheat prices have jumped to their highest levels in recent history at the same time that petroleum prices have fallen. But Dickie maintains that “at current price levels growers will expand production,” implying that increased supply will bring down wheat prices and make the projects viable again.

The biofuels boom could slow the attrition in the number of U.K. farm operators. Today, there are nominally 70,000 farmers of whom 30,000 can be termed “serious” farmers. However, just 10,000 farmers are growing 80% of the crop, according to Dickie. Ten years ago, there were about 55,000 to 60,000 serious farmers, with 40,000 of them producing 80% of the crop. Today in the U.K., about 2,000 ha are needed for efficient farming. Dickie says there has been “an expansion of contractual farming by non-owners,” which is “like share cropping.”

FLOUR MILLING

To date, the companies that dominate oilseed crushing and flour and feed milling in the U.K. have resisted the temptation to enter the local biofuels business. Two companies with 12 large mills between them — RHM plc (formerly Rank Hovis MacDougall) and ADM Milling — control roughly half of all wheat flour output. An even larger U.K. food company, Premier Foods, has been attempting to take over RHM.

NABIM, the national milling association, reports that all together there are 59 mills operating in the U.K. owned by 31 companies, far fewer than the 250 mills that were operated by 200 companies in the 1950s.

Total wheat usage at these mills has remained stable over the last five years at just over 5.6 million tonnes.

Despite a national wheat surplus, U.K. millers grind only 83% local wheat. French wheat is imported to make flour for French breads, and up to 10% of the requirement for certain types of flour may be imported from the U.S. and Canada.

RHM got its start in 1875 when Joseph Rank, the founder, rented a small windmill. His milling business grew through technical innovations, including the introduction of steel rollers, and eventually through mergers with other milling companies. In recent decades, it has turned itself into a major food company again through acquisitions. Nowadays, the bulk of RHM’s flour production is used to make other company-branded consumer food products. For many of them, the cost of wheat is only a small part of the final price paid by consumers, helping to moot the food-for-fuel debate caused by rising grain prices.

Some British millers have attempted to respond to another environmentally driven consumer trend: the demand for bread made from organically grown wheat. It did not exist on the market five years ago, but observers estimate that 1% of all bread now sold is labeled organic, though there is no official data. There is not enough U.K. wheat that is certified organic to meet the demand, and so the handful of millers specializing in this niche partially use wheat imported from North America, the Ukraine and elsewhere.

There is a small but vigorous oats and barley milling industry, primarily made up of producers in Scotland. Overall though, there has been a reduction in oats and barley production, even for malting, while wheat production has benefited from investments in development of new varieties to increase yields.

OILSEEDS AND FEED

ADM operates just one oilseed crushing plant, at Erith outside of London, but it is the country’s largest. Cargill, which has several plants, controls the remainder of the country’s oilseed crushing. Its largest facilities are a rapeseed processing plant at Hull on the North Sea and a soybean crushing plant near Liverpool. Domestic oilseed crushing only partially meets the demands of the livestock sector for protein. The port of Seaforth, adjacent to Liverpool, serves as one of the main entry points for the millions of tonnes of soybean meal imported annually from the Western Hemisphere as well as soybeans. The South American share for both has been steadily increasing while U.S. totals have declined.

The feed industry has been subject to much turbulence since the BSE outbreaks in the 1990s, bringing wave upon wave of restructuring, mergers, acquisitions and divestitures. Today, there are two compound feed manufacturers that operate nationally. The largest, BOCM Pauls, produces about 2 million tonnes per year of both ruminant and monogastric (pigs and poultry) feed, giving it a market share of over 20% of compound feed production. The second national player is the feed-related businesses under Associated British Foods plc, which are mostly consolidated now into its subsidiary, ABNA. There are two other categories of feed milling companies in addition to the above national compounders. Country compounders are companies generally with just one mill selling regionally, and the third category is cooperative- and farmer-owned mills. The latter type of mill is declining in number.

The Australian wheat exporter, reeling from a recent scandal, will likely lose its single desk monopoly.

For more than 70 years, the Australian Wheat Board, more commonly known as AWB Limited, has, for the most part, been the sole exporter of Australian wheat. That’s significant since exports can be up to 14 million tonnes out of a crop of 24 million tonnes in a non-drought year. Australian wheat is milled in over 50 countries, according to the AWB.

But the organization’s single desk monopoly status may be coming to an end following the investigation completed at the end of last year into illegal kickbacks paid by AWB to the Saddam Hussein regime in Iraq. These payments had been exposed earlier by the Volcker Committee as the most significant abuse in the corrupt U.N. Oil-for-Food Program.

The future of the Australian single desk for wheat exports has been the subject of an intensifying public discussion that is likely to culminate in a major restructuring of the system by the middle of this year. A government-appointed task force called the Wheat Export Marketing Consultation Committee has formalized the debate by conducting a series of hearings with wheat growers and other industry players throughout the country in the past few months. This committee, made up of four leading corporate executives from inside and outside the grain industry, is scheduled to submit its recommendations by March 30. The government, in turn, is obliged to propose changes to the Wheat Marketing Act for a vote in the legislature in Canberra no later than June 30.

There is consensus, both in the industry and government, that some kind of change is needed. This view was stimulated by the findings of the year-long courtroom investigation, known as the Cole inquiry, into the approximately U.S.$220 million in kickbacks paid by AWB to the Saddam Hussein regime under the United Nations’ Oil-for-Food program. Commissioner Terence Cole tabled his report in November of last year. Not only did the report call for the criminal indictments of 11 AWB executives who took part in the illegal payment scheme during the years prior to the U.S.-led invasion in 2003, but it also called for the removal of the single desk monopoly from AWB.

Some interim measures have already been taken. Most important is the temporary lifting of AWB’s authority to veto bulk wheat shipments by other organizations, which is the legal basis for the single desk. This veto power has been transferred to the Ministry of Agriculture for six months until a reformed system can be put in place. Already, licenses for 500,000 tonnes of wheat exports have been granted to CBH Group, a major grain handling company with ownership of a number of flour mills in Southeast Asia.

Key industry organizations are lobbying hard for their visions of what the new wheat export system in Australia should be, ranging from a completely liberalized wheat export market to a continuation of the single desk, but with changes in its ownership.

The question is especially important to wheat farmers in Western Australia, who export 95% of their wheat through AWB International. The Western Australian crop is typically of good quality and less prone to drought than elsewhere in the country. By contrast, farmers in the more populated eastern states of New South Wales, South Australia and Victoria, where most of the remainder of production occurs, can sell their grain to local millers in a fully deregulated market and rely on the AWB solely as a receiver of last resort.

Even after the recent Iraq scandal, polls show that about 75% of wheat growers support preservation of a single desk in some form. This is understandable since a smoothly functioning single desk can make life easier for growers.

Under the single desk, the farmer commits his crop to the pool after harvest, receiving a minimum price after paying storage fees, and the AWB takes full responsibility for marketing the wheat in the pool and obtaining the best price possible on world markets. Wheat farmers are paid a premium at the end of the marketing season, which is the profit generated by AWB net of the pool management fee. All farmers receive the same price for their wheat, sorted according to certain quality parameters.

Other traditional arguments for a single desk are that it prevents competition among sellers of a commodity that could put downward pressure on prices while offering convenient one-stop shopping for buyers, who benefit from the significant discounts on freight.

All these may well apply to the Australian wheat exports, but Julian Breheny of the Western Australian Farmers Federation (WA Farmers) points to another justification for the single desk in the face of criticism from the World Trade Organization (WTO). Australian wheat competes on world markets against U.S. and European wheat produced by growers who depend on trade-distorting government payments for 30% to 40% of their income. Australian farmers receive no state assistance aside from subsidized diesel fuel. In the face of this competition, the price-averaging mechanism inherent in the pool is a needed protection for individual Australian growers, Breheny argues.

However, Breheney also recognizes that the single desk has not been effective in stopping the attrition in the number of Australian wheat farmers. He estimates that 10 years ago there were 10,000 wheat producers in Western Australia, but their number has steadily declined to 6,000 or 7,000 today, of which 4,000 are members of the WA Farmers Federation. The peak national growers’ body, the Grains Council of Australia, has 30,000 members.

WA Farmers wants to see the single desk preserved but changed into a completely grower-owned and grower-controlled entity that might be called the “New Single Wheat Desk.” Breheny argues the AWB now has conflicting mandates to growers on the one hand and financial investors on the other. In 1999, AWB was converted from a government trading board to a growerowned company, AWB Limited. Two years later, it went public on the Australian stock exchange.

Management of the single desk was placed under a subsidiary, AWB International. Stock market investors want to see AWB maximize its profits, which is equivalent to increasing margins on wheat sales and maintaining generous pool management fees, while extract- ing payments from growers for goods and services. Conversely, the growers contributing to the wheat pool want to be paid the best possible price for their wheat by the single desk, while keeping costs down.

The proposal of WA Farmers would spin off AWB International from AWB Ltd. AWB International would be cooperatively owned by growers. The structure and much of the personnel would be retained from the existing organization, but it would be downsized as well to reduce overhead costs and increase the premiums paid to growers. One means of streamlining would be through sales of large blocks of wheat by tender to international traders like Louis Dreyfus Commodities, Cargill and Bunge, as well as to the major national players who export grain.

Interestingly, this proposal essentially mirrors one made by AWB at the end of 2006 to separate the ownership of AWB Limited and AWB International but preserve the latter as a growerowned body retaining the single desk.

The lobbying group that has been most outspoken in favor of liberalized wheat trade for more than six years is the Pastoralist and Graziers Association (PGA), also based in Western Australia. PGA spokesman Slade Brockman described the single desk as “an inefficient system that loads costs onto the pool. It has grossly exaggerated its ability to price wheat discriminately in the market.” What the PGA seeks is “buying competition in the market,” according to Brockman, who added that “all monopoly systems break down over time.” While growers’ organizations still stand behind a single desk, “growers’ opinions have fragmented in the last six months. Many individual growers have voiced their opposition to the single desk.”

The strong free market stance of the PGA is understandable. While wheat and wool traditionally compete for land, water and other resources in western Australian agriculture, government intervention, in the form of the single desk, favors wheat growers.

In this highly politicized environment, the final resolution of the wheat export dilemma is still open to question. The decision will ultimately be made by an Australian government that is heavily committed to the free trade policies that have delivered strong economic growth in the last 10 years. In 2010, a National Competition Policy Review is scheduled that could demand changes to the Wheat Marketing Act, which provides the authority for the single desk. The final deadline for change has been set by the WTO, which requires that all member countries eliminate statutory monopolies by 2013.

Grain trading companies, both international and domestic, favor deregulation of exports, though they are careful to voice this sentiment only through their lobbying organizations. The three largest national players that are primed to enter the wheat export fray are Cooperative Bulk Handlers (CBH), ABB and Graincorp. CBH operates a large silo network for collection of wheat, and many farmers dissatisfied with AWB pool prices have switched to CBH storage. Through its acquisition of Malaysian-based Interflour, CBH has a guaranteed export for its wheat to its mills in Indonesia, Vietnam and Malaysia. It has petitioned for a license to export 3 million tonnes but so far has only been granted 500,000 tonnes. Nevertheless, its first shipments under this license in February were historic as the first non-AWB bulk vessels shipments since 1930. Interestingly, milling companies in Southeast Asia without an ownership link to Australia have stated their support for the single desk since it prevents any miller from getting a price advantage on wheat purchases.

ABB still benefits from its ownership of the last remaining single desk for barley in the state of South Australia, but this monopoly is likely to end. Meanwhile, Graincorp’s latest annual report shows that it traded 1.7 million tonnes of wheat in 2007 inside and outside the country.

The major international grain companies all have some kind of presence in Australia, either in oilseeds, domestic feed and flour milling, coarse grains trade or other areas, and all are primed to step into wheat exports if the door is opened. Their trade group, the Australian Grain Exporters Association, is a strong proponent of elimination of the single desk.

Even if it is deprived of the single desk on which it was built, AWB should remain an important player. Since going private, the company has integrated forward and backward through acquisitions into a wide range of related spheres. AWB Limited stores grain, trades domestically and sells fertilizer, seed and other inputs and services to farmers through its subsidiary Landmark, which has more than 430 locations in the country, contributed just over one-third of total revenues, but it accounted for two-thirds of AWB’s gross operating profits in 2006. AWB has also diversified into livestock marketing and wool handling. To better secure its relationship with key overseas customers, AWB established a trading desk in Geneva a few years ago, giving it an ability to supply wheat from all origins to key customers. AWB Limited even has ownership in a major Egyptian milling company: Five Star Mill in Suez on the Red Sea.

By virtue of these activities, AWB is Australia’s largest agribusiness company. This is small consolation to investors, however, who saw the company’s share price fall by half in 2006 to below the issue price when the company went public in 2001. At one point, the 2006 loss in shareholder value totaled nearly U.S. $1 billion.

It is not just its soiled reputation and the potential loss of the single desk that have undermined investor confidence. Last year’s drought threatens to reduce the wheat crop by 60% to 10.5 million tonnes, and the long-term prognosis is for more frequent and longer droughts due to global warming.

AWB has responded with cost-cutting measures such as closure of its Beijing office and staff reductions. At the same time, 600 employees are undergoing “cultural training” to help eliminate the attitudes that led to the abuses described in the Cole inquiry report.

Will new euphemistically named policies enable AWB Limited to keep or get back the single desk? Probably not. Will AWB continue to be a player in the Australian and international grain markets? Yes, but probably no longer as a privileged monopolist.

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The central Asian nation has become one of the world’s biggest wheat and flour exporters despite high transportation costs to international markets.

For centuries, Kazakh herdsmen grazed their animals in the summer on the sub-Siberian grasslands of northern central Asia and wintered them far to the south and east in the more temperate shadow of the Tianshan Mountains. This traditional lifestyle explains the vastness of Kazakhstan: it covers an area of 2.7 million square kilometers — about the size of Western Europe — but has a population of less than 15 million.

These days it is not migratory horsemen and their livestock, but railcars laden with grain and wheat flour that cross the nation’s immense desserts and steppes. Much of it is en route to export markets.

In 2006, Kazakhstan’s Ministry of Agriculture reported a total wheat and barley harvest of 18 million tonnes gross weight — a record for the period since independence — and forecasts that the 2007 harvest will equal that level. The excellent crop enabled the country to double its grain and flour exports over the previous year to 6.2 million tonnes.

The share of wheat flour in total grain exports has increased rapidly as Kazakhstan milling companies have aggressively sought markets in countries to the south like Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan. Indeed, the country now ranks as one of the world’s top four wheat flour exporters and is countering a worldwide trend of diminishing trade in the product.

Kazakhstan’s grain production and processing industries have undergone great changes since independence accompanied the disintegration of the Soviet Union in 1991. Kazakhstan was one of the first of the former Soviet republics to abandon central planning and state ownership. It pushed hard for liberalization and privatization of agriculture and grain processing in the 1990s, which led to a sharp reduction in the total area planted, as marginal land was left fallow.

Under Stalin’s Virgin Lands policy in the 1950s, wheat production on a massive scale was introduced to northern Kazakh- stan for the first time. During this time, Soviet central planning called for the sowing of as much as 25 million hectares (ha) with wheat and barley. Today grain markets permit a sown area of about 15.5 million ha, a big increase from a few years ago.

Average yields may be low, but the enterprises that operate the farms benefit from enormous economies of scale. About 70% of Kazakhstan’s grain is produced by a limited number of domestic companies that combine ownership of farmlands, grain elevators, flour and feed mills, and even export terminals. Some of these private companies own up to 400,000 ha of grain land and 500,000 to 1 million tonnes of grain elevator capacity. The large farm size is a legacy of the Soviet era, when state farms in Kazakhstan averaged 100,000 ha compared to 10,000 to 20,000 ha in Russia and Ukraine. A typical Soviet-era grain elevator has a capacity of 100,000 tonnes.

GOVERNMENT ROLE

The state still plays a limited but active role by subsidizing inputs to wheat production and intervening in the market. A state enterprise, Food Corporation of Kazakhstan, manages a strategic grain reserve of 550,000 tonnes, nearly all of which is wheat. The grain in this reserve is turned over every year, with Food Corporation contracting with large grain companies and independent farmers for the full reserve amount and selling the previous year’s reserve, usually for export, and often in government-to-government agreements.

Budget funds of more than U.S.$120 million per year subsidize diesel fuel and agricultural chemicals for grain production. The government also underwrites a program for banks to provide leases of agricultural equipment at interest rates of 4.5%. The Kazakhstan government also uses portions of its oil and gas revenues to promote diversification of agriculture. Soybean production could be one beneficiary through programs to develop culitvars with shorter growing seasons. Vita, a Kazakhstanbased company, built the country’s first soybean crushing plant in Almaty, thus creating a demand for local production.

EXPORTS

Kazakhstan wheat has high protein and gluten content and is sought by millers in many countries. The main constraint on the country’s wheat production is the high transport cost to international markets. Transport to ocean ports, for instance, can cost as much as the farmgate value of the wheat itself.

Kazakhstan is a landlocked country, and its grain zone is thousands of kilometers from both the Baltic and Black Sea ports. To reach those ports, Kazakhstan wheat must be transported by rail through Russia and sometimes Ukraine, nations whose wheat competes directly against Kazakhstan’s in international markets. Railway tariffs for commodities in transit can sometimes become a trade weapon. Nevertheless, one major Kazakhstan grain company has acquired a grain terminal in Ventspils, Latvia.

Kazakhstan does have a coastline on one large body of water, the Caspian Sea, which is also landlocked. Grain export companies have invested in export terminals at three ports in the relatively shallow northern half for shipments during the ice-free, non-winter months in 3,000-to-5,000-tonne vessels to Iran in the south.

When these projects were conceived, Iran was a steady buyer of about 1 million tonnes per year of Kazakhstan wheat in government-to-government agreements. Since completion of the terminals, Iran has become mostly selfsufficient in wheat. Now there is a project by Kazakhstan companies to build a grain receiving terminal at the Azerbaijan capital of Baku on the western Caspian to supply that country as well as Georgia and Armenia.

Kazakhstan’s main competitors, Russia and Ukraine, are in some crop years its best wheat export customers. Ukraine, for example, may export lower quality feed wheat while buying higher protein Kazakhstan grain for its own millers. Alternately, it may make sense for Moscow, St. Petersburg and Siberian cities to receive Kazakh wheat, while Russian wheat grown in the southern steppe region near the Black Sea is exported. In some years, notoriously unreliable weather patterns in both Ukraine and Russia can result in a crop failure, enabling Kazakhstan to drawdown its normally large carryover stocks, which usually exceed 4 million tonnes.

FLOUR MILLING

The combination of abundant highquality wheat, deregulated markets and export demand has resulted in tremendous dynamism in the flour milling industry.

Kazakhstan’s millers may be more reliant on exports than those of any other major grain producing country. Out of a total grind of 2.8 million tonnes of wheat, about 1.8 million tonnes are for export.

The general rule is that the larger the mill or milling company, the greater the share of its flour will be shipped to other countries. By providing quality and value, and extending credit to their export customers, these companies get better prices than on the local market where competition comes from scores of smaller mills with low cost structures, but average quality and no ability to sell internationally.

An example of the aggressive export orientation of the industry is the cluster of about 10 mills in Shymkent, the southernmost large city in the country. Most of these report selling 70% to 80% of their output directly to importers in Uzbekistan, Tajikistan and Afghanistan. Much of the rest is sold to local traders who deliver to the border to supply the so-called shadow market made possible by Uzbekistan’s import duties of 25% on wheat flour. Indeed, the three former Soviet Republics to the south — including Kyrgyz Republic — count on Kazakh product for one-quarter to one-third of their wheat flour consumption. Uzbekistan’s state milling company is exporting increasing quantities of low-quality, low-gluten wheat flour to Afghanistan, Kyrgyz Republic and elsewhere, even as Uzbek city dwellers consume more and more Kazakh flour.

In Soviet times, a couple of dozen mills joined to mammoth grain elevator complexes met domestic demand for flour. Deregulation in the 1990s resulted in small private mills popping up like mushrooms. The number of mills in Kazakhstan is said to have peaked at around 1,500 in the late 1990s, though there is no exact figure. Since then their number has been declining rapidly. Industry insiders say that few mills with less than 50 tonnes of daily capacity are likely to survive, whereas there were hundreds of mills of 5 tonnes or less just 10 years ago.

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Nation has become one of the world’s most important grain importers, bringing in more than 12.5 million tonnes per year.

Perhaps no country has industrialized and modernized as rapidly as South Korea did in the second half of the 20th century. In 1960, per capita GDP was U.S.$200, but today South Korea has the world’s 10th largest economy measured in nominal GDP.

In the process, the country has gone from being a closed, largely agricultural society to a major exporter of manufactured goods, both consumer and industrial.

Just 6% of the population is left in farming. Mostly they grow rice, the one major grain still protected against import competition. This policy is a point of contention in the on-going negotiations of a Free Trade Agreement with the U.S.

Rice notwithstanding, South Korea has become one of the most important grain-importing nations. In a typical year, South Korea buys more than 12.5 million tonnes of maize, wheat and other grains. Average annual maize imports of 8.5 million tonnes for feed and industrial use place the country in a close race with Mexico for second place worldwide. Feed wheat imports typically exceed 1 million tonnes.

FEED INDUSTRY

The feed industry has accounted for the lion’s share of the growth in grain imports. In 1975, feed maize imports were less than 500,000 tonnes. They peaked at over 7 million tonnes in 1996 before leveling off. The feed market is now mature and no new plants have been built for several years.

WTO rules are forcing the country to open up to direct imports of finished meat products, which are likely to capture most of the continuing increase in per capita meat consumption. In 2003, South Korea banned all beef imports from the U.S. after the discovery of a few isolated cases of mad cow disease. The sudden elimination of U.S.$850 million in annual meat imports may have been a temporary boon to the South Korean feed industry, but an agreement has already been reached to remove the ban.

Mixed feed production in excess of 15 million tonnes is divided among 65 companies operating about 90 plants. Agribrands Purina/Cargill, the result of a merger four years ago, has about an 8% share at its five feed fa- cilities. About two-thirds of the plants and capacity are grouped together under the Korea Feed Association (KFA).

A major responsibility of KFA is handling the purchase and importation of maize for most of its members. Shiploads are brought into the ports of Pusan and Ulsan by the KFA’s southern branch and into Inchon in the northwest by the Seoul branch.

However, the KFA does not have a monopoly on feed ingredient imports. The six largest feed millers have formed their own purchasing consortium, and the National Ag Cooperative Federation, whose mills are not part of the KFA, buys separately as well.

South Korea has become a battlefield of sorts for the two major maize exporting nations. There have been huge swings in supply share in just this decade. In 2004 and 2006, U.S. maize accounted for nearly two-thirds of feed use imports. But in 2003 and 2005, Chinese maize took 96% and 65% of its neighbor’s market.

Actually, South Korean purchasers have no direct control over the origin of their maize, since they give the major grain trading companies the option to choose the source. However, Chinese maize is discounted by U.S.$5 to U.S.$10 per tonne compared with maize of U.S. origin.

With industrial use of maize for ethanol increasing rapidly in both China and the U.S., it is uncertain which country will be the main source in the future. The only sure thing is that farmers will supply it, but at a higher price than in the past, and that a newly prominent by-product of ethanol will displace some of the maize imports.

DDGS

Min Byong Ryol, director of the U.S. Grains Council’s (USGC) Seoul Office, said that the South Korean feed industry is technologically advanced and very adept at using new feed ingre- dients. He offers the rapid escalation in imports of distillers dried grains with solubles (DDGS) as evidence. In 2003, just 80 tonnes were brought in for trials. In 2006, imports rose to 35,000 tonnes, and it is forecast that next year they will triple to more than 100,000 tonnes.

It is remarkable that to date all imports of DDGS to South Korea have been in 40-foot (12-meter) ocean containers. While container rates are low, due to the imbalance in trade between the U.S. and Asia, inland handling of these containers in South Korea from the port to the feed mills is very expensive.

As volumes increase, the next step will be bulk shipments of DDGS. However, there are a number of technical obstacles. One is that the U.S. ethanol industry still lacks the supply logistics to fill whole vessels or even single vessel holds with 8,000 tonnes of homogeneous product.

Since in South Korea, as in other Asian markets, DDGS is being introduced for poultry and swine, consistent high quality and good digestibility is important. The USGC sponsored a South Korean feed milling delegation on a DDGS study tour to the U.S. in October. Min observes that the 100 ethanol plants in the U.S. have four different types of construction, process, and management, causing variability of DDGS among them, and making it difficult to achieve consistent quality on a bulk vessel shipment consolidating product from multiple plants.

Another problem is the poor flowability of DDGS, meaning bulk shipments cannot be stored in traditional grain silos at South Korean ports. But as Min points out, there is also little room to build flat storage (for more on DDGS, see article on page 65).

OILSEED CRUSHING

The oilseed industry is entirely dependent on imported seed. Two oilseed crushing firms remain after the recent closure of a third firm. These plants received 1.3 million tonnes of imported soybeans in 2005. The U.S. share has slipped from 88% in 2001 to 60%, as South American sources have gained acceptability.

Soybean meal imports rose to 1.6 million tonnes in 2006, mainly from Brazil and India. Together with edible oil from Southeast Asia and Argentina, they have kept margins low and prevented fullcapacity operations at domestic crushers. The leveling of feed output has also put a cap on the oilseed industry.

Despite the absence of local raw materials, South Korea has jumped on the biofuels bandwagon. A law that went into effect in July 2006 mandates 0.5% vegetable oil in diesel fuel. Imported palm oil is being used for this purpose.

FLOUR MILLING

Flour milling is another mature industry dependent on imported grain. South Korean rice farmers used to double crop with winter wheat and barley, harvesting in the spring in time to plant rice. But this practice has mostly been abandoned. Nearly all milling wheat is now imported, a total of more than 2.3 million tonnes.

The U.S. (53% share in 2005) and Australia (41% share) compete head to head for business from South Korea’s eight milling companies. Canada supplies the balance (6%). Supply from the U.S. consists of three classes: Soft White from the Pacific Northwest, Hard Red Winter and Hard Red Spring. Australia has gained market share for noodle production with its Australian Standard White wheat in recent years.

Wheat supply to these mills is controlled by major Japanese trading houses like Mitsui and Marubeni, in addition to Cargill.

The four largest milling companies are Daehan Flour Mills, CJ Corporation, Dongah and Korean Flour Mills. These companies account for roughly 75% of the country’s flour production. CJ Corporation is a major player in oilseed crushing and feed milling as well.

Per capita consumption of bread and noodles rose rapidly, while rice consumption declined up to the time of the Asia Economic Crisis of 1998, which hit South Korea especially hard. Since its economic recovery, South Korea’s rice consumption has continued to fall, while sales of wheat flour-based products have been stable and meat consumption has resumed its growth. Indeed, the rate of decline in per capita rice consumption has been accelerating for three decades and has reached 4% annually. Today, the average South Korean consumes 78 kg of rice in a year, compared to over 130 kg in 1970.

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Surge in imported wheat from Black Sea region in recent years has made life complicated for Israeli bakers.

In the Book of Deuteronomy, God promises to lead the Israelites to “a land with wheat and barley, vines and fig trees…a land where bread will not be scarce and you will lack nothing.”

Though almost all the wheat from which it is made is now imported, bread in many forms remains a staple of the modern diet in Israel. Recently a museum exhibition displayed traditional breads of Israel’s ethnic communities from 120 countries. Despite a high standard of living, annual per capita wheat consumption has remained substantial at 125 kg for a population of nearly 7 million.

In an average year, Israeli farmers produce just 20% of the country’s wheat requirement on mostly nonirrigated land. Some recycled water (treated sewage) is used in agriculture in limited amounts including for wheat. But water is simply too scarce and precious to use extensively for grain crops. However, exceptional rainfall may result in local production meeting 30% of the national demand for wheat.

Whatever the harvest, farmers are guaranteed a market and a good price for their wheat, since flour millers receive wheat import quotas based on their prior purchases of local wheat. Up until five or six years ago, nearly all wheat imports came from the U.S. To make possible regular deliveries of the preferred hard red winter in Panamax-sized vessels of up to 60,000 tonnes, most of Israel’s 14 milling companies have a long-standing arrangement for joint purchases from the U.S. through a trustee company.

This company, Yevulit, is not the country’s leading grain trader. Though it handles no milling wheat, Shovrei-Bar accounts for over half of all grain imports for feed use, the biggest part of total annual grain imports exceeding 4 million tonnes.

Israel has two major grain ports: Haifa in the north and Ashdod in the south. The Haifa elevator, with 120,000 tonnes of storage, was first built in 1951, and was owned and operated by Dagon for 50 years, after which ownership went back to the government. The company still leases the elevator, but there are plans for a tender for a new long-term operating license at the port.

The surge in supply of Black Sea wheat has made the wheat import picture less tidy than when the U.S. was the dominant supplier. Up to two-thirds of Israeli imports now arrive from Bulgaria, Romania, Hungary, Ukraine, Russia and Kazakhstan in vessels of 3,000 to 25,000 tonnes, making feasible importation by individual mills or smaller groups of mills. Over 40% of total wheat imports of 1.5 million tonnes are for feed use, and 100% of this wheat now originates in the Black Sea.

This new wheat source has complicated life for Israeli bakers and wheat farmers. Long accustomed to the consistently high quality of flour from U.S. wheat grown on vast fields, these bakers are having to adjust to variable flour from wheat originating on small farms in several countries. Large industrial bakers still use at least 50% U.S. origin for their big baking lines that demand homogeneous flour in quantity.

Black Sea wheat has made life difficult for Israel’s farmers as well, since its low cost is undermining the current method for valuing domestic wheat. The country’s wheat growers are paid a price pegged to the Galveston price of U.S. hard red winter plus the shipping cost to Israel at the time of harvest. Leading milling companies have challenged this system in court three times, claiming the existing pricing system for domestic wheat no longer reflects the true international market price for deliveries to Israel. A ruling is still awaited from the Supreme Court on the most recent case. The mill owners hope that the court will appoint a panel of experts from outside the country to create a fairer index for pricing Israeli wheat.

The courts are not an unfamiliar place for Israeli millers. Prior to 1992, flour mills were granted production quotas based on the total length of installed rollers, normally an accurate measure of production capacity, except that roll stands were put on the second and third floors of some mills. A legal challenge brought by certain companies resulted in a Supreme Court ruling to appoint a German milling expert to independently assess mill capacity for allocation of quotas.

The mill quota system was eliminated in 1992 and flour prices were completely deregulated in 2004, but five types of bread remain subject to government price controls. One is the very symbolic Challah bread often eaten on religious and other traditional occasions. Others include white and brown bread. Among them they account for about 35% of bread consumption.

Due to court battles and ongoing deregulation, the country’s milling industry is subject to strong competition. There are 17 operating mills. One milling group, Stybel Flour Mills, controls four of these mills and 25% of installed capacity. The other 13 mills are independent companies usually in the second or third generation of family ownership. In some cases, private investors have minority shares in multiple mills but no management control. A steady rise in the country’s population combined with modernization and capacity improvements have helped existing mills stay viable. About five mills have had to close in the 15 years since the start of deregulation.

An outcome of the Oslo Accords in 1993 was the construction with international development aid of large mills in Ramallah on the West Bank and in Gaza, resulting in a loss of 25% to 30% of the flour market for Israel’s mills, though wheat for these Palestinian mills still must pass through Israeli ports.

FEED AND OILSEEDS

In contrast to flour milling, the feed industry is fairly concentrated. The largest player, Ambar Feed, has annual production of 750,000 tonnes at its two plants. The second and third companies, Miloubar Feed and Tadmir Feed, combine with Ambar to account for the majority of the 2.4 million tonnes of industrial feed production. The remainder comes from numerous small feed mills at the settlements.

Annual per capita poultry consumption of 38 kg, one of the highest in the world, is the basis for a technologically advanced feed industry. The avian flu hit Israel in 2004, but the reaction was swift with the culling of 1.3 million birds, or a loss of just 2,000 tonnes out of total monthly broiler production of 40,000 tonnes.

Israeli equipment companies have been successful in exporting integrated feed and poultry plants on a turnkey basis to a number of countries in the former Soviet Union and Africa.

Oilseed crushing is another sector dependent on imported raw materials. As with wheat, U.S. share of supply has dropped significantly in recent years. Out of total estimated soybean imports of 650,000 tonnes in 2006, U.S. shipments will account for less than a quarter, despite a 90% share as late as 2002. Soybean meal imports, mainly from Argentina, have doubled to over 200,000 tonnes in just a few years’ time.

The three soybean crushing companies are Solbar Industries, Shemen Industries, and Teth-Beth. Their combined annual crush is about 660,000 tonnes.

In addition to edible oils and soybean meal for feed, Solbar Industries has focused heavily on value-added products like soy flour, soy proteins and soy isoflavones. The company now exports 90% of its soy food production and has global market share of about 5% for certain soy food categories. The market within Israel has provided a good platform for developing these product lines. Over 50% of the population is said to regularly consume soy-based foods including meat substitutes and soy milk.

Israeli society is both modern and traditional. Soybeans used in feed and human food could be taken to symbolize the modern, and wheat for bread the traditional. That nearly all of its soybeans, wheat, and feed grains must be imported more than symbolizes the sometimes precarious position of Israel in the world today.

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Country has gone from banning wheat imports to becoming one of the world’s biggest wheat importers.

Nigeria is by far Africa’s most populous country and is also a major oil exporter. In the grain trade, it now occupies a special place as well, as the largest market for the world’s largest wheat exporter.

In 2006-07, the U.S. expects to ship 3.8 million tonnes of wheat accounting for nearly 90% of total Nigerian imports. The country has long been the largest buyer of American hard red winter (HRW), but demand for soft red winter (SRW) has also been rising dramatically.

This is quite a change from 1987, when Nigeria imposed a total ban on wheat imports. That ill-conceived policy was the creation of a military government, which was worried about controlling the outflow of hard currency during a period of low oil prices. Wheat imports had already been rising and reached a peak of 1.3 million tonnes in the early 1980s.

One result of the ban was a flood of smuggled flour from neighboring countries of Togo, Benin and Cameroon, the beneficiaries of subsidized product from the U.S. under the Export Enhancement Program. In 1992, the Nigerian government reopened the doors to wheat imports with just a 5% tariff.

The transformation of Nigeria into a major wheat importer says a lot about the potential of wheat-based products to transform diets in rapidly urbanizing countries where bread or pasta is not a traditional staple food. Per capita wheat consump- tion has increased since 1992 from just 7 kilograms (kg) to more than 23 kg today. By international standards this is still quite low — less than one-half the global average per capita consumption of wheat. And wheat products still rank only sixth as a basic food behind cassava, yams, maize, sorghum, and rice, the principle food crops of this mostly agricultural nation.

Nigeria’s population has nearly doubled since 1992 from 72 million to 132 million. Much of this increase has been in urban areas where bread and pasta consumption is much higher than in the countryside. In cities, bread is treated mainly as a kind of convenience food — readily available, easy to transport and store, inexpensive and consumable on the go.

FLOUR MILLING

There has been much investment recently in new and expanded grain facilities as the industry strives to keep capacity greater than demand. By some estimates, the total installed capacity has increased by 50% since 2002.

The eight largest milling companies control about 19 mills with daily wheat capacity of around 18,000 tonnes out of a total capacity of 20,000 tonnes. The pioneer of the industry and still the number one milling company is Flour Mills of Nigeria Ltd. Founded in Lagos in the 1960s, Flour Mills of Nigeria’s flagship mill in that city has a daily capacity of 4,500 tonnes. The second-largest mill in the country — Northern Nigeria Flour Mills Ltd. — is located in Kano and has a daily capacity of 1,750 tonnes.

Flour Mills of Nigeria is a public company and the Greek-American, George Commantarous, has a controlling share. In addition to these two, Commantarous owns two other 250-tonne-per-day mills: one in Maduguri, in the country’s northeast corner, and the second across the border in Niger.

Dangote Industries Ltd. is in the number two position with 4,000 tonnes of total daily capacity at four plants in four regions of the country. Dangote is a major Nigerian business group with diversified holdings in oil and gas, sugar refining, textiles, salt production, transportation and shipping. It made its move into flour milling just seven years ago but had the management and financial resources to expand rapidly.

Most of the major milling companies are parts of business groups with other activities that include telecommunications, fisheries, banking, haulage, property and even hospitals. Either these holdings started with flour mills that became cash cows providing the financial resources and synergies for entry into other areas, or they were already large business groups, like Dangote, with the capital to build modern high-capacity mills at a strategic time.

The third-largest milling company by capacity — Ideal Flour Milling Group — also falls into the former category, with four mills in different regions and an installed capacity of 2,340 tonnes. The same is true of Crown Flour Mills Ltd. It was founded in 1983 by Chief Maan Labidi and consists of mills in Lagos and Warri in Delta State, with a combined capacity of 1,260 tonnes. Honeywell Group is in the latter category, having started its mill in 1998 and expanded it to 1,600 tonnes of daily capacity.

Such is the promise of the industry that it continues to attract new entrants, the latest being BUA Flour Mills with a 500-tonne mill in Lagos commissioned in 2005 and a second 500-tonne mill to be started up in Kano in the last quarter of 2006.

Though wheat flour consumption has been growing by leaps and bounds, the current picture is not completely rosy for wheat millers. The government, in its desire to help the nation’s farmers, has imposed a requirement, effective July 2006, that millers blend 10% cassava flour into all their wheat flour production.

Compliance will be an enormous burden on millers, given the difficulties of processing, storing and transporting sufficient quantities of good quality cassava flour, not to mention the negative impact on bread quality and other products made from such a blend.

On the other hand, Nigerian millers are increasingly exporting their product — without cassava flour — to drought- stricken and landlocked neighbors like Niger and Chad that face periodic food shortages and have underdeveloped milling industries. Exports may include as much as 10% of wheat flour production.

OTHER CROPS/FEED

Protectionism extends to other crops besides cassava. Rice is gaining as a food staple, and the rising demand from urban dwellers can no longer be met by domestic production of just 2.7 million milled tonnes. Nevertheless, the government maintains a 100% duty on imported rice. Parboiled rice is the number one category of import demand, since it takes less fuel or energy to cook. Despite the import duty, Nigeria will officially import 1.6 million tonnes of rice in 2006. Smuggling of rice imported at low duty rates to Benin probably adds another 300,000 tonnes to the total imported consumption.

Much work has been done through breeding programs to promote soybean cultivation in Nigeria. The total crop is now about 400,000 tonnes. About one-quarter goes to direct human consumption and most of the rest is used by the eight largest domestic oilseed processors.

These soybean crushers are now hard pressed to meet demand from the most rapidly growing sector of the Nigerian food industry — feed and poultry. High rates of GDP growth stimulated by record oil prices have caused skyrocketing demand for chicken, despite the arrival of the avian flu in Nigeria two years ago. Industrial feed production, 90% of which is for poultry, has been going up at an annual rate of 30% to 40% and is now in excess of 2 million tonnes. Soybean meal imports have surpassed 100,000 tonnes.

The biggest grain crop by far is maize. The 2005-06 harvest was 7 million tonnes. Only 800,000 tonnes went to feed milling, but that will certainly increase as chicken becomes a bigger part of the diet of an expanding urban middle class.

Perhaps there is a pattern emerging: the first boom in Nigerian flour milling occurred in the 1970s and 80s, when oil prices jumped from U.S.$6 to U.S.$36 per barrel. Now the latest escalation in petroleum prices appears to be sustaining booms in both flour and feed milling.

Agrofert Holding and Agropol Group play a dominant role in the country’s domestically dominated grain and grain processing industries.

Agrofert Holding and Agropol Group are not widely known outside the Czech Republic, but it is the commanding position of these two corporations that helps define the Czech agriculture and grain processing industries. In the 15 years since the fall of communism and rapid-fire privatization of state-owned enterprises, each of these holding groups has cobbled together a diverse array of enterprises that includes the supply of basic inputs to farmers, grain storage facilities, grain and feed milling and meat production, as well as baking, confectionary and retail sales.

Their skill at strategic acquisitions has enabled both companies to turn themselves into major fixtures on the Czech business landscape, with both ranking among the nation’s largest companies. Annual sales turnover of the 18 operating companies controlled by Agropol is about U.S.$2 billion, and Agrofert’s 79 fully consolidated subsidiaries generated U.S.$1.1 billion in 2005.

What is remarkable about these numbers is that the Czech Republic is a small economy in which agriculture accounts for only 3.4% of GDP and 4% of the labor force.

GRAIN PRODUCTION AND STORAGE

Czech agriculture is efficient, producing 7 to 8 million tonnes of grain in most years, or three quarters of a tonne for each of the country’s 10.2 million people, making for a large surplus. The 2004 crop was a record at 8.8 million tonnes, but in 2003 the grain harvest was just 5.8 million tonnes. More than 80% of grain production is by large corporate farms or private cooperatives.

The wheat crop this year fell to 4 million tonnes from over 5 million in 2005, due to heavy rains at harvest and a 10% reduction in yields. Only about 1.2 million tonnes is used for milling, with another 1.7 million tonnes going to feed use. The State Agricultural Investment Fund (SAIF) makes intervention purchases of between 500,000 to 1 million tonnes of wheat, barley and maize in most years, and leases storage, principally from Agrofert and Agropol. Eventually much of this grain gets exported to other E.U. countries or abroad.

It is in the profitable storage of the grain crop that both Czech agricultural giants got their start. Huge government elevators from the communist era were among the first state assets liquidated when privatization began in 1991. Between them, Agrofert and Agropol were able to take over the lion’s share of the non-farm storage facilities. Today, Agropol owns 10 elevators with total storage capacity of more than 1 million tonnes. Agrofert has even more storage enterprises and capacity.

Control of storage for farmers provided the marketing channels that made possible synergies from acquisition of seed, fertilizer and agricultural chemical production. Agrofert now ranks as the second-largest producer of chemicals in the country.

FEED AND MEAT

Industrial feed production has gone down due to a continual, long-term decrease in livestock numbers. With a 30% share of compound feed, Agrofert is the biggest feed producer. A large part goes to its own meat production, primarily beef and swine.

Agropol’s focus is on poultry production at a number of large integrated operations. It enjoys about a 40% market share. Broilers are exported to Slovakia and Ukraine, but the Czech poultry industry’s greatest competition is from meat imports from Poland.

Since the fall of communism, the main trend in Czech meat consumption has been a steady increase in poultry, large declines in beef, and even levels for pork.

Aside from the two leading players, the rest of the Czech feed industry is fragmented. The Union of Grain Warehouses, an industry association that includes both grain storage and feed milling companies, estimates there are 150 feed millers. Consolidation is proceeding rapidly as smaller mills close and larger ones expand, while overall feed demand stagnates. On-farm mixing of feed has been increasing for many years.

FLOUR MILLING

Flour milling is a sector in which Agrofert and Agropol have a smaller presence. However, this year Agrofert acquired Penam, a milling, pasta and baking company with a broad product assortment, and a 15% to 20% share of domestic flour production, making it the second largest. The top milling company is Unimills with a 25% market share from its four mills, the largest having a wheat grinding capacity of 300 tonnes per day. Only one other Czech milling company has a market share of greater than 5%. The Association of Industrial Mills, the main industry grouping, counts 47 member mills that each processes a minimum of 2,000 tonnes of wheat per year. Total wheat grind in 2005 was about 1.2 million tonnes, equivalent to 115 kilograms per capita.

Many of the medium-sized Czech mills were founded in the 19th century and are housed in architecturally handsome, historic structures. The industry was fossilized by nearly 50 years of communism, and in the early 1990s an attempt was made to restitute most mills to their pre-communist owners as part of the privatization process.

During the transition period in the 1990s, dozens of new mini-mills popped up, but many have already ceased.

Today the industry is going through a period of consolidation, and the main concern of mill owners is to raise productivity by gradually shedding jobs. In general, production costs are low by European standards, thanks to ample local wheat and low wages, and so there is no threat from imported products.

OILSEEDS AND BIOFUELS

Thanks to the biodiesel boom in Germany, oilseeds are one of the more dynamic sectors of Czech agriculture. The rapeseed harvest in 2006 grew by 130,000 tonnes to around 900,000 tonnes. Sunflowers and some soybeans are also grown in rotation. Rapeseed planted area increased by 8% in 2006 to more than 300,000 hectares. Observers predict rapeseed pro- duction will increase to 1 million tonnes — the maximum feasible amount given the need for rotation — to meet demand from new biodiesel plants.

Setuza is the dominant company in the oilseeds sector, crushing 60% of the domestic crop in two plants. It is the only producer of food oils in the country. Like its larger agroindustrial rivals, it has vertically integrated forward into consumer goods like margarine and vegetable oil and diversified into cosmetics, toothpaste, soaps and detergents.

Its main investment goal at the moment is to increase the current capacity of 53,000 tonnes for methylesterifcation of vegetable oil for biodiesel at its two crushing plants. It plans to build a dedicated biodiesel refinery with 100,000 tonnes of capacity at a third location.

The leader in biodiesel production is Agropodnik Jihlava, which produces 70,000 tonnes annually. Agrofert has also announced plans to build a biodiesel plant with 100,000 tonnes of annual capacity.

Nearly all Czech biodiesel production is exported, thanks to the seemingly unquenchable German thirst for the green fuel, and because the subsidies offered by the Czech government for domestic sales are administratively too complicated.

DOMESTICALLY DOMINATED

Though imported food products now account for about 20% of the market, the Czech agriculture and food industry has remained mostly in the hands of domestic companies.

An early exception to domestic control is the vaunted brewing industry, which was bought up almost entirely by the big international players in the 1990s. They have turned historic Czech beers like Pilsner Urqell and Staropramen into global brands.

Is the Czech Republic’s market too small for the multinational grain and oilseed giants to worry about buying into? Or could it be argued that well-managed mini-conglomerates like Agrofert and Agropol have become national champions that have reduced the opportunity for entry of multinationals?

Whatever the case, the Czech example shows that full participation in the world economy does not mean sacrificing local ownership of the majority of the grain and food industry — at least in the short term.