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IAOM MEA celebrates 25th anniversary

Middle East and Africa District attracts more than 600 delegates from 45 countries to its annual conference  in Cape Town, South Africa.

The International Association of Operative Millers’ Mideast and Africa Conference (IAOM MEA) returned to Cape Town, South Africa to celebrate its 25th year Dec. 3-6, 2014. Over 600 delegates, exhibitors, and speakers came together from 45 countries during the three days to renew old ties, establish new relationships and to exchange the latest  information on technical developments in milling as well as data and trends in wheat markets.

South Africa’s National Chamber of Milling (NCM) hosted the event for the second time in just over four years. The first IAOM MEA in South Africa took place in 2010 shortly after the first World Cup in that country.

In his welcoming speech, NCM Chairman Peter Cook made particular note of the progress of flour fortification in Africa with 19 countries now mandating the public health intervention compared to just two countries, South Africa and Nigeria, 10 years ago.

25th Anniversary

The Middle East and Africa region continues to account for nearly half of the world’s trade in wheat at 73 million tonnes in 2013-14, according to the International Grains Council, and much of the global increase in milling capacity. On this basis, the IAOM MEA has not only proved sustainable but has grown substantially over the last quarter century.

Melinda Farris, IAOM executive director, presented plaques of recognition to four long-time members of the IAOM MEA Leadership Council who have led the transformation of their annual conference from a modest gathering of 25 or so millers and grain industry representatives 25 years ago in Cairo into one of the global wheat industry’s premier events. The four included District Director Ali Habaj of Oman Flour Mills; District Chairman Merzad Jamshidi; Essa Al Ghurair, Chairman of Al Ghurair Resources LLC; and Martin Schlauri of Bühler AG, Switzerland.

Jamshidi, who has played a vital role in the important participation of Iranian millers in the district over the years, identified as a major accomplishment “just the fact we have been able to consistently keep the events attractive for both the millers and suppliers. After all, 25 years is a quarter of a century. As for the future, we are trying to get more of the mills’ key personnel coming to the show with custom-made papers to serve their needs.”

Furthermore, the  event will “go to countries where traveling would be a bit easier and could act as a hub.”

The event’s formula for success includes its benefit to and support from major wheat exporters as expressed by Sean Cowman, regional manager – Middle East and Africa of CBH Group, a cooperative owned by 4,200 Western Australian grain growers. He noted that the conference “is a unique and invaluable link to industry stakeholders.” He said it provides the connection of “Australian grain from our growers to the end users in the Middle East and Africa. We enjoy seeing customers and industry colleagues at this unique and well organized event.”

Bühler’s Martin Schlauri offered his own vision for the future, saying the event “will remain a fixed date in the agenda of the milling executive. Building up sub-regions in MEA will bring the IAOM values and contribution even closer to the markets. This would allow to further focus on topics of specific regional interest, such as processing of maize or other grains.”

Schlauri predicts that as has happened in developed countries already, in the Middle East and Africa the grain processing industry will be challenged by changing consumer expectations and trends, such as food safety or GMO issues in the raw material. “These topics and more shall be on the agenda of the future IAOM MEA conferences,” he said.

Food Security

U.S. Wheat Associates (USW) President Alan Tracy used his opening day address before key industry players from the world’s major wheat importing region to announce the launch of a major new food security initiative based on a proposed full liberalization of the world’s wheat trade. Such a measure would be the most effective way to provide “genuine food security to the world’s wheat importers.”

He pointed out that as the most important global food grain, wheat “provides 20% of the calories consumed every day on earth and 20% of the protein for the poorest half of human population. Demand is growing, but not every country that consumes wheat can produce wheat.”

The USW concept would be based on government-to-government sectoral agreements under the auspices of the World Trade Organization. “In exchange for eliminating tariffs, licenses and other trade barriers, the world’s wheat buyers would have guaranteed access to exportable wheat supplies even when world supplies are down.”

Trading Session

The emergence of the Black Sea and Baltic Sea regions as origins for wheat to the region has been one of the biggest shifts in Middle East and Africa grain trade in the last quarter century. Indrek Aigro of Copenhagen Merchants, Denmark, pointed out that the eight countries of the Baltic Sea region have seen wheat exports rise from 9 million tonnes four years ago to an estimated 17 million tonnes in the current marketing year, accounting for much of the near doubling in net European Union wheat exports to 40 million tonnes in recent years.

Total Baltic Sea region wheat harvest will be 52 million tonnes, exceeding the previous record by 15%. Saudi Arabia and Iran have become the main destination of Germany and Poland’s milling wheat. The two countries now have exportable surpluses of about 11 million tonnes.

“Germany’s wheat is reaching many new markets because of the surplus,” said Aigro. That amount will be 7.5 million to 8 million tonnes. Eleven years ago, the three Baltic countries of Estonia, Latvia and Lithuania had no exportable surpluses, but now they are shipping out two-thirds of their production.

Andrew Vorland of Glencore Grain BV, Netherlands, surveyed the supply situation from the Black Sea, noting that the 35 million tonnes of wheat exports from Russia, Ukraine and Kazakhstan this year will constitute 24% of world wheat exports.

“Black Sea wheat is moving to 100 countries these days,” he stated. Russia’s 6.2 million tonnes of wheat exports to Egypt and 3.6 million tonnes sent to Turkey account for 60% and 86%, respectively, of the wheat imports of the two countries.

Even South Africa, once dependent on the U.S. and Argentina, has become a major outlet for Russian wheat.

Jean-Pierre Langlois-Berthelot of France Export Cereales reminded the audience in his presentation that nearly 100% of his country’s wheat exports go to North African and West African countries, with Algeria, Morocco and Tunisia as the largest markets but growing volumes heading to the francophone countries of West Africa.

After Asia, the Middle East and Africa are the most important destinations for wheat exports from Australia, taking 40% of nearly 20 million tonnes in exports in the 2013-14 crop year with the trend lower this year. Nick Poutney, regional manager for Graincorp, Australia’s largest wheat exporter, explained that among the seven ports operated in the east of Australia by Graincorp, “each port zone has a specific supply and demand dynamic and quality parameters.” But this year all test weights are quite strong, he said.

Dan Basse, president of AgResource, Chicago, Illinois, U.S., in addition to moderating the trading session, provided his own animated and insightful prognostication for global grain markets in the coming years with statements such as: “We think the super cycle in agricultural commodities is kind of dead,” and that with the price of protein going up, “this is the year of species, not of grain.”

Exhibition

Ninety exhibitors from five continents and 20 countries were present at the trade show held jointly with the conference at the Cape Town International Convention Center. Turkey’s contingent of 23 exhibitors was the largest. Italy followed with 11 companies present.

A handful of firms have been present at nearly every IAOM. Ihsan Mustafa Aybakar commented, “As Aybakar, it is our 24th conference. It is not about business alone anymore. We all look forward to catch up with members of the industry. It is the biggest sectoral networking opportunity for the region. You get to meet mill owners, grain traders, equipment and service suppliers. We will be attending in the future.”

The largest groups of exhibitors were mill manufacturers, steel silo companies, and suppliers of flour additives such as enzymes and vitamin and mineral premixes for fortification.

Management Forum and Technical Sessions

During the first day’s session a series of world-class speakers challenged conventional management thinking and encouraged listeners to doubt their standard perceptions, explore the unknown and push for innovation in their approach to business.

The Technical & What’s New Session, taking up the entire second full day, provided a platform for 16 speakers to present the latest technological developments in all aspects of wheat milling. Jeff Gwirtz, president of JAG Services, Manhattan, Kansas, U.S., offered one of the three keynote speeches of the day, pointing out that in milling operations “problems may exist without you knowing it.” He described an approach relying on “the importance of checking and knowing your flour sheet to solve problems.”

Feed Milling

For the first time the conference featured a Feed Milling Technology and Trends Seminar, held on the third day. Diets in many of the countries of the region are improving to include more animal protein as economies develop and incomes rise. Many large wheat millers, most notably in Nigeria, have moved into the feed sector or are at least exploring opportunities.

African Milling School

Bühler’s Martin Schlauri as moderator of the management forum took the occasion to present Bühler’s own initiative to develop management skills in Africa by inaugurating its African Milling School in Nairobi after three years of planning and the construction of a building for that purpose at its milling service center. The first two courses are fully subscribed.

Schlauri has been named director of the school but will continue to  manage key account relationships. Noting the big increases in mill investment activity in the sub-Saharan region in recent years, Schlauri commented, “Africa is definitely on the move.”

FFI Workshop

The Flour Fortification Initiative (FFI) continued its long-running affiliation with IAOM MEA by holding a separate one-day workshop on Dec. 2 attended by about 60 public health officials, millers and NGO representatives.

FFI Director Scott Montgomery presented an FFI award recognizing the contribution of Abubakar Bakhresa, CEO of Said Salim Bakhresa & Co. Ltd., the largest milling company in Tanazania and East Africa, through its support since 2013 of national level mandatory vitamin and mineral fortification in Tanzania of all industrially produced wheat flour. Magdy Shehata of World Food Programme in Egypt received an FFI award as well in recognition of his six years of tireless work to institutionalize fortification of government-subsidized baladi bread.

IAOM MEA Dubai 2015

At the closing ceremony, Essa Al Ghurair, chairman of Al Ghurair Resources, Dubai, UAE, received the handover of the IAOM MEA District flag from Peter Cook. Organizers hope for a record turnout in late 2015 at the ever popular, thriving and business friendly air transportation hub where the event will be held for the fourth time.

Original PDF article as appeared in the World Grain magazine.

Just like old times?

Could global grain markets be entering a long-term cycle of steady expansion and stability reminiscent of the 30-year period following the inflationary food price spiral of the mid-1970s?

That prospect seemed to be the consensus of a number of leading agricultural trade economists and industry figures speaking at a major feed grain industry conference, Oct. 20-22, in Seattle, Washington, U.S.

The presenters also concurred that ample ocean shipping capacity will keep transportation rates low for the foreseeable future, and that a strong dollar should help keep the lid on cereals prices. The only clouds on the horizon appeared to be inadequacy of inland infrastructure to move crops to port in North America as in other grain surplus regions and the rising specter of non-tariff trade barriers based on GMO concerns.

The bi-annual event, entitled Export Exchange, brought 500 representatives of feed milling companies, grain traders, shipping companies and U.S. suppliers of maize and other coarse grains, corn milling and ethanol by-products like DDGS.

Attendees of the Export Exchange in Seattle in late October heard predictions of steady expansion and stability

Attendees of the Export Exchange in Seattle in late October heard predictions of steady expansion and stability

Two industry groups, the US Grains Council and the Renewable Fuels Association, were the principal sponsors and organizers. Many of the attendees came from countries that are major markets for U.S. feed grains, particularly in Asia, Latin America and North Africa.

Looming over the speakers and audience were the impending record U.S. and global grain harvests this year and larger surpluses.

"Now we are entering a period when commodity reserves are building. Ethanol no longer drives the market,” asserted Terry Barr, senior director of the Knowledge Exchange Division of CoBank, a leading U.S. rural lender. “When you look to agriculture you see much larger supplies coming into the market place.”

Markets are “building inventory that will mitigate volatility in the market place.” This was badly needed he observed, “We’ve seen 50% increases in world wheat trade in the last 10 years.”

Barr contrasted the current U.S. dollar strengthening to the periods of weakening in the mid-1970s and from 2004-2008. “Both run-ups in (grain) prices occurred during a period of devaluation of the U.S. dollar,” he noted.

According to Barr, “If the Fed moves interest rates higher, the dollar will go higher which will impact trade flows. It will put downward pressure on commodity prices, too.”

Terry Barr provided inight into a variety of economic factors that could impact the grain markets.

Terry Barr provided insight into a variety of economic factors that could impact the grain markets.

However, financial market impacts on grain prices will not be sudden. “We are not talking about rapid rises in interest rates,” Barr said.

While increasing agricultural productivity and a stronger dollar should combine to prevent price spikes for years to come, continued economic growth in emerging markets will assure steady increases in demand for feed grains, thereby underpinning markets.

Barr pointed to the twin giants of the developing world. “It is not advanced economies driving the global economy, it is more China and India,” he said.

Gazing into crystal

Marty Ruikka, president of The ProExporter Network, a consultancy specializing in forecasting grain market trends, made a wide range of predictions. Such forecasting is particularly necessary for companies who must plan investment in hard assets like grain terminals and milling.

In particular, he pinpointed one basis for future expansion of global grain trade.

“In the U.S., agribusiness yields are growing much faster than demand,” Ruikka said.

Ruikka highlighted the extraordinary nature of the last 10 years. “The ethanol building boom and Chinese food import boom have been drivers of profitability in agriculture,” he said. “We have never seen this before. There has been nothing like this in history when large groups have made so much in production agriculture.”

Gross return over total costs for soy beans and corn have ranged from 15% to 30% in four of the last eight years, even without government support payments or subsidized crop insurance payouts, according to Ruikka’s data. He said this was unprecedented.

Prior to the price run-up that began in 2004, “there were four decades of flat earnings in agriculture,” Ruikka observed.

He further commented on the global nature of agricultural expansion in surplus regions.

“There are three export hubs: North America, South America and the Black Sea. These export hubs have 13% of world population but are 53% of feed grain and oilseed production.”

Marty Ruikka provided comments on the coarse grains markets.

Marty Ruikka provided comments on the coarse grains markets.

For now the primary customers of Black Sea feed grain are in the Middle East and North Africa, but Ruikka prognosticates that “by 2020, the Black Sea will be a formidable competitor in world markets.”

But Ruikka touched on two factors that are adding to the U.S. surplus. There is a “very positive trend in animal production that means less feed to grow animals.”

Secondly, American consumers, by far the largest per capita meat eaters, have given up 20 to 30 lbs. of meat consumption since the global economic crisis that started in 2008, he said. This means that more U.S. coarse grains are available to meet increasing demand in countries with rising meat consumption.

Curtis Jones, global director of economic analysis at Bunge Global Agribusiness, put a number on the anticipated food trade expansion, forecasting that combined international shipments of corn, wheat and soy beans would increase by almost 40% over the next 10 years from 384 million tonnes to 534 million tonnes, with soy beans growing at the highest rate.

“Population and income are key drivers of agricultural product demand,” he observed.

Barriers and bottlenecks

Though the long-term market outlook appears bright on both the supply and demand side, many of the conference participants were preoccupied with more immediate and medium-term issues concerning distillers grains (DDGS) exports and inland transportation bottlenecks.

In August, China declared a ban on imports of DDGS from the U.S., citing GMO concerns. China accounted for 52% of total U.S. exports of 9.7 million tonnes in 2013-14, a record level and 18% of all DDGS consumption. Suppliers have scurried to divert the supply to other markets, but the rate of increase of U.S. exports is expected to slow. The surge began in 2006 when distillers grains DDGS exporters were only 1 million tonnes at the onset of the U.S. ethanol boom.

DDGS has become a major new component in the rations of many livestock in the U.S. and around the world. Of the 130 million tonnes of corn now being processed for ethanol, up to 30% is converted to the feed by-product. Supply is abundant. Cost of other feed grains and oilseeds determines the share of DDGS in compound feed once corporate livestock nutritionists have been brought up to speed on its uses.

It was news to many overseas attendees that the U.S. transportation infrastructure is currently not up to the task of moving record grain harvest to ports for delivery to burgeoning overseas markets. Grain must compete with unprecedented volumes of petroleum now being moved by rail as a result of the fracking boom in regions without pipelines.

“We think changes in internal transportation in the U.S. are structural,” Ruikka said. “Getting grain to market will cost more. It is a permanent feature of the U.S. having more oil.”

The advent of corn ethanol exports from the U.S puts additional strains on the railroads’ capacity to move grains. About 7% of U.S domestic ethanol production will be exported in 2014. “For most of summer, ethanol has been one of the cheapest motor fuels in the world,” he said.

This was a consequence of the fall in corn prices while petroleum prices were still high before their collapse in October.

“We think there will be a big push in ethanol exports,” Ruikka predicted, but he qualified it by saying they “will happen as elastic economic events.”

One source of increased ethanol demand could be more countries requiring ethanol blending to reduce air pollution. The U.S. mandates a 10% ethanol blending in gasoline, but outside the U.S., average blending is still less than 3%.

Bulk shipping

When it comes to ocean transport of grains, the picture turns rosy again. Peter Borup, president of Lauritzen Bulkers A/S, observed, “If you can get crop to port, there is no problem to transport it. The problem is with U.S. infrastructure.”

He predicted 5% to 20% annual increases in global bulk shipping capacity and assured the audience, “There are lots of new ships on order.”

This was supported by data showing almost 200 dry bulk carriers of all sizes scheduled for delivery from 2014 to 2016 versus an existing fleet of 10,237 of 747 million dwt. “We can expect very decent and low shipping rates for years to come,” he said.

Lauritzen Bulkers, which specializes in the handy size segment (less than 40,000 dwt), handles 25% grains, said Borup, while estimating that 85% of bulk ocean freight is destined for Asia.

Containerized shipment of bulk agricultural commodities has increased greatly and helped to keep down bulk vessel rates.

Mathew Hill, Maersk Lines’ general manager of Trans-Pacific Trade, stated, “In 2013, 10% of water-borne grain out of the U.S. was in containers, mainly due to increased DDGS from 2010 to 2013.”

Farm exports have provided a backhaul for ocean containers across the Pacific. But despite the increased demand from agricultural commodities, a high percentage of containers are still returned to Asia empty, particularly during the lead up to the heavy Christmas shipping season starting in July and peaking in October.

One problem shipping companies face is that most incoming containers are destined for major population centers in the U.S., while outbound shipments of DDGS, corn gluten and corn meal originate in less populated areas centered in Iowa at the heart of the corn and ethanol belt.

“There is a heavy cost to repositioning empty boxes,” Hill said.

With China’s sudden ban on DDGS imports, containerized traffic in 2014 will likely drop back to between 7% and 8% of bulk agricultural exports, according to Hill.

“Lots of investment in bulk has gone to panamax size because handy size is worried about cannibalization from container trade,” Borup said. He noted that DDGS to China had mostly been transported in panamax vessels (65,000 to 100,000 dwt).

About the smaller bulk vessels, Borup said, “The handy size sector is aging. Average age is over 20 years. Investments are coming back. Handy size is used for other purposes: zinc, copper concentrate, logs.”

Borup also said that since the 2008 economic crisis, shippers are managing more efficiently and that has impacted rates.

He asserted that the Panama Canal extension does not make a difference in rates. “There is only a small percentage, 5% to 6%, of panamaxes that actually transit the canal,” he said.

Hill said the impact of containerization of agricultural shipping will be limited to byproducts like DDGS and corn meal. “Quite frankly there is not the number of containers to take dry grain,” he said. “The impact has been on rates more than anything.”

New story is old story

Abundant stocks, increasing crop yields, steady prices and low shipping rates are good news for the world’s rapidly urbanizing emerging economies.

“Asia cannot catch up to the need to import food,” The ProExporter principal declared. “People are more dependent on the world’s future commercial food delivery system.”

But Ruikka concluded, “The new story going forward is an old story. We will have a huge amount available for those who want to eat more.”

Central Asian Breadbasket

Central Asian nations have a combined annual wheat output ranging from 25-30 million tonnes from the Siberian steppes of Kazakhstan in the north to the mountain valleys of Afghanistan in the south, wheat is by far the most important cereal grown and consumed in Central Asia.

The six countries of the region have a combined output ranging from 30 to 35 million tonnes in most years. Kazakhstan may account for anywhere from one half to two-thirds of wheat produced in these countries, depending on the amount of rain received on its vast dryland farms.

Four of the other “stans” — Uzbekistan, Kyrgyzstan, Tajikistan and Afghanistan — all to a varying extent depend on Kazakhstan to provide wheat and wheat flour to cover part of their consumption. Only Turkmenistan, one of the world’s most closed societies, in recent years has achieved self-sufficiency in wheat.

Until 1990, when the Soviet Union broke up, all of their economies (except Afghanistan) had been unified under a central economic plan with all wheat production and processing under state control. Since then, each of the five for- mer Soviet republics has pursued separate economic models.

However, trade in wheat and wheat flour remains one of the major economic linkages among the nations of Central Asia.

Kazakhstan

Dryland wheat yields are low, averaging about one tonne per hectare, and can vary hugely from year to year according to rainfall and soil moisture. The harvest fell from a record 22.7 million tonnes in 2011 to just 9.8 million tonnes in the following drought year, per U.S. Department of Agriculture (USDA) data. The chairman of KazAgro Holding’s management board has predicted a recovery to about 15 million tonnes in 2013.

Domestic use runs around 5 million tonnes, so even when yields plummet there is still surplus wheat for export to other countries of the region.

Given the logistical difficulties of export over long distances by rail, Kazakhstan typically carries over to the next year over one-third of a bumper harvest. Following the record harvest of 2011, wheat stock levels reached an unprecedented 17 million tonnes. The government grain agency stepped in to buy several million tonnes from farmers that year.

Kazakhstan’s wheat can be delivered competitively to Black Sea and Baltic Sea ports, usually only when its crop is larger than average and world wheat prices are high due to shortfall in production among the traditional major exporters.

In 2011-12, when exports reached about 11.4 million tonnes, about half were to countries outside of the Central Asian region. The following year exports dropped to about half of that, and nearly all went to other Central Asia countries and to Azerbaijan on the opposite shore of Caspian Sea, as well as to Russia in difficult to monitor cross-border trade.

All told, other Central Asian countries including Afghanistan now buy the equivalent of about 5 million tonnes of Kazakhstan wheat and wheat flour annually.

Thanks to steady demand from nearby countries, but mainly Uzbekistan, Kazakhstan had been the world’s top wheat flour exporter for a number of years running, with exports reaching 3.65 million tonnes in wheat equivalent in 2011-12, according to the International Grains Council (IGC). Shipments dropped the following drought year to a level below Turkey but a recovery to 3 million tonnes is projected by the IGC in 2013-14, enough to regain the top position.

Proximity, an excellent railroad network, large efficient mills, low prices for high quality wheat, and supportive government polices are all factors in the ability of its milling industry to dominate wheat flour markets in the other countries of the region.

There are currently about 350 wheat milling enterprises in Kazakhstan according to Evgeny Gan, longtime president of the Kazakhstan League of Grain Processors and Bakers, an industry association. The trend has been toward investment in larger plants and closure of smaller mills to the point where about 200 of these are above 150 tonnes per day capacity and only 50 have a capacity of less than 50 tonnes per day.

Uzbekistan

Uzbekistan’s wheat production of 6.2 million tonnes depends 80% on irrigation from the rivers flowing westwards out of the Tianshan Mountains, which are nearly sucked dry before reaching the shrunken Aral Sea. Planted areas and yields are predictable from year to year thanks to adequate water and heavy state planning.

Paradoxically, though the country is nominally self-sufficient in wheat, its imports from Kazakhstan have steadily climbed to 1.4 million tonnes of wheat flour, the largest flow of this commodity between any two countries.

Among the reasons for the increase may be the increasing exports of lower quality Uzbek wheat and flour, as well as greater re-exports of imported Kazakh flour, mainly to Afghanistan.

Consumers in the nation’s capital, Tashkent, and other large cities demand “naan” bread made from the higher protein rain-fed wheat of Kazakhstan for reasons of taste and texture.

It is estimated that only 62% of the wheat grown in Uzbekistan is used domestically for food. The remainder goes for livestock feed or is exported at low prices to neighbouring countries.

Though it has been nearly a quarter century since achieving independence, Uzbekistan has retained the Soviet model of state ownership for large parts of its economy. Farmland is privately held, but government planners still dictate the amount of wheat (and cotton) to be sown, the prices of inputs and how much the state will pay for wheat at harvest.

The bulk of the wheat surplus is purchased by a single government grain storage, flour and feed milling entity called Uzdonmahsolut, which means “Uzbekistan Grain Products.”

It controls 40 to 50 feed and flour milling enterprises most of which incorporate monolithic concrete grain elevators dating from the Soviet era. Uzdonmahsolut’s annual planned wheat flour output is about 1.5 million tonnes.

All exports of surplus wheat and wheat flour are restricted to the government monopoly, but no data is published about prices, volumes and destinations of shipments outside Uzbekistan. Such grain trade data is officially treated as a state secret, one of few countries that is so lacking in transparency.

Despite heavy government controls in the sector, dozens of private milling companies have started up in the last several years as the share of wheat ground on a tolling basis in tiny village mills has declined, replaced by commercially produced flour.

Turkmenistan

This former Soviet Republic of just 10 million people has remained the truest to the model of state ownership of the economy since the collapse of the Soviet Union. Total wheat production, all from irrigated lands that formerly grew cotton, is expected to increase by one-third from 1.2 million tonnes in 2012 to 1.6 million tonnes this year, according to official government proclamations.

Abundant state revenues from exports of natural gas have permitted large-scale investment in the entire wheat value chain from modern tractors and combine harvesters to state-of-the-art milling and pasta plants.

The country reports exportation of 300,000 tonnes in 2012 of carryover wheat from the previous year. Most of it went across its southern border to either Iran or Afghanistan.

Afghanistan

In contrast to its neighbors to the north, Afghanistan has achieved a high level of wheat-based food security through unregulated agriculture, a large network of small, adroit traders who import flour and cash inflows from the outflow of illegal drugs.

Concrete grain elevator in Puli Khumri

Concrete grain elevator in Puli Khumri

Wheat consumption, which accounts for over 60% of total caloric intake, has reached about 6 million tonnes per year, with domestic production about 4.15 million tonnes last year and forecast by USDA to be down slightly for 2013-14.

Production is balanced between rainfed fields on the one hand and snowmelt irrigation on the other, and is also split between winter and spring-planted crops.

Kazakhstan’s aggressive milling industry has supplanted Pakistan in the last decade as the main supplier of wheat flour. Afghanistan’s wheat flour imports from Kazakhstan reached 1 million tonnes in 2011-12 before falling off to 700,000 tonnes the following year when the crop came up short and Pakistan regained some of its position as a wheat flour supplier. Uzbekistan’s low cost, low quality wheat flour accounted for another 250,000 tonnes per USDA data.

Other sources of wheat include official food aid donated by India and distributed by the United Nations World Food Program.

Most wheat flour shipments from Kazakhstan and Uzbekistan move efficiently by rail, crossing a bridge at the border at Termez, Uzbekistan to the rail terminus inside Afghanistan on the river bank and near the city of Mazar-e-Sharif. From there it is less than one day’s truck journey to the Afghan capital, Kabul and most other large cities in the country.

About 90% of Afghanistan’s domestically grown wheat is milled for farmers and others in small village mills, grinding just 1 to 4 tonnes per day on a pay-for-service basis.

There has been investment in about 12 commercial mills with capacity ranging from 80 to 500 tonnes per day. These are often shut down due to lack of wheat supply, electricity or other factors.

During the Soviet occupation of the 1980s, there were five large milling and baking complexes with concrete elevators built, averaging 50,000 tonnes storage capacity, similar to what exists throughout Russia and Central Asia.

Recently the Afghan government has taken steps to create a strategic grain reserve and has begun to reuse some of these complexes, though the milling and baking sections have remained unused except for the one in Kabul.

Tajikistan

The small amounts of arable land in the most mountainous of Central Asian nations allow for 800,000 to 1 million tonnes of annual wheat production.

Tajikistan is usually the second or third-largest market for Kazakhstan wheat flour, with imports having reached a peak of about 460,000 tonnes in 2007 and 2008 but dropping off since then to just 240,000 tonnes in 2012. The country’s millers that year used 720,000 tonnes of imported wheat as the trend has been for declining wheat flour imports and increasing wheat imports as the domestic milling industry expands.

Kyrgyzstan

Like Tajikistan, Kyrgyzstan is mostly mountainous. Its agriculture is focused on livestock production, mainly sheep and cattle. Potato tonnage exceeds wheat production that amounts to about 800,000 tonnes in most years.

Wheat is irrigated in the portions of the country’s southern region in the Fergana Valley that is shared with Uzbekistan.

The wheat value chain is entirely in private hands in line with the country’s free market economic policies.

Millers in the capital city of Bishkek rely partly on wheat deliveries from Kazakhstan, which are in the range of 450,000 tonnes per year for the country. The industry has been successful in getting its government to protect it via duties on wheat flour imports, though this usually results in large in-flows of contraband flour. Flour imports are only about 110,000 tonnes.

Summary

Though isolated from the rest of the global grain trade by thousands of kilometers to ocean ports, the economically and politically diverse, landlocked (Uzbekistan is double landlocked) nations of Central Asia comprise a dynamic wheat production, processing and trading community that continues to evolve with greater investment from governments and private enterprise.

Kazakhstan’s government is now pursuing policy measures to increase livestock production through reduced plantings of wheat in favor of feed grains. Nevertheless, the country will continue to supply its neighbors while holding large buffer stocks of wheat that can be released on world markets when prices spike.

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