Building resilience to vulnerabilities, shocks and stresses
The 31st IGC Grains Conference, which was held in person on 7-8th June 2022, hosted more than 60 international speakers and 320 participants from 60 countries, who came together to discuss how to build resilience to vulnerabilities, shocks and stresses in the grains value chain.
International Grains Council (IGC)
The Conference was organised by the International Grains Council (IGC), an intergovernmental organisation, currently comprising 56 governments, which was established in 1949 to promote transparency in grains, oilseeds, rice and pulses markets and to strengthen cooperation between countries to achieve the freest trade possible.
The IGC Secretariat currently publishes a Daily Monitor covering 20 agricultural commodities, a monthly report on the overall balance sheets for 98 countries as well as in-depth analyses on the consumption of these commodities. The IGC also collaborates with several other international organisations such as the International Sugar Organization on ethanol markets, FAO as part of the AMIS-G20 Secretariat for market transparency and the WTO and OECD for optimal use of the IGC’s database. Finally, since 2018, the IGC has developed its collaborative activities with regional organizations, such as MED-Amin, the Eurasian Economic Commission, AfricaRice and IDACA (cooperation in Asian region).
The IGC Grains Conference is a unique platform for dialogue between government policy makers and operators in the grains value chain and is part of the London Grains Week, supported by AHDB, GAFTA, IGC and IGTC.
Day one of the 2022 Conference was devoted to discussions on the challenges and opportunities for developing the grains, oilseeds, rice and pulses trade. Day two was dedicated to workshops focused on commodity market opportunities. This format made it possible to broaden the Conference’s audience beyond the trading community to the financial and inputs sectors.
The 2022 Conference focused on the perspectives of the grains sectors which are facing challenges from market volatility and sustainability and climate change mitigation measures. All these topics highlighted the strength and resilience of the grains sector for sustainable food systems:
•Total grains production in 2022/23 is currently forecast at 2,255m t, projected 2% down y/y, pulled lower by smaller maize (-29m) and wheat (-12m) outturns. While consumption prospects are mixed, a predicted pullback in feed demand could see total use edging lower, to 2,280m t. With a comparatively sharper drop in supply, world carryovers are set to tighten, placed 4% down, at 583m t. Assuming continued difficult Black Sea logistics, total world grains trade could drop by a further 3%, to 405m t.
•For soyabeans the perspective is somewhat different, tied to acreage gains and a projected recovery in yields in the southern hemisphere, output could recover strongly in 2022/23, by 11% y/y. Boosted by processing in Asia and South America, global use is seen at a peak, while the Council foresees the potential for inventory accumulation. Global soybean trade is projected to rise by 8% y/y.
•With bigger crops predicted in Asian exporters, global rice production is placed at a record of 518m t in 2022/23, modestly higher y/y. Mainly linked to population growth, but with relatively lower prices compared to alternatives potentially underpinning demand, consumption is projected at a new peak. Inventories are seen unchanged y/y as gains in the major exporters – primarily India – offset a fall in China’s reserves. Trade is expected to stay elevated in 2023 on African demand.
The first panel discussion focused on South Asia, one of the most dynamic and fastest-growing grains and oilseeds markets in the post COVID-19 era: Speakers from Mizuho Bank, the US Grains Council, USSEC, the US Wheat Associates (all based in Singapore) and FSI-Russia, provided an overview on the resilience of demand in this region in the face of difficult economic perspectives. Food demand is still supported by the growing middle class which is looking for a diverse diet, but despite the higher cost of feed, consumption of white meat is expected to increase. The main bottlenecks to developing trade were currency depreciation, access to trade finance tools, the excessive cost off container freight and the ability of the milling industry to absorb price fluctuations.
Infrastructure and logistics are also an enabler when it comes to business development in the grains sector. The second session looked at the options to improve trade in grains. DP World underlined how the United Arab Emirates maintains its key infrastructure strategic role as a logistical and processing hub. A number of ports in the United Arab Emirates have expanded their footprint, to include additional processing facilities, going beyond the traditional containers logistics, thereby enhancing connectivity with other smaller, regional ports Ukraine’s Deputy Minister for Agriculture explained how maritime routes are vital for the Ukrainian grains sector as 90% of grains exports in Ukraine are via deep sea ports. With a loss of more than 50% of their export logistics as a result of the conflict in the region, the bottleneck for storage capacity is becoming even more acute.
Panellists agreed that the resilience of the logistics and infrastructure sector should be based on the diversity of infrastructure, functional redundancies and storage capacities. Other pressures include climate change and increased demand from net importing grains countries. Regarding the resilience of the seed sector, panellists considered it to be robust enough, as the industry works mainly locally, particularly in Ukraine.
The session on food security and trade stressed the importance of maintaining an international trade system based on common rules. Victoria Prentis MP, UK’s Minister for Agriculture, underlined the UK’s efforts to keep food markets open, predictable and transparent and how the UK government aimed to boost sustainable agriculture in developing countries via partnership agreements.
The IGC Chair considered that under normal circumstances, the Black Sea region was resilient enough to increase its productivity, the diversity of products and affordability for the global market. Given the current situation, this was no longer the case despite the strong will of farmers to continue to produce. The UN representative stated that the world was in fragile state as COVID-19 had impacted food, energy and finance negatively affecting 1.7 billion people. Grains market volatility was one of the most sensitive areas. The representative from the French Ministry explained that the Food and Agriculture Resilience Mission (FARM) initiative had been established as a European platform for discussion to address food security in the most vulnerable countries.
Two sessions addressed the nexus of sustainability and the grains value chain. The inputs industry saw sustainability projects as an opportunity to incorporate innovation to improve the resilience of food production. Trading companies had also been engaged in sustainability schemes to respond to the request from food processors. They considered that certification of sustainability schemes should not be a requirement to supply or access the market as some consumers were not prepared to pay the extra costs. However, farmers should be at the forefront of sustainability schemes and certification should be a way to remunerate the farmers being certified. USSEC compared the sustainability schemes as a journey which started a hundred years ago, with soil protection schemes followed by the improvement of machinery and plant genetics. The main challenges facing farmers today were audits, compliance and benchmarking for consumer certifications, leading to higher overheads and market fragmentation.
The second day was dedicated to commodity discussions on recent market developments:
With growing populations and rising incomes boosting demand for feed and food use in particular, global soyabean utilisation has expanded strongly over the past decade and more. And with many consumers – especially in Asia, by far the biggest importing region – heavily reliant on the world market to satisfy needs, traded volumes have risen by about 80% in the past ten years. As a consequence, planting decisions in the world’s largest producers, namely Brazil and the US, have become ever more closely linked to prospects for international sales, with exports by Brazil more-than-doubling to around 90m t and accounting for more than half of world shipments. While recent years have seen moderate growth in volumes, the Council expects trade to advance in future.
The workshop discussed domestic and international requirements in the world’s leading producers and exporters, namely what are the priorities moving forward and can both markets continue to grow? Moreover, the US, Brazil and Argentina are home to sizeable domestic feed sectors, while food and industrial (biodiesel and renewable diesel) segments are important in shaping local demand. In highlighting the relative importance of both market avenues, aggregate domestic use in 2020/21 totalled 154m t compared to combined exports of 157m t.
The workshop, featuring a panel of international experts, assessed prospects for domestic and global demand in future years, highlighting how existing and emerging trends will likely shape growth potential. Discussions touched upon the role of policy – particularly with regard to biofuels sectors in key producers.
Despite rising concerns about the impact of the livestock sector on climate change, global meat production and consumption is expected to continue its uptrend in the medium term, potentially leading to increased feeding of maize, by far the main feed grain. While trade in maize is expected to remain elevated in 2022/23, projected large harvests in the main exporters of the grain suggest that competition for overseas business will remain strong in the season ahead. Aside from the size and quality of exportable availabilities, as well as production costs and currency considerations, exporters’ prices, and their respective market positions, will continue to hinge on delivery costs to the main destinations.
Total transportation costs from the major South American suppliers, including from farm to port, are estimated to be generally higher compared to some competing origins, most notably the US, the fact that has long been viewed as a hindrance to realising the full export potential of the region in the grains and oilseeds markets. Although Brazil’s comprehensive strategy of infrastructure improvement has allowed to boost the country’s export capacity, reduce transportation costs and raise competitiveness in recent years, some projects have been faced with COVID-19-related challenges, while the country’s shipments of grains and oilseeds remain heavily reliant on truck deliveries to ports. Elsewhere in the continent, low water levels on key inland waterways have been a persistent logistical bottleneck for dispatches out of Argentina and Paraguay. While further investment and initiatives are required to cope with South America’s expanding production and exports, the region’s dependence on imports of some farm inputs, including fertilisers and pesticides, stresses the importance of uninterrupted access of local producers to global supply chains.
During this workshop, a panel of experts discussed recent trends in global maize trade, highlighting the rapid expansion of exports from South America and focusing on associated key challenges for local infrastructure and logistics. Aside from assessing the impact of ongoing and planned projects related to transport and storage infrastructure, the seminar focused on areas for further improvement and steps required to ensure the region’s competitiveness in the global maize market in the years ahead.
The global wheat market has been roiled by the Black Sea conflict. The resulting disruption to trade flows from the region has fuelled worries about already tight exporter stocks and triggered a spike in global export prices which, coupled with elevated freight costs, contributed to increased food security threats in some regions.
While Black Sea exports will ultimately be shaped by the duration of military action, significant downside risks for 2022/23 grain production in Ukraine stress the importance of harvests and availabilities in other key exporters. Aside from exportable surpluses outside the Black Sea region, the trade matrix for the year ahead will be shaped by logistical capacity at alternative origins, including in India and Australia. Price considerations will also be key as sustained high import costs could prompt further demand rationing.
This workshop discussed global wheat supply and trade prospects in the face of potentially protracted Black Sea hostilities, focusing on deliveries to Near East Asia and Africa. The discussion also covered possible export and import policy developments, which might influence global trade flows in the near-term.
Global trade in rapeseed/canola was forecast to decline markedly in 2021/22, almost entirely reflecting the impact of a plunge in production and availabilities in Canada, the world’s dominant exporter. With the shortfall in exportable supplies resulting in a spike in international prices, key importers have rationed demand, switching a portion of overall needs to alternatives sources of protein and vegetable oils, chiefly soyabean derivatives, but also sunflowerseed products. The situation also comes in the face of a sizeable expansion of processing in major producers and exporters in recent years in response to growing shipments of rapeseed/canola products – typically from Canada to the US and China. Furthermore, in the EU, by far the largest importer of rapeseed/canola, recent years has seen an increasing reliance on the world market as domestic production has fallen sharply.
This workshop discussed the risks associated with a market where the bulk of global shipments are heavily concentrated in the hands of just a small number of exporters – in the case of rapeseed/canola, Canada, Australia and Ukraine typically account for more than 90% of volumes. A key theme of the workshop was also to explore ways in which consumers can mitigate risk and adapt to periods of excessive price volatility.
World pulses trade has expanded by 30% in the past ten years, with most regions contributing to the uptrend in demand. Nevertheless, Asia is by far the most important consuming region, with shipments typically accounting for more than half of traded volumes, shaped by increasing populations, rising incomes and evolving food consumption trends. Given the market’s sheer size, changes in the policy backdrop can have a profound impact on global import demand: moreover, volumes fell sharply in 2018 after India – the world’s biggest consumer – imposed restrictions on arrivals as a means of protecting the local market. Other key buyers in the region include Bangladesh, Pakistan, Turkey and China.
The workshop discussed prospects for global trade in 2022 and beyond, highlighting existing and emerging trends that will likely shape volumes moving forward. Panellists also touched upon potential risks, as well as the role of government policy.