“The major risk for all industries is that they are facing price volatility which could affect the affordability of the food and hence demand. Extreme price volatility could prevent the food sector from producing at full capacity. Furthermore, it is not yet clear what the impact of ‘panic buying’ in some countries will be. Does it mean that consumers will buy less food during the second semester? It is too soon to say. The most important thing is not to cause unnecessary panic. Many governments have already announced they will introduce economic measures to boost the economy when the pandemic is over. This is the most important thing we need to keep in mind.”
Executive Director of the International Grains Council (IGC)
The coronavirus pandemic, which spread across more than 180 countries, has almost taken the world hostage. The pandemic, which killed thousands of people, put tremendous pressure on the global food supply chain as well as the healthcare system. People run to the markets in panic and stock up on flour, pasta and pulses. Pasta and flour sales in France tripled compared to the same period of last year. Demand for flour has increased by 80 percent in Italy, one of the countries most affected by the pandemic. While the supply-demand balance in the grain markets suddenly deteriorates, the governments are taking measures such as banning grain exports, primarily wheat and rice, and suspending flour sales abroad to ensure their own food security. However, the UN warns that these protective policies that restrict international grain trade can trigger a food crisis in the world.
We talked the latest developments in the grain trade and supply chain with one of the most reliable and competent experts on this subject: Arnaud Petit, Executive Director of the International Grains Council (IGC), an intergovernmental organization providing accurate, unbiased information for the grain markets. Mr. Petit has been the Executive Director of the IGC since February 2018. He has a deep understanding and experience of world grain markets and international food policy issues.
Here is IGC Executive Director Arnaud Petit’s answers to Miller Magazine’s questions regarding the impacts of the coronavirus outbreak on the international grain trade.
Mr. Petit, first of all, thank you for responding positively to our interview request in such a difficult time. At a time when the discussion goes on the coronavirus epidemic could trigger a world food crisis, the messages and information you give are really important. I want to start with a question that everyone is curious about: Is there enough grain for the whole world? What can you say for the panic-buying consumers, millers, and governments? How is IGC’s grain production (wheat, corn, rice) outlook for this season?
The past month has seen escalating concerns about the global spread of the coronavirus and increasing uncertainty about the longer-term implications for production and consumption. While some commodities have seen a sharp upturn in nearby demand, especially for rice and wheat-based foods, weakening economic conditions could dampen usage in the longer term, particularly for industrial products such as maize-based ethanol and starch. Although import buying of some commodities has accelerated in recent weeks, logistical challenges are being reported as movement constraints and quarantine measures become widespread. Transportation restrictions could also hamper the distribution of farm inputs and disrupt spring fieldwork, however, at this stage, the Council assumes that planting intentions will be fulfilled.
The forecast for world total grains (wheat and coarse grains) production in 2019/20 is lifted by 3m t m/m (month-on-month) to 2,175m, mainly because of an adjustment for maize output in the EU. With consumption trimmed, the figure for total grains stocks is up by 4m t.
In 2020/21, global total grains production is projected to expand to 2,223m t, up by 2% y/y and an all-time high. At this level, the overall supply would be a fresh peak, but with assumed growth in consumption, another modest decline in ending stocks is foreseen. Once again, this is mainly linked to a drop in maize inventories in China, which more than offsets an accumulation of that grain in the USA. Wheat stocks are predicted at an all-time high, led by expansions in China and India. Growth of 2% is envisaged for total grains trade, with shipments of maize, wheat and sorghum accelerating.
What about the rice outlook?
The Council’s forecasts for global rice supply and demand in 2019/20 are broadly unchanged m/m, with carryovers rising to a peak of 177m t on the accumulation in China and India. Led by acreage increases in major exporters, world rice production in 2020/21 is projected to rise by 2% y/y, to a high of 509m t, with population growth supporting record uptake. Further gains in inventories are anticipated, mainly in key exporter and China. Trade is seen growing by 3% on bigger deliveries to Africa, with India the leading exporter.
The spread of the coronavirus leads to the stockpiling of staples like flour and pasta. There is a spike in demand for these staples. What can you say about the demand side for wheat?
Food demand for wheat has been given a nearby boost by consumer stockpiling, with some millers operating at increased capacity to meet the surge in demand. However, this is not necessarily new demand, as stored foods will be consumed over several months, rather than in one go. In most countries, consumption should stay quite resilient. However, the high likelihood of slowing economic conditions has the potential to negatively impact demand moving forward, though probably to a lesser extent for wheat than for maize/oilseeds, for which industrial products are more important. Currency movements could affect the consumption of wheat-based foods in some countries if imported food prices are inflated relative to local substitutes.
‘EXTREME PRICE VOLATILITY COULD PREVENT FULL CAPACITY PRODUCTION’
The virus is putting enormous strains on food supply chains. Many countries have implemented restrictive measures against the grain and flour exports to safeguard national food security. How do/will these measures affect the grain trade and prices?
The major risk for all industries is that they are facing price volatility which could affect the affordability of the food and hence demand. Extreme price volatility could prevent the food sector from producing at full capacity. Furthermore, it is not yet clear what the impact of “panic buying” in some countries will be. Does it mean that consumers will buy less food during the second semester? It is too soon to say.
‘TOO RESTRICTIVE MEASURES PENALISE LOCAL FARMERS’
Do you have any concerns that closures, lockdowns, and restrictions of movement would cause a negative effect on grain production and harvests?
Sanitary measures are necessary to overcome the pandemic as quickly as possible. There are a lot of reports that the restriction of movement and TRQs are affecting trade. We should be careful in disseminating this type of information as some TRQs would not affect trade capacity. Some volume restrictions are regularly introduced at this time of year and do not have an impact on trade capacity and on food security. Too restrictive measures from exporters would also penalize their local farmers with pressure for lower commodity prices.
What is the importance of functioning international grain trade and a stable grain market in terms of world food security?
A NEWS DATABASE FOR COVID-19 POLICY RESPONSES
Can you share IGC’s efforts to minimize disruptions on grain supply chains during these unprecedented times?
There are two main benefits of globalization for society and for grain trade operators. First of all, globalization is the best tool to fight against extreme market volatility. The purpose of trade is to fill the gap between regions in surplus and those in deficit to avoid extreme price volatility on staple foods. US farmers faced a drastic fall in their grains production this year but due to good production in South America, the market did not react in an extreme way. The second major benefit of globalization is the ability to integrate the food chain with other parts of the economy e.g. grains used for feed and industry are interlinked ensuring optimal use by providing proteins for feed and energy for industry. Without globalization this trend would have been slower.
The Grains Trade Convention is based on cooperation between its members to promote the expansion of international trade in grains and to secure the freest possible flow of trade. This can be achieved by the IGC Secretariat providing members with the latest market analysis e.g. The Secretariat has just developed a news database of Coronavirus (COVID-19) policy responses affecting grains, rice and oilseeds trade. Having a common understanding and the latest market data allows countries to adjust their policies to ensure their food security.
It is encouraging to see that countries are interested in acceding to the Grains Trade Convention. On 1st April 2020, the Republic of Serbia became the 59th member of IGC. The more countries that come together to discuss global trade the better chance we have of improving the situation.
We all remember the painful experience of the 2007-2008 global food price crisis. What does this crisis teach the world? Do you think have we learned the lessons from that crisis?
The 2008 crisis was driven by two main factors: shortage in supply and high prices for energy. The current crisis is the opposite! The most important thing is not to cause unnecessary panic. Many governments have already announced they will introduce economic measures to boost the economy when the pandemic is over. This is the most important thing we need to keep in mind.
Last question… Can you inform us about the preparations for the next IGC Conference?
Together with GAFTA and IGTC, we are planning a week of high-level grain sector events during London Grains Week. If the conference cannot take place physically, we will do a virtual one. The themes of the conference namely, enhancing globalization, the supply chain response to climate change and trade finance are important topics which need to be discussed beyond the IGC Grains Conference. Many grain industry and trade events have been canceled or postponed. However, we are still planning to hold the next IGC Grains Conference on 9- 10 June 2020 in London. I think during these times of uncertainty, the IGC should provide a platform to discuss the next steps to ensure the development of global grain trade.