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IFAP Commodities Conference
Group on Grains and Oilseeds
Bruges, Belgium, 20 April 2005
Summary Report

Opening session

 

The IFAP Group on Grains and Oilseeds was called to order by Chairman Alan Bergman on April 20 in Bruges, Belgium.  Mr.Francois Huyghe of the Belgian Boerenbond welcomed the group to Bruges.

 

World Market Situation and outlook for Grains

 

Mr. Germain Denis, the executive director of the International Grains Council updated the members on the world market situation and outlook for grains. He explained that  exceptional yields and bumper crops across the world have begun to impact markets.  Prices, however, have held relatively stable until very recently due to low stocks going into the 2004 growing season. 

 

The outlook for 2005 production in wheat is projected at 600 million tonnes, close to the record level of the previous year.  World wheat stocks are not exceptional but, should there be another bumper crop, stocks could grow sharply.  Wheat imports are expected to expand in 2005 and exports are slated to grow too, largely due to projected higher exports from Canada and Europe.  It was noted that wheat prices are now declining and may continue to be pressured.

 

Mr. Germain Denis said that for maize, near record crops are forecast for the U. S. and China.  He noted also that industrial use of grains is the fastest growing usage sector due especially to growth in ethanol production.  He added that freight rates for grains have tripled in the last three years and are becoming a major factor in grain sales. 

 

Finally, he said that the global price outlook for maize is still weak in 2005.  Growth in meat trade, however, particularly in Mexico, Canada and Brazil is helping grain usage.

 

World market situation and outlook for oilseeds

 

Mr. Philippe Dusser of the Federation of Oilseed and Protein Producers of France noted that oilseed supplies were marked by the bumper crop in the U. S. in 2004.  Prices have been affected by big global crops, freight rates, industrial usage and currency fluctuations. 

 

Mr. Dusser said that a huge increase in world oilseed production for 2004-2005 was 7 percent higher than the long-time trend due mainly to the increase in soybeans production.  South America now accounts for two-thirds of world soybean exports.

 

For the other oilseeds, Mr. Dusser explained that the European and Canadian rapeseed production is very high with a record in Europe, global sunflower production is slated to decrease and world palm oil production is steadily growing.

 

He added that the demand for oilseeds is growing, particularly due to the increasing demand in Asia.  China alone has had a growth rate of more than 10 percent annually since 1995.

 

As far as prices of oilseeds are concerned, Mr. Dusser said that as for U.S. soybean prices, the potential for continued price pressure is likely. Better world prices for sunflower and rapeseed oil are projected. In importing regions such as Europe, importer prices are higher due to increased freight rates.  Exchange rates in Europe are leading to low seed prices, too.

 

He concluded that prospects for 2005-2006 will be influenced by lower South American production, Asian rust and reactions to lower prices.

 

Policy developments in the grains and oilseeds sector

 

Mr. Robert Carlson of the NFU in the U. S. reported that industrial use of grains and oilseeds for biofuels is expected to increase due to anticipated legislative mandates.  It was noted that U. S. producers generally feel the 2002 U. S. farm bill is working.  Government payments to producers are expected to increase to $24 billion in 2005 due to lower prices and crop disasters in some regions. He added that the grain and oilseed price outlook does not call for dramatic increases or decreases in U.S. prices through 2014. He finally explained that the new U. S. farm bill will likely continue decoupled payments, environmental standards and lower government spending.

 

Mr. Peter Lundberg of the COPA Cereals Group reported that the 2003 Common Agriculture Policy (PAC) reform has been marked by rural development initiatives and decoupled payments.  Cross-compliance measures have linked income supports to issues such as the environment and animal welfare. The challenge in the E. U. will be to continue to support agriculture with less trade-distorting measures.  All member states but France and Spain have chosen full decoupling.  Full reforms are expected to be implemented across Europe by the end of 2005.

 

He also said that because of CAP reform, expectations are that older farmers will choose to retire; farmers will try to lower input costs and add value to crops, to obtain outside income and to diversify. He explained that medium term projections for European grain markets are moderately positive.  However, international stocks are growing and current prices are below cost-of-production.

 

In Argentina, Mr. Alejandro Delfino of the Sociedad Rural Argentina said that higher internal taxes and export taxes are hurting farmers as is the fall in cereal and oilseed prices.  The Argentinian economy is recovering, though.  Unemployment has fallen from 20 percent to 12 percent but half the country’s population remains under the poverty threshold.

 

Mr. Antonio Beraldo of CNA in Brazil explained that dry weather reduced soybean yields by 30 percent in southern Brazil.  Output of soybeans is down 8 million tonnes and total crop damage has reached $2 billion.  The value of Brazilian soybean exports has doubled in the last five years but farm gate prices for soybeans have fallen 35 percent in the last year, driving price close to cost-of-production.  Planting area in Brazil is expected to be down 5 percent in the coming year. Mr. Beraldo explained that Brazilian farmers are pushing hard for a WTO panel against U. S. soybean subsidies. He also said that Brazil could triple its soybean and maize production without encroaching on the Amazon rainforest.  The use of GMO soybeans in Brazil is increasing, too. A discussion on technical fees paid by farmers for GMO seeds ensued.

 

Mr. John Purchase of Grains South Africa reported that white maize production is growing rapidly, with a record crop expected this year.  Yellow maize production for animal feed also outstrips consumption.  Wheat production has declined, however, due to low prices.

 

He said that the deregulation process in South Africa has resulted in greater competition and efficiency.  However, unemployment is up and grain prices are volatile.  It was noted that social, economic and political reforms and the growing pains associated with them remain a challenge for South Africa.  It was also noted that humanitarian food donations to Africa are disrupting South African commodity markets. 

 

Mr. Scott Mitchell of the National Farmers Federation of Australia reported that drought has disrupted the Australian wheat crop since 2002. This year’s crop, however, has improved.

 

Trade issues: potential impact of the WTO framework Agreement

 

On the discussions on trade issues, in particular on the potential impact of the WTO framework, it was noted that the U. S. experience with trade liberalization has been disappointing as exports have remained flat while imports have surged.  NFU suggested   trade policies should focus on farm incomes and global hunger problems with inventory management being one possible solution. In addition, members expressed concerns about the disadvantage developing countries have vis-à-vis rich nations.

 

As far as EU is concerned, the reform of the CAP in Europe has allowed the E. U. to make a very substantial offer at WTO but there is a view that the E. U. can go no further and that the offer is conditional on the following fronts:

 

• Developed and advanced developed countries must match the E. U.’s offer on market access.

• All forms of export support must be treated the same, whether they be state trading enterprises, food aid or export credits.

• There must be no review of Green Box rules.

 

Australia believes that percentage reductions by the U. S. and E. U. will only lower entitlements and don’t really reduce trade distortions.  It was also noted that developing countries are having severe difficulties with market access requirements that may be imposed upon them by a new WTO agreement.

 

It was noted that no consensus could be garnered on the impacts of subsidy payments on trade distortions.  Food aid was recognized as a disruption to local grain markets but a change to provide aid in the form of money was not politically acceptable to all donor nations.

 

GMO/non GMO grain and oilseeds

 

On the topic of Genetically Modified Organisms (GMOs), discussion centered on segregation of GMO and non-GMO products.  In addition, concern was expressed by a number of members about royalty payments required for GMO technology.  It was felt that farmers would rather pay the fees on seed and not on output as occurs in some countries.

 

Bio-fuels – prospects for growers

 

Mr. Xavier Beulin of the Federation of Oilseed and Protein Producers of France led the group in a discussion of biofuels and reported a surge in ethanol capacity with Brazil at 130 million hectoliters, the U. S. at 100 million and the E. U. at 4 million with another 20 million hectoliters of biodiesel. It was noted that government environmental standards have given ethanol a significant boost. In fact, the number of projects currently under construction in the U. S. will expand U. S. production to 150 million hectoliters.  In addition, high fossil fuel prices may increase the demand for biofuels.

 

Mr. Beulin explained that advantages of biofuels to producers include:

 

• the creation of new markets,
• higher value production, and
• higher employment in rural areas.

Mr. Beulin said that policy changes may be required in a number of countries to fully exploit the production and usage of biofuels.

 

 

Follow –up work for IFAP Secretariat

 

At the end of discussions, the chairman recapped the proceedings by noting agreement among the members on the issues of low prices due to high stocks and high freight rates; the promising future of biofuels; the impact of exchange rates on global grain and oilseed trade and the issue of GMO royalty payments. Thus, members of the group raised several key issues that they would like IFAP to take on board as part of its future work plan. 

 

Exchange rates:  Members of the Group view currency exchange rates as an important factor in global grain and oilseed trade.  The currently weak American dollar is a good example of how exchange rates affect trade.  Countries that manipulate their currencies are a special concern.

 

Bio-fuels: The Group is very excited about the potential for ethanol and bio-diesel production and their effects on grain and oilseed prices.  The group is particularly interested in examining production costs, the impact on trade if excess production occurs, tax policies and incentives for the industry and how to increase usage, perhaps by working directly with the auto industry. IFAP was encouraged to emphasize biofuels as a solution to low grain prices.

 

Genetically Modified Organisms (GMOs):  The Group’s primary concern in this area relates to how farmers pay for the technology through royalty fees.  In addition, consumer acceptance of GMO grain and oilseeds is a concern.

 

Liberalization and Grain Prices:  Members of the Group expressed the opinion that freer trade has actually depressed global markets.  It appears that the 10-15% of grains that are traded globally are depressing all prices.  Members would like to see IFAP examine why this is so and what alternatives, including inventory management approaches, might be available.