IGC CONFERENCE 2016

Trust, Transparency and the Trans-Pacific

Partnership

Andrew Wilkinson,
Milling and Grain

Although China
is still a major
contributor to global
markets, USA and
Canada are expected
to make a comeback
and be reinstated to
the summit of world
grain producers in
the not too distant
future

n recent years, external factors such as poor weather have contributed to

poor harvests, which have in turn resulted in an understandable level of crop
uncertainty. However, the forecast figures for 2016-17 that were announced at the
recent International Grain Conference have only previously been bettered once.
Given the backdrop of this very favourable forecast, the mood was suitably
upbeat when the members of the council were joined by representatives from
industry and other organisations for the IGC Grains Conference, on the theme of
Changing dynamics: the new trading environment, on June 14 at the Jumeirah
Carlton Tower Hotel, London.
This years conference consisted of three sessions that focused on external factors. The first
session, Supply and demand outlook was followed by, Recent Trade Policy Developments,
including the Trans-Pacific Partnership (TPP), with the third and final session discussing the
intricacies of international trade and logistics.
Opened by the Executive Director of the IGC, Mr Etsuo Kitahara. Mr Kitahara began his
address by reminding all of the delegates assembled that, The IGC is committed to playing an
important role in building relationships between the key players in the oilseed market.
The market has changed a great deal in recent years; one only has to look to the recent
successful emergence of the South American powerhouses of Argentina and Brazil. Russia and
Brazil have also become the worlds largest players in wheat and soybean markets.
However, there have been other factors that have affected the global market in recent years.
According to Mr Kitahara, external factors such as the TTP, an arrangement that he believes is a,
Mega trade deal with far reaching effects.
Recent weather patterns have had catastrophic effects on global harvests particularly in 2008,
and alongside this with countries such as Russia reducing their agricultural growing space,
competition for land between crops has been intensifying on a global scale.
Supply and demand patterns have also changed a great deal; with export prices being a good
indicator of this change according to Mr Kitahara, with global wheat patterns are keeping
prices low.
But with global prices being kept low, how can those with a vested
interest in the international grains market ensure that they are able to
cope?

SESSION 1.1: SUPPLY AND DEMAND OUTLOOK

Robert Johansson: Chief Economist, USDA Coping with lower

prices.
Following a brief introduction by IGC Senior Economist Amy
Reynolds, Robert Johanssen was the first speaker of the day to take
the stand.
Selected as Chief Economist at the US Department of Agriculture in
2016, Dr Johansson is responsible for the Departments agricultural
forecasts and projections and for advising the Secretary of Agriculture
on the, economic implications of alternative programs, regulations
and legislative proposals.
Dr Johanssons address focussed primarily on three main topics
which included coping with lower prices, how to operate in a lower
90 | July 2016 - Milling and Grain

price environment and matters of interest to US and globally.

However, another topic that was discussed by not only Mr
Johansson but by most speakers throughout the day was China,
and how the countrys growth has declined and the issues that this
new situation was creating in countries that export to Asia.
Although China is still a major contributor to global markets,
USA and Canada are expected to make a comeback and be
reinstated to the summit of world grain producers in the not too
distant future.
As for the immediate future, the US is expected to remain
number one exporter of corn and cotton, although recently there
has been, a move away from US corn to other commodities and
increase in corn imports from China to countries like Ukraine,
according to Dr Johansson. Further evidence of this can be found
in the with the 10 year US corn export projections, which start to
tail off mostly due to South American exports.
According to USDA predictions, soybean production will remain
high, as consumption catches up for corn and soybeans. However,
global demand will be outstripping production in 2016/17 whilst
global ending stocks edge up.
One consideration offered by Dr Johansson, is the Chinese
policy of builds stocks, which has been pushing up their stakeholding, even with this the Chinese market, still continuing to
import a lot of soybeans.
With the market appearing to offer little consolation for
producers, in the short term at least, how will they cope with low

incomes? Well according to Dr Johansson, cost per hectare is a

key consideration. He also added that producers may also, cut
back on machinery purchases and repair and they may be much
more reserved with their overhead costs.
However, another aspect of the current situation is that overall
farm debt will continue to increase, whilst delinquency rates on
farm loans will go up slightly with cash rental rates falling, but
only slowly, Dr Johansson added. This in turn will see a continued
growth of Crop insurance schemes in the US, as well as Higher
prices for corn being driven by a lower price of soybean meal.
Dr Johansson concluded his address by stating that the low price
environment expected to continue at least in near term, whilst
US plantings will be driven by producers decisions on which
crop will produce the best returns (or lowest losses).
Mr Jens Schaps, EU grains supply and demand outlook
Following Dr Johanssons address, the next speaker to address
the assembled delegates was Mr Jens Schaps, Director for
Agricultural Markets, Directorate-General for Agriculture and
Rural Development of the European Commission, EU. Mr Jens
Schaps has worked for the commission of the European Union
since 1983. All of which makes him the prefect choice to discuss
his chosen topic EU grains supply and demand outlook.
In his address, Mr Schaps began by discussing how the
international grains market was a living sector, with grains
all over the world, adding that in recent years, the industry

Milling and Grain - July 2016 | 91

has made great progress and we have all benefited from open
markets.
However, Mr Schapps did air on the side of caution with regards
to the global cereals market, by stating that in recent years supply
has exceeded demand and that this has in turn caused global
cereal prices to fall, although in the EU prices have remained
relatively competitive.
With regards to the EUs cereals supply, Mr Schaps also added
that there is a strong relationship between the levels of supply in
the EU and the levels of production and imports have remained
relatively low compared to production, we in Europe are
fortunate as our production levels do not fluctuate like they do
elsewhere.
Production is much greater within the EU, as the union is,
currently operating at a trade surplus of more than 30 million
tonnes, whilst already looking to reach last years production
levels in the very near future.
However, the same cannot be said for soybeans as according
to Mr Schaps, as the EU currently import nearly half of our
domestic usage of 48 million tonnes.
Mr Schaps then added that we will all have to think outside
of the box, in order to anticipate the big trends that are coming
our way. These include the projection that, overall agricultural
land will shrink, which Mr Schaps describes as, an unavoidable
global trend. Overall, the outlook is positive, according to
Mr Schaps, adding that wheat is to stay number one in the EU,
whilst all other cereals will lose out in terms of area used to
common wheat, which will increase to 34 percent.
The EU is certainly a key player on global grains market,
and thanks to high supply, EU cereals will remain competitive,
environmental requirements may impact on crop protection in the
EU.
Mr Li Xigui, (CNGOIC) China: Outlook for supply/demand and
prices
Mr Li Xigui is the Division Director of the Analysis and
Forecast Department and Senior Economist at the China National
Grain and Oils Information Centre (CNGOIC). Since 2015 he has
focused on researching grain policy design and evaluation.
With an address that focused on Chinas grain supply and
demand price, Mr Li Xigui started by reminding delegates that,
although their share of the market may have declined in recent
years, China is still the largest producer and exporter throughout
the world and has been for quite a few years.
According to Mr Li Xigui, China is now in, a transition period
caused by over supply of grain, adding that, Chinas grain
supply is much bigger than the demand in present and near future,
which is driven by high import profit.
What has caused the transition period the Mr Li mentions? Well,
in his next point Mr Li described how he believes that 10 million
people moving from rural communities into towns have caused it,
meaning, soybean area is decreasing as urbanisation is taking up
a lot of space.
As well as an increase in migration to urban areas, Mr Li also
imparted that population growth had now, hit a downward
trend, even though the single child policy has stunted
population growth in the past.
As discussed by Dr Johansson in his earlier address, another
92
92 | |July
July2016
2016- -Milling
Millingand
andGrain
Grain

factor causing Chinas increase in production are agricultural

subsidies and in terms of rice, the implementation of minimum
purchase price policy.
However, the outlook for Chinese corn is not looking quite
so good. According to Mr Li, corn growth area will reduce by
2.6 percent and yield is forecast down 0.5 percent, adding that,
this year they will decrease in terms of supply and demand,
however in 2015 and 2016 the import statistics of corn were quite
conservative.
One of the major issues that is affecting global wheat price, as
referred to in the afternoon session by President of US Wheat
Associates, Mr Alan Tracy, China has stored quite a lot of grain,
as according to Mr Li, the market is saturated. However, one
side effect is that China are under a great deal of stress, as far as
storage in concerned.
To remedy this, Mr Li recommends reducing imports to boost
domestic consumption, recently we have started to release
some of the stock. However the price is not high enough to
stop imports. The government has been forced to increase the
compulsory purchase price. Mr Li also discussed the current
demand for plant oil being quite strong remarking that maybe
chinas diet is not so healthy after all!
However, Mr Li stipulated that this could be down to the
reduced corn price. Like wheat, China has also been storing
oilseed for many years, in fact every season 100s of millions of
tonnes, are stored by the Chinese.
In order to instill a clearer picture of the supply and demand
in China, Mr Li imparted that according to the data that he has
at his disposal, Soybean area and production are both currently
decreasing, in China, whilst imports of soybean are, still on the
rise as domestic production cannot meet domestic demand.
However, the same statement can also be applied to the US
market, which has also increased rapidly. This means that Brazil is
still the number one exporter of soybeans; but US export to China
is increasing, as China is one of the worlds largest soybeanprocessing centres.
Mr Li concluded his address by stating, Chinas current
position and US currency are all factors in the current situation.
Soybean oil price has not increased but is higher than the same
period last year.
Session 1.2: The Impact of external factors on production and
trade
The second segment of the first session began with an address
by Dr Corey Cherr Head of Agriculture and Weather Research
and Forecasts, Lanworth at Thomson Reuters, USA. Dr Cherrs
presentation, titled Is it getting hot in here? Global weather
& 2016 crop outlooks, looked at the effects of weather on the
global markets and how fluctuations in weather can lead to drastic
differences in yield size and quality.
The final installment of the morning session was presented by
Dr Rory Deverell, Senior Commodity Risk Manager, INTL-FC
Stone, Ireland.
Dr Deverells presentation, Trading and managing price risk in
a world of known unknowns, examined our role as risk managers
and how this is to make sense of the information available.
Your business is your castle defend it, added Dr Deverell, with
information being, the best weapon for defending business.

Before lunch, Ms Katy Lee of the International Grain Trade

Coalition (IGTC) gave a short presentation on Electronic
Documentation for International Trading.

SESSION 2: RECENT TRADE POLICY DEVELOPMENTS

INCLUDING THE TRANS-PACIFIC PARTNERSHIP (TPP)

An opportunity to be on the ground floor of a fair and balanced

agreement
The first of the afternoon session focused primarily on the
recent trade policy developments; with the soon to be ratified
Trans-Pacific Partnership taking real precedence. All speakers
seemed incredibly optimistic about the futures of their respective
organisations, with the need to keep people informed of policy
changes also stressed quite frequently.
Teresa Babuscio, Secretary General
COCERAL, Dynamics in Policy and
Commerce for Grains Oilseed and
agri-bulks
Following a brief introduction from
Senior IGC Economist James Fell,
the afternoon session began in earnest
with an address from COCERALs
Secretary General, Teresa Babuscio
I the absence of their President Mr
Gary Martin who was absent die to
illness.
Ms Babuscio joined COCERAL
in 2007 as Policy Advisor in charge
of food and safety issues, becoming
Secretary General in 2010. Teresa is
also responsible for Unistock Europe.
Beginning her address by discussing
the benefits of implementing best
practice, Ms. Babuscio described
how, increased demand for social
and environmental issues, as well as
market forces and global trends, are
both the key considerations when
operating conditions and business
plans. It is vital that establish what
these are as we need to operate
within these conditions in order to
create business values.
One of the IGTCs core business
values is that they will always pursue
partnerships with governmental
bodies. Ms. Babuscio informed
delegates that, for-profit entities
supporting IGTC are welcome to
be identified as IGTC Corporate
Stakeholders, adding that they
are also welcome to, help guide
our work. Trade Associations
and Councils working to support
international trade of grains.
One example of this willingness
to support comes in the form of the
IGTCs endorsement of the TPP

agreement. According to Ms. Babuscio, the TPP, provides for the

use of the most trade enabling and least trade distortive measures,
while improving trade and official by addressing regulatory, preexport actions, actions at import, science and risk analysis audit
and transparency.
With the TPPs endorsement from the IGTC, how has the
agreement been received by those who look set to become the key
players in the partnership?
Ms Fran Freeman: TTP: An Australian perspective.
One of the TPP s key players is Australia. Ms Fran Freeman
is the First Assistant Secretary, Agricultural Policy Division for
the Department for Agriculture and Water Resources, responsible
for developing and coordinating policies aimed improving the
profitability, competitiveness and sustainability of Australias

Milling
Milling and
and Grain
Grain -- July
July 2016
2016 || 93
93

agricultural and food industries; which puts her in the ideal

position to commentate on Australias view of and role within the
TPP.
Ms Freeman began her address by stating that, better utilisation
of resources equals higher productivity. So with this in mind,
its not surprising that Australia are very much in favour of the
TPP, which Ms. Freeman believes will offer, enhanced trading
opportunities, as the 12 countries currently signed up to the
partnership currently, represent 36 percent of global GDP,
according to Ms. Freeman.
As the TPP has been built on the global rules in WTO, Ms
Freeman believes that the partnership presents, significant
opportunities for Australian agriculture, as, according to Ms
Freeman, 34 percent of Australias 2014-15 goods exports worth
around AUS$86 Billion went to 11 TPP countries.
With the new market access opportunities that will be afforded
by the TPP, more than 98 percent of trade tariffs will be
eliminated, and according to Ms Freeman, this will be a move
towards resolving, behind the border issues with better customs
procedures, and will implement, mechanisms to address nontarrif barriers.
Australia sees these measures to be extremely beneficial to the
world trading environment according to Ms Freeman, who added
that TPP, offered potential forever increasing trading conditions.
However, Ms Freeman concluded by stipulating that, It is vital
that everyone is aware of the details of the trade agreement,
adding that the nature of the partnership presents, a really
comprehensive model for the future to come.
Of the twelve nations that have been heavily involved with
drawing up the details of TPP, Australia have certainly been one
of the foremost architects. However, another key contributor has
been Japan.
Mr Masanori Hayashi: An assessment of the TTP From the
perspective of an importing country and trade rules
Presenting the Japanese view on TPP was Masanori Hayashi.
A senior researcher at the Organisation for regional and InterRegional Studies at Waseda University, Mr Hayashi has also
published numerous reports and books on agricultural/food
related GATT/WTO rules and their relationship with the regional
trade agreements. All of which more than qualifies Mr Hayashi to
discuss the proposed TPP from a Japanese perspective.
Japan is highly dependent on TPP countries for the supply of
grains, began Mr Hayashi, TPP provisions on food security,
plant quarantine and food safety, modern biotechnology,
geographical indications, were also very attractive prospects
within the partnership.
However, Mr Hayashi also stated that it is of vital importance
that the Japanese government seize the opportunity, to
communicate the TTP with its citizens transparently.
Is the TPP a model for future trade agreements? Well, according
to MR Hayashi the answer to this question is no, as it does not,
a new type of trade agreement which will go beyond WTO trade
rules
On the topic of the Chances of Japan signing a Fair Trade
Agreement with the EU, Mr Hayashi stated that, the Japanese
governments policy is to expand; not only TPP but also other
areas such as EU. Mr Hayashi also added that the current
situation is, really complicated, as it is very difficult to predict.
94
94 | |July
July2016
2016- -Milling
Millingand
andGrain
Grain

Mr Hayashi concluded his address by stating that, one issue

facing the establishing a global FTA, is that he believes that to
integrate all of these spaghetti balls, would be very difficult.
Other than those who are currently signed up to join the TPP,
there are other countries that have expressed a desire to join the
agreement.
Mr Jesus Silveyra: New perspectives for Argentinas grain sector
Mr Jesus Silveyra is a Business Administration Graduate
with more than 35 years experience working in the public and
private agricultural sector, mainly in production, logistics,
implementation, quality control and trading.
Mr Silveyra began his address by discussing Argentinas current
image on the international stage and how it had been bad but
the current government is trying to recover it. In economic
terms, Argentina has recently exited default and their agricultural
industry has made impressive progress already, since the
introduction of new policies, Argentinian wheat and corn exports
133 and 91 percent respectively.
But how have they achieved this? Mr Slveyra told delegates
that he believes that the releasing of export quotas had created
extortion in local markets. However, the current administration,
only taxes export on soybeans.
Other policies have also made a huge impact in Argentina.
Public service strategies have been implemented, which include
a whole raft of targets for the country to achieve by 2020. These
schemes, such as Plan Belgrano for the improvement of rail and
roads, also includes the establishment of free trade, a 50 percent
increase in and oil seeds production and a 20 percent increase in
dairy production.
Looking to the future, Mr Silveyra stated that in future Argentina
has every intention of signing trade agreements, our intention is
to approach TPP and we will also sign trade agreement with the
EU.
The conclusion of the second session was followed by a short
break for refreshments.

SESSION 3: TRADE AND LOGISTICS

The third and final session, moderated by Nathan Kemp, Senior

Economist IGC, focused on trade and logistics. The key themes
of this session were global expansion, respecting the past as well
as making plans fir an uncertain future. Respecting consumer
integrity, the malevolent impact of legislation and how countries
are adjusting their policies to adapt to an ever-changing landscape.
Mr Arkady Zlochevskiy, Grain market scenario and trade outlook
for Russia: Major challenges and opportunities
Arkady Zlochevsky is the President of the Russian Union and
Chairman of its board of directors. He is also a member of the
Council on Agriculture and the Advisory Council on Agriculture.
Mr Zlochevsky began his address by informing delegates that
this year, Russian agriculture is, facing another record year,
with corn exports increasing to 4890 metric tonnes, compared
with = 12, 000 metric tonnes in 2002/2003.
However, Mr Zlochevsky then went on to discuss how, 30
years ago Russia was the worlds greatest consumer of grain the
Soviet Union brought in 50 million tonnes a year. Since this
fruitful episode, Russias competitors have begun to enjoy a great
deal of success in markets that had been previously dominated

by Russia, such as Egypt, with this success is a direct

consequence of sanctions, according to Mr Zlochevsky.
Russia is adapting to this situation, Russia now measures
profitability per hectare rather than per tonne. This small
tweak has seen their most recent compound annual growth rate
projection well ahead of global trends; with the main driving
force being, low production costs.
However, Mr Zlochevsky warned against becoming too
fixated with low production costs, as Affluent people want to
buy cheap things but cheap things are a brake on progress. We
must protect the interests of consumers by not supplying cheap
alternatives.
That said, Russias growth is currently well ahead of
world trends, despite the fact that they are currently heavily
sanctioned due to events in the recent past. With regards to the
aforementioned sanctions, Mr Zlochevsky believes that the
question is not if, but when sanctions will be lifted.
Mr Zlochevsky concluded his address by sharing his view
that Russia, are seen as a threat to our competitors as we,
as Russia is so competitive. It will be in the interests of our
competitors to impose as many restrictions as possible in order
to maintain their market share.
One country that has recently been in conflict more directly
than others recently is Turkey, although their wheat trade has
remained continuous.
Mr Gnhan Ulusoy: Milling industry and trade perspectives
Following the conclusion of Mr Zlochevsky address, the next
speaker to address those assembled was Mr Gnhan Ulusoy. In
May 2015, Mr Ulusoy was appointed chairman of the Board of
the Turkish Flour Industrialists Federation (TFIF). He is also
currently the Chairman of Ulusoy Un Sanayi ve Ticaret A.S.
All of which places him in a very good position to discuss the
current trade and logistics situation in Turkey.
Mr Ulusoy began by stressing the importance of appreciating
our history, as it helps us understand our present and our
future. However in the present, 25 percent of Turkish
population is currently employed in agriculture worth US$6
billion.
In Turkey, wheat is currently the biggest crop, and of the
seven regions, Central Antalia is the most productive, with
21.8 million tonnes in 2008 compared with 22.6 million
tonnes last year, according to Mr Ulusoy, who added that this
is a, remarkable increase of corn from year to year.
The Turkish government does offer some assistance to
its agricultural industry, they industry also enjoys a lot of
protection from Turkish Grain Board (TMO). In fact, in
2014 TMO purchased 12.5 million tonnes according to Mr
Ulusoy but there was a bumper crop in 2015. Government
intervention also saw the region of SE Antolias yield increase,
from 1 to 2 million tonnes due to the culmination of an
irrigation project.
In terms of exports, Kazakhstan are still Turkeys main
export market, although they do export to over 100 countries
worldwide, including the far east, where some importers are
starting to import more from Turkey.
In order to survive, countries need to adapt. Citing the
examples of Italy and the UK, Italian millers lost their market

share, whereas the UK consolidated their position by partnering

with supermarkets. However, more commonly, Mr Ulusoy
told delegates that, as margins get tighter, the industry will
look at ways of making profits.
As the global market landscape changes, nations must adapt
their policies to ensure they are able to remain competitive. A
prime example of a nation that has adapted is the USA.
Mr Alan Tracy: The changing landscape of world wheat trade
The final speaker of the final session was Mr Alan Tracy,
President US Wheat Associates. As President, Mr Tracey
coordinates the global export market development program for
US Wheat Associates. He also maintains close contact with
trade and government representitives, the US Department of
Agriculture and other partner organisations to promote all six
classes of wheat in more than 100 countries around the world.
US wheat leads trade but the trend in soybean suggests that
the market is expanding rapidly. Wheat is real food for real
people, and according to Mr Tracy, wheat is more complex,
more sensible and other than the politics more fun! Market
decisions are smarter than political decisions
Currently, the US exports 17.9 million MT to Africa and
Middle East. However, the US market share has been greatly
reduced by Russias rise, which Mr Tracy describes as being
volatile and driven by weather and political decisions.
This change in the landscape has greatly affected US imports.
According to Mr Tracys statistics, in 1985 90 million MT,
compared with 15 million MT in 2011; a move that he refers
to as a dramatic change.
However, the US has adapted to this shift in the markets by
raising 12 million MT in new business with, quality buyers.
According to Mr Tracy, US wheat is no longer an agricultural
commodity now an ingredient and is generating more cash
per mega tonne. Evidence of this can be seen in a recent
large purchase of US flour by South Korea, as according to Mr
Tracy, it is a high quality, highly desired product.
The weather of course another key consideration, although Mr
Tracy did provide delegates with an optimistic forecast for this
year, we should experience a dry August in North America,
which will have a significant impact on the landscape.
On that subject of the current economic landscape, Mr Tracy
then referred to several studies that discussed how there is a
lot of evidence available of global markets being distorted
by wheat support prices in China that are, well above market
levels.
Mr Tracy then drew delegates attention to the loan rate
figure; which is an indicator of supports in certain countries,
with some soaring well above WTO limits, including China,
India, Brazil and Turkey, with the impact country by country
being over US$1 billion less in revenue.
Mr Tracy concluded his address by stating that, US volume
share is down but value share is up, adding that, domestic
support in China and other countries is now the biggest
distortion of production.
The conference was then closed by Etsuo Kitahara who
thanked delegates for attending an interesting and enlightening
day and invited everyone to next years Conference on
Tuesday 6th June 2017.
Milling
Milling and
and Grain
Grain -- July
July 2016
2016 || 95
95