Food storm ahead
With wheat production at new lows and prices higher than ever before, Nader Noureldeen*
sees another food crisis on the horizon
With the beginning of August, wheat prices recorded a new high -- double that of the month before. The new price ranged between $320 and $350 per ton instead of $165 during July. The price that appears on the screens of stock exchanges reflects the wheat growth situation in the world. The latter can be perfectly forecast if we intently read the weekly growth report that is periodically published by the US Wheat Associates and the World Grain Board.
Wheat price is determined according to the wheat growth situation in three country groups. The first includes the seven main exporting countries namely the US, Canada, Australia, Russia, Ukraine, and EU countries, especially France, and Argentina. The second group includes self-sufficient, high- population countries such as China (the biggest country in wheat production), India (second highest in wheat production), Pakistan, Bangladesh and Iran. The third group includes the 10 top wheat importers, namely: Egypt with 9.5 million metric tons (MMT), Brazil at 6.5 MMT, the EU at six MMT, Indonesia at 5.8 MMT, Japan at 5.5 MMT, Algeria at 5.5 MMT, Nigeria at 3.8 MMT, Iraq at 3.7 MMT, South Korea at four MMT and Morocco at 3.5 MMT.
Global wheat production is down this year by three per cent compared to last year. At the same time consumption is expected to be up by two per cent, equivalent to the average annual world population growth. The seven main exporting countries were this year exposed to poor weather with limited rainfall and a warm dry winter. That harmed wheat production, especially as about 90 per cent of global export wheat is rain-fed cultivation.
Thus, cultivation was down sharply in the US due to poor weather and low wheat prices throughout the past two years. The cultivation of soft red winter wheat (SRW), used in bread production, fell in the US nearly 30 per cent due to an extremely wet fall. Canadian and Russian production fell sharply due to adverse weather. Rains caused substantial delays in Canada's planting, causing production to fall by 23 per cent. In fact, Canada is expected to harvest the least crop in 40 years.
Drought and hot temperatures caused Russian and Ukrainian productions to fall to 20 per cent. In contrast, both the EU and Argentina's productions are set to rise by three per cent (3.6 MMT) and 25 per cent (2.4 MMT) respectively. Traditionally self- sufficient high-population countries such as China, India, Pakistan and Bangladesh stand affected by severe floods expected to destroy about 35 per cent of the world end stocks in China and affect the yield sharply in the rest of the South Asian countries. This will push these countries to purchase large amounts of wheat from the international market.
Similarly, in North African countries, which include three of the 10 major wheat importers, Egypt, Algeria and Morocco, production is down by 12 per cent, which will lead to 10 per cent more imports. World wheat feed use also increased by three per cent. In addition, the production of bio- ethanol has increased sharply. EU countries alone burned four MMT of wheat during 2009 to produce ethanol. Global end stocks are down three per cent to 187 MMT, and export stocks are down 15 per cent to 66 MMT.
We should remain aware that only 18 per cent of world wheat production is traded on the global stock exchange, equalling a maximum amount of 131 MMT of total world production of 661 MMT.
In Egypt, the amount of local wheat that the government received from farmers this year fell to 2.1 MMT from projections of 3.5 MMT. This is attributed to the two warm waves that hit the country during January and March, affecting the yield. From the total wheat consumption of Egyptians at 14 MMT, the governmental requires nine MMT for the production of subsidised baladi bread that sells for LE0.05 per loaf.
Supporting the Egyptian farmer next winter season to increase wheat cultivation to about 3.5 million acres instead of 2.5 million acres last year will be essential. It should be done by basing subsidies on the area of land, not subsidising delivery prices as is the case now. Some traders could cheat on the latter by selling imported wheat to the government rather than locally produced wheat.
The area cultivated with berseem (Alfalfa) reached four million acres last year while the area cultivated with wheat reached only 2.5 million acres. That is no longer acceptable, according to all Egyptian food specialists. In addition, the areas cultivated with lebb (pulp seeds) reached 750,000 acres this year, which is also unacceptable in a country suffering from an almost 55 per cent gap in its food security needs.
* The writer is professor at the Faculty of Agriculture, Cairo University, and an expert in food stocks.