{"id":1064,"date":"2019-01-29T11:55:42","date_gmt":"2019-01-29T11:55:42","guid":{"rendered":"http:\/\/commodityconversations.com\/wordpress2\/?p=1064"},"modified":"2019-01-29T21:36:48","modified_gmt":"2019-01-29T21:36:48","slug":"a-conversation-with-arnauld-petit-executive-director-of-the-igc","status":"publish","type":"post","link":"https:\/\/commodityconversations.com\/wordpress2\/2019\/01\/29\/a-conversation-with-arnauld-petit-executive-director-of-the-igc\/","title":{"rendered":"A conversation with Arnauld Petit, Executive Director of the IGC"},"content":{"rendered":"\n

\u201cStudy grain long enough\nand the world shrinks.\u201d Dan Morgan<\/em><\/p>\n\n\n\n

As some of you may know, I am currently working on a book that will look at the ways in which the grains markets have changed in the forty years since Dan Morgan wrote Merchants of Grain<\/a><\/em> <\/a>back in 1979. <\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

At the time, Dan had\nalready identified many of the trends that would drive the grain markets into\nthe future.  On the demand side, he\nwrote about population growth, rising incomes, changing diets, and in\nparticular the increase in demand for meat protein. On the supply side, he\nforesaw that agricultural yields would continue to improve. He also foresaw the\nincrease in international trade that would accompany globalisation. <\/p>\n\n\n\n

But what didn\u2019t he foresee? What have been the shifts in the past 40 years that have moulded the current grain trade? To help me answer that question I went to see Arnauld Petit, the Executive Director of the IGC, the International Grains Council<\/a>, based in London. <\/p>\n\n\n\n

By way of introduction, Arnauld told me that the IGC is an intergovernmental organisation that was formed post World War II in order to ensure an egalitarian distribution of wheat. Today, the IGC has 56 member countries, and its mission is to facilitate international cooperation in the grains trade; to promote openness and fairness in the grains sector; and to contribute to grain market stability and to enhance world food security. It does this by improving market transparency through information sharing, analysis and consultation on market and policy developments. <\/p>\n\n\n\n

In 2012, the IGC joined the Secretariat of the Agricultural Market\nInformation System (AMIS), an initiative established at the request of the\nAgriculture Ministers of the G20. AMIS covers four crops (wheat, maize, rice\nand soybeans) and aims to promote food market transparency and the coordination\nof policy action in response to market uncertainty. <\/p>\n\n\n\n

            The GTC holds an annual conference in London in June <\/a>that brings together the public and private sector in the world of grain. Last year the conference attracted over 350 delegates from 60 countries. I made a note to myself to attend this year. <\/p>\n\n\n\n

When I contacted Arnauld I\ntold him about my book project, and I warned him that I would be asking him to\nlist what he considered to have been the top five most significant shifts in\nthe grain market in the last forty years. He had since given it some thought,\nand we got right into the heart of the matter.<\/p>\n\n\n\n

\u201cNumber 1 on the list,\u201d he\ntold me, \u201cmust be the shift to Asia, particularly the economic take-off in\nChina. Rising consumer incomes, combined with urbanisation, have had a relevant\neffect on diet and food demand. As the Chinese get richer they eat more meat\nand fish. This demand for meat has driven the huge increase in vegetable\nprotein imports, and has been the driver behind the explosion in soybean\nproduction worldwide. Forty years ago, China imported only a marginal quantity\nof soybeans. In 2019 the country is expected to import 87.5 million mt, more\nthan half of the total trade in soya. <\/p>\n\n\n\n

\u201cAt the same time,\u201d he\nadded, \u201cAsian people are eating more wheat products. This has in turn increased\ntheir demand for wheat.\u201d<\/p>\n\n\n\n

\u201cAnd Number 2 on the\nlist?\u201d I prompted.<\/p>\n\n\n\n

\u201cBefore the First World\nWar, Russia was a major exporter of wheat, but by the 1960s the Soviet Union\nhad turned around to become a major importer of grains. In 1979\/80, the USSR\nimported 12 million mt of wheat and 14.5 million mt of corn; and in 1984\/5, the\nbloc imported a massive 28 million mt of wheat and 20 million mt of corn. Now\nthe situation is quite different: in 2018\/19 Russia alone is expected to export\nmore than 36 million mt of wheat and 3 million mt of corn. Meanwhile, Ukraine\nis expected to export over 16 million mt of wheat and 28 million mt of corn.\nThat is an impressive turnaround that nobody would have been able to predict.\u201d<\/p>\n\n\n\n

\u201cDo you think Russian exports will continue to grow,\u201d I asked.<\/p>\n\n\n\n

\u201cNot necessarily,\u201d he\nreplied. \u201cMost of the new production is in Siberia where it is too cold to plant\nwinter wheat. The short Siberian summers leave farmers only a short window to\nplant and to harvest; production in the region depends very much on the\nweather.<\/p>\n\n\n\n

\u201cIn the meantime, the\nRussian government is keen to move from grain production to livestock\nproduction, mainly pigs. They view this as a way to add value to their supply\nchain. If the Russian meat industry continues to expand then we could see a\ndecline in grain exports. Some people are asking whether we have already seen\npeak exports.\u201d<\/p>\n\n\n\n

\u201cAnd what would be third\non your list of structural changes?\u201d I asked. <\/p>\n\n\n\n

\u201cIt would have to be the\nexpansion of the biofuels industry. Forty percent of US corn is used for\nethanol production while 50 percent of EU rapeseed is used for producing\nbiodiesel.\u201d<\/p>\n\n\n\n

\u201cThose figures are\nsurprisingly high,\u201d I interrupted. \u201cSuch a big diversion to biofuels must have\nhad a big impact on prices.\u201d<\/p>\n\n\n\n

 \u201cNot really,\u201d Arnaud replied. \u201cWhen the US ethanol industry\nstarted to take off in the mid-2000s there was a big debate in the press as to\nwhether corn should be used as fuel: the \u201cfood versus fuel\u201d debate. Looking\nback, it is now evident that that debate was flawed. US ethanol production\nhasn\u2019t seriously impacted either the price or the availability of corn for food\nor feed.\u201d<\/p>\n\n\n\n

\u201cWhy is that?\u201d I asked. <\/p>\n\n\n\n

\u201cBecause corn contains\nboth protein and carbohydrates; you can use the protein for animal feed and use\nthe calories to drive your car. When you make ethanol from corn you get a\nby-product called \u201cDistillers’ Dried Grains with Solubles\u201d (DDGS), which can be\nused as a feed ingredient for livestock. Each 56-pound bushel of corn used in\ndry-mill ethanol production generates about 17.4 pounds of DDGS. <\/p>\n\n\n\n

\u201cA similar situation\nexists in Europe with rapeseed: you use the oil for biodiesel and the high-protein\nrapeseed meal as feed for animals. <\/p>\n\n\n\n

\u201cBut there is another\nreason why the whole fuel versus food debate of the early 2000s was flawed.\nPeople forget that in Europe after the Second World War, 70 percent of your\nacreage went to feeding (fuelling) your labour force, including feed for your\nhorses.  Today a rapeseed farmer\nwill see only half of his production going for fuel! The debate was based on\nthe assumption that the market is fixed, and that we have a choice between\nfood, feed and fuel. That is incorrect.\u201d<\/p>\n\n\n\n

\u201cBut what about the\nnegative environmental impact of using land to grow food for fuel? Aren\u2019t we\nlosing biodiversity?\u201d<\/p>\n\n\n\n

\u201cNot in the EU or US at\nleast,\u201d Arnaud told me. \u201cArable Land has been falling as from 2008, while\nforestry and urbanisation has increased.\u201d<\/p>\n\n\n\n

\u201cIs that because yields\nhave increased?\u201d<\/p>\n\n\n\n

\u201cWe saw yield increases in Europe until about 2007, but these have now plateaued, particularly for wheat. Corn and soybean yields have continued to increase in the Americas because of GM technology and new breeding techniques. Remember there is no GM wheat anywhere. Wheat yields depend on the weather: sometimes good and sometimes less good. <\/p>\n\n\n\n

\u201cWhat is 4th<\/sup>\nstructural shift on your list?\u201d I asked. <\/p>\n\n\n\n

\u201cIt is the development of\nthe starch industry for sweeteners and food use. High Fructose Corn Syrup\n(HFCS) has taken a significant part of the market for sweeteners in both China\nand the US, largely because it is cheaper than sugar. Isoglucose, as HFCS is\ncalled in Europe, has had less impact in the EU, largely because production has\nbeen restricted through quotas. Those quotas have now been lifted, and we will\nbe watching closely to see how the market develops.\u201d<\/p>\n\n\n\n

\u201cAnd the last one on your\nlist?\u201d I asked Arnauld.<\/p>\n\n\n\n

\u201cNumber 5 on the list has to be the big expansion of soybeans. In 1978\/19, global soybean production was just 77 million mt, but is set to reach 363 million mt in 2018\/19 according to our latest forecasts. This has been achieved through a heavy expansion of acreage around the world, and especially in the US, Brazil and Argentina.  Demand and trade have also risen especially strongly and we have seen some significant shifts over the decades, with Brazil now by far the dominant exporter. <\/p>\n\n\n\n

The question now is whether palm oil will follow the same path, and compete with soy oil in all its outlets: We are following this carefully. \u201d<\/p>\n\n\n\n

\u201cThank you Arnauld. Your\ncomments have been very helpful. Is there anything that you would like to add?\u201d<\/p>\n\n\n\n

\u201cOnly that I look forward to seeing you at our conference in June!\u201d  <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cStudy grain long enough and the world shrinks.\u201d Dan Morgan As some of you may know, I am currently working on a book that will look at the ways in which the grains markets have changed in the forty years since Dan Morgan wrote Merchants of Grain back in 1979. At the time, Dan had … <\/p>\n

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