Securing wheat supplies takes on a totally new face
October 08, 2008
by Morton Sosland
Whenever this column is tempted to wonder whether the future of grain-based foods may include substantial contract production of wheat, strong doubts will also be expressed about this ever happening. Nay-sayers on this matter make the case that wheat, unlike bioengineered corn and soybeans, is not well suited to contract production meant to assure a specific tonnage and quality flow between producers and processors. The point is well made that the current level of wheat production in America gives millers a broad selection making redundant the further assurances of having contracts with growers. Even in the wake of the chaotic markets of the past year did anyone seriously suggest that millers should consider contract growing as a way to hedge against or to deal with a repetition of such turmoil?
Often neglected in discussions about contract production are the numerous variations of what the term means. For instance, some millers, having identified growers keen on producing the quantities and qualities deemed desirable, seek long-term arrangements that assure first choice in purchasing. These arrangements typically leave price to negotiation at the time of delivery. Almost no wheat is grown under the sort of detailed contract arrangement that first developed in U.S. chicken production, where the ultimate processor assumes responsibility for nearly every step. Yet, this broad coverage is creeping into corn and soybean production.
Overlooked in these doubts about whether contract production has any role to play in wheat is the totally different perspective arising internationally. In the wake of concerns over grain supply adequacy heard a few months ago, due to crop shortfalls as well as actions by some countries to limit or halt exporting, importing nations with sufficient resources are taking contract production in a totally new direction. Oil-rich importing countries like Saudi Arabia and the United Arab Emirates are seriously exploring the ultimate in contract production — leasing or purchasing fertile cropland in developing countries that is to be used to grow wheat and other grains meant for export to the owning country.
Saudi Arabia is the most active in seeking to establish wheat production bases in other countries. That not just reflects the Saudi desire for securing its food supply, but also an internal decision to stop subsidizing irrigation of desert land to grow wheat. Having just made that decision a short time before the chaotic wheat markets of the past year, the Kingdom’s desire to control land in countries where water shortages and soil fertility are not a problem is understandable. That it is seeking to acquire cropland in countries like Sudan, Ethiopia, Kazakhstan and Libya in lots no smaller than 250,000 acres to grow wheat introduces a venture that is not as new as it might seem. In the early 1970s, when President Richard Nixon was in the White House, soaring grain markets prompted the president to impose an embargo on soybean shipments to protect domestic supplies. This highly controversial move led Japan, as a major importer of American soybeans, to foster production of this crop in Argentina and Brazil.
Like contract production of crops, livestock and poultry in the United States, these efforts to resolve food security problems by purchasing cropland in poor, developing countries has stirred sharp criticism. "Neo-colonialism" is how Jacques Diouf, director-general of the United Nations’ Food and Agriculture Organization, has greeted this development that threatens to see huge tracts of land in Africa and Asia acquired by foreign buyers and their outturns exported, regardless of the state of the diet in the country where the crops are grown. And while this latest version of contract production will probably not see the light of day in America, its potential for reshaping the world agricultural economy needs careful examination. Investing to produce wheat and other crops in lands where they are not now grown raises possibilities in trade flows and supply-demand balances that are revolutionary.