Our agricultural sector is one of the most advanced in the world -- not just Prairies but all regions of the country in whatever the product. What brought us here is not just our natural endowments, but advances in science and technology we capitalized on. We are at the leading-edge of the entire spectrum of agri-food sciences -- agronomy in general, seed-genomics, plant-pathology, entomology, or soil-sciences.
Producers owe a great deal to scientific advances, which have been driving yield-increases and crop-diversification -- first to canola, then to pulses, quality soybeans and many other crop varieties that don’t get as much mention as our staple-crops. We observe science-in-action in the fields, in close cooperation with producers, and by deploying the most advanced machinery and technology in all aspects of farming.
In contrast to this stellar record at the production-end, our record at the market-end is not just limited but abysmal, ridden with complacency and indifference to what happens to our crops in end-markets. We seem to take our ever growing export volumes for granted, with little if any effort devoted to understanding the demand-side of the equation -- new consumption trends or changing processor requirements.
There are two strains of market-research our grain economy needs. First, as in any line of business, we must understand our competition, other grain growing regions around the world -- what they are producing and exporting. At this level, there are sufficient statistics to stay on top of global trends. Sadly, when it comes to looking into the future, where yield-increases are or likely to come from, we fall far short.
Second, if we are going to pursue a value-driven crop-diversification strategy, we have to go deeper than aggregate production and export volumes. As our focus shifts away from bulk-trades to direct-sales, we have to understand the specific needs and requirements of end-users and prospective buyers at the end of these new trade-channels. We did this when tapping into markets for pulses, and now we have to follow the same path in other crops where we see market opportunities.
This article is meant to provide a glimpse of the competitive challenges and market opportunities we face, reflecting our belief that we should be devoting some of our market research efforts to the former, but much more to the latter. In order to find new export-markets, we need to understand consumption-trends, identify corporate buyers to target for direct-sales, and where needed, establish distribution channels.
Here we are not reporting research-findings, but identifying themes that need to be investigated. In the meantime, we are looking for suggestions from our followers as to what crop domains and geographical markets we should give priority. Since we have limited resources, we are hoping for guidance from producers, and funding support from their associations and public agencies involved in the grain sector.
Global demand-supply patterns
In a market dominated by bulk-trades, producers are largely captive to a handful of grain-buyers. They make crop-choices based on price signals they receive before seeding, commit to advance-contracts to cover their costs, and leave some stock to trade post-harvest, again principally guided by prevailing price trends. They pay little attention to global shifts in demand-and-supply patterns; they are preoccupied with fulfilling contract-orders, leaving market details to bulk-traders. In the long run, this neglect hurts producer-interests, but this is how the current bulk-system works.
China-Factor: In view of the dire state of our trade relations it may be too late to focus on this, but there are still lessons to learn form the past. Once self-sufficient if not on the verge of poverty, this rising power became the world’s largest grain importer, buying one-fifth of global exports and the same share of ours. We paid little attention to what was driving China’s insatiable appetite for more grain imports, and took advantage of prevailing trends as long as they lasted through bulk-exports.
China was paying attention to the agricultural sector, achieving yield and quality increase. But demand was increasing at much higher rates than they could produce domestically, particularly as the affluence-affect was shifting dietary and culinary traditions, especially through explosive growth of meat-consumption, which in turn gave rise to a huge increase in feed-consumption. Now grain-needs are tampering relative to their prior explosion, but still growing with new shifts in grain-demand.
New Grain Belt: In search of new import sources, initially China extended its reach to Africa and South America, with colonial-type models but without much success. Later it turned to its continental-west, stretching from Central Asia to Caucasia, this time with a more comprehensive strategy, not just building infrastructure (ports, roads and railways) but also reviving agriculture (together with other resources).
Grain imports from this vast region were already on the rise into the new century, but now they are picking up steam, and the whole region is likely to turn into China’s bread-basket. Another factor to take into account is that the railways being built across this region turned into intermodal-bridges, facilitating containerization of grain-trades moving east, not just to China but to the entire Asia Pacific region.
EU Grain-Economy: This ever expanding body of nations had always been a much larger grain-producing region than us, but our grain-exports to the EU were holding their own, thus we did not pay it much attention. We overlooked a fundamental transformation that was taking place. West European agriculture had always been smaller-scale at the production end, more locally specialized and self-sufficient with limited trade. But all that changed quickly with the Union’s expansion to the east.
Throughout the Soviet-era, agriculture in East Europe had been left behind, trying to remain self-sufficient with limited trade, but that started changing into the 1990s and beyond. Those that joined EU advanced, specialized, and got integrated into the EU agricultural-economy, while even those that failed to join the Union became agricultural extensions of it. Now we have a larger, highly advanced and specialized agricultural region trading largely in container-loads through intermodal channels.
North America: The US is a much larger producer and exporter of grains, but our grain-sector is much larger in relation to our GDP and our export-to-production ratio is double that of US. Also, we have a sizeable trade-surplus in grains with the US that is no longer our largest but still third largest export destination. Thus we cannot ignore what is going on to the south of our border; we must pay close attention to the US not just as an export market but also as a competitor in overseas markets.
Also, the US is even more dependent on bulk-trades than us: its two principal crops, corn and soybean, account for 70% of grain-exports, and if we add wheat, the share of 3 staples reaches over 90%. Thus, the US is even more vulnerable to competition from emerging regions than we are, and may follow a similar specialization and containerization path as we are advocating at home. As a major competitor on the world stage, we cannot take our eyes off how the US responds to global pressures.
If these issues, together with many other on the global stage, had been paid more attention to in the past, perhaps we would have jumped on the paradigm-shift we are calling for now much earlier. It is never too late, but we have to grasp global market realities: how global supply-and-demand patterns are changing, where our competition is coming from, and what opportunities to focus on. And in order to make wiser crop-choices and sales-decisions, we have to deepen our understanding of end-markets much further -- prosperity does not come easy in any line of business.
Grain consumption trends
Aside from overall shifts in supply-demand patterns, if we are going to pursue high-value diversification opportunities through direct-sales channels, we first have to deepen our understanding of demand-drivers in the end-markets we target. As we stated before, we are not casting our trade-facilitation efforts worldwide, instead focusing on Asia Pacific markets. This region includes many countries at different levels of development, but here let us first cite some examples from China -- world’s largest grain-export destination, and a country our portal is most familiar with.
Meat consumption: The most significant demand growth in world markets in recent decades came from China, and meat consumption was the single largest demand-driver. In addition to more pork and poultry, beef entered the diets, coupled with increases in milk and egg consumption. Husbandry sectors expanded, requiring vast quantities of grain-imports to feed animals, for slaughter or milk-egg production. Grain use for feed was about half of food 25 years ago, but now about the same.
China’s meat consumption has been increasing rapidly, in 30 years pork 3-fold, poultry 8-fold and beef 9-fold, while milk consumption increased 10-times. China was already a major pork-consumer but now consumes 50% of the global total, together with 10% of beef and 20% of poultry. Per capita pork consumption is among the highest, but overall meat consumption still fairly low – long way to go in beef and poultry to catch up with the world average, let alone US, Canada or Brazil.
Traditionally animal-stocks were fed with on-farm sources, but at the turn of the century there was a transition to commercial-feed. In the process, a huge feed-industry emerged, initially highly fragmented and mostly state-owned. But with the ensuing growth and consolidation, private companies grabbed the lion’s share of the market. The largest among them, a horizontally and vertically integrated private-conglomerate has increased its share of the animal-feed market to more than half.
Even low-end projections suggest that China may require as much as 50 MT more grain-imports to feed its animal-stocks. The general inclination is to see this as an opportunity for more bulk exports, but there are advantages in shipping custom feed-mixes (seeds as well as meals) directly to feed-lots in containers. Major feed-companies can clearly see the cost savings in containerization, and are already doing this from other grain-sources -- the largest among them from all across Asia.
Staple crops: China’s principal food-crops are rice and wheat, traditionally more rice consumed in the south and more wheat in the north. Per capita rice consumption used to be steady at about 20% higher than wheat, but the latter has increased by about 10% in the last two decades. China grows enough of both to be self-sufficient but has been importing wheat mainly to shore up its reserves (40% of world’s total).
Looking into the future, we expect China to import more wheat, mainly as a result of food consumption trends. Its current per capita consumption is higher than India and even Japan, a much more affluent country, and only slightly lower than the US, but less than a third of Australia and Canada, even Russia and Ukraine. Given the culinary influences we observe, we expect China’s wheat consumption to increase.
While bread takes up half the flour-use in the US, in China only 5%, while pastries-cakes-cookies account for 40% in the US, in China only 20%. And there is clearly an observable shift to western ways, not only bread-pastries but also fast-foods, not to mention more up-scale pizzas and pastas. The local flour-quality for some of these foods is not quite adequate, thus requiring higher quality imported wheat grades.
Bakery chains: This segment is growing at 15-20% a year with both domestic and foreign chains expanding their footprint. All sorts of western-style pastries are popular and widely consumed, but the most significant trend is the bread-revolution. China grows both higher and lower protein wheat that in principle could cater to the demand for most products, but local flours are not adequate to fuel the growth in high-end products -- thus, the demand for imported wheat at this end of the market.
Italian influence: The legend has it that Marco Polo introduced noodles to Italy, but now the Chinese have taken to Italian food with a vengeance – pizza outlets and Italian restaurants are popping up everywhere. Anybody who takes pride in cooking or eating struggles with what can be made from local flours, but somehow creative chefs improvise. As the mass-market develops, major flour producers will no doubt be turning their attention to it, but they would need high-grade imported-wheat.
Breakfast traditions: Breakfast staple in China used to be con-gee (rice-porridge), and in some areas (mainly north) wheat-buns (meat-stuffed if affordable). Now commercial kitchens are into buffets, while home-breakfasts incorporate easy to cook or heat cereal-mixes. The mass-market now is packaged dry cereal-mixes eaten with dairy or soya milk -- most of the coarse-grains in the mix have to be imported.
Prime targets: corporate buyers.
In search of export growth opportunities, the first step is focusing on consumption trends and demand-drivers, but market research-needs do not end there. It would be unrealistic to expect potential buyers to find us among competing grain suppliers, no matter how favourable a position we may enjoy in terms the quality and variety of our grain-exports. We have to make an effort to reach out to prospective buyers.
Once we identify target markets, geographically and by crop type, we have to go deeper into industry structures and technology trends in those markets. Here we focus on some of the target markets we cited above, again mostly China-centric. These are examples of export prospects presented by corporate-buyers, potentially higher-margin contract-sales opportunities our producers can pursue more easily than selling into wholesale or distribution channels, which we will come to next.
Flour-mills: China is the largest flour market in the world (even larger than EU), with its core wheat-supply taken care of domestically but in need of special wheat-grades to achieve specific flour-attributes for different uses. Even in this additive capacity, there is potential for 4-8 MT of wheat exports to China (fraction of its total supply) only if we could normalize trade-relations. This would boost our total wheat exports (about 20 MT now) by 20-40%, mostly with high-value grades (durum and other).
The flour-milling industry in China currently has a capacity of about 90 MT, but still in the midst of modernization and consolidation that has been underway for more than two decades. This process has given rise to a huge over-capacity at the primitive end, but 3 industry leaders have already emerged, with about 40% market-share and rapidly growing. Largest among them has double the capacity of the largest milling group in North America, Ardent, and the other two about the same size as Ardent.
In the course of this process China has gone through a milling-technology revolution, now as advanced as Buhler, world’s leader in this domain which also has most of its manufacturing capacity in China. Having gone through 3 phases of advancement, the standard model evolved to mega-mills with multiple automated (wheat input and flour output) milling-lines, largest ones among them with 5000-6000T daily grind capacity. And many more of these mega-mills are being built across the country.
Boutique-mills: The modular nature of the new milling-technology developed in China was to cater to export markets, where flour-mills were known to be much smaller. An unintended benefit was to allow local boutique-mills to emerge, and bakery-chains to get into flour-milling on their own, without having to compromise quality, in fact to be able to achieve specific flour-attributes to meet their needs. Thus, this boutique-mill sector is even more open to high-grade wheat exports.
Food processors: Leaving aside flour-milling, as in North America, food processors at large across Asia Pacific are also grain-buyers, not just wheat but a much wider range of grains. There are vast opportunities to open up direct-sales channels to corporate buyers, whose individual orders tend to be in smaller quantities, more suitable to containerized exports. Currently they may be relying on intermediaries at the receiving end of our bulk trades, but now they can procure directly from producers.
Brewers-distillers: Over the years we missed out on barley export opportunities for failing to supply specialized distillers and brewers (or malt-suppliers) with the types of barley (or other crops) they need in containers. Most of the barley we export through bulk-channels end up in feed-chains. Through direct-sales and container-shipments, we will get a chance to revive our barley exports, not just the regular varieties in our current export-mix but with larger volumes of higher-value grades.
Cereal producers: This is a much smaller industry segment than feed but still could become a significant export destination. Our principal competitor in coarse grain varieties suitable for cereal-mixes, Australia, does a much more effective job in promoting its exports to Asia Pacific. We have to wake up to the growing potential in containerized cereal-mix exports by targeting large cereal-companies across the region, like we had earlier by trying to cater to the needs of the largest one in China.
Feed producers: There may not be too many opportunities to upgrade the crop-mix of existing feed-chains, but we have a chance to export containerized custom-mixes to feed-companies or directly to their customers in the husbandry sector. The key is to find large targets among them, as both ends are still highly fragmented. Earlier we had targeted the largest in both, as well as dairy and meat industries, not just in China but the world, with requirements for more than million-tonnes of grain a year.
Wholesale and distribution channels
The most suitable targets for direct-sales are corporate buyers that producers can reach out to directly but not all grain-trades lend themselves to this model. There are many other crop groups or varieties that are sold to consumers with limited handling or packaging. They may not require much processing but have to go through distribution channels where the most effective agents are not easy to find and target by producers, thus the need for more end-market research in this vein.
Pulse markets: We repeatedly note that as the world’s premier pulse-growing region, the Prairies are grossly under-performing their global market potential, with scope to at least double our exports -- peas, beans, lentils and other pulses. Though India is still the largest market, it is ridden with protectionist impulses, while China has now become the world’s fastest growing pulse market. Also, each and every one of the Asia Pacific countries we are targeting has a strong appetite for more pulses.
Let us first look back to how we got to where we are. On the production side we must acknowledge the role played by the research community and the public agencies, but on the marketing side AGT paved the way in partnership with a company that had a stronghold on pulse-markets in the Middle East. There was no magic behind this model, which we now have to duplicate in other markets, not just China but across Asia Pacific as local distribution is the key ingredient of success.
Unlike other grain segments, where corporate end-users are the prime targets, pulse trades do not lend themselves to this model. The crop-range is highly diverse and the main audience is consumers with different tastes and preferences, requiring distribution channels to reach them with the right product varieties and packaging. Also, we must bear in mind that the main interfaces are no longer just traditional public-markets but organized retail-channels and increasingly online-portals.
AGT is not as dominant in Asia Pacific but trying to extend its reach, while Scoular has its eyes on this region as well. Also, there are producer-cooperative initiatives to step into export trades, but whoever the sales-agent is at source, yet another agent at the distribution-end is unavoidable. This may go against the direct-sales model, but the current channels have too many intermediaries that can be eliminated to streamline the supply-chain to allow higher margins to be left behind to producers.
Soybeans: We have noted our success in differentiating ourselves from the major soybean exporters like the US and Brazil by going up-scale with higher grades, and boosted our exports to 3.5 MT in 2020. This is a drop in the bucket in China’s import portfolio with more than 90 MT of soybean in the mix, which mostly goes into the feed-chain. China is a relatively small soybean producer (about 15 MT) but what it produces domestically is higher-grade like ours that goes mostly into the food-chain.
Like in China, there is a sizeable processing sector across the Asia Pacific region that produces soybean-products, but it is a highly fragmented scene. High-grade soybean is not sold directly to consumers like most pulses, but buyers are relatively small, thus like in pulses require distribution channels. With the progress we made in this domain, there are promising prospects to increase our exports, but like in pulses, we need to understand distribution-channels to be able to target more effectively.
Specialty grains: Whether for religious or health reasons, vegetarian or vegan diets are rapidly spreading across the Asia Pacific region, creating more demand for high-protein grains. Most of these grains are or at least can be grown in the Prairies -- kamut, quinoa, buckwheat, millet, spelt, farro among them. None of these grains are going to sell in large quantities, but the region we are targeting can take regular container-loads, if the right distributors or wholesalers could be identified.
There are many other crops we do not talk much about but are actually of high-value, among them them wild-rice, of which we are the largest harvester. We can also grow sprouted-grains of all kinds, as well as things that are not actually grown but made to eat, like whole-wheat-pasta and couscous, that we grow all the ingredients for consumers to prepare. Also, there is organic of anything we could or already grow, for which there are growing consumer markets across Asia Pacific.
Distribution channels: In both pulse and soybean domains, we need local partners who are major if not dominant players in these trades. In specialty or niche grains, we are not likely to find them easily; instead we should be looking for broader-scope distributors with retail-followings in local markets. Given the nature of consumer-trades, moving increasingly online, we should also look for established-portals catering to food, or even better, grain-ingredient markets -- like Bulk Barn at home.