Naturally, producers have a vested interest in diversifying to higher-value crop grades or varieties but their hands are tied -- direct-sales channels to export markets are limited, if exist at all in today's market environment dominated by bulk-trades.
The first prong of our mission is to nurture the development of direct-sales channels, by identifying new export market opportunities and increasing visibility into Prairie agriculture to attract crop buyers or importers from around the world.
Nature of Grain Trades
Grains have a tendency to be viewed as ordinary commodities, their trades best left in corporate hands and handled in bulk. What farmers produce is mostly pre-sold, consolidated at country-elevators, moved to larger coastal-terminals by rail, and shipped in bulk-vessels to export-destinations. It is often overlooked that unlike ores or minerals that the earth provides, farmers have leeway in what and how they produce -- not quite like manufactured goods but still different than other natural resources, with traits that lend themselves to specialization and direct-sales.
There have been enormous advances in agricultural sciences, particularly in crop-genomics, to cultivate highly specialized seeds for crops with specific attributes. Moreover, farming knowledge has greatly advanced to choose what to grow on particular soil conditions, and how to grow to achieve desired crop attributes. New and highly advanced farm-equipment allows us to seed and apply inputs (fertilizers, pesticides, other chemicals) with precision. Latest sensing technologies allow us to monitor crop-growth, take remedial measures, and harvest for best crop-yields.
But all this advancement seems to be directed at yield-increases, more of what we already grow, not to specialization in what we grow or how to grow to achieve particular crop-attributes. Producers are free to make their crop-choices but are bound by the industry-structure they face, captive to grain-companies and the staple-crops they focus on to handle in bulk. Producers have limited options in the way of sales-channels, and are largely captive price-takers, thus can only increase their revenues by growing more of what local grain companies are willing to buy.
The only way to break out of today’s "grain-cage" -- staple-crops, bulk-systems and low-margins -- is further specialization. The agricultural knowhow together with all the advanced farm-technology is there for our producers to grow a much broader range of crops, including specific types and grades of today’s staple-crops -- be it wheat, barley or canola. If the producers could reach out to end-markets for higher-value, specialty crops with specific attributes, they would. But neither the sales-channels, nor the logistics services to fulfil direct-sales to buyers’ requirements, are in place.
Target markets: Ideas and Concepts
Based on our previous work we cite a few examples where we had identified opportunities for direct-sales and containerized-exports, but in a region as diversified as the Prairies, blessed with such favorable conditions and knowhow, the range of opportunities are boundless. More than the few ideas we are floating here, we are looking for suggestions from our followers, the producer-base, to guide our trade-facilitation priorities.
A few years ago we embarked on an initiative to export containerized grains to China, when trade-relations looked quite bright. We were puzzled by the fact that while China was still importing more than 4 MT of wheat, our exports that were 2 MT earlier were now less than 10% of that. Instead of wheat in bulk, China needed higher-grades delivered to newly modernized flour-mills in container-loads. We had plenty of what they were looking for (including durum) but not the capacity to ship in containers, at least not to multiple locations (newly built mega-mills) in weekly container-loads.
We also discovered a keen interest in importing already mixed container loads of animal feed to specific feed-lots -- China now imports more grains for feed than food, more than our total grain production. There was also interest in cereal-mixes for a huge breakfast market shifting away from rice to grains. We grew all the desired ingredients but lacked the capacity to ship to specific locations across the country, in regular container-loads. Our relations with China may be fatally wounded but these trades have not vanished, available indirectly through intermediary channels.
These are just a few examples based on our own experience -- more to be found under our Global Markets tab, together with our ongoing projects we will be publishing on in the near future. Despite all the trade-disputes, China still accounts for close to a fifth of our total grain exports. Volumes are likely to decline as China is increasingly turning to its west (Central Asia and Caucasia) for grain-imports. But specialty crop needs will prevail and likely to be met through re-export channels, while demand will remain strong from rest of Asia, particularly ASEAN members.
Our focus will remain on specialty grades of our staple-crops, particularly wheat, durum and barley -- we have the capacity to produce all the varieties the world needs, as long as we develop the means to ship direct in containers. At the same time, we have not exhausted our export-potential in pulses, which we have the best growth conditions for and already handle in containers. Though not even mentioned yet, there are many other crops we produce but export very little of, if any -- rye, flax, quinoa, mustard, canary-seed, buckwheat, camelina, to mention just a few.
Demand for wheat in China
Through the reform-era China's wheat-output increased 5-fold but consumption even faster, with imports hovering in the 4-5 MT range in recent years. When China's wheat imports peaked at 8 MT 15 years ago, our share was 25% but now that share is down to less than 10%. We paid no attention to either food-consumption or flour-milling trends in China. While their needs were shifting to specialty-grades to blend with domestic varieties, there was little demand for our bulk wheat-exports.
Demand for meat in China
China's per capita meat consumption increased 5-times in 40 years -- pork higher but beef and poultry still much lower than North America. Now China needs more than 300 MT of grain per year to meet its feed-requirements, about the same as for food. This has been the main driver of China's rapid growth in grain-imports, more than 20-fold in 25 years. In turn our grain-exports to China also increased but only 4-fold, not due to any wisdom on our part but desperate need on China's part.
As noted already, we have now shifted our research agenda away from China to other areas. High on our priority list is grain consumption trends driven by vegan and/or vegetarian diets. These are not just "fads" but fundamental shifts taking place in dietary practices, driven by heightened health-consciousness -- not just in rich countries but also emerging ones, particularly under Buddhist influences in Asia. We will be reporting on our progress on this front in the next few months.
Another angle we have an interest in pursuing is organic-farming that adds further environmental and ethical dimensions to crop production -- free of artificial chemicals, instead using fertilizers and pesticides derived from natural sources. There may be as many as 1500 certified organic farmers across the Prairies that can fetch higher value for their crops in export markets. We can extend our marketing efforts into this domain if we can get sufficient interest from the producer-community.
We are promoting direct-sales channels for specialty-crops, not only because they fetch higher prices in global markets but also we are more competitive in growing them for a variety reasons -- agronomy knowledge to specialize, advanced farming technology, and favorable soil-climate conditions. If this shift could be achieved, producers would be getting a chance to earn higher margins, thus better returns on investment. But there are certain market-risks that can not be overlooked; we try to bring attention to these risks as part of our facilitation and support efforts.
Currently producers grow mostly staple-crops that they sell to large grain companies, custodians of the bulk-system, known for honoring contracts and paying promptly. Direct-sales involve specialty-crops sold to a broader audience, carrying higher trade-risks; naturally, more attention has to be paid to the credit-worthiness of the buyers. Since arbitration or litigation does not provide practical safeguards globally there should be less reliance on contract commitments. Pre-shipment payments (cash or LOC) should be standard practice, even then backed up by export-insurance.
Also, there are further risks behind specialty-grains grown to buyer-specifications under contract (or standing orders) -- bearing in mind that there is an order-to-delivery lag in this business, a whole crop year or more. Contracts should be tied to down-payments but even then a lot can happen in a year; there should be contingency plans to sell to others. In this vein, producers should avoid highly “exotic” crop-orders, instead try to focus on more established specialty-crop domains where alternative buyers can be found in case contract-orders falter for unforeseen reasons.
At the end of the day, trade-risks cannot be avoided, only managed or mitigated -- after all, specialization is a strategy to increase margins with inherent risk-reward trade-offs. As a platform set up to facilitate crop-specialization, we are committed to providing whatever back-up support we can to protect producer-interests. To that end, we provide extensive global market research, not just crop-markets but also downstream supply-chains, as well as due diligence into prospective buyers. Also, we play an advocacy role in expanding the net of available export-insurance options.
In an environment geared to bulk-trades, it is difficult to get export-insurance for direct-sales. We are well aware of the difficulties specialty-crop exporters face in this regard, thus committed to levelling the playing-field for individual producers.
Given the limited scope of direct-sales it is not surprising that trade-finance channels are as limited as they are, but as volumes pickup more attention will be paid to their development -- trends we will follow closely, and try to support and facilitate.
An important part of our mission is to do everything we can to mitigate trade-risks through our market-research and due-diligence efforts. But there is much more that can be done to support producers through both private and public channels.
About The Trade Forum
Based on our understanding of grain-producer interests and end-user markets, we believe there is huge potential in adding much greater value to the Prairie grain-economy by shifting away from bulk-trades to specific grades or types of crops. To this end, new sales-channels are needed but this is not going to happen by knocking on doors or staging trade-missions. Luckily, as for everything else, we have the Internet at our disposal to demonstrate to global-markets that we have the capacity to grow crops to end-user specifications, and deliver them to their door-steps.
Grains may not lend themselves to one-click-sales to be contemplating an Amazon-type portal where buyers order what they need and get it delivered within days. But at the same time sales-contracts do not have to be negotiated in advance for custom-growth to user-specifications and post-harvest deliveries staged the following year, in theory a cycle that could take two years or more. There are ways of developing sales-channels for specific types and grades of crops, and put them on sustainable market-paths, by aligning producer-interests and end-user requirements.
In this vein, our mission is to start with an online trade-forum to facilitate consultative-dialogue between producer-groups and targeted end-user audiences -- in time we will nurture this portal to develop into a contract-sales platform. Bare in mind that we have no interest in captivating parties (buyers or sellers) to engage in contracts that we take a commission from. Our role will be confined to generating interest by the content we provide, playing a consultative or support role to develop direct sales-channels -- we will only engage in sales-contracts if asked by clients.
We will guide the evolution of this consultative-forum to a sales-platform by:
Presenting our own experience and ongoing market-research efforts
Actively soliciting ideas/suggestions from producers or their associations
Actively promoting concepts to targeted buyer-groups in export-markets
Facilitating dialogue on specific market segments of mutual interest
We encourage agricultural producers to share their capacity with the world -- upload a few photos of your farm, and send us a few details to promote and we will take care of the rest!
The Prairie Grain Portal will compile the info you post, and, pending your approval, package it into a pinned profile at the top of the forum. We want to do everything we can to promote you on the global stage
We will share our research on specific end-markets , and do our best to provide insights into new market opportunities around the globe, starting in the Asia-Pacific region (China and beyond)
In time we aim to build a database of buyer-profiles that can be used to help producers connect with end-markets; as the portal grows, so too will the sophistication and detail of these profiles
Let us know your thoughts on where we should dive deeper for future featured articles. If there is a specific market, region, or topic that you would like to see us flush out, then start a discussion here so that you can help guide our research agenda
Connect with other producers and buyers from around the world to share your thoughts and experiences
In our Q&A section, we hope to compile a proper FAQ for the site -- let us know if you have any questions!