Competing With and Selling Wheat to the World’s Largest Wheat Producers

By Tracy Sayler

With large populations that need to be fed, China and the Former Soviet Union are two of the world’s largest producers of wheat.  But their supplies don’t always match up with their demand – sometimes they produce more grain than what they need, sometimes they produce less. 

That makes China and the FSU at once competitors and customers for U.S. wheat producers. Alan Tracy, president and CEO of USW Associates, discussed this quandary and other facets of global wheat trade at the recent conference of the Minnesota Wheat and Barley Grower Associations.

While the U.S. exports more wheat than any other country, American market share in global wheat trade is about 25%, evidence that the U.S. wheat industry has strong competition.  Thus the need to have sales and tech reps knocking on doors of wheat buyers and users around the world to promote the purchase and use of American-produced wheat. In a sense, that’s what USW (www.uswheat.org) does, in over 100 countries with trade offices in strategic locations around the world, including Tokyo, Japan; Seoul, Korea; Taipei, Taiwan; Manilla, The Philippines; Moscow, Russia and Beijing, China as well as:

• Rotterdam, The Netherlands (to help reach and meet with wheat buyers and users in Europe)
• Mexico City (to reach customers in Central America)
• Cairo, Egypt (serving existing and prospective customers in the Middle East)
• Santiago, Chile (to reach customers in South America)
• Singapore (serving customers in South Asia)
• Morocco (serving customers in North Africa)
• Capetown (serving customers in South Africa)

Staffers at these and other USW locations provide information and expertise in promoting all six classes of wheat produced in the U.S. (durum, hard red spring, hard red winter, soft red winter, soft white, and hard white wheat).  They conduct educational programs, meet with wheat buyers and users, run consumer awareness activities to promote wheat foods, and assist with U.S. trade policies that can impact wheat exports.

Funding for USW programs and activities is accomplished through public-private cooperation.  Federal programs account for about 54% of USW revenues. Producer wheat checkoff funds forwarded to USW through state wheat commissions in 20 states provide 31% of activity funding. Another 15% of USW support comes from overseas organizations, businesses, and agencies which contribute toward the cost of providing seminars or other trade activities.

Eight of every ten dollars go to USW overseas activities. The remaining 20% stays in the U.S. to fund staff in two U.S. offices (headquarters in Washington, D.C. and a West Coast office in Portland) as well as to fund assistance with foreign trade delegations, USW Board of Directors expenses, and information and education for wheat producers.

Selling to China, competing with FSU
If current export stats continue in the 2004/05 marketing year, China will be the biggest buyer of wheat in the world this year, according to Tracy, with a good share of Chinese purchases coming from the U.S.

Tracy said that it can be difficult to predict Chinese grain purchasing decisions. Statistics can point to demand exceeding supply and thus a need for China to import, yet they can surprise and import very little, or even export their domestically-produced wheat.

“It is really hard to grasp what is going on in China right now. You hate to be too optimistic when there is so many different crops in China and so many different economic factors,” he said.  Still, there are reasons to be optimistic about Chinese purchases of U.S. wheat; due in part to a cut in their price supports for domestically-produced wheat, including elimination of the price support for low quality wheat – which supports future purchases of high quality U.S. spring wheat.

“Everyone thinks China is a rice eating nation. Their consumption (of rice) is 136 million tons and consumption of wheat is 102 million tons.  Not that far off and it has been growing closer in the last few years,” he said.

In the FSU, total wheat production in Russia, Ukraine, Kazakhstan is rivaling that of the U.S., and this wheat-producing region is a threat to U.S. wheat exports in this part of the world. “They have really become a factor and we don’t think they are going to go away,” Tracy said.

One advantage the U.S. has in competing, however, is quality.  Tracy gives this example:

“As wheat starts to pour out of Russia, we worked with our buyers; we went to Nigeria, which is a very good U.S. customer. They were seeing differences of as much as $70 per ton – $2 a bushel less of wheat out of the Black Sea.  We were working with the millers there, stressing the difference of quality to them.  Some of our most loyal customers there saw a quality drop in their competitors who were buying from Russia, and they turned it around on them in the market place. Some came back to the U.S. So that is still a solid U.S. market.  The U.S. is not a low-cost exporter in the market, so we have to focus on the value of U.S. wheat, and that is quality and consistency.”

Communicating U.S. Crop Quality
After every U.S. wheat harvest, U.S. Wheat Associates sponsors regional seminars around the world to communicate information about the crop quality. The seminars also offer opportunities to discuss other aspects of buying/selling U.S. wheat.

This year marked the first time ever that USW carried out customized crop quality seminars in Central America that were company specific. Previously, USW conducted these seminars either on an individual country basis or on a subregional basis for all of the Central American wheat buyers. This year, the personalized seminars were presented to the three major buying groups in Guatemala and the major buying group in Costa Rica and were quite successful.

Determined to make up for lost time over 15 years of sanctions, USW also became the first U.S. commodity organization to offer a formal market development program in Libya. Planning for the seminar began as soon as the U.S. lifted trade and travel restrictions last September, and plans came to fruition in December when USW representatives presented the organization’s first crop quality seminar offered in Libya.

Libya imports about 800,000 metric tons of wheat annually, most of it now purchased by the government’s General National Flour Mills and Fodder Company (GNFMFC). This group, which dominates both Libyan importing and milling activities, extended a warm welcome and excellent support to the USW team comprised of George Galasso, USW regional vice president, Goris Van Lit, assistant regional director, and Peter Lloyd, director of technical services.

“We appreciated the opportunity to describe the U.S. wheat classification and grading system, and the quality of our 2004 crop, to key decision makers in the Libyan grain sector,” explained Galasso. “While we were there, we also learned that Libya is undertaking reform of its grain specifications and sanitary regulations, and we offered USW’s assistance as they develop new standards.”

The seminar was attended by 70 participants, including the GNFMFC chairman, his technical director and other staff members, the director of the Center for Food and Drug Monitoring, top officials from the National Supply Corporation (NASCO), leading private traders, and officials from inspection and health agencies.