Issue 29
May 2000
 

Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, South Dakota Wheat, Inc. and the Minnesota Barley Growers Assocation.

Copyright
Prairie Grains Magazine
May 2000

Prairie Ramblings

Could OPEC-like grain cartel work? 
Ag economist speculates

By Tracy Sayler

Question for you: How is it pos-sible that the mighty U.S. economy can so easily be manipulated by the whims of a shadowy central authority, affecting the financial bottom-line of every American beyond the realm of our democratic process?

Who knows, but enough about Federal Reserve Chairman Alan Greenspan. Let's talk about the equally shadowy OPEC.

Its steep production cuts have tripled oil prices during the past year, resulting in all-time highs at the pumps and about double last spring's fuel bill for farmers heading to the fields this growing season.

So what is OPEC, anyway? The Organization of the Petroleum Exporting Countries (OPEC) is a permanent, intergovernmental organization created in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. The five founding members were later joined by eight other members, countries like Qatar, Ecuador, and Algeria which are obscure in the global scheme of things, except they produce oil.

OPEC members currently supply more than 49% of the world's oil and possess about 78% of the world's total proven crude oil reserves—a key factor in an estimated 4% or $4,000 jump in production costs this growing season for a 1,600-acre crop-livestock operation, according to the estimate of one North Dakota State University ag economist.

Some industries—airlines, for instance—can simply slap a surcharge onto their goods and services to offset increased fuel costs. As you know, farmers don't have the ability to do that. But wouldn't it be something if you did?

Introducing OGEC

The intro on OPEC's web site, www.opec.org, explains that the oil cartel is "dedicated to the stability and prosperity of the petroleum market, as enshrined in the OPEC Statute. OPEC Membership is open to any country which is a substantial net exporter of oil and which shares the ideals of the Organization."

With all the pricing problems that seem to have forever plagued grain producers, why not an OGEC – Organization of Grain Exporting Countries—"dedicated to the stability and prosperity of the grain market, open to any country which is a substantial net exporter of grain?" After all, isn't there really only one significant corn exporter in the world (the U.S.) two primary soybean exporters (U.S. and South America) and five wheat exporters (U.S., European Union, Canada, Australia, Argentina)?

I put this just-for-fun question to Kim Anderson, ag economist at Oklahoma State University. For an economist, Kim is a colorful individual. At a producer meeting where he speaks, he'll fire marketing-related questions at the audience in an Okie drawl, and tosses candy to those who pipe up with the right answers.

Operating under a type of marketing order or quota system, Kim says an OPEC-like structure for grain could work—conceptually speaking. The probability for success would be greater for crops like corn, beans, and cotton, as opposed to crops like wheat. "The reason being that there are less countries producing those commodities," he says. "Wheat is a very versatile plant. Really anywhere except for maybe Antarctica and the North Pole, you can grow wheat."

Arbitrarily speaking, a cartel could work, Anderson says. "But the kicker is that there are so many small producers (along with the major exporters) and you don't have that with oil."

Anderson says too that government control would be needed to establish a grain cartel, something that is theoretically possible but highly improbable given a global grain market with a wider variance of government involvement in grain purchases.

"Now if you got the multi-national grain companies AND major exporting countries involved, then a grain cartel would have an even higher probability of success," he says. "But you know how producers would respond to that—they'd have a hemorrhage."

So our take-home ag econ lesson is this: It's fun to talk about OPEC-like grain cartels, but in the real world, they're highly unlikely to work. Perhaps a better way to get at both problems—high fuel prices and low grain prices—is for more market development of biofuels such as ethanol. 

If I were Al Greenspan's speech writer, I'd sneak that pitch into his next interest-rate proclamation.  Like the old E.F. Hutton commercial, when Al talks, people listen. If that's what it would take to get biofuels to be a larger blip on the radar screen of Wall Street and Washington, so be it.

(The views in this column are those of the author, and not of Prairie Grains or the associations that publish it.  The author encourages suggestions and input from readers, which may be emailed to tsayler@corpcomm.net).