Issue 26
February 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 Association.

Copyright
Prairie Grains Magazine
February 2000

Will USDA get into the grain cleaning business?

By Lisa Jager, Tracy Sayler

The Commodity Credit Corporation (CCC) under USDA is considering whether it should in some way finance the installation or upgrading of grain cleaning systems at U.S. wheat export elevators. 

Many believe that a government cleaning initiative would improve grain quality and competitiveness of wheat exports, by ensuring that foreign buyers can purchase U.S. wheat with substantially lower dockage specifications than what is currently available at U.S. export elevators.

However, some grain handlers oppose it, saying that it could result in some handlers having a competitive advantage over others, even those which have implemented cleaning systems without government help.

Last year, the National Association of Wheat Growers Board of Directors voted to support the use of public funds to build grain cleaners at U.S. export ports in the Gulf of Mexico. U.S. Wheat Associates (USW) also endorsed the plan.

David Frey, Administrator of the Kansas Wheat Commission, says the desire for additional grain cleaning facilities for wheat destined for export goes back some time, but that the most recent push is the result of Asian countries tightening dockage levels.

In Japan, millers have long requested cleaner U.S. wheat, resulting in the Japanese Food Agency, which controls most imports in Japan, to gradually phase in tighter dockage specifications to the current level of five percent.  The specifications may be further tightened to 0.3% in 2000.  The U.S. may need to meet this level to remain competitive as the Japanese say that dockage in Canadian wheat imports averages 0.2%.  Taiwan also has voiced concerns about dockage levels in U.S. wheat, and in 1998 instituted a maximum dockage level of 0.5%.

Frey says he sees the demand for higher quality wheat to spread to other parts of the world, such as South Africa, where privatization of wheat buying is occurring and customers are expected to become more sophisticated and specific about their grain purchases.

He says that although most of the wheat destined for Japan and other Asian countries is shipped from the Pacific Northwest, the Asian buyer should at least have the option of buying wheat from the Gulf, perhaps as part of a shipment with corn, soybeans, and wheat all on the same load. However, wheat coming out of the Gulf currently cannot be cleaned to even meet the 0.5% level, he says.

There is good rationale for U.S.-sponsored grain cleaning, says Frey: Since USDA is no longer using the Export Enhancement Program, government support of grain cleaning is one way to combat subsidies by U.S.' grain competitors, and help the U.S. be more competitive.  He also cites quality subsidies employed by the Canadian Wheat Board, which export customers say provides cleaner wheat than the U.S.

U.S. wheat leaders began a push for grain cleaning last year, and the effort resulted in a meeting with USDA officials and a USW letter to USDA Secretary Dan Glickman, asking him to consider a government-funded program to support the installation of wheat cleaning facilities within the U.S. grain handling system.

The letter stated that the growth of U.S. wheat exports has been limited in recent years because cleaning facilities are not widely available within the U.S. export distribution system, while U.S. competitors, Canada and Australia, have generally provided grain with very low dockage/foreign material content. 

USW also pointed to the Latin American market as an example where the U.S. may have lost market share due to dockage concerns.  The Latin American market has grown from a six million metric ton (MMT) wheat market in the mid-1980s to an approximately 15 million ton market today.  However, the U.S. share of that growing market has declined from 70% to 15%, while Candian imports have grown from 1.5 MMT to six MMT.

While USW and NAWG support government-funded wheat cleaning, others in the grain trade, including some grain companies, are opposed to the idea.  Those opposed cite a variety of concerns, including cost: the question of who will absorb the operating costs of government purchased cleaning facilities. 

One source suggests that if demand from foreign customers for lower dockage is high enough, the industry will respond in kind and provide any necessary cleaners.  In addition, some companies already have invested in cleaning equipment or have plans to invest and install such equipment.

Is Canadian and Australian Wheat Really Cleaner?

Wheat marketing in Canada and Australia is controlled respectively by the Canadian Wheat Board and the Australia Wheat Board, both of which have very strict dockage standards that must be met by the farmer when wheat is delivered to the elevator. 

In Canada, some additional cleaning is completed following farmer delivery.  According to John Oades, director of USW's West Coast office, Canadian dockage is 0.2% to 0.3%, while Australian dockage is 0.3% to buyers concerned about cleanliness, with dockage running slightly higher to less sophisticated buyers.  According to a grain cleaning backgrounder prepared by the Kansas Wheat Commission, dockage levels in U.S. wheat from the Pacific Northwest average 0.5%, while levels from the Texas Gulf average between 0.6 to 0.8%.

Northern grains perspective

Grain from Minnesota and North Dakota destined for export flows through Duluth, the Gulf or Pacific Northwest, with the bulk of the grain from central North Dakota and eastward flowing through Duluth or the Gulf. 

ND and MN wheat group leaders say they are generally supportive of some type of national grain cleaning initiative, but are still reviewing what role government should have, if any.

However, both David Torgerson, executive director of the Minnesota Wheat Research and Promotion Council and Jim Peterson, marketing director of the North Dakota Wheat Commission, say they understand why some grain companies and others might be opposed to the idea, especially those who already have invested in grain cleaning equipment. 

Torgerson says that in Duluth, some elevators have invested in cleaning facilities and can now clean to fairly low levels.  He also says that Minnesota elevators routinely clean wheat delivered at higher dockage down to 1%.  Torgerson says the cleaning situation in Minnesota differs from that in HRW states because Northern Plains farmers have more storage capacity, consequently allowing farmers to ship the wheat and elevators to clean it in a more orderly fashion.

Peterson says that some ND elevators have discounted farmers for high dockage levels in response to PNW port demands for low dockage.  Peterson says this has not been well accepted by producers, who feel that cleaning costs should not be borne by discounts to producers but rather, throughout the grain handling system. 

Some ND elevators have installed cleaners to avoid discounts, Peterson says.  Others have expressed their desire for some kind of government support for cleaning.  Peterson did raise the question of whether or not cleaner wheat will directly result in increased sales in all markets, saying other factors may be at play among some customers complaining of dockage levels in U.S. wheat, such as phytosanitary and other issues.

Representatives from area grain elevators offer differing perspectives regarding cleaning. 

Jerry Kramer, manager of Harvest States Elevator in Fergus Falls, MN, says that although the elevator is equipped with gravity cleaners, dockage is typically not a problem as the wheat delivered by farmers is fairly clean, averaging about 0.5%.  He also says that most of the wheat delivered to his elevator is destined for domestic flour mills.  Dockage is generally not as much of a concern for domestic flour mills as it is for wheat destined for export.

Bob Stevens, general manager of the Cenex/Harvest States Southwest Grain Terminal Elevator near Gladstone, ND, says that about 60% to 65% of wheat passing through the elevator is destined for the PNW and Asian countries.  He says they clean and load wheat destined for PNW ports at 0.7% and 0.8% dockage, and currently do not have the capacity to clean wheat to 0.5%.

Indeed, that's typical of many elevators, says Peterson.  Most U.S. grain handlers need grain volume and quick turnaround in transportation to thrive on tight margins.  The equipment and capacity to clean grain at elevators to low levels desired by more and more overseas buyers exists.  But implementing additional cleaning equipment may mean sacrifices in other grain handling efficiencies, primarily grain handling speed and volume. Further, it's difficult for many elevators to recoup costs of implementing additional cleaning systems.

The U.S. grain cleaning initiative may help.  Written comment on the grain cleaning issue was collected in late December after the proposal was announced in the Federal Register.  A public hearing is scheduled on the issue for Jan. 28.  At the hearing, USW is sponsoring grain buyers from Brazil, Nigeria, and Columbia to testify in favor of grain cleaning.  Some sort of grain cleaning measure is clearly supported by overseas grain buyers, says Paul Dickerson, vice president of USW overseas operations.

It's not known yet when the grain cleaning issue will be decided; Dickerson guesses it could be months.  It's not even clear yet how an initiative would be conducted.  Dickerson says many ideas are being discussed, from funding grain cleaning through tax credits to creating a type of bidding system.

Will a U.S. grain cleaning initiative be legal in the eyes of the World Trade Organization?  Dickerson says he's certain the CCC has done it's legal homework.  "They wouldn't have offered it for public comment otherwise," he says.

Peterson says reimbursing inland and export grain elevators that have already implemented extra cleaning measures, in addition to funding grain handlers who have not, may help draw more universal support of a government-funded cleaning initiative.