Changes to grain handling and transportation infrastructure in two key regions of the world will impact Canada’s competitiveness. These areas are the Black Sea region and South America.
Russia’s overall grain production (wheat, barley and corn) has grown 70 per cent in the last 10 years to 94.5 million tonnes. Exports have had their ups and downs because of export bans, but overall in the last 10 years exports have doubled. This past year Russia surpassed the U.S. in wheat export volumes and it is expected they will surpass the EU this year to become the Number 1 world exporter of wheat. With the potential to boost production another 40 per cent over the next decade, it looks like Russia could be claiming the crown as top world wheat exporter for years to come.
The Ukraine has 54 million acres of agricultural land and another 9.8 million acres of abandoned land that could eventually be brought back into operation. Lands that have not been producing to their potential for the past number of years are now showing increased production as new agronomy, equipment, production management practices and technology are being used.
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Today, the Black Sea region has grain exports exceeding 80 million tonnes per year, as compared to an average of 30 million tonnes of imports in previous decades. That is an overall difference of 110 MT and they are set to increase those volumes dramatically over the next decade.
Governments in the area are spending major investment dollars to upgrade roads and railways. Local businesses and the Big Four (ADM, Bunge, Cargill, and Dreyfus — or ABCD) are purchasing and/or building new handling facilities to be able to buy and handle more grains for export from the region.
New port facilities at Ukraine’s Yuzni Port are being built to handle expected production increases over the next 20+ years. UkrLand Farming, a Ukrainian company, is planning to invest $2.5 billion to construct a new terminal with an annual capacity of 10 million tonnes of grain.
Ukraine has 15 deep water terminals to handle exports and with these kinds of investment dollars going into new handling facilities, there will be no bottlenecks to keep them from exporting record volumes of grain in the coming years.
Brazil is the world’s Number 1 exporter of soybeans followed closely by the U.S., with Argentina in third place.
Over the past decade local governments and private industry, again including ABCD, have invested billions of dollars to build and upgrade facilities and transportation infrastructure such as roads, railroads and river systems to enhance the movement of Brazilian grains to export position.
Acreage expansion has been swift over the past two decades, due mainly through deforestation. This practice has slowed dramatically the past few years — the economics don’t pencil out right now — but the potential for more acres is there.
Concern over deforestation is growing; governments are looking at how to manage this practice in a way that balances environmental concerns and sustainable economic growth. The addition of new acres for agriculture will slow down dramatically over the next decade as they try to get a handle on this critical issue.
Some of the International Grains Council’s statistics for the 2015-16 grain trade year are shown in the tables below.
Let’s look at our three main crops that we export, wheat, canola and barley.
The top five wheat exporters account for 70 per cent of the total trade. If Russia and Ukraine, both in the top five, increase their productive capacities then someone will lose market share. will likely be the U.S. and Canada, given that four of the five top importers of wheat are all geographically located a lot closer to Russia and Ukraine than they are to North America.
The story for soybean and canola is a little different. The major exporters are from North and South America, and the main importers are primarily the Indo/Asia Pacific region, the EU and Mexico. From a sellers’ perspective, we are on a more level playing field from a freight cost perspective since our main competitors are all from the Americas.
The barley numbers show clearly that Canada is again at a geographic disadvantage compared to other exporters. It takes longer and costs more to ship our barley to the end market, so to make the sale, Canadian barley has to be sold cheaper, resulting in less net revenue back to you.
World demand for grains continues to grow. The main growth regions are going to be African, the Indo/China region and the EU because of the massive density of the population in those regions.
How can we continue to compete in those growing markets, given the growth potential in Russia, the Ukraine and South America? Tune in to my next column.