Food Supply Update

Food Supply Update: February 6, 1997

                   Global Food Market Tension a Trend?
                     Copyright 1997, Geri Guidetti

Big changes loom on the international food scene, and their future
impact on U.S. agriculture, trade and food supply is currently under
intense debate.  A recent conference sponsored by the Economic Research
Service of the U.S. Department of Agriculture entitled, "EU Eastern
Enlargement: Feast or Fizzle for U.S. Agriculture?" considered the
uncertainty posed by proposed expansion of the European Union (EU) to
include 10 Central and Eastern European (CEE) countries.  Now, if your
response to this news is a big yawn, go grab a cup of coffee and bear
with me.  This IS important stuff.

The ten CEE countries—Bulgaria, the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia—have applied
for EU membership and have already signed Association Agreements. Their
agricultural productivity is expected to improve over time as they
institute EU- required improvements in equipment, technical education,
production, quality control and marketing.  Membership in the EU will
bring these countries unrestricted access to European markets and higher
prices for their agricultural products. Their overall economic
prosperity is expected to increase.

What does this have to do with U.S. agriculture and food supply?  The
enlargement of the European market could add up to 100 million new CEE
consumers, consumers to whom American growers would like to expand the
export of their products.  The U.S. already exports wheat and corn to
these countries, and these exports are expected to grow in 1996/97 due
to an extremely poor harvest this year in most of Eastern Europe.  Yet,
since 1990,   bulk grain purchases by CEEs have declined overall, and
increasing U.S. trade with the expanded EU is likely to be met with
increased protectionism, stiff competition from current EU countries
which are net exporters of grain, and member governments’ intervention
to free trade.  Agricultural improvements in CEE countries  are expected
to boost production, reducing the need for imports.  In fact, the 10 new
EU members could become net exporters themselves in the near future.

Greater in economic importance than grains have been  the so-called high
value products  (HVPs) which include poultry, seeds, oilseed meal,
vegetable oil, fruits and vegetables and dairy products.  U.S. poultry
has been an especially valuable export.  Yet, this market, too, may be
threatened because the EU expansion is expected to double the number of
farmers, including those who raise poultry.  The need for U.S. poultry
may diminish dramatically over the long term, though the need for corn
to feed livestock may increase in the short term.

According to the USDA’s International Agriculture and Trade  report, the
expansion will have profound effects on U.S. and global agricultural
When you add to this uncertain picture the image of a huge, unified
European market trading freely among member countries but restricting
imports from the U.S. to protect its own members’ profits and market
share, you can see the potential for a very difficult time for U.S.
agricultural businesses. The U.S. would like to ensure that the proposed
expansion  will be non-discriminatory against this country and other
non-EU exporters.  According to the report, "... the United States will
defend its access to Central and Eastern European markets, which in many
cases took years to develop and foster."

Today’s Wall Street Journal Commodities report may offer a glimpse of
the types of difficulties ahead.  Yesterday, wheat prices fell to a
21-month low in response to falling global demand for U.S. wheat.  You
may recall from an earlier Grain Supply Update that there were well
substantiated rumors this summer that Egypt would be in the market for
900,000 metric tons of the grain.  On Monday, Egypt placed that order –
with France – and now there are rumors that the balance of the order
would be placed with Australia.  The EU, Argentina, Canada and Australia
had record crops this year, permitting them to lower their grain prices.
 The U.S. did not .  According to the WSJ, Randy Mittelstaedt, a Merrill
Lynch grains analyst,  said that the U.S. is facing the worst of two
worlds: low grain stocks prevent our fighting for market share and other
grain exporters have had record crops, driving prices down.

In our last Grain Supply Update I told you  the area seeded to winter
wheat in 1997 is down 7% from 1996 and the smallest seeded acreage since
1978.  While it would be advantageous to the U.S. to have lower wheat
prices that are more competitive in the global market, the already
palpable uncertainty over the ’97 crop has  begun to firm up contracts
for wheat after May, the month that marks the end of the ’96 crop.  This
may prove to be another difficult year for U.S. wheat supplies and

On the surface, international fretting , dealing and fighting for export
markets like the CEEs would appear to be a clear sign that the world is
awash in excess food.  Before 1990, the politics and economics of food
were essentially focused on predictable food surpluses.  Much of that
same mindset  remains today despite clear evidence that food scarcity is
evolving as the new norm.  Skyrocketing global population, the increased
frequency and severity of extreme weather patterns, the productivity
limits of food plants, and shrinking land and water resources have all
combined to reduce global food stockpiles to historic lows.
Organizations formed to control and export surpluses will need to make a
major paradigm shift in a marketplace increasingly challenged by

 During the first half of the ‘90s, production shortfalls were offset
literally by raiding the pantry.  If we are smart, depletion of the
global pantry will serve as an international wake-up call. We need to
rethink the production, distribution and business of food.  As
magnificent as modern agricultural achievements have been  the last half
of this century,  there are substantial dangers to the continuing
merging and centralization of food production and distribution systems
under ever-larger corporate umbrellas and global government entities.
It encourages the politicization of food.  It threatens to exaggerate
the importance of corporate and government profit, perhaps at the
expense of many of the world’s people.  Politics and profit rarely dine
at the tables of the world’s most hungry....Geri Guidetti, The Ark
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