Grain Quality in International Trade: A

Comparison of Major U.S. Competitors

February 1989

NTIS order #PB89-187249
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Grain Quality in International Trade:

A Comparison of Major U.S. Competitors, OTA-F-402 (Washington, DC: U.S. Government Printing Office, February 1989].

Library of Congress Catalog Card Number 88-60059 3

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this report)
Foreword

This report is one of two that the Office of Technology Assessment completed

in an assessment of the issues in grain quality for Congress. The first, Enhancing

the Quality of U.S. Grain in International Trade, focuses on the U.S. grain system

and possible changes within that system to enhance grain quality. To consider this

issue fully, it is important to understand the grain systems of major competitors,

a subject covered in this report.

The purpose of documenting these systems is twofold:

● to improve our understanding of the grain system of other countries as it

relates to quality, and

● to consider adopting some aspects of others’ systems.

The importance of the observed differences among countries lies in the influence

that differing strategies have on incentives and the quality of the final product.

Comparing the major technologies, institutions, and policies provided the background for a comparison and analysis of the quality of grain delivered to the international market,

Little published information is generally available about the grain systems of

other countries—especially with regard to factors affecting quality. Canada is a

major exception. To provide the documentation needed to analyze these systems,

OTA sent study teams to Argentina, Brazil, France, and Australia–which along

with Canada are the major grain exporters competing with the United States. The

teams arrived in each country during the harvest in order to see the systems at

work. Information was gathered in numerous interviews with producers, handlers,

processors, exporters, grain inspectors, plant breeders, researchers, and government officials. The detailed reports written by members of the study teams form

the basis of the chapters in this volume.

OTA greatly appreciated the assistance of the U.S. embassy in each country

visited, The agricultural attachés were most helpful in suggesting specific individuals and organizations to interview, in developing an itinerary, and in providing

background information for each team. OTA also wishes to thank all the people

who agreed to spend time with each study team and provide information on their

country’s grain system. The teams were warmly received in each country and the

people were gracious hosts.

Finally, OTA is grateful for the time and dedication of each team member. Many

hours and days went into preparing for each country visit, and the 2 weeks spent

in each country involved very long days. OTA is indebted to these individuals for

the work they did to bring this report to fruition.

JOHN H. GIBBONS

Director

iii
Advisory Panel

Grain Quality in International Trade:

A Comparison of Major U.S. Competitors

Donald E. Anderson

General Partner

The Andersons

Maumee, OH

Roger Asendorf

American Soybean

St. James, MN

Association

G. (Jerry) W. Becker

Vice President and General Manager

Caldwell Manufacturing Co.

Kearney, NE

James B. Buchanan

Vice President and Manager of

Grain & Feed

Illinois Cereal Mills, Inc.

Paris, IL

William J. Cotter

Director of Operations

Port of Corpus Christi Authority

Corpus Christi, TX

James F. Frahm

Director of Planning

U.S. Wheat Associates

Washington, DC

Maurice A. Gordon

U.S. Feed Grains Council

Rantoul, IL

William W. Hay

Millers National Federation

Minneapolis, MN

Jerry P. Krueger

National Association of Wheat Growers

Warren, MN

Roald H. Lund

Dean, College of Agriculture

North Dakota State University

Fargo, ND

Richard L. McConnell

Director of Corn Research

Pioneer Hi-Bred International, Inc.

Johnston, IA

Paul B. Mulhollem

Group President

World Oilseeds Group

Continental Grain Co.

New York, NY

Seiichi Nagao

General Manager

Cereal and Food Research Laboratory

Nisshin Flour Milling Co., Ltd.

Nihonbashi, Chuo-Ku

Tokyo 103, Japan

Grayce “Susie” Pepper

Purchasing and Office Manager

Zip Feed Mills, Inc.

Sioux Falls, SD

Harold E. Reese

Vice President and Assistant

Division Manager

Bunge Corp.

Destrehan, LA

Thomas C. Roberts

Executive Vice President

Wheat Quality Council

Manhattan, KS

Marion Stackhouse*

President

Indiana Farm Bureau

Indianapolis, IN

Ronald E. Swanson

National Corn Growers Association

Gait, IA

D. Leslie Tindal

Commissioner

South Carolina Department of Agriculture

Columbia, SC

*Deceased.

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory

panel members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA

assumes full responsibility for the report and the accuracy of its contents.

iv
OTA Project Staff

Grain Quality in International Trade:

A Comparison of Major U.S. Competitors

Roger C. Herdman, Assistant Director, OTA

Health and Life Sciences Division

Walter E. Parham, Food and Renewable Resources Program Manager

Michael J. Phillips, Project Director

David M. Orr, Senior Analyst

Lowell D. Hill, Contractor

William W. Wilson, Contractor

Linda Starke, Editor

Administrative and Support Staff

Sally Shafrothl and Nathaniel Lewis,2 Administrative Assistants

Nellie Hammond, Secretary

Carolyn Swann, Secretary

*Through April 1987.

‘From May 1987.
The Country

Argentina

Lowell D. Hill, University of Illinois

Thomas E. Weidner, The Andersons (Retired)

Robert A. Zortman, U.S. Department of Agriculture

Michael J. Phillips, Office of Technology Assessment

James G. McGrann, Texas A&M University (interpreter)

Brazil

Lowell D. Hill, University of Illinois

Thomas E. Weidner, The Andersons (Retired)

Robert A. Zortman, U.S. Department of Agriculture

Mary J. Schultz, Michigan State University (interpreter)

France

William W. Wilson, North Dakota State University

Lowell D. Hill, University of Illinois

Robert A. Zortman, U.S. Department of Agriculture

Michael J. Phillips, Office of Technology Assessment

E. Wesley Peterson, Texas A&M University (interpreter)

Canada

Colin A. Carter, University of California, Davis

David M. Orr, Office of Technology Assessment

Robert A. Zortman, U.S. Department of Agriculture

Andrew Schmitz, University of California, Berkeley

Australia

William W. Wilson, North Dakota State University

David M. Orr, Office of Technology Assessment

Robert A. Zortman, U.S. Department of Agriculture

Michael J. Phillips, Office of Technology Assessment

vi
Page

Chapter I. The Argentine Grain System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2. The Brazilian Grain System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Chapter 3. The French (EC) Grain System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Chapter 4. The Canadian Grain System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Chapter 5. The Australian Grain System . . . . . . . . . . . ....................109

Appendix A. Glossary of Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....147

Appendix B. Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......148

Index ......., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ..153

vii
Chapter 1

The Argentine Grain System
CONTENTS

Page

Overview of Grain Production and Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Corn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ 3

Soybeans and Soybean Meal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Wheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

The Argentine Grain Industry ...,..,..,., . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Production and Marketing Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Marketing Channels and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Organization of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Marketing Practices and Pricing Strategies of Producers . . . . . . . . . . . 16

Government Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 17

Quality Control in Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Grades for Corn, Soybeans, and Wheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Quality Control Through Genetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Evaluation of Quality in Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Incentives for Quality in the Argentine System . . . . . . . . . . . . . . . . . . . . . . . 21

Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Figures

Figure No. Page

1-1.

1-2.

1-3.

1-4,

1-5.

1-6.

Grain Production Areas in Argentina..... . . . . . . . . . . . . . . . . . . . . . 4

World Corn Exporters’ Market Shares ....... . . . . . . . . . . . . . . . . . . . . . 6

U.S. and Argentine Production and Export of Soybeans

as a Share of World Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Volume of Soybeans Processed as a Percent of Total Domestic

Supplies: United States and Argentina ...... . . . . . . . . . . . . . . . . . . . . . 8

Market Shares of World Soybean Meal Exports: United States and

Argentina. .,... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Market Shares of World Wheat Exports, United States and Argentina , 11

Tables

Table No . Pag e

l-1. Production and Utilization of Corn in Argentina, 1964-88 . . . . . . . . . . . . 5

1-2.

1-3.

1-4.

1-5.

1-6.

1-7.

1-8

1-9

Major Destinations of Argentine Corn Exports, 1975/76-85 . . . . . . . . . . . 5

U.S. and Argentine Exports of Soybeans as a Share of Respective

Domestic Supplies, 1965/87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Major Destinations of Argentine Soybean Exports, 1975/76-85/87 .. 9

U.S. and Argentine Production and Export of Wheat, 1970-87 . . . . . . . . 11

Major Destinations of Argentine Wheat Exports, 1975/76-85/86 . . . . . . . . 12

Argentine Standards for Corn . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Argentine Standards for Soybeans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Argentine Standards for Wheat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Chapter 1

The Argentine Grain System

Argentina competes with the United States

in many of the same world markets for corn,

wheat, and soybeans. The country is a major

producer of feedgrains and oilseeds as well as

a large consumer of these grains and processed

products. The relative position of Argentina in

international markets has changed over the past

20 years, as has that of the United States. In

general these changes have resulted in a weakening of the U.S. position. *

*This chapter draws on the OTA paper “A Comparison of Quality Factors of the Argentine and United States Grain Systems, ”

based on findings of an OTA study team consisting of Dr. Lowell

D. Hill, Mr. Thomas E. Weidner, Mr. Robert A. Zortman, Dr.

Michael J. Phillips, and Dr. James G. McGrann (interpreter) that

traveled to Argentina in 1987. Dr. Hill integrated the findings

of the team into the OTA paper.

Argentina is the only major competitor of the

United States in exports of corn, wheat, and

soybeans. Most other countries compete with

the United States in only one grain, i.e., Brazil—

soybeans, Canada—wheat. Argentina has along

history in producing and exporting corn and

wheat that began at the turn of this century and

has been a significant exporter of soybeans

since the late 1970s.

Corn, wheat, and soybeans are grown in the

rich, dark soils located in the eastern part of

the country (figure l-l). The provinces of

Buenos Aires, Santa Fe, and Cordoba are the

main grain production areas.

OVERVIEW OF GRAIN PRODUCTION AND MARKETS

Corn

Corn production in Argentina is concentrated

in a relatively small proportion of the total geographical area because of climate, topography,

and soil conditions. The Corn Belt consists of

five provinces: Buenos Aires, Santa Fe, Cordoba, La Pampa, and Entre Rios (figure 1-1).

Most of the corn, however, is produced in the

Buenos Aires and Santa Fe provinces.

Argentina has had no significant trends in

production of corn but has experienced wide

annual fluctuations due to weather. A record

9.92 million metric tons (MMT) in 1970 was

followed by a 5.85 MMT crop in 1971 (table

l-l). With such wide swings in production, exports as a percent of total usage also varied,

from 34 percent in 1971 to 71 percent in 1980.

Domestic feed use shows a steady increase. Industrial use of corn in Argentina (domestic

other in table l-l) grew from 0.5 MMT in 1964

to 1.7 MMT in 1973, and then declined to 0.9

MMT in 1986. The primary user is the wetmilling industry.

World market shares show the United States

gaining relative to Argentina during the 1970s.

The two exporters share the same trading partners, especially Western Europe, the U. S. S. R.,

and Mexico. Following the crop year of 1980/81,

the United States lost market share relative to

other exporting nations. Argentina continued

to keep approximately 9 percent of the world

market (figure 1-2).

The destination of Argentine corn exports has

shifted over time in response to economic incentives and Government policies affecting international trade. In 1973/74, Italy and Spain

received two-thirds of the maize exported from

Argentina (table 1-2). The Netherlands, the

United Kingdom, China, and the U.S.S.R. were

also important destinations then, albeit at considerably lower levels.

Major shifts in destinations occurred between

1973/74 and 1974/75. The percentage going to

the U.S.S.R. increased, Mexico entered the

market, and China purchased 473,000 tons of

Argentine grain. Over the next 2 years the share

3
4

Figure 1-1.—Growing Regions of Argentina: Wheat, Soybeans, Corn

C. Corn

● Each dot represents 500,000 metric tons,

SOURCE: Adapted from U.S. Department of Agriculture, Major World Crop Areas

going to the U. S. S. R., Mexico, and China

dropped, while Spain increased its share, receiving more than one-fourth of Argentina’s

maize exports in 1976/77.

From 1974/75 to 1979/80 there was a general

downturn in the share of Argentine maize delivered to Mexico, Spain, and Italy. The Italian preference for Argentine La Plata maize apand Climatic Profiles, Agriculture Handbook 884, 1987

peared to be weakening throughout this period,

as evidenced by their declining share. The major exception was in 1975/76, when Italy maintained purchases of 1.5 MMT in the face of a

major decline in Argentine exports. In contrast,

the U.S.S.R. share grew erratically, fluctuating

from a low of 4 percent in 1976/77 to 61 percent in 1979/80. The rapid growth of the Soviet share in the late 1970s prepared the stage
5

Table 1-1. —Production and Utilization of Corn in Argentina, 1964.88 (in 1,000 MT)a

Local Area

marketing harvested Yield Beginning Imports Total Domestic Domestic Total Ending

year (1,000 ha) (MT/ha) Production stocks (1,000 MT) supply Exports feed other usage stocks

1965/66 . . . . . .

1966/67 . . . . . .

1967/68 . . . . . .

1968/69 . . . . . .

1969/70 . . . . . .

1970/71 . . . . . .

1971/72 . . . . . .

1972/73 . . . . . .

1973/74 . . . . . .

1974/75 . . . . . .

1975/76 . . . . . .

1976/77 . . . . . .

1977/78 . . . . . .

1978/79 . . . . . .

1979/80 . . . . . .

1980/81 . . . . . .

1981/82 . . . . . .

1982183 . . . . . .

1983/84 . . . . . .

1984/85 . . . . . .

1985/86 . . . . . .

1986/87 . . . . . .

1987188 . . . . . .

3,062

3,274

3,450

3,378

3,556

4,017

4,066

3,147

3,565

3,486

3,070

2,766

2,532

2,660

2,899

2,490

3,394

3,170

2,970

3,025

3,350

3,351

2,900

16.8

21.5

23.2

19.4

19.3

23.3

24.4

18.6

25.2

28.4

24.1

21.1

32.8

36.5

31.0

25.7

38.0

30.3

30.3

30.4

34.3

37.0

31.9

5,144

7,039

8,004

6,553

6,863

9,360

9,921

5,853

8,984

9,900

7,399

5,836

8,305

9,709

8,987

6,399

12,897

9,605

8,999

9,196

11,491

12,400

9,250

24

29

17

40

13

12

21

690

524

550

436

761

515

183

434

173

108

210

545

289

91

390

823

0

1

0

1

0

0

1

1

0

0

0

0

0

0

0

0

0

0

0

0

0

0

0

5,168

7,069

8,021

6,595

6,876

9,371

9,943

6,545

9,508

10,450

7,834

6,597

8,820

9,892

9,421

6,572

13,005

9,815

9,544

9,485

11,582

12,790

10,073

2,707

4,010

4,153

3,448

3,740

5,510

6,436

2,040

5,066

5,399

3,517

3,238

5,231

5,916

5,965

3,417

9,098

5,765

6,056

5,448

7,126

7,367

4,000

1,931

2,559

3,270

2,466

2,381

2,957

2,285

3,594

2,781

2,954

2,477

2,563

3,101

3,250

3,050

2,800

3,400

3,200

2,900

3,650

3,475

4,300

3,700

501

483

558

668

743

883

532

387

1,111

1,661

1,420

281

305

292

233

247

297

305

299

296

591

300

900

5,139

7,052

7,981

6,582

6,864

9,350

9,253

6,021

8,958

10,014

7,414

6,082

8,637

9,458

9,248

6,464

12,795

9,270

9,255

9,394

11,192

11,967

8,600

29

17

40

13

12

21

690

524

550

436

420

515

183

434

173

108

210

545

289

91

390

823

1,473

SOURCE U S Department of Agriculture, Foreign Agriculture Service, Foreign Agriculture Circu/ar—Grains/kVoM Gratn Sftuation and Outlook, Washington, DC, vari.

ous issues Reference tables for Wheat, Corn, and Total Coarse grains.

Table l-2.—Major Destinations of Argentine Corn Exports, 1975/76-85 (in 1,000 MT/percent of total in parentheses)

Total

United Argentine

Year Italy Spain U.S.S.R. Netherlands Kingdom Mexico China exports

1973/74 . . . . . . . . . . . .

1974/75 . . . . . . . . . . . .

1975/76 . . . . . . . . . . . .

1976/77 . . . . . . . . . . . .

1977/78 . . . . . . . . . . . .

1978/79 . . . . . . . . . . . .

1979/80 . . . . . . . . . . . .

1980 1

, , , ., . . . . . . . . .

1981 . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . .

2,772

(54.2)

2,056

(35.3)

1,520

(58.6)

1,893

(43.2)

1,381

(23.0)

1,838

(27.6)

709

(1 7.5)

328

(9.3)

300

(3.3)

(4.4)

395

(6.1)

335

(6.0)

502

(7.1)

600

(11.7)

556

(9.5)

225

(8.7)

1,109

(25.3)

1,069

(17.8)

1,573

(23.6)

314

(7.7)

(0.4)

225

(2.5)

(7.6)

697

(10.8)

(10.6)

956.4

(13.6)

246

(4.8)

1,148

(19.7)

213

(8.2)

184

(4.2)

1,608

(26.8)

1,387

(20,8)

2,461

(60.6)

2,965

(84.1)

7,989

(87.7)

3,301

(63.3)

2,002

(30.9)

1,090

(19.6)

2,038.7

(29.0)

115

(2.3)

(1.0)

(2.6)

126

(2.9)

142

(2.4)

147

(2.2)

(1.4)

(2.10)

(1.1)

(1.8)

102

(1.6)

(1.1)

107.4

(1.5)

120

(2.30)

(0.09)

(,041

133

(3.00)

(1.60)

53

(.80)

21

(0.02)

723

(12.40)

289

(1 1.10)

(0.60)

(0.80)

(0.30)

252

(4.9)

473

(8.1)

5,111

5,831

2,595

4,384

5,997

6,664

4,060

3,525

9,112

5,214

6,477

5,558

3,238.2

7,040.8

Dashes volume less than 1,000 MT,

a

1980-85 reporting period has been shifted to a calendar Year

SOURCE: 1973/74-1979/80 data from US. Department of Agriculture, Foreign Agriculture Service, Grain Exports by Selected Reporters, Foreign Agriculture Circulars,

1978 and 1982, Washington, DC Data for 1980-85 are from Secretary of State, Agriculture, Livestock and Fishery, unpublished data, 1985, Buenos Aires, Estimates vary by source So do the time periods used for crop years, marketing years, and calendar years, No consistent sources were found that covered the

entire period
6

70

60

20

10

0

Figure 1-2.-World Corn Exporters’ Market Shares (includes Intro EC ● nd bloc trade)

— United State s

---- - Argentina

I I I I I

---- ----

1960 1963 1966 1969 1972 1975 1978 1981 1984 1986

SOURCE: U S Dqxutment of Agriculture, Fonsign AgncultursI Service, Foreign Agriculture Circulsfs, vsrious issues

for the near Soviet dominance of Argentine exports in the early 1980s.

In late 1980 and early 1981, political events

dramatically altered the destinations of Argentine maize exports. After the 1980 invasion of

Afghanistan by the U. S. S. R., the United States

suspended U.S. grain sales to that country. Consequently, Argentine shipments to the U.S.S.R.

increased to 84 percent of the exports in 1980/81

and then 88 percent in 1981/82.

Shipments to the United Kingdom had been

generally declining since 1973/74 and dropped

to zero in calendar year 1980 as a result of the

price premium being paid by the U. S. S. R., but

the Falkland Islands incident, starting April 2,

1982, resulted in a “total ban on imports from

Argentina” on April 10,1982, and the UK share

of Argentine maize exports remained at zero

through 1985.

Shipments to Spain and Italy continued to

drop, with especially dramatic decreases in

1980 and 1981 as price premiums offered by

the U.S.S.R. directed the export flow away from

Western Europe. Resumption of normal grain

trade between the United States and U.S.S.R.

reduced Argentine exports to the U.S.S.R. in

1982, 1983, and 1984, but price relationships

shifted the flow back in 1985. Spain and Italy

also regained some of their relative importance

in 1985.

Soybeans and Soybean Meal

Soybean production is more concentrated

geographically in Argentina than corn production. It is produced mainly in three provinces:

Buenos Aires, Cordoba, and Santa Fe (figure

l-l). The Santa Fe region is the largest producer

of soybeans producing twice the amount of either Buenos Aires or Cordoba.
7

The United States dominates world produc- tina produces about 7.5 percent (figure 1-3). The

tion of raw soybeans, accounting for about 60 United States and Argentina have increased the

percent of total world production while Argen- production of soybeans significantly since the

Figure 1-3. -U.S. and Argentina Production and Export of Soybeans

As a Share of World Totals (percentage)

World production

100

90

80

70

60

50

40

30

20

10

0

United States

– – – – Argentina

1970 1975 1980 1982 1984 85/86 87/88

World exports

100 -

United States

90 — – – – – Argentina

00 —

70 —

50

40

30

20

1970 1975 1980 1982 1984 85/86 87/88

SOURCE: 1985-84: Food and Agriculture Organization, Producflon Yearbook and FAO Trade Yearbook, various years;

1984/85-87/88: U.S. Department of Agriculture, Foreign Agriculture Service, Wor/d Oi/seed Situation and Market

Hi@r/i@rts, Circular Series FOP 9-88, September 1988.
8

mid-1960s. U.S. production sprang from 19

MMT in 1964 to 55 MMT in 1986, an increase

of 287 percent in 23 years. During this same

period, Argentina registered a 453-fold increase, from 17,000 MT to 7.7 MMT.

Export of soybeans followed a different pattern than production. Argentina reported no

exports through 1975, but the volume increased

rapidly over the next 4 years and then stabilized at about 2 to 3 MMT. U.S. exports of soybeans increased steadily through 1981.

In both countries, the percent of supply processed annually followed a similar pattern up

through 1971, with total crush ranging from 12

to 35 percent in Argentina and from 48 to 62

percent in the United States (figure 1-4). But

unlike the United States, Argentina exports a

high proportion of its meal and oil–93 and 87

percent, respectively (table 1-3). U.S. exports

represent 23 and 10 percent of its meal and oil.

Argentine meal exports increased rapidly between 1965 and 1984, capturing 12.7 percent

of the world market (figure 1-5). Their share has

been relatively stable since 1984.

The destinations of soybean and soybean

meal exports reveal U.S.-Argentine competition

(table 1-4). Western Europe has been a major

market for raw beans for both countries, receiving 45 percent of U.S. exports in 1985/86 and

60 percent of Argentina’s, Argentina has larger

and more stable flows to the U.S.S.R. Japan accounts for a very small and intermittent proportion of Argentine exports but is a large and stable customer for U.S. soybeans. In the case of

soybean meal, Western Europe provides the

largest market for both exporters, causing direct and vigorous competition. East European

countries are of almost no importance as a destination for U.S. or Argentine exports.

Figure 1-4.-Volume of Soybeans Processed As a Percent of Total Domestic Supplies:

United States and Argentina

United States

90 – – – – – Argentina

0 I I I I I I I I I I I I I I I I I I I I I I I I I

1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1968

SOURCE: Calculated from U.S. Department of Agriculture, Foreign Agriculture Service, Foreign Agriculture Circu/ar—Oi/seeds and ProducWVVor/d Oi/seed Situation

and Market Highlights, various issues.
9

Table 1-3.–U.S. and Argentine Exports of Soybeans as a Share of Respective Domestic Supplies, 1965/87

Percent of usage Percent of meal Percent of oil

exported as soybeans usage exported usage exported

Marketing year Argentina United States Argentina United States Argentina United States

1965 . . . . . . . . . . . . . . . . .

1966 . . . . . . . . . . . . . . . . .

1967 . . . . . . . . . . . . . . . . .

1968 . . . . . . . . . . . . . . . . .

1969 . . . . . . . . . . . . . . . . .

1970 . . . . . . . . . . . . . . . . .

1971 . . . . . . . . . . . . . . . . .

1972 . . . . . . . . . . . . . . . . .

1973 . . . . . . . . . . . . . . . . .

1974 . . . . . . . . . . . . . . . . .

1975 . . . . . . . . . . . . . . . . .

1976 . . . . . . . . . . . . . . . . .

1977 . . . . . . . . . . . . . . . . .

1978 . . . . . . . . . . . . . . . . .

1979 . . . . . . . . . . . . . . . . .

1980 . . . . . . . . . . . . . . . . .

1981 . . . . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . . . . .

1986 . . . . . . . . . . . . . . . . .

0 %

0

0

0

0

0

0

0

0

0

0

16

46

69

77

75

63

50

34

44

44

35

19

290/o

30

30

30

30

35

34

35

37

38

35

37

39

41

40

42

39

45

43

41

35

39

39

00/0

0

0

0

0

0

0

0

9

6

37

66

70

70

52

50

71

92

94

93

92

95

92

180/0

20

20

21

21

23

25

22

28

29

26

25

24

27

27

29

28

28

27

23

20

24

23

0 %

0

0

0

0

0

0

0

81

70

23

79

66

53

96

78

45

73

80

97

92

89

94

250/o

16

18

16

13

18

22

18

14

16

14

11

17

20

21

23

15

18

17

16

14

11

1987 10 a . . . . . . . . . . . . . . . .

aPreliminary.

SOURCE: U.S. Department of Agriculture, Foreign Agriculture Service, Foreign Agriculture Circular—Oilseeds andProductsAVoddOllseed Situation andMarket Highlights. Washington, DC, various issues. Reference tables on the major producers and consumersof soybeans and soybean products.

Table 1-4.—Major Destinations of Argentine Soybean Exports 1975/76-85/86a

(in 1,000 MT/percent of total in parentheses)

Western

Destination year Europe Japan China U.S.S.R. Mexico Brazil Others b

Total

1976/77 . . . . . . . . . . . . . . .

1977/78 . . . . . . . . . . . . . . .

1978/79. . . . . . . . . . . . . . .

1979 . . . . . . . . . . . . . . . . .

1980 . . . . . . . . . . . . . . . . .

1981 . . . . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . . . . .

111

(100.0)

(77.7)

1,534

(77.9)

2,463

(87.7)

1,608

(59.3)

782

(35.4)

488

(25.4)

729

(51.4)

2,297

(741)

1,779

(59.5)

n.a. n.a.

n.a. n.a.

n.a. n.a,

(o)

32

( n )

102

(3.6)

(0)

(1.17)

(0)

747

(27.6)

717

(32.5)

716

(37.2)

636

(44.8)

149

(4.8)

454

(15.2)

n.a.

n.a.

n.a.

(0.6)

(0)

274

(12.4)

122

(6.3)

(0)

105

(3.4)

297

(99)

n.a.

(0)

n.a. 139

(22.3)

n.a. 402

(20.4)

150

(2.2) (5.3)

247

(91) (3.4)

266

(121) (2.9)

515

(26.8) (1.15)

(0) (3.8)

157 392

(5.1) (12.6)

425

(0) (14.2)

111

623

1,969

2,810

2,709

2,207

1,923

1,419

3,100

2,987

aArgentine marketing year for soybeans is Apfil-March.

blncl. “n.a.”

c1975/76 “eXpOfiS” were less than 1,000 MT. No single data available.

SOURCES: 197W77-76179: JNG, Anuario 1961. 1979-65: Bolsade Cer6alesde B.A. Numero Estadistico 1966.
10

Figure 1-5.-Market Shares of World Soybean Meala Exports: United States and Argentina (in percent)

—

80 —

70 —

60 —

50 —

40 —

30 —

20 —

10 —

United States

————— Argentina

1965 1970 1975 1980 1981 19821983 19s40w5s5@686J87a7/as

a During the period 1965-85, this data includes soybean cake and meal

SOURCE: 1985-84: Food and Agriculture Organization, FAO Trade Yearbook, various years; 198485-87/88: U.S. Department of Agriculture, Foreign Agriculture Service,

Wor/d Oi/seed Sltuatlon and Market High/lgtrts, Circular Series FOP 9-88, September 1988.

Wheat

As with corn and soybean production wheat

production is concentrated in a relatively small

geographical area. It is concentrated in four

provinces: Buenos Aires, La Pampa, Cordoba

and Santa Fe (figure l-l). Most wheat is

produced in the Buenos Aires Province.

Wheat production in Argentina has been

small compared with production in the United

States, but the rate of increase between 1970

and 1986 has been much greater. Production

has ranged from a low of 5 MMT in 1970 to

a high of 15 MMT in 1982 (table 1-5). Because

of this extreme variability in production, Argentina has frequently been an importer as well

as an exporter of wheat. Exports have also been

quite variable (table 1-5), and in 3 years since

1981 have exceeded 7 MMT. The country’s

share of world wheat exports has ranged from

2.6 to 9.2 percent since 1970, with a recent drop

following earlier increases (figure 1-6). The U.S.

share during that period declined to less than

one-third by 1986/87, with mid-1980’s fluctuations.

The destinations of U.S. and Argentine wheat

exports show a degree of market segmentation

rather than direct competition (table 1-6). Japan is a major customer for U.S. wheat exports,

taking as much as 12.4 percent, but is only included in “others” for Argentina. The U.S.S.R.

has recently been receiving 39 to 81 percent

of Argentine exports, while it generally receives

less than 10 percent of U.S. exports. Only in

Brazil’s purchases is there evidence of strong

competition, with both Argentina and the

United States exporting 2 to 10 percent of their

production to Brazil during the 1980s. Argentina’s loss of the European market reflects increased wheat production in Western Europe

but may also relate to the shift to a low-protein
11

Table 1-5.—U.S. and Argentine Production and Export of Wheat, 1970-87 (in MMT/percent of total)

United States Argentina

Year Production Export Percent Product ion Export Percent

1970 . . . . . . . . . . . . . . . . . . . .

1971 . . . . . . . . . . . . . . . . . . . .

1972 . . . . . . . . . . . . . . . . . . . .

1973 . . . . . . . . . . . . . . . . . . . .

1974 . . . . . . . . . . . . . . . . . . . .

1975 . . . . . . . . . . . . . . . . . . . .

1976 . . . . . . . . . . . . . . . . . . . .

1977 . . . . . . . . . . . . . . . . . . . .

1978 . . . . . . . . . . . . . . . . . . . .

1979 . . . . . . . . . . . . . . . . . . . .

1980 . . . . . . . . . . . . . . . . . . . .

1981 . . . . . . . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . . . . . . . .

1986 . . . . . . . . . . . . . . . . . . . .

1987b 

. . . . . . . . . . . . . . . . . . .

36.8

44.0

42.1

46.5

48.8

57.9

58.5

55.6

48.2

58.1

64.6

75.7

75.4

65.8

70.7

66.0

56.9

57.3

19.8

16.3

30.4

32.9

27.4

31.9

25.9

30.6

32.5

37.4

41.2

48.2

41.1

38.9

38.8

24.9

28.4

38.5

(54)

(37)

(72)

(71)

(56)

(55)

(44)

(55)

(67)

(64)

(64)

(64)

(55)

(59)

(55)

(38)

(50)

(67)

4.9

5.7

6.9

6.6

6.0

8.6

10.9

5.7

8.1

8.1

7.8

8.2

15.0

12.7

13.2

8.5

8.9

9.1

1.0

1.6

3.2

1.6

1.8

3.2

5.9

1.8

4.1

4.8

3.8

3.6

9.9

7.8

9.4

4.3

4.3

5.6

(20)

(28)

(46)

(24)

(30)

(37)

(54)

(32)

(51)

(59)

(49)

(44)

(66)

(61)

(71)

(51)

(48)

(62)

aNumbers in parenthesesderrote the percentage of production used fOrexPOfls.

bPreliminary.

SOURCES: Calculated from U.S. Department of Agriculture, Foreign Agdcu/ture Circu/a~GrainWodd Grain Situatiorrarrd Outbo/r,W ashington, DC, various issues,

Figure 14.-Market Shares of World WheataExports, United States and Argentina (In percent)

100

90

80

70

60

50

40

30

20

10

0

United States

-––– Argentin a

1970 1975

a197&Mwhmtmdmq FIOur, inwedeWtiaient

1980 1981 1982 1983 1984 84/85 85/86 86/87 87/88

SOURCE: 1970-84: Food and Agriculture Organization, FAO Production Yearbook, various years; FAO Trade Yearbook, various years. 1984/85-87188: U.S. Department

of Agriculture, Foreign Agriculture Service, World Grain Situation and Outbok, Circular Series FOP 10-88, October 1988.
12

Table 1-6.—Major Destinations of Argentine Wheat Exports, 1975/76-85/86a

(in 1,000 MT/percent of total in parentheses)

Western

Year U.S.S.R. China Europe Brazil Bolivia Peru [ran Others b Total

1975/76 . . . . 940 N/A 299 181 N/A 779 2,923

(32.2) (10.3) (23.6) (1.1) (6.2) (26.7)

1976/77 . . . . 100 N/A 438 933 282 N/A 3,644 5,448

(1.8) (08.0) (17.1) (0.9) (5.2) (66.9)

1977/78 . . . . 1,123 N/A N/A 166 1,493

(74.2) (1.8) (l.8) (2.9) (71) (ill )

1978/79 . . . . 109 N/A 141 1,377 303 N/A 1,862 3,855

(2.8) (3.7) (35.7) (1.6) (7.9) (48.3)

1979 . . . . . . 238 885 202 1,494 353 918 4,149

(5.7) (21.3) (4.9) (36.0) (1.4) (8.5) (0) (22.1)

1980 . . . . . . 2,272 665 853 209 162 126 4,375

(51.9) (15.2) (0) (19.5) (4.8) (3.7) (2.9) (2.9)

1981 . . . . . . 2,954 126 287 3,660

(80.7) (3.$ (1.6) (1.4) (5.0) - - (7.8)

1982 . . . . . . 2,742 258 512 3,811

(71.9) (2.5) (0.4) (6.8) (2.7) - - (2.4) (13.4)

1983 . . . . . . 4,981 2,946 193 1,012 10,165

(49.0) (29.0) (0.5) (0) (0.7) (1.9) (l0.0) (8.9)

1984 . . . . . . 2,853 202 200 158 1,200 2,313 7,269

(392) (0) (2.8) (2.8) (2.2) (4.7) (16.5) (31.8)

1985 . . . . . . 4,613 877 548 1,866 9,604

(48.0) (91) ( n ) (8.8) (0.9) (6.9) (5.7) (19.4)

aA~~~”tinernarkat~ng yearforwheat Is December-Novembec Bread Wheat.

blncluding NIA,

SOURCES: 197W76-7W79: JNG Anuerio 19S1. 1979-85: Bolsade C&eales de Buenos Aires.

spring wheat in Argentina’s production areas. protein, semi-hard spring wheat. Spring wheat

The decline in Durum wheat in Argentina has is the preference of Bolivia, Peru, and Iran,

shifted the market to customers desiring low which all increased imports in the mid-1980s.

The primary corn and soybean production

area of Argentina is flat to gently rolling, converted from natural pampas with little clearing required. Drainage problems exist in some

areas, but the soils in general are black and fertile. Argentina relies heavily on beef production for domestic and export meat supplies.

This beef is grown primarily on rangeland and

finished on high-quality pastures. This provides

an opportunity if not the necessity of long-term

rotations using legumes. Soil tilth and fertility

are therefore maintained more through rotations and nitrogen-fixing legumes than through

chemical fertilizers. The corn belt in Argentina

is also an area of wheat and soybean production, and the southern part of the belt increasingly double-crops soybeans following wheat.

Production and Marketing Technology

The technology of production—including herbicides, fertilizers, equipment, and cultural

practices–is modern and equal to that of U.S.

farmers. Large tractors and combines are in

common use. Casual observation suggests that

tractors may be somewhat smaller than on comparable acreages in the United States, but climatic conditions in Argentina generally permit a longer harvesting and planting season,

thereby lessening the need for large equipment

to complete cultural practices within a few

days. Corn, soybeans, and wheat are harvested

with large combines, and delivered primarily

by commercial trucks or farm wagons to country elevators or local processors. Little storage,
13

Photo credit: OTA Argentina Study Team

Argentina’s production technology is modern and very similar to U.S. technology.

This is a typical corn harvestor used in Argentina.

drying, or handling equipment is found on

farms. However, an increasing number of

farmers on larger farms have installed drying

and storage equipment.

In the marketing channel, processors and first

handlers are highly mechanized with modern

handling equipment, including dryers, belts,

dump pits, and hoists. A number of elevators

and trucks do not have hoists, and hand unloading was observed at several locations.

Scales, equipment, and storage bins are similar to those in the United States. Transfer of

technology by U.S. and multinational firms is

clearly evident in all aspects of production and

marketing.

Harvesting in the Argentine corn belt starts

at 20 to 25 percent moisture. As in the United

States, some farmers push these typical values

to higher levels. In most regions winter storms

do not present a threat to later harvest, but lodging and potential field losses encourage early

harvest. Consequently, nearly all corn must be

dried at the country elevator. Most dryers are

high-temperature, cross-flow, oil-fired equipment. There is some movement toward multistage drying using natural air to remove the last

few points of moisture in the storage bin. Concrete silos and metal bins predominate at the

country elevator. Platform scales, truck hoists,

dump pits, belt and chain conveyors, and vertical legs are common, with designs similar to

U.S. equipment. Multisieve cleaners are used

for corn before the dryer and during load-out.

Outbound grain is cleaned as required to meet

the No. 1 grade in response to the Governmentmandated premium. Wheat and soybeans are

cleaned less frequently, since broken kernels

are seldom a problem in these grains.

Export equipment and handling technology

include belt and chain conveyors, vertical

bucket elevator legs, and concrete silos for inbound grain. Cleaners are available in some export houses to handle infrequent foreign material problems. Outbound equipment is primarily

high-speed belt conveyors and telescoping

spouts for loading vessels. Grain from trucks

can be loaded directly to the vessel with flighttype portable elevators when in-house capacity limitations require.
14

Typical advertising boards indicating technology

transfer by U.S. and multinational firms to Argentina.

Transportation from farm to first handler is

provided primarily by commercial truckers, although a few elevators and large-scale farmers

own trucks. But the majority of the grain is

moved through commercial for-hire truckers.

Soybeans are moved by truck and rail from the

local elevator to the processing plant or to ports.

Primary and secondary roads are in good condition, and grain trucks are in evidence on the

four-lane motorways.

Unofficial estimates place rail movements at

30 percent of total transportation from the country elevators. Rail is generally considered to be

a cheaper form of transportation, but availability and inefficiency discourages the use of rail

cars. There are at least three different gauges

of railroad tracks in Argentina, creating significant complications in transporting by rail between regions. In addition, nearly all railroads

have been oriented toward Buenos Aires. Consequently, transport to other locations almost

necessitates the use of trucks.

Port facilities are modern, although many of

those operated by the Junta Nacional de Granos

(JNG, the Government agency that regulates the

grain industry) are of an earlier vintage and

often lack modern renovation. Several new port

elevators have been built since the Argentine

Government opened the export market to private

firms and cooperatives. Further encouragement

of private industry has resulted in expansion

of existing port facilities and the development

of new ones. In late 1987 it was reported that

the Government had instructed the JNG to study

the privatization of its silos and handling facilities at major ports.
15

Marketing Channels and Practices

Corn, soybeans, and wheat move first to the

country elevator or local processor or miller.

From the country elevator the grain is shipped

to export or processing plants or stored for later

delivery.

At least one-third of Argentina’s soybeans

move into the export market on a fairly regular basis. The processing capacity and the quantity of soybeans crushed has grown rapidly, responding to increased production. The quantity

exported appears to be a residual over domestic requirements but has almost always been

a significant part of the industry. Almost all soybeans are moved from producers to country elevators, although some large-scale farmers have

begun to bypass the country elevator and deliver directly to port or processors. Many country elevators also arrange for farmers or commercial truckers to deliver soybeans directly

to the plant or port in the name of the country

elevator, Exports of soybean meal have increased rapidly in Argentina, tripling between

1981 and 1987. Domestic use of meal for feed

has been quite low, with no discernible trend.

Since livestock feeding is primarily cattle on

forages, the need for soybean meal has been

small and limited primarily to a growing poultry industry and a developing swine industry.

Photo credit” OTA Argentina Study Team

Argentina is increasing soybean production and

processing significantly for the export market. Here

is the outbound leg of a soybean processing

facility under construction near Rosario on

the Rio Parana river.

Many corn processors buy directly from

farmers, offering the same services as a country elevator. After harvest is completed the processors rely on country elevators for supplies

from storage. The market channel is organized

around large flows to ports as 4 to 9 MMT are

exported annually.

Wheat follows the same market channel. Limited supplies of Durum wheat require preservation of identity in the market channel. Domestic millers using bread wheat are provided

assured supplies through a Government allocation program that includes purchase at harvest, storage at public and private warehouses,

and export and milling quotas. Minimum price

guarantees and generous storage fees assure

orderly movements during the season.

Organization of the Industry

Cooperatives are an important part of the

market channel in Argentina, providing not

only receiving and handling facilities but processing as well. It is estimated that 40 to 50 percent of grain receipts move through 1,200 country elevators owned by cooperatives. Thirty to

forty percent of export volume originates with

cooperatives, compared with 15 to 30 percent

of actual exports.

The Junta Nacional de Granos owns a number of country elevators and export facilities

distributed among the major port areas. With

several direct and indirect forms of encouragement from Government, cooperatives are assuming a more prominent position in the export markets. Two modern export houses at the

port of Quequen were built by two cooperative

Federations—ACA and FACA—and they share

a high-speed loading facility and berth for ocean

vessels. These facilities opened in 1986 and effectively doubled the capacity of the port, cutting into the volume of the old (1946 vintage)

export house operated by JNG.

The Argentine soybean crushing industry has

expanded rapidly over the last few years as soybean production and exports of soybean meal

increased. These firms crush other oilseeds besides soybeans. The importance of soybeans in
the crush of individual firms varies from 5 to

100 percent. Unpublished data show 25 processors in 4 provinces, varying in size from 150

MT per day to over 3,800 MT per day. Three

of the 25 firms reported capacity above 2,000

MT per day; 8 reported capacity between 1,000

and 2,000 MT per day. Total soybean crush in

Argentina was estimated at 2.4 MMT tons in

1983, increased to 5.6 in 1987, and was estimated at 6.2 MMT for 1988.

Marketing Practices and Pricing

Strategies Of Producers

Farmers’ marketing strategies in Argentina

are dictated primarily by the need for cash flow,

repayment of loans, and high interest charges.

Country elevators and processors generally provide farmers with the option of a delayed price,

in which a prepayment is made at the time the

farmer sets the price. They also use forward

price contracts as well as spot price at delivery. Prices are established on the basis of daily

quotes from the Bolsa de Cereals at each of the

major port areas.

The daily cash prices at each Bolsa become

a base from which the country elevators and

processors offer a price to the farmer. Prices

are established prior to the opening of the market each day based on telephone calls made to

the major buyers in the cash market the previous day. The average price of grain at the previous day’s close then becomes the base for the

next 24 hours. In addition, individual elevators

may call processors or individual port elevators and ask for specific bids for available quantities and qualities. All costs including transportation to the port are subtracted from these

base prices. The actual quote to the producer

is generally the price given by the Bolsa, but

all the costs, including the commission charged

by the handling firm, are then subtracted to arrive at the farmer’s net receipts.

Elevators and handlers consider themselves

as brokers even when they are taking title to
17

the grain. They use back-to-back sales and commission on direct sales to avoid risk of price

changes on inventory held in the elevator’s

name. Only a few of the private elevators stated

that they were operating as merchandisers, taking title to the grain and generating income

through price changes. Most private firms and

all cooperatives identified their sources of income as commission charge and charges for

services.

Although the Chicago Board of Trade and the

Buenos Aires Bolsa are familiar to nearly every

grain handler, country elevators make almost

no use of the futures markets in Argentina as a

risk-shifting mechanism. Little hedging takes

place on the part of the country elevator, and

international firms are more likely to be using

the Chicago Board of Trade through their offices in other countries than to be covering any

large volume on the Argentine futures markets.

The Government establishes minimum price

supports as protection for the producers and

quotes these in the local currency, Astrals.

These prices are adjusted for inflation and are

announced prior to planting, as a guide to producers. In addition, the Government establishes

minimum prices at which export sales maybe

made. This price is quoted in U.S. dollars per

ton and is intended to keep control over export

volume and prevent currency drain from the

country. The minimum price is generally adjusted on a daily basis to keep it in line with

actual market conditions. This minimum approximates actual market price but prevents exporters from making sales below the minimum

and making up the difference in other types of

currencies.

All exports of grain must be registered 24

hours prior to the sale. Any deviation from this

registration in terms of quantity, quality, or time

of shipment will result in a 15-percent penalty

to the exporter. Exporters who specify quantity and destination may renegotiate the registration at a later date. If the registration specifies only quantity, destination unknown, they

are not allowed to deliver any above the contract and must deliver within 10 percent of the

original volume recorded or pay their 15-

percent penalty on the entire contract.

The marketing, milling, and exporting of

wheat differs from that of corn and soybeans.

The Junta establishes milling requirements for

domestic supplies, subtracts these from estimated production, and issues export quotas for

the residual. The Junta purchases half the domestic volume of wheat and pays the millers

to receive and store it. The other half is purchased on the free market. Millers accept wheat

in any of the four numerical grades but must

buy on official discounts. The milling industry

is responsible for maintaining the quality of

wheat stored for the Government, but the JNG

inspects the wheat that it has purchased.

The Junta has full responsibility for establishing grading standards, conducting educational

programs, licensing inspectors, and grading all

export grain. It has the authority to enforce regulations and levy penalties for violations. These

controls, in conjunction with the Board’s responsibility for export registration, pricing policies, support prices, and credit programs, provide considerable Government influence on

Argentine production and marketing. Combined with the power in the Office of the Secretary of Agriculture to control seed varieties,

the Government has the ability to control quality and value of Argentine corn, soybeans, and

wheat from development of new varieties to

final exports.

The role of the Government in influencing

quality generally does not extend beyond the

port. Although the Argentine Government

enters into bilateral agreements with foreign

countries, it has little additional involvement

in guaranteeing quantity or quality at destination. It does not operate trade offices in importing countries, send inspection teams to supervise destination quality, or do research on the

needs and preferences of buyers. The Junta has

no organized program of interviewing foreign

buyers to identify quality concerns, nor does

it document complaints or establish procedures

for responding to them.
18

The Government does have indirect influence

on marketing and quality. It has long followed

the policy of taxing agriculture to provide public revenue. Those taxes have taken two forms:

1) on imports such as fertilizer and pesticides

and 2) on exports. Prior to 1976, export taxes

on wheat, corn, and sorghum were as high as

50 percent, although these have been gradually

reduced. The effect of these taxes has increased

the cost of production in Argentina and discouraged pesticide use. Despite these obstacles,

production has risen. Reduction or removal of

the taxes will only encourage further expansion. In late 1987 the export taxes on wheat (5

percent of export value), maize (15 percent), and

sorghum (15 percent) were eliminated completely. Taxes on soybeans for export were reduced from 15 to 11 percent.

QUALITY CONTROL IN ARGENTINA

Grain grading and inspection in Argentina

are under the direct control of the inspection

department of the Junta Nacional de Granos.

Grades are established and administered through

the JNG Laboratory. Test equipment is approved, tested, checked, and calibrated by JNG.

All inspections and analyses are required to be

done by inspectors licensed and trained by JNG.

This provides uniformity in application of

grades and inspection procedures all the way

from farmer deliveries to first handlers through

analysis of samples taken during loading of export vessels. Quality control is also tied in with

Photo credit: OTA Argentina Study Team

Junta grain inspector using Boerner-type divertor at

Junta Central Laboratory in Buenos Aires.

other departments of JNG, such as the fiscal

department and the commercial department’s

purchases of wheat for milling and export.

Grades for Corn, Soybeans,

and Wheat

Grades for Argentine maize contain only

three factors: broken kernels, foreign material,

and damaged kernels (table 1-7). Moisture is

fixed at a maximum of 14.5 percent for all

grades. Broken kernels are defined as material

that passes through a 4.76-millimeter (12/64-

inch] round-hole sieve. Foreign material is

everything other than corn that passes through

the sieve and remains on top. Damaged kernels

are handpicked from a 50-gram portion and include whole kernels and pieces of kernels that

show evidence of damage of the same types described in the USDA standards. The definition

of damage is similar to that in the United States

standards but the interpretation is much more

rigid. Any kernel that is not almost perfect in

color and shape is considered damaged. Grades

for flint type must contain no more than 3 percent of other types or color. The regulation sample size is 50-grams. However, many inspecTable 1-7.—Argentine Standards for Corn (percent)a

Damaged Foreign Broken

Grade kernels material kernels

No. 1 . . . . . . . . . . . 3.0 1.0 2.0

No. 2 . . . . . . . . . . . 5.0 1.5 3.0

No. 3 . . . . . . . . . . . 8.0 2.0 5.0

%tmimum moisture for all grades IS 14.5 percent.

SOURCE: “Resumenes De Los Estandares,” Antonio Vicente and Nestor Mario

Tuzzi, 5th cd., Buenos Aires, Argentina, 1986.
19

Photo credit: OTA Argentina Study Team

Junta inspector hand-picking foreign material and

damaged kernels from corn sample

tors (including JNG) analyze two 50-gram

samples and average the results.

Soybeans have only one grade, with maximum limits specified on the following factors:

foreign material, broken (splits) and damaged

kernels, moisture, other colors, and heat damage as a subset of damage (table 1-8). Foreign

material is defined as everything except broken soybeans passing through a 4-millimeter

(10/64-inch) round-hold sieve and all material

other than soybeans remaining on top of the

sieve. Broken kernels, regardless of size, are

handpicked from the 50-gram sample. Damaged

kernels are also handpicked from the sample

and include whole or broken kernels that show

evidence of damage. As with corn, the definition of damage is similar to that in U.S. standards but the interpretation is much more rigid—

kernels must be almost perfect in color and

shape. Although official standards specify a 50-

gram sample for analysis, in practice, duplicate

Table 1-8.—Argentine Standards for Soybeans

(percent)a

Foreign

Broken Damage material

Moisture and splits Total Heat Total Dirt

13.0 . . . . . . . 30 5.0 2.5 3 0.5

aArgentlna “989 only one grde for soybeans with the base for discounts set

at 1‘A impurities includlng 0.50/0 dirt. Factor limits shown in this table are maximum values permitted with discounts above the base.

SOURCE: “Resumenes De Los Estandares,” Antonio Vicente and Nestor Mario

Tuzzi, 5th cd., Buenos Aires, Argentina, 19S6.

analysis is frequently used requiring two 50-

gram samples, i.e., 100 grams of soybeans are

actually analyzed.

Grading factors for wheat include test weight,

foreign material, damaged kernels (total), heatdamaged kernels, broken kernels, smut, yellow

kernels, and moisture. All factors except test

weight and moisture are based on a 50-gram

portion (table 1-9). The definitions and number of factors are more complex for wheat than

for corn and soybeans.

Test weight is based on kilograms per hectoliter. Broken kernels are everything except

foreign material that passes through a slotted

sieve with 1.6-by-9.5-millimeter holes. Foreign

material is anything (including dockage) other

than wheat that passes through the slotted sieve

and all material other than wheat remaining

on the sieve. Damaged kernels and heat-damaged kernels include kernels and pieces of kernels that show the same types of damage described in the U.S. standards, although, again,

the interpretation is more rigid. Smut includes

any kernel containing smut. Yellow kernels include kernels not considered dark, hard, and

vitreous. Protein is not a grade factor but is

measured by standard, internationally approved methods and provided as information.

Wheat varieties were historically divided into

Durum and semihard spring wheats. As a result of disease problems, difficulty of segregation in the export market channel, and emphasis upon yield, the production of Durum has

declined dramatically. The great majority of varieties produced in Argentina and most of their

exports are now of semihard, low-protein

spring wheat. Separate grading standards exist for spring and Durum wheats.

Quality Control Through Genetics

The influence of variety and type on the quality of the corn, soybeans, and wheat is well recognized by the Argentine Government and by

industry. The emphasis of producers in selection of seed has been one of maximum profit,

which, in general, means maximum yields. As

a result, the genetic selection over time has
20

Table l-9.—Argentine Standards for Wheata (percent)

Density b Damage Foreign Broken

Grade Hlt 1b/bu Total Heat material kernels Not DHVC Smut

1 . . . . . . . . . . . . . . . . . 78 60.6 1.0 0.5 0.75 1.5 15.0 0.1

2 . . . . . . . . . . . . . . . . . 76 59.0 2.0 1.0 1.50 3.0 25.0 0.2

3 . . . . . . . . . . . . . . . . . 73 56.7 3.0 1.5 3.00 5.0 40.0 0.3

aM~imum moisture for all grades is 14.0 percent.

bDensity is measured in he~toliters and ~onverted to p~unds per bushel, All other factors are measured in percent of Sample weight.

cNot dark hard vitreOus kernel.

SOURCE: 4’Resumenes De Los Estandares,” Antonio Vicente and Nestor Mario Tuzzi, 5th cd., Buenos Aires, Argentina, 19S6.

moved toward higher yielding wheat varieties

despite the loss of protein content and of some

international markets that emphasize baking

characteristics. Millers reported a need for

higher protein and gluten strength but have

found producers and Government agencies unwilling to establish such requirements. Argentine corn has historically been of the flint type.

Over the past decade, however, dent varieties

have gradually been introduced in the genetic

crosses to the point where there may no longer

be any significant quantities of the pure flint

types known as Plate Maize. Semident and pure

dent varieties were being produced in the regions visited by the OTA study team; they were

purchased at the same prices as flint by some

processing plants and were blended into an

“Argentine Maize” a mix of flint and dent at

some of the export elevators.

Mandatory licensing provides the Government with some degree of control over the release of new varieties. Currently a committee

with representatives from the processing indusPhoto credit: OTA Argentina Study Team

Flint varieties are gradually being replaced by dent

varieties. Here are examples of flint, dent, and genetic

cross of flint and dent. Flint-type maize is distinguished

from dent-type by kernel shape and dark red color.

tries, producer groups, plant breeders, and the

Government review characteristics of each variety prior to their approval for licensing and

release. The extent of this committee’s control

differs among the three grains. Although the

group has the potential for major impacts upon

quality, its emphasis has in fact been on disease resistance, plant characteristics, and yield.

In the case of wheat, protein levels are monitored, but varieties with 10- and Ii-percent protein are still approved for release. Baking characteristics are tested and presumably if a variety

were submitted that did not meet an unspecified minimum it would be rejected. In fact, most

varieties submitted meet this minimum criterion before the plant breeders subject it to fullscale testing.

In the case of corn, flintiness is evaluated and

preferred, but visual appearance is the only requirement with respect to hardness and flint

characteristics. Protein content, carotene content, and resistance to breakage have all been

important characteristics in generating premiums for Argentine maize in previous years—

in fact, for many decades. None of these characteristics are essential for approval under the

criteria implemented by present committees.

The testing procedures are focused primarily

on yield and disease resistance.

In the case of soybeans, maturity dates, length

of growing season, disease resistance, and yield

are the primary criteria used by the evaluation

committee. Oil and protein content are recorded but assumed adequate in any variety

submitted by the plant breeder. Thus, the potential exists for limiting new varieties to those

that equal or better current varieties with respect to oil and protein, but, in practice, value
21

in processing is not a criterion in the soybean

evaluation committee. The use of variety approval holds considerable potential as a method

of influencing genetically related quality characteristics.

Evaluation of Quality in Argentina

The grades and standards for Argentine corn,

soybeans, and wheat are relatively simple when

contrasted with those in the United States.

Fewer grade factors and classes exist for each

grain, This fact, combined with centralized control of standards by the Junta, improves the

quality of the delivered product. The Junta requirement that all grain in commercial channels

must meet Condition Camara (when quality

falls within the official grades and maximum

limits on moisture) assures proper conditioning and cleaning of grain as close to the production point as feasible. Condition Camara

technically applies to all grain sold but is not

enforced at the farm level, where most farmers

sell corn at moisture levels above Camara specifications. This is acceptable in that the first handler generally charges the farmer for cleaning

and drying to assure Condition Camara, and

the farmer is paid on the basis of the clean grain.

There are instances (e.g., during years of low

crop quality) in which a new grade or exception to the grade has been negotiated with the

Junta to permit delivery of grain outside of the

existing grades. But it must be emphasized that

this is a difficult exception to obtain.

With only three significant factors in grade

standards for corn and with strict control on

moisture for corn, soybeans, and wheat, grain

throughout the market channel is more uniform. This reduces the opportunity for blending as a source of income or of upgrading lowquality grain. Whether cause or effect, the industry does not in general have physical facilities that permit or encourage blending. Large,

flat storage facilities at the country elevators,

a limited number of bins, and cleaners not connected into storage or the grain stream all provide little opportunity for reintroduction of foreign material or damaged grain once it has been

removed.

The export house also provides little opportunity for storage of different qualities in different bins. Where the study team was able to observe the loading process, loaders were more

likely to be pulling fairly uniform qualities from

two or three bins at a time, not blending diverse

qualities from large numbers of bins. Uniform

quality distributed between one or two grades

on inbound grain and on grain in storage makes

it a relatively simple operational procedure to

load ocean vessels according to contract specifications. Although there appears to be less concern about uniformity among sublets so long

as each vessel average equals the contract, it

also appears that it is seldom a problem because

of the uniform quality of the grain used to load

the vessels.

Each export vessel loaded in Argentine ports

receives a grade certificate specifying quality

factors and grade. A review of the monthly summaries of quality recorded on the certificates

between 1982 and 1985 demonstrated that a

high proportion of Argentine exports grade No.

1 in the export house. Monthly variations in

quality were found and are evidence that export elevators do not consistently clean to zero,

nor do they consistently blend to the contract

maximum. Quality variability has a seasonal

pattern, with breakage and damage levels generally highest at the end of each crop year. Exporters do not clean all grain to zero impurities or broken kernels, but target below the No.

1 limit. If the exporter were blending to the maximum on every load, the average values would

have been higher. Exporters who desire to deliver “better than contract quality” could certainly achieve a lower average on several factors. The Argentine grain handling system is

equipped to clean to lower levels if there are

sufficient economic incentives to exceed the

minimum quality permitted under the grade.

It appears that the export elevator, in general,

ships what is received.

incentives for Quality in the

Argentine System

The Junta Nacional de Granos establishes the

discounts and premiums associated with grades
22

of corn other than No. 2. A premium of 1 percent is automatic for No. 1 corn. A discount

of 1.5 percent is automatic for corn grading No.

3. The base price is established in the Bolsa and

discounts calculated from that base. Grain delivered below No. 3 is discounted by individual factors. These discounts again are established by JNG. This provides an incentive

throughout the market system for striving to

deliver No. 1 corn. Since only three factors control numerical grade (brokens, impurities, and

damage), it is relatively simple and inexpensive

for farmers to deliver No. 1 or to pay the elevator to clean and dry their grain to No. 1. The

country elevators in turn have an incentive for

maintaining quality in storage and for removing

broken kernels before shipping into the market

channel. The maximum allowances for damage, brokens, and foreign material are greater

than zero even for No. 1 grain and there is evidence that many grain handlers recognize the

opportunity for blending on the grade factors

to achieve those maximums allowable for No.

1 corn. These maximums were low enough,

however, that the blending opportunities are

fairly limited and provided little incentive for

the complex system required for the sophisticated blending found in the U.S. grain marketing channel.

U.S. corn standards include a larger number

of grades, prices are based on No. 2 corn, and

premiums for No. 1 are infrequent and at the

option of the buyer. Export contracts generally

specify one grade lower than the domestic trade

(e.g., No. 3 corn, No. 2 soybeans). Consequently,

there is an incentive to deliver the maximum

allowed on each factor. The more factors that

determine grade and the greater the range between farmer-delivered quality and export contract, the more incentives there are for blending. Since domestic sales need not conform to

any of the numerical grades, there is a much

greater quality range in the U.S. market channel than in Argentina.

Discounts based on numerical grade give the

same price allowances whether the lower grade

is determined by one factor or three. Discounts

differ widely among elevators in the United

States, but in general the sum of discounts on

individual factors for Grade 3 below Grade 2

would be greater in the United States than the

1.5 percent discount for the same grade difference in Argentina. A discount of 1.5 percent

for No. 3 corn is equivalent to less than $0.03

per bushel at U.S. corn prices of $1.80. Many

U.S. elevators have higher discounts. The data

available do not suggest that Argentine discounts offer greater incentives for quality improvement than U.S. discounts.

Protein in wheat receives no consistent

premium, and the lack of interest in improving

protein is evident in plant breeding strategies,

farmers’ choice of variety, and the disinterest

in protein on the part of most merchandisers.

Millers would like a higher protein, and exporters occasionally find a premium market for

a small volume supply, but the system is not

organized to convey this economic information

from millers and foreign buyers back to those

who control genetic levels of protein. Many

U.S. wheat growers receive price differentials

based on protein content.

Breakage and breakage susceptibility in corn

and soybeans are of increasing concern to elevator managers, exporters, and processors.

High-speed, high-temperature drying is generally recognized as a major cause of breakage.

Yet, few dryer operators expend time or money

to control breakage susceptibility other than to

minimize losses from excess breakage within

their own plant. Thus, the Argentine system

provides incentives for maintaining superior

quality in the market system on some measures

of quality but only on those incorporated in formal grading standards.

Whether the lack of incentives has resulted

in construction of facilities unsuited to blending or whether the construction of facilities

limits blending regardless of incentive cannot

be determined. Still, it is a fact that incentives

exist, Yet the industry in general has not designed, built, or organized facilities and handling equipment to facilitate blending diverse

qualities for profit. The Government’s maximum moisture in corn at 14.5 percent, in soybeans at 14.0 percent, and in wheat at 14 percent limits the opportunity for wet grain to
23

move in the market channel, As a result, economic incentives for drying appear to be less

important than they are in the United States,

However, shrink factors published by the

Junta in official tables are, in fact, quite severe

for moisture levels up to 16 percent. The design of the discount table results in a graduated shrink factor per point of excess moisture,

with the most severe being the first point of

moisture. The shrink per point declines asymptomatically to the actual water loss as the initial moisture level increases. This does not provide a deterrent to producers harvesting at 20

to 25 percent moisture. The drying charge at

the country elevator plus a shrink factor that

is approximately equal to actual weight loss during drying is not conducive to constructing onfarm storage and drying facilities.

There is an additional incentive for quality,

This is an intangible and nonquantifiable attitude on the part of most of people throughout

the market channel—from producer to exporter

to Government official. The study team frequently heard that Argentina is proud of its

reputation of quality and is willing to make special efforts to maintain that quality and reputation. This was best reflected in a statement

by a Government official: “We cannot compete

with the United States with technology, price,

and credit terms; we must compete by providing better quality. ” This attitude was also

echoed throughout the market channel by those

who simply assumed that grain would be dried

to safe storage levels at the first opportunity

in the market channel, that blending was not

considered a major source of income, that customer satisfaction was important in order to

maintain domestic and international markets,

and that the best grain should be exported and

problem grain used domestically.

FINDINGS AND CONCLUSIONS

Argentine grain quality is influenced by several regulations, agencies, and incentives, beginning with variety approval and carrying

through inspection at the point of export.

Genetic control in corn, soybeans, and wheat

has only minor influence on end-use qualities.

The latent possibilities have not been exploited

as yet.

A simplified grading system, Governmentdecreed premiums for No. 1 corn, and a Government mandatory grading system that begins

at the country elevator encourages clean, dry

grain of uniform high quality with respect to

grade factors. Argentina has only one grade for

soybeans and fewer numerical grades for corn

and wheat than the United States. All grain in

Argentina that moves through the market system is required to meet one of these numerial

grades. If not, it is rejected and must be used

outside the market channel.

Lack of on-farm drying and storage in Argentina results in delivery of most grain at harvest

quality prior to storage. And a maximum moisture for commercial trade is mandated. Nearly

all grain is stored at safe storage levels, reducing the need or opportunity for blending.

Quality as defined by grade factors is generally better in Argentina than in the United

States. Argentina’s grain is generally drier,

cleaner, and less damaged. However, quality

in terms of value for processing is not uniformly

superior.
Chapter 2

The Brazilian Grain System
CONTENTS

Page

Overview of Soybean Production and Markets . . . . . . . . . . . . . . . . . . . . . . . . . 27

The Brazilian Soybean Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Production and Marketing Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Marketing Channels and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Organization of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Marketing Practices and Pricing Strategies of Producers . . . . . . . . . . . . . . . 36

Government Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Quality Control in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Grades and Grading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Sampling and Inspection Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Grading Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Quality Control Through Genetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Evaluation of Quality in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Incentives for Quality in the Brazilian System . . . . . . . . . . . . . . . . . . . . . . . . 45

Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Figures

Figure No. Page

2-1. Soybean-Growing Regions of Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

2-2. U.S. and Brazilian Production and Export of Soybeans as a Share of

World Totals... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2-3. Volume of Soybeans Processed as a Percent of Total Domestic

Supplies: United States and Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

2-4. Market Shares of World Soybean Meal Exports: United States and

Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2-5. Cumulative Raw Soybean Export Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Tables

Table No. Page

2-1. Production and Utilization of Soybeans in Brazil, 1965-87 . . . . . . . . . . . . 29

2-2. U.S. and Brazilian Exports of soybeans as a Share of Total Domestic

Supplies, 1965-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

2-3. Major Destinations of Brazilian Soybean Exports, 1975/76-85/86 . . . . . . . 32

2-4. Brazil Grades for Soybeans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Chapter 2

The Brazilian Grain System

Brazil produces the three major grains—corn,

wheat, and soybeans—that are the focus of this

assessment but is a competitor of the United

States in international markets only in soybeans. In corn, domestic consumption on the

average is equal to production, so exports vary

highly with crop conditions. Corn exports have

ranged from O to 12 percent; in some years, domestic requirements can only be met by importing corn.

Likewise, wheat production in Brazil has

been small, although production has increased

from 1.7 million metric tons (MMT) in 1970 to

5.3 MMT in 1986. However, Brazil’s wheat consumption far exceeds production, with imports

supplying nearly half of total consumer needs.

Brazil is a customer for, not a competitor of,

U.S. wheat. This chapter focuses, therefore, on

the Brazilian soybean industry. *

*This chapter draws on the OTA paper “A Comparison of the

Quality Factors of the Brazilian and United States Grain Systems,” based on the findings of an OTA study team consisting

of Dr. Lowell D. Hill, Mr. Thomas E. Weidner, Mr. Robert A,

Zortman, and Ms. Mary J. Schultz (interpreter) that traveled to

Brazil in 1987. Dr. Hill integrated the findings of the team into

the OTA paper.

Soybeans in Brazil are produced in the South- Grosso do Sol, Sao Paulo, Paraná, Santa Cataeastern part of the country. They are grown in rina, and Rio Grande do Sul (figure 2-1). The

seven provinces: Mato Grosso, Goias, Mato majority of soybeans, however, are produced

Figure 2-1.—Soybean-Growing Regions of Brazil

Bahia 1

● Each dot represents 500,000 metric tons

SOURCE: Adapted from U.S. Department of Agriculture, Major World Crop Areas and Climatic Profiles, Agriculture Handbook 664, 1987.

27
28

in the two provinces of Rio Grande do Sul and largest producer (17 percent), followed by China

Paraná. (11 percent) and Argentina (7.5 percent). Both

Brazil and the United States have dramatically

Even though the United States dominates increased the production of soybeans over the

world production of raw soybeans (60 percent past 20 years (figure 2-2). U.S. production inof world production), Brazil is the second creased from 19 MMT in 1964 to 55 MMT in

Figure 2-2.—U.S. and Brazilian Production and Export

of Soybeans as a Share of World Totals

World Production

— United State s

- –- - Brazi l

1970 1975 1980 1982 1984 85/86 87/88 88/89a

50

t

40

t

20 —

10 —

0 I

1970 1975 1980 1982 1984 85/86 87/88 88/89a

a Praliminwy

SOURCE: 196544: Food and Agriculture Organization, Production Yearbook, various years; FAO Trade Yearbook, various years.

iM41WW8& U.S. Department of Agrjculture, Foreign Agriculture Service, Wortd Oilaeed S/tuation and Market H/gh-

//ghts, Circular Series FOP 9-SS, September 1988.
29

1986, an increase of 287 percent. During the

same time period, Brazil’s production jumped

from 523,000 MT to 16 MMT, an increase of

nearly 3,000 percent.

Exports of soybeans from the United States

increased steadily through 1981, when the pattern changed. Between 1981 and 1986, U.S. exports ranged from 16.3 to 25.3 MMT. In contrast, Brazilian exports varied dramatically over

the entire period, with no discernible trend (table 2-1). The percent of usage exported as raw

soybeans between 1965 and 1976 was similar

for the two countries, fluctuating around a 12-

year average of 26.5 percent for Brazil and 33.3

percent for the United States (table 2-2). However, this pattern changed for Brazil in 1977,

when exports as a percent of raw soybean use

dropped below 20 percent and fell to 6 percent

in 1978, 1979, and 1982. The contrast between

the U.S. and Brazilian export patterns is the

result of Brazil’s emphasis on domestic crushing capacity.

In both countries the percent of supply processed annually followed a similar pattern up

through 1971, with total crush ranging from 47

to 73 percent in Brazil, and from 48 to 62 percent in the United States (figure 2-3). After 1977,

however, a significant change is evident in

Brazil’s strategy. While Brazil increased its percentage of supply processed domestically to 84

percent in 1982, U.S. processing stayed around

the same level. Between 1978 and 1988, Brazil

never processed less than 71 percent of its production. In contrast, the United States never

processed more than 51 percent. The increased

proportion of the Brazilian crop used by domestic crushers shifted Brazil from an exporter

of beans to the dominant force in the world

meal market.

Brazil’s production of meal and oil increased

at a very high rate, especially prior to 1980. U.S.

production also increased, enough to exceed

Brazil’s total output, but the relatively rapid

growth of oil and meal production in Brazil reflects policy actions to encourage growth in

processing capacity. While Brazil raised its

share of the world soybean meal market from

3.7 percent in 1965 to 34.6 percent in 1988-89,

the United States dropped from 70.2 percent

to 15.9 percent (figure 2-4). Brazilian strategies

have resulted in a total crush capacity that exceeds annual production in most years, shifting its comparative advantage to meal exports

rather than raw beans.

Table 2-1 .–Production and Utilization of Soybeans in Brazil, 1965-87

Area

harvested Yield Beginning Imports Total Total Ending

Year (1,000 ha) (MT/ha) Production stocks (1,000 MT) supply Exports Crush Food Fd/Sd usage stocks

1965 . . . . . . . . . . . 432 1.211 523 56 0 579 75 282 0 4 9 406 173

1966 . . . . . . . . . . . 491 1.212 595 173 0 768 121 395 0 81 577 191

1967 . . . . . . . . . . . 612 1.170 716 191 0 907 305 423 0 72 800 107

1968 . . . . . . . . . . . 722 0.906 654 107 0 761 66 471 0 89 626 135

1969 . . . . . . . . . . . 906 1.167 1,057 135 0 1,193 310 612 0 130 1,052 141

1970. . . . . . . . . . . 1,319 1.144 1,509 141 0 1,650 290 932 0 169 1,391 259

1971 . . . . . . . . . . . 1,716 1.210 2,076 259 2,336 230 1,700 0 277 2,207 129

1972 . . . . . . . . . . . 2,640 1.291 3,666 129 5 3,600 1,023 2,132 0 362 3,517 263

1973. . . . . . . . . . . 3,615 1.386 5,010 283 5 5,299 1,788 2,714 0 513 5,015 264

1974 . . . . . . . . . . . 5,143 1.531 7,974 284 6 8,164 2,662 4,302 0 603 7,767 397

1975 . . . . . . . . . . . 5,824 1.698 9,669 397 0 10,286 3,516 5,516 0 677 9,709 577

1976 . . . . . . . . . . . 6,417 1.750 11,230 577 0 11,807 3,328 6,374 0 749 10,450 1,357

1977 . . . . . . . . . . . 7,070 1.770 12,514 1,357 0 13,871 2,581 8,661 825 12,067 1,604

1978. . . . . . . . . . . 7,782 1.226 9,541 1,604 89 11,433 659 8,882 0 638 10,379 1,054

1979 . . . . . . . . . . . 8,256 1.240 10,237 1,054 253 11,545 9,094 0 895 10,627 918

1960 . . . . . . . . . . . 9,774 1.727 15,153 918 474 16,544 1,533 13,009 0 920 15,462 1,082

1981 . . . . . . . . . . . 8,501 1.788 15,200 1,082 934 17,216 1,502 13,796 0 890 16,188 1,028

1982 . . . . . . . . . . . 8,202 1.565 12,836 1,028 1,252 15,116 797 12,728 0 895 14,420

1963 . . . . . . . . . . . 8,136 1.813 14,751 696 34 15,481 1,316 12,873 0 1,069 15,258 223

1984 . . . . . . . . . . . 9,421 1.650 15,545 223 154 15,922 1,580 12,517 0 1,147 15,244 678

1985 . . . . . . . . . . . 10,153 1.800 18,275 678 428 19,381 3,456 13,774 0 1,156 18,366 995

1986 . . . . . . . . . . . 9,450 1.492 14,099 995 350 15,444 1,200 12,332 0 1,056 14,568 856

1987 . . . . . . . . . . . 9,300 1.666 17,298 856 441 18,595 3,290 13,820 0 1,200 18,310 285

SOURCE: U.S. Department of Agriculture, Foreign Agriculture Service, Forelgrt Agriculture Circu/ar–Oik?eeds and ProductsAVor/d Oi/seed S/tuat/orr and Market Hi@rIlghts, Washington, DC, various issues. Reference tables on the major producers and consumers of soybeans and soybean products.
30

Table 2-2.–U.S. and Brazilian Exports of Soybeans as a Share of Total Domestic Supplies, 1965-87

Percent of usage Percent of meal Percent of oil

exported as soybeans usage exported usage exported

Marketing year Brazil U s . Brazil U s . Brazil Us.

1965 ......, . . . . . . . . . . 180/0 290/o 620/o 180/0 00/0 250/o

1966 . . . . . . . . . . . . . . . . . 21 30 77 20 0 16

1967 . . . . . . . . . . . . . . . . . 38 30 46 20 0 18

1968 . . . . . . . . . . . . . . . . . 11 30 71 21 0 16

1969 . . . . . . . . . . . . . . . . . 29 30 75 21 0 13

1970 . . . . . . . . . . . . . . . . . 21 35 85 23 2 18

1971 . . . . . . . . . . . . . . . . . 10 34 84 25 2 22

1972 . . . . . . . . . . . . . . . . . 29 35 22 10 18

1973 . . . . . . . . . . . . . . . . . 36 37 68 28 16 14

1974 . . . . . . . . . . . . . . . . . 37 38 72 29 2 16

1975 . . . . . . . . . . . . . . . . . 36 35 81 26 31 14

1976 . . . . . . . . . . . . . . . . . 32 37 83 25 35 11

1977 . . . . . . . . . . . . . . . . . 21 39 81 24 35

1978 . . . . . . . . . . . . . . . . . 41 79 27 32 20

1979 . . . . . . . . . . . . . . . . . 6 40 72 27 26 21

1980 . . . . . . . . . . . . . . . . . 10 42 73 29 35 23

1981 . . . . . . . . . . . . . . . . . 9 39 28 45 15

1982 . . . . . . . . . . . . . . . . . 6 45 80 28 37 18

1983 . . . . . . . . . . . . . . . . . 9 43 27 38 17

1984 . . . . . . . . . . . . . . . . . 10 45 80 23 37 16

1985 . . . . . . . . . . . . . . . . . 19 32 80 20 37 14

1986 . . . . . . . . 8 35 73 24 18 11

1987 . . . . . . . . . . . . . . . . . 19 39 74 26 37 10

SOURCE:U.S.Department of Awlculture,F orelanAariculture Service, Forekrrr Awh.dtureCircula r-01/seeds and PrtiucttioddOflse~S/fuatlon endMarketH/uh-

//ghts, Washington, DC, various issu&. R~ference tables on thernaj~rproducers and consumersof soybeans end soybean products.

Figure 2=3.-Volume of Soybeans Processed as a Percent of Total Domestic Supplies:

United States and Brazil (percentage)

90

80

70

60

50

40

30

20

10

1964 1968 1968 1970 1972 1974 1976 1978 1980 1982 1984 19861987
31

100

90

80

70

60

50

40

30

20

10

0

1965 1970 1975 1980 1982 1984 85/86 87/88 88/89b

b preli~inU’

SOURCE: 1985-84: Food and Agriculture Organization, FAO Trade Yearbook, various years. 198485-88/89: U.S. Department of Agriculture, Foreign Agriculture Service,

World O//seed Sltuatlon and Market Highlights, Circular Series FOP 9-88, September 1988.

Western Europe has been a major market for tent proportion of Brazil’s exports, the counsoybeans of both countries, accounting for 45 try is a large and stable customer for U.S.

percent of U.S. exports of raw beans in 1985/86, soybeans. As for soybean meal exports, Westand 84 percent of Brazil’s (table 2-3). Exports ern Europe is the largest market for both counto the U.S.S.R. from both countries have var- tries; East European countries are important

ied. Although Japan takes a small and intermit- markets only for Brazil.

THE BRAZILIAN SOYBEAN INDUSTRY

Most of the soybeans in Brazil are produced Yields decline due to the increased doublein the two southern states of Rio Grande do Sul cropping, which requires shorter season variand Paraná. Mato Grosso and Mato Grosso do eties and less than optimum timing in plantSul, in the north, have increased their output ing. Currently, yields in Rio Grande do Sul are

to tie for second place. Rio Grande do Sul has about 70 percent of those in Paraná Doublebeen producing soybeans for many years and cropping in Rio Grande do Sul is at the margin

has more problems of disease and soil fertility for sufficient season length to mature both

than the newer areas. crops.

In the southern states, small farms are becom- Farther north, the longer season in Mato

ing even smaller as inheritances are divided. Grosso do Sul and Mato Grosso allows more
32

Table 2-3.—Major Destinations of Brazilian Soybean Exports, 1975176-85186”

(in 1,000 MT/percent of total in parentheses)

Western

Destination year Europe Japan China U.S.S.R Mexico Iraq Others b Total

1975 . . . . . . . . . . . . . . . . .

1976 . . . . . . . . . . . . . . . . .

1977 . . . . . . . . . . . . . . . . .

1978 . . . . . . . . . . . . . . . . .

1979 . . . . . . . . . . . . . . . . .

1980 . . . . . . . . . . . . . . . . .

1981 . . . . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . . . . .

1986 . . . . . . . . . . . . . . . . .

2,727

(81.8)

1,966

(54.0)

1,551

(60.0)

565

(85.8)

506

(79.3)

1,332

(86.0)

697

(481)

(9.1)

(73.5)

1,169

(74.9)

2,874

y&y

,

44

125

(3.4)

(2.3)

(0.3)

(0.2)

(5.6)

(0.3)

(0)

(4.2)

(0)

212

(61)

114

32

(0.7)

309

(11.9)

(2.9)

(2.7)

438

(131)

1,162

(31.9)

552

(21.3)

(4.9)

(7.1)

118

(7.6)

(34.3)

255

(50.9)

128

(9.9)

(0)

(0)

NA

(0)

122

(3.4)

(2.7)

(0)

(0)

(2.7)

218

(15.0)

178

(35.5)

116

(9.0)

347

(22.2)

(0.6)

NA

(2\;

229

(6.3)

(0.8)

(6.5)

(7.1)

(l.1)

(2.3)

(4.4)

(3.5)

(2.9)

383

(11.0)

83

3,333

3,639

2,587

659

638

1,549

1,450

501

1,295

1,561

3,491

1,198

(83.6) (9.5) – – – – (6.9)

aBmziilm marketing year for soybeans is April-March.

blncludes cou nt r ie s n ot reportin9.

SOURCE: 1975-85: unpublished Brazilian tables (CACEXk 1988: USDA-FAS, BraziiAnnual Oifseeds Report; unpubilshed, Feb.27, 19S7.

double-cropping and produces wheat yields of

about 3,000 kilograms per hectare under irrigation. The returns justify installation of irrigation systems for wheat. During the dry season, the land is then readied for soybeans as

the rainy season starts. If the rain is delayed,

the irrigation system is in place, at minimal cost

to give the soybeans a good start as well. For

these reasons, the northern expanding areas

have a potential for increasing average yields

and total production in Brazil.

Erosion is a problem in these recently cleared

lands, however, although considerable efforts

are being made to control it. Erosion is more

serious than in Rio Grande do Sul, where few

efforts are being made on the small farms to

control erosion. Government policies and educational programs are oriented toward increased terracing and crop rotations as a means

of reducing erosion and maintaining longer

term productivity.

Yields have also increased as varieties improved. As an example, 20 years ago farmers

were fortunate to obtain 65 bags from 2.4 hectares. They are now harvesting 100 bags from

the same area. The oil and protein content have

declined as yields increased. Average oil content 20 years ago was 20.5 percent; now it is

closer to 18.5 percent. No attention is paid to

these quality characteristics in the selection of

seed. Yield is the primary concern and in many

cases the only criterion.

Production and Marketing Technology

The technology of production and cultural

practices in Brazil are quite parallel to those

of the United States. The same types and brands

of combines, tractors, and cultivators are seen

in Brazilian soybean fields as in the U.S. Midwest. The transfer of technology by private

firms from the United States is rapid and ef-
33

Photo credit OTA Brazil Study Team

Erosion can be a problem in recently cleared lands. Terracing and crop rotations are used to reduce erosion

as seen here in the province of Paraná

fective. Farmers appear to know as much about

production practices as U.S. farmers do. Farm

sizes and production costs and efficiency vary

widely. Estimates of production costs for Brazil are difficult to generalize because of the

diversity of farm sizes and types. Much of the

soybean production is found in specialized

cropping areas, and beans do not appear to be

grown in any systematic rotation in the state

of Paraná.

Brazilian technology of handling, drying, and

storage is generally similar to that of the United

States, with some exceptions. Little on-farm

storage exists, requiring that nearly all soybeans

be delivered into the market channel at harvest

and that the market channel have sufficient

storage capacity. With large crops of corn and

soybeans in the same year, pressure on storPhoto credit: OTA Brazil Study Team

Cultural practices and production technology are very

similar to those of the United States. Here a BraziIian

farmer uses a self-propelled combine

to harvest his soybeans.
34

age capacities may force exports of raw grain

even though grain may be re-imported later in

the season. The lack of on-farm drying and storage have an important influence on marketing

and pricing strategies (discussed later in this

section). Most of the storage capacity for soybeans at country elevators and processing

plants is provided by large, flat buildings of

metal, block, or concrete and/or steel bins. The

vertical concrete silos with multiple bins so

common in the United States are less frequent.

Much of the harvest arrives at 14 to 18 percent moisture levels, requiring drying, usually

to 13 percent. Grain dryers are very common

at every country elevator and processing plant.

Nearly all are fired with wood, and some larger

firms have integrated the production and processing of wood and fuel for their dryers. The

cost of handling and the labor involved in fueling grain dryers with logs seems large but, given

the relative cost of wood and fossil fuels, wood

is obviously an economically viable alternative.

Grain handling equipment, dump pits, legs,

and belts are all similar to those in U.S. elevators and processors. Truck hoists are seen less

frequently and are limited to larger facilities.

At smaller elevators, the large straight trucks

are often unloaded by hand without benefit of

hoists.

Flat storage facilities vary in design, but several seen by the study team had belt or chain

conveyors below the floor and tractors were

used to move grain to the conveyor after bin

levels dropped below the gravity feed. Metal

bins and some of the small concrete block silos

are equipped with augers. Portable augers are

also in evidence. Cleaners are nearly always

available for inbound grain, but seldom needed

on outbound. Cleaning outbound grain even

from flat storage is reportedly seldom needed

to meet the l-percent limit on foreign material.

Transportation in Brazil from farm to market to export point is primarily by truck. Although rail is available, it appears to be relatively inefficient and does not account for much

of the long haul from Mato Grosso do Sul and

Mato Grosso, where railroads have not been

built or do not connect the important production and consumption points. For example,

beans from Mato Grosso maybe transported

over 1,500 miles to the port at Paranagua. As

rail facilities are not available for this, the highways are heavily stressed with large trucks making long hauls to the port and the processing

plants in the major processing regions of the

country. The location of the ports and the

export-directed flow of the raw and processed

products require large quantities of transportation services. Congestion in truck deliveries

is evident, with waiting lines at country elevators, processing plants, and port elevators.

Photo credit: OTA Brazil Study Team

Grain dryers are used at every country elevator and

soybean processing plant. Brazil uses wood in fueling

the dryers instead of fossil fuel.

Photo credit: OTA Brazil Study Team

Transportation from farm to export facilities is primarily

by truck. Soybeans maybe transported over 1,500 miles

from farm to port. Heavy congestion at port

facilities is common.
35

Technology at port facilities is also modern

in most instances, with high-speed belts and

legs. In general, relatively few bins are available for separate storage, even at the port. Flat

storage and large silos are common, providing

less opportunity for blending diverse lots segregated into separate bins according to quality.

Marketing Channels and Practices

Nearly all beans are delivered direct from the

farm to the first handler at harvest time. Most

go through a country elevator, but many go

directly to a processing plant. A high proportion of these beans must be artificially dried,

and farmers have neither drying nor storage

facilities on farms. All the conditioning is therefore conducted at the first handler, i.e., the

country elevator or the processing plant. Soybeans are also delivered direct to processors,

where they are put into storage in the condition desired for processing.

Since up to 95 percent of annual production

goes into Brazilian soybean processing plants,

the market channel is directed toward supplying these plants with their monthly crush requirements. Many of the older and smaller

plants are unable to maintain this flow through

the market channel and operate only during a

relatively short season as a result. Those with

adequate storage or access to country elevator

Photo credit: OTA Brazil Study Team

Modern technology at port facilities with high-speed

belts and legs for shiploading is common. Here a ship

is being readied for loading at Paranagua, Brazil.

storage are able to generate 80 to 85 percent

of their rated capacity. The strategy is to fill

storage space as rapidly as possible at harvest

time and then to feed this into the crushing

plant at a uniform rate.

Soybean exports are more seasonal in Brazil

than in the United States, and the harvest time

surplus moves into the export channel. Bean

exports are therefore concentrated in a relatively short season, with over 75 percent moving into world markets between April and

August and over 90 percent by the September

following spring harvest. In contrast, cumulative exports from the United States follow a uniform monthly pattern, with an almost constant

percentage exported each month (figure 2-5).

Most deliveries from Brazilian producing

areas to the port are transported by trucks. The

highway system is severely taxed during the

harvest period, with long hauls to ports as well

as processors. Most of the newly developing

production areas in the north do not have crushing facilities, and even domestic destinations

may require truck transport of over 1,000 miles.

The meal market is oriented toward export,

with 73 percent of 1986 production of meal going out of the country. This emphasis controls

not only crushing rates and margins but transportation and facilities as well.

In general, local cooperatives think of themselves as brokers for the farmers. Although they

may technically take title to the grain, they do

not consider themselves merchandisers. This

is a technical issue. When they sell back to back

(i.e., a sale offsets a purchase), they consider

it as a brokerage activity. Income is derived primarily from discounts and drying charges, commissions, storage income, and charges for related services. Limited blending was reported

by several country elevators, but blending was

clearly not a major source of income for grain

handlers.

Organization of the Industry

The processing and exporting firms are a mixture of cooperatives, independent private firms,

and multinationals. All the major multinational
36

Flgure 2-5. Cumulative Raw Soybean Export Shares

100

10

(1 =April, Brazil; 1 =October, United States)

n I I I I I I I I I I

2 3 4 5 6 7 8 9 10 11 12

Months

SOURCE: Office of Technology Assessment, 1989

grain companies are involved in some phase

of assembly, processing, and marketing grain.

A large share of the processing and local assembly is done by cooperatives, several of

which are organized into regional and national

entities providing coordination from input supplies to final products in many agriculturally

related products.

ABIOVE, the Trade Association of Oil Processors, reported just over 80 active soybean

processors in 1987. The Trade Association is

relatively young, having been in operation only

about 5 years. However, it appears to be quite

active in lobbying and influencing political decisions as well as in servicing trade-related

problems.

Brazil’s crushing industry was characterized

by many small-scale plants in the late 1960s and

early 1970s. But expansion of crush capacity

in the late 1970s and early 1980s created an industry dominated by large (1,200 to 2,000 MT

per day) modern plants. The facilities are concentrated in the states of Paraná and Rio Grande

do Sul. New soybean acreage in Mato Grosso

do Sul and Mato Grosso thus places additional

stress on the transportation system for moving

soybeans to processors or to ports. Processing

technology in the newer plants is identical to

that in the United States, relying on the solvent

extraction process, Many plants are integrated

into production of final products packaged for

retail at the same plant location as the receiving truck dump for raw soybeans.

Marketing Practices and Pricing

Strategies of Producers

As noted, the lack of farm storage results in

virtually all soybeans being delivered directly

from the field to elevators or processing plants.

In some cases, they may be delivered direct

from farm to the port, but the majority of the

soybeans delivered to ports are sold through

a local cooperative or private elevator and delivered in the elevator’s name. Some beans are

sold direct in the farmer’s name, but this would

be true only for larger farms.
37

Photo credit: OTA Brazil Study Team

Soybean processing is dominated by large modern plants. Processing technology using the solvent extraction process

is identical to that in the United States.

Several merchandising opportunities are

open to the farmer, although not as many as

in the United States. Cooperatives provide management advice and pricing information. In

general, producers have five marketing options

available:

1. They may sell at the spot or current bid

price and receive payment immediately

(usually within 48 hours).

2. “A-Fix-A” and similar programs with

different names are a form of the “delayed

are priced at the elevator. The farmer has

from 6 to 12 months in which to price. Different buyers set different time limits, and

most agree that the limit is negotiable.

Some buyers indicate that they would negotiate across crop years, although sellers

seldom want to delay pricing that long.

This A-Fix-A grain is sometimes bid lower

than the posted bid at the time of pricing,

to compensate for storage costs. Most elevators do not have a specific charge for

“price later” or “delayed price” contracts.

price” concept used in the United States. 3. Farmers may sell on a- deferred price

Under this, the farmer receives an advance agreed upon at the time of delivery, with

(the amount varied from 40 to 70 percent payment to be made at the deferred date.

of the value among those seen by the study For example, the soybeans might be delivteam) on which interest is paid until, at a ered in April with price set according to

day of the farmer’s choosing, the soybeans a July price, with payment made in July.
38

4. Farmers may store the grain at an agreedupon storage cost at the country elevator

and sell at their option at a later time.

5. Farmers may sell to the Government at the

established minimum price, with delivery

to a country elevator or a public warehouse. Payment is made at time of delivery.

Of the five alternatives, the A-Fix-A concept

is most extensively used. Some elevators and

processors report as much as 80 to 85 percent

of their receipts are purchased on A-Fix-A. The

Government minimum price was not effective

in most of the state of Paraná when the study

team visited because the market price in general was above the minimum, or at least the realized market price was above the realized minimum price offered by the Government. In areas

more remote from the processing plants and

export ports, the Government minimum price—

identical throughout Brazil—is much more attractive because of transportation costs.

Marketing strategies are heavily influenced

by the economic situation in Brazil and by the

personal financial picture of the individual

farmer. In most cases an immediate sale is necessary, or at least an advance against the A-FixA, in order to pay off operating loans. Inflation and high interest rates have put farmers

in a financial squeeze; with low prices, they

have no choice but to obtain early payment for

the soybeans in order to repay loans and credit

extended by the marketing firms or banks.

At the country elevator, hedging is virtually

nonexistent. Several people interviewed by the

study team reported that the practice was illegal; others said that Government regulations

made it extremely difficult; still others stated

that hedging was illegal except for that portion

of the grain that would eventually be exported.

Regardless of the degree of Government control over hedging or the legality, almost no merchandisers or processors hedge their purchases

of beans. They almost universally agree that no

long position would be allowed on the Chicago

Board of Trade, primarily because of the Government’s need to control currency movement

between the United States and Brazil. Hedging is not important to most elevators because

Photo credlt: OTA Brazil Study Team

Cooperatives provide management advice and pricing

information. COAMO, one of Brazil’s largest

cooperatives, uses sophisticated marketing

procedures and provides individual booths

where farmers can confer with

their merchandisers.

they either sell immediately after purchase,

back to back, or they act as brokers. Thus, their

risk is minimized in terms of future price

changes. The rapid inflation rate also minimizes the danger of losses through purchases

of grain, since prices rise almost continuously

over time.

Prices for soybeans at the port or in the central merchandising offices in Sao Paulo are generally expressed in U.S. dollars, and are quoted

in terms of cents over or under the Chicago

Board of Trade. In the country, the price is derived by backing off costs of f.o.b., freight, estimated shrinkage, brokerage, and taxes, and is

quoted to the local farmer in Brazilian cruzados.

The value of soybeans in Brazil is determined

by export values, processor needs, marketing

costs, and the influence of Government minimum prices for raw beans as well as for oil at

the retail level.

Government Policies

Several Government policies have a director

indirect effect upon the quality of soybeans in

the domestic and export market. The Government minimum price is administered by the
39

Commissao de Financiamento da Producao

(CFP) and announced prior to planting in order to encourage production of the major crops.

It is adjusted during the year to account for inflation and in response to political pressures.

This is in contrast to U.S. policy administered

by the Agricultural Stabilization and Conservation Service, where price is fixed prior to

harvest and remains unchanged. Officials in

Brasilia indicated some problems with their adjustment policy, primarily political pressure to

change prices beyond the automatic inflation

adjustment. The Government is also involved

in setting maximum prices for vegetable oil in

order to maintain internal supplies at reasonable prices for consumers.

If the farmer chooses to sell to this buyer, the

Government takes title, pays the farmer through

the elevator, and in 4 to 6 months auctions off

the inventory by closed bid at the various locations where grain is stored. Storage must be

in Government-approved warehouses, with

payment to the elevator according to the inventory it holds. The Government disposes of all

of the grain it owns through the public auction

route, so that it does not carry inventory across

crop years.

Corn and soybeans eligible for price support

and storage require guarantees of quality as they

go into storage as well as periodically during

storage. There is no Federal agency with inspection capability. The Brazilian Warehouse

Act (Law 1102, Nov. 11, 1903) transferred the

authority for inspecting storage warehouses to

the individual state governments. Only CFP and

its financial agents inspect warehoused grain.

The Bank of Brazil is conscientious in this inspection since the grain is pledged to them as

collateral for loans to CFP.

Imposto Sobre Circulacao de Mercadoria

(ICM) is the major tax influence on Brazilian

soybean exports. The literal translation is “tax

on circulation of merchandise. ” This is a value-

-added tax and is organized so that it is a percentage of the increase in value between the

purchase of a product and its sale. Most inputs

such as fertilizers and herbicides do not have

a tax.

Grain and grain products are almost always

taxed, but these taxes differ between locations.

For example, crushers who buy soybeans in Sao

Paulo pay the ICM tax immediately. If they sell

inside the state, they must pay a 15-percent tax;

if they buy in one state and receive in another,

they only pay 12 percent. If the soybeans are

moved to the second state for crushing and the

meal is sold there, crushers pay the difference

between 15 and 12. If the meal is exported, then

the tax rate changes again. Cooperatives do not

pay the tax when they receive and sell soybeans

because they are considered to be the farmer’s

agents and not actually merchandising.

The tax is organized and regulated at the national level, but funds go to the individual states.

Sometimes this is reallocated down to the

county, but never into the national coffers.

States must all adhere to the national percentage although there is still some flexibility in

administration. For example, some states allow

payment of the tax to be delayed as much as

30 to 90 days, thus providing benefits to firms

that wait for devaluation of currency as well

as receiving interest on the unpaid tax. This

is consistent with circulations demonstrated by

the large cooperative, COAMO, where the manager included interest on the ICM tax as part

of his income in determining margins and payments to producers.

Soybean export restrictions were first imposed in 1973, giving domestic crushers first

access to the soybean crop while improving

crush margins by lowering the domestic soybean price. The ICM tax was levied on exports

of soybeans and products as well. Export restrictions have now been lifted and the Government currently requires only that sales be

licensed.

Taxes on raw beans, meal, and oil have been

adjusted in recent years to equalize the relative profitability among raw beans and the two

major products. The ICM tax is 11.1 percent

on meal, 8.0 percent on oil, and 13.0 percent

on raw beans. The tax on raw beans is assessed

against the f.o.b. price minus freight costs. Meal

and oil are taxed at wholesale values, including assembly and processing costs of raw beans
40

used by the processor. Processors and exporters

are convinced that under present price relationships, taxes provide equal penalty for all forms

of soybean exports.

A Government agency known as CACEX has

responsibility for export licenses, quotas, and

credit. CACEX is an independent, political

agency within the Bank of Brazil, with a director appointed by the Minister of Finance or,

in some cases, by the President. It is therefore

a very high-level Government agency with

power to control imports and exports within

the import and export bank of Brazil, Grain is

one of many products it handles.

Another organization with a broad range of

influence in Brazilian exports and grading

standards is Conselho Nacional do Comercio

Exterior (CONCEX). This is not a Government

agency but an association of private traders and

Government agencies. It is a board of exporters

acting in an advisory capacity. The resolutions

it passes establishing grades for corn and soybeans are a resolution of that board, not official Government policy. It has considerable

power as an advisory group to CACEX, but does

not carry governmental authority within its

own organization.

In addition, the Ministry of Agriculture has

established a separate set of standards for corn

and soybeans for domestic trade. The direct

translation of the opening sentence is “By the

powers I have under law — I approve the

following specifications for the marketing of

soybeans and grains. ” These then carry the

weight of Government as official grades for domestic transactions, but apparently are not enforced within commercial channels.

The Federal Government has no direct role

in inspecting or analyzing grain quality. State

agencies evidently have responsibility for inspection of products crossing state lines, but

implementation on grain is sporadic at best.

CLASPAR, from the State of Paraná, is an example of these agencies. The CLASPAR inspection brochure states that grades have been developed in cooperation with the Minister of

Agriculture. These are official documents but

they do not follow the national or CONCEX

grades, and enforcement in commercial channels seems to be optional.

QUALITY CONTROL IN BRAZIL

No objective data are available to verify quality differences in soybeans from the United

States and Brazil. Limited data from foreign

processors have indicated that Brazilian beans

have a higher oil and protein content, less foreign material, and lower moisture; but they also

have lower test weight and problems with oil

quality due to the presence of red dust. Data

of the Japan soybean processing association

provide the only known historical series. The

14-year average oil content for beans from Brazil was 20.13 compared with the U.S. average

of 19.17 percent. The quality of Brazilian beans

also exceeds that of the United States on the

factors of splits and foreign material. U.S. quality exceeded that of Brazil on the factors of test

weight, protein content, free fatty acid, and

damaged kernels.

However, these averages conceal considerable year-to-year variability and provide no

information on the differences among vessels

within any given year. These data do not provide conclusive evidence of quality. For example, no information is given with which to judge

the reliability of sampling methods. It is not

clear whether analysis was made on an “asreceived” basis or on clean beans at zero moisture. Without data from individual samples, statistical tests cannot be conducted for the significance of the differences.

A recent study conducted by the U.S. Department of Agriculture (USDA) and the American

Soybean Association provides a more controlled experiment. The results of analysis of

samples collected during a 1-year period from
4 1

European ports were mixed on the relative

value of U.S. and Brazilian soybeans. The abstract concluded:

In general, soybeans from Latin American

countries showed higher oil and lower protein

content than U.S. soybeans. Argentine soybeans showed high levels of split beans. Soybeans received from Brazil were uniformly

graded as Sample Grade due to the presence

of 4.0 percent red dust in the samples.

The number of samples per vessel was small

and the study did not report statistical reliability of the estimates. The problem of nonuniformity and segregation in the vessel was not addressed in either set of data. If segregation

problems and variability during loading are less

in Brazilian shipments than in U.S. ones (quite

likely, given inbound quality controls), sampling at destination is especially important to

obtain statistically sound comparisons.

These surveys indicate that Brazil soybeans

contain less foreign material and moisture than

U.S. beans. It would appear that oil content is

higher in Brazil beans, but it must be recognized that oil and protein values vary widely

in Brazil (as well as in the United States) depending on region of the country and crop year.

Estimates of average oil content in Brazil

ranged from 18.5 to 19.5 percent, with the state

of Rio Grande do Sul having 18.5 and with oil

levels increasing in northern regions.

Two weeks of interviews with Brazilian farmers, grain handlers, and Government agencies

plus personal observations throughout the market channel demonstrated that differences in

practices and policies undoubtedly result in

fewer quality problems related to foreign material and storage molds in Brazilian beans than

in U.S. beans. A review of quality-related handling practices and incentives provides a basis for evaluation.

Grades and Grading

The Ministry of Agriculture has the legal authority to establish grades. CONCEX, the industry/government trade association, provides

a system of grades and standards for soybeans

that is identified as Resolution No. 82. This resolution identifies four grades, but these are not

the basis for the export contract. The CONCEX

export grades are shown in table 2-4. Regarding split or damaged seed coat beans being

specified for grade 1 only, it was explained that

grade 1 is primarily for seed beans, and that

damaged seed coat is not important for beans

for processing but only for use as seed, In addition, green-colored beans are limited to 1, 2,

5, and 10 percent, respectively, for grades 1

through 4.

CONCEX standards define each of the grade

factors as follows:

Foreign material and impurities are defined

as all material passing through a 3 millimeter

sieve (7.5/64 inches). All material other than

soybeans remaining on top of the sieve, including all seed coats that have separated from the

bean, are also considered foreign material and

impurities.

Brokens/splits are defined as all splits and

pieces of kernels handpicked from the sample

remaining on the 3-millimeter sieve.

Damaged kernels are kernels and pieces of

kernels that are not almost perfect in color and

shape.

Table 2-4.—Brazil Grades for Soybeans (percent)

Foreign material Pericarp

Grade Moisture Splits Damage and impurities damage b

No. 1 . . . . . . . . . . . 14 10.0 2.0 1.0 15

No. 2 . . . . . . . . . . . 14 20.0 4.0 1.5 —

No. 3 . . . . . . . . . . . 14 30.0 6.0 3.0 —

No. 4 . . . . . . . . . . . 14 40.0 8.00/0 5.0 —

with 5°/0 H D

alncludes Seed mat broken loose frOm the kernel.

blncluded only for No, 1 beans as a measure of quality for beans to be sold for seed.

SOURCE: CONCEX Resolucao No. 82 (export grades) June 5, 1973, Rio de Janeiro, P. Vl, Article XV.
42

Nearly all soybeans are exported under the

Association Nacional Dos Exportadores de

Cereais (ANEC) Contract No. 41, which is a

combination of the four grades established by

CONCEX. The quality specifications of ANEC

are referred to as Brazilian Export Quality Soybeans. This contract specifies maximum moisture of 14 percent; foreign material at 1 percent, with discounts allowable up to 2; damaged

beans maximum of 8 percent, of which 5 percent maximum may be heat-damaged. Broken

beans have a maximum allowance of 30 percent. A blank is left on the contract for entering oil content, but it is not part of the language

automatically.

It is interesting to note that ANEC quality

specifications used in export trade do not match

those of any one CONCEX grade. For example,

allowable foreign material is the same as CONCEX No. 1 grade, but broken beans is equivalent to the No. 3 limit, while damage uses the

limit established by CONCEX for grade No. 4.

Despite the fact that most Brazilian beans move

into the domestic processing market (in 1986

only 8 percent of total usage was exported as

raw beans), the quality factors used throughout the domestic market are those identified

in the ANEC export contract. The limits on

which country elevators based discounts for

foreign material, damaged beans, and broken

beans were often those limits established in the

ANEC contract, not those of the Ministry of

Agriculture or CONCEX. The primary deviation from the contract was by processors and/or

elevators that specified 13-percent moisture (instead of 14 percent) as the maximum, based on

their experience with storability.

The domestic standards, established by the

Ministry of Agriculture for the domestic market, contain only one grade. This grade follows

the ANEC contract with the exception of the

factor Esverdeados (green-colored beans), in

which case it is equivalent to the CONCEX No.

4 limit.

Sampling and Inspection Procedures

Grading and inspection at port elevators are

conducted entirely by private inspection agenPhoto credit: OTA Brazil Study Team

No Government inspection agency exists for grading

and inspection of Brazilian grain. Private inspection

agencies, such as SGS, provide this service.

cies. No Federal inspection agency has responsibility for grading or inspection equipment.

It was reported that 12 private inspection agencies were operating in Paraná including SGS,

Thionville, Intertek, and PKB. The majority

(some estimate as much as 95 percent) of inspections are done by the SGS International

Agency for Product Inspections. The private

inspection agencies led by SGS influence soybean quality throughout the market channel.

Their control of outbound beans and meal generates the opportunity and requirement for

them to control inbound products under their

contracts with buyers and sellers.

Most of the soybean exports from the port

of Paranagua moved through a pool arrangement serving as a public elevator for storage

and handling. Thus the majority of soybeans

coming into the port are inspected by SGS on

the basis of grade factors in the ANEC contract.

This is rigorously enforced. The study team was

told repeatedly and emphatically that any

trucks not meeting contract specifications on

moisture and foreign material would not be allowed to dump. This statement was reinforced
43

by records from SGS identifying by name, number, and quality characteristics 15 trucks that

exceeded allowable limits and were refused permission to unload. These trucks were forced

to return to a nearby firm that could bring the

soybeans back into grade requirements through

drying or cleaning. SGS has complete authority over inbound and outbound quality at the

port.

Each state has an inspection department that

inspects processed and raw products. All products crossing state lines must be inspected by

the originating state agency, which may also

be called on to inspect public warehoused grain.

CLASPAR (the agency in the State of Paraná)

is apparently not highly regarded by the industry, and its reliability and accuracy were frequently disparaged by firms interviewed by the

study team. The CLASPAR inspection is not

used for transaction purposes, but the agency

does inspect Government-warehoused grain

under contract with CFP.

The purpose of the inspection requirement

is not clear. Apparently grain moving across

state lines is supposed to be accompanied by

a weight and quality certificate, There are

weight limits on the highways for trucks. For

soybeans moving to the port of Paranagua, destination quality determined by SGS is the basis for payment. Origin inspection and analyses are often conducted by shippers for their

quality control information, but payment is

based on destination quality. This differs from

the United States, where some contracts specify

origin weights and grades, while others require

destination weights and grades. Soybeans moving to destinations other than Paranagua do

sometimes move on origin grades, depending

on the firms involved and on contract specifications—not unlike U.S. processors and country elevators.

The restrictions on inbound quality at the port

that are carried throughout the market channel result in the majority of the crop meeting

those conditions or better when moving in the

market channel at any point past the first handler. The storage is primarily at the local elevator and the beans are conditioned for safe

storage at that point. Little deterioration in quality and few losses occur during the months that

follow.

The question of blending at country elevators has been an important issue in discussions

of U.S. quality. While some elevators in Brazil

do engage in blending, it is on a very limited

scale. One large cooperative with flat storage

indicated to the study team that one-half of the

storage was filled with 14-percent beans and

the other with 12-percent beans to permit blending. The same firm cleaned the beans before

and after the dryer, and screenings were disposed of or sold back to local feeders. Given

the large size and small number of storage facilities and the separate bins both at the country elevator and at the export house, blending

is extremely difficult. At the same time, current standards and discounts provide little incentive to blend or create physical facilities necessary for blending.

The system of pooling inbound soybeans at

the port elevator without identification of

owner eliminates the opportunity for the individual exporter to blend to the contract maximum. Blending (i.e., pulling from several bins

simultaneously) is controlled by the operations

manager of the public elevator under direct supervision and control of SGS. Any soybeans delivered will lose their identity within the pool,

and the quality loaded at export depends on

the quality of beans available to the public elevator operator. Since nearly all beans in storage are equal to or better than export quality,

opportunity for blending is extremely limited.

Export contracts are largely based on factors

equivalent to a one-grade system.

Inspection procedures in the country vary

widely, depending on the care and accuracy

of the person doing the sampling and analysis.

The study team noted frequent instances of nonrepresentative sampling methods, carelessness

in handling the sample, failure to properly subdivide the sample, and a lack of clear definition of individual grade factors in the training

program. Similar conditions can be found at

country elevators in the United States.
44

Grading Equiptment

Equipment is not standardized and apparently no regular checks are made of equipment

by a central authority in Brazil. The accuracy

of sampling for movement between elevators

is probably not a serious problem in that the

low levels of foreign material and moisture and

lack of large-scale blending makes grain much

more uniform within trucks or sublets. Consequently, even carelessly taken samples are probably representative of the total lot, or at least

sufficiently representative that it would not exceed the grade limit if reinspected.

Even sampling methods by SGS at the port

elevator are less sophisticated and systematic

than required in the United States. Samples of

inbound trucks consist of one or two probes

taken in one corner of the truck, accompanied

by observation during dumping at the dump

pit. Samples are taken at the port on outbound

soybeans by grabbing handfuls off the belt or

running a pan through a falling grain stream.

These would not be considered representative

samples by most statistical standards, but appear to be adequate to meet the needs and

preferences of the foreign buyer.

Foreign buyers have the option on the ANEC

contract of requesting their own inspector to

be present. However, sampling methods are

similar for all inspection agencies. The contract

specifies that weights and grades are final as

per seller’s inspection agency.

Quality Control Through Genetics

New soybean varieties in Brazil must be approved by a commission appointed by the Minister of Agriculture. There are in fact two commissions: one for the southern part of Brazil

and another for the remainder of the country.

They test and approve varieties for release in

each region. The commissions are composed

of one representative each of the Ministry of

Agriculture, EMBRAPA (the National Soybean

Research Institute), the State Research Organization, the State Extension Service, and Brazilian seed producers.

The procedure for testing includes 2 years

of preliminary testing inside the organization

Photo credit: OTA Brazil Study Team

Sampling methods by SGS are less sophisticated and

systematic than in the United States. Samples of

inbound trucks, for example, consist of one or two

probes in one corner of a truck.

that is developing the variety, followed by 1 year

of intermediate testing at five locations in Brazil. The best lines from these 5 locations are

sent for final testing at 10 locations over a 2-

year period. The commission then meets to discuss the characteristics of each variety and decide which will be released. The decision is then

published in the official newspaper. The Commission reviews criteria of yield, stability, disease resistance, and agronomic characteristics.

A variety will not be released unless it is equal

to or better than the two varieties selected as

the standard.

The two varieties for the standard are selected

to represent four maturity groups. The best two
45

varieties in each group become the standards.

One variety is selected for its highest yield, the

second because it is the most popular currently

being planted in the region. Oil and protein content are identified, but release of new varieties

has not been restricted for lack of higher oil

and protein. Brazil has the potential for controlling varieties to meet a gradually rising

standard of quality with respect to oil and protein, but, in practice, this criterion is not being

applied.

Evaluation of Quality in Brazil

Quality, past the farmer’s deliveries, is quite

uniform throughout the market channel. The

ANEC contract is equivalent to a numerical

grade with only one set of quality limits. Meeting these limits assures soybeans at 14-percent

moisture, and less than l-percent foreign material. Blending opportunities are, therefore,

limited.

A few samples of soybeans and corn collected

at random from country elevators indicate the

generally high quality of Brazil grain with respect to cleanliness and moisture when graded

on USDA standards. Moisture was below 14

percent with one exception, test weight was

above 57.6 pounds per bushel, and broken corn

and foreign material below 1.0 percent with one

exception. Stress cracks were high on corn

dried with heat, and breakage susceptibility on

the Wisconsin Breakage Tester varied from 6.3

percent (considered very good by U.S. standards) to 35.5 percent (still good for hightemperature-dried corn). These samples exhibited a high proportion of hard vitreous endosperm, indicating a harder corn with flint

ancestry.

Incentives for Quality in

the Brazilian System

premiums and discounts for quality differentials are controlled by the market. There are

no Government-decreed price differentials,

which vary among grain handlers and processing firms. Shrink factors for moisture are generally uniform, but drying charges vary among

firms. In many instances, processing plants use

shrink-plus-drying charges that are less than

actual weight reduction due to water removal.

(Shrink is the loss of weight due to removal of

water. The quantity of wet grain is adjusted to

that quantity remaining after drying to base

moisture by subtracting “shrink.” A charge is

assessed to cover the cost of drying.) Managers

who recognized this explained to the study team

that moisture was controlled by weather so their

“premium” for wet grain did not function as

an incentive but only as a better price to the

farmer.

The premium for delivering soybeans at

higher moisture levels is offset by the necessity of safe storage and long-distance transport.

The elevators do not make a concerted effort

to deliver soybeans at moisture levels above the

13- to 14-percent base.

Blending to achieve contractor grade limits

is not common in Brazil. Country elevators, and

to some extent processors, describe themselves

as handlers or merchandisers for producers.

Their responsibility is to condition producers’

soybeans to meet the ANEC contract conditions. Unlike U.S. firms, their income is derived

from payment for services rather than from

blending to generate a high-priced shipment

from lower-priced receipts. Since nearly all soybeans move on the ANEC contract factor limits,

the quality in the market is sufficiently uniform

to provide little opportunity for blending. With

a fixed base for moisture there is little incentive to blend for that factor. Foreign material

from the farm is generally removed by the first

handlers. In contrast, foreign material and broken beans from U.S. farms are generally stored

with the beans and used for blending to grade

limits. The small number of large-volume storage bins in Brazil, and the small number of

grade factors relative to the United States, encourage storing and marketing all soybeans at

a very uniform quality.

Strict control of inbound and outbound quality at the port by SGS eliminates the opportunity, if not the incentive, for blending inbound

and outbound at the port elevator. Qualities are

extremely uniform. Since identity of individual lots of grain is not maintained, there are

no benefits from efforts to blend during vessel
46

loading. SGS refusal to allow off-grade grain schedule of premiums for soybeans below 14-

to be unloaded from inbound trucks provides percent moisture and below l-percent foreign

a strong economic incentive for country ship- material. His philosophy was that producers

pers to deliver soybeans with grade factors de- generating beans of greater value should be relow maximum to provide a margin of safety. warded and this incentive would serve to enThe emphasis on quality was illustrated for courage the better farmers to deliver higher

the study team by a processor with a published quality beans to his plant.

FINDINGS AND CONCLUSIONS

Soybean quality in Brazil is influenced by several regulations, agencies, and marketing practices, beginning with a government/industry

committee approving new soybean varieties for

distribution. Quality in the context of intrinsic

value is not an explicit criterion in approval

of new varieties, but oil and protein content

are noted in the evaluation.

The majority of soybeans are processed in

Brazil by crushers whose capacity exceeds total production of beans. There is thus strong

competition for available supply, delivered to

processors or elevator storage at harvest. Seasonal surpluses of soybeans move into the export market. Export taxes have been adjusted

to equalize the profitability of exporting soybean meal v. raw beans, but the excess crushing capacity and local demand for oil make it

unlikely that Brazil will become a major exporter of raw beans.

Grading, inspection, and issuance of export

certificates are conducted by private inspection agencies, following specifications in export contracts. Quality factors used throughout the industry generally follow the export

contract established by the trade organization

ANEC.

Almost all soybeans leave the farm at harvest,

and drying and cleaning are done at the first

point of receipt, at the farmer’s expense. Thus

most soybeans enter the market channel and

storage in good condition. Strict enforcement

of the export contract quality specifications inbound to the port is an additional incentive for

shipping to meet or exceed quality requirements. Trucks not meeting the contract quality specifications—especially on moisture and

foreign material–are not allowed to dump.

The technologies of production, harvesting,

and marketing in Brazil are similar to those in

the United States. A higher proportion of soybeans move to market at harvest time and are

stored in larger commercial facilities than in

the United States. The large flat storage facilities and simple grade standard reduces the incentive for blending.

The end result of the Brazilian system is uniform, clean, dry shipments of soybeans to market. Differences in practices and policies result

in fewer quality problems (foreign material and

storage molds) than in U.S. soybeans. And

based on information from other studies, the

oil content in Brazilian soybeans is higher.
Chapter 3

The French (EC) Grain System
CONTENTS

Page

Overview of Wheat Production and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . 49

Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Farm Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Wheat Quality in France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

European Community Price and Income Policies . . . . . . . . . . . . . . . . . . . . . . 61

Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Administration of the Intervention Price Mechanism . . . . . . . . . . . . . . . . . . 63

The French Grain Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Marketing Channels.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Organization of Firms in Wheat Marketing. . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Storage Capacity and Elevator Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Conditioning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Pricing and Commercial Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Variety Development and Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Quality Control in France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Chapter 3 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Figures

Figure No. Page

3-l. Wheat-Growing Regions of the European Community. . . . . . . . . . . . . . . . 50

3-2. Wheat Supply and Disappearance for the European Community . . . . . . 51

3-3. Wheat Yields of Major Exporters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

3-4. Wheat Exports by Major Exporters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

3-5. Market Share of Wheat Exports by Major Exporters. . . . . . . . . . . . . . . . . 54

3-6. Market Share of Wheat for the European Community and United

States to Selected Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

3-7. Trends in Wheat Quality in France: Superior Wheat. . . . . . . . . . . . . . . . . 58

3-8. Trends in Wheat Quality in France: Standard Wheat . . . . . . . . . . . . . . . . 59

Tables

Table No. Page

3-1. Share of Wheat Production in the European Community, 1960-86 . . . . . 50

3-2. Percent of Wheat and Flour Exports That Are Flour . . . . . . . . . . . . . . . . . 56

3-3. Correlation Between Wheat Crop Quality Characteristics and Trend... 57

3-4. Analytical Results of French Wheat With Comparison to U.S. Factors . 60

3-5. European Community Intervention Quality Requirements for Wheat . . . 62

3-6. Storage Capacity for All Grains in France, 1985 and 1986 . . . . . . . . . . . . 67

3-7. Technical Characteristics of Country and Terminal Elevators in

France, 1985 and 1986 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

3-8. Price Adjustments in the Paris Contract for Feed and Milling Wheat . . 71

3-9. French Grading procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
chapter

The French (EC) Grain System

Traditionally the European Community (EC)

was an importer of wheat, particularly stronger

wheats used for blending. Since the mid-1970s,

however, the EC has become an increasingly

competitive net exporter of wheat and, in recent years, a major competitor, although it still

imports corn and soybeans. The EC market

share of wheat increased from 6 to 17 percent

between the mid-1970s and 1987/88. In fact, in

the last 10 years the EC is the principal exporting region that has gained market share, mainly

at the expense of the United States.

Many factors have influenced these developments. While most recent attention focuses on

the pricing policies of the EC and the value of

the export restitution, numerous other phenomena are important: productivity growth, generally improving end-use quality, trade policies,

and favorable political relations with important

growth regions/countries. In addition, the EC

has been the largest exporter of wheat flour relative to other exporters. The quality of wheat

in the EC differs from that of others; it is generally considered a lower protein, soft wheat,

which produces weak flour. However, the quality varies among members. This is especially

true with increased production in recent years

of wheat in the United Kingdom (UK), which

has had noted problems associated with quality. In France, the principal EC exporter, on

the other hand, the quality of wheat has been

maintained in the past 10 years despite a substantial increase in productivity. 1

IThi~ chapter draws m the OTA paper “A COrnPariSOn ‘f

Quality Factors of the French and United States Grain Systems,”

based on findings of an OTA study team consisting of Dr. William W. Wilson, Dr, Lowell D, Hill, Mr. Robert A. Zortman, Dr.

Michael J. Phillips, and Dr. E. Wesley Peterson (interpreter) that

traveled to France in 1987. Dr. Wilson integrated the findings

of the study team into the OTA paper.

OVERVIEW OF WHEAT Production AND MARKETING

The European Community is a group of countries that joined together in 1957. Originally

there were six member countries—Belgium, the

Federal Republic of Germany (West Germany),

France, Italy, Luxembourg, and the Netherlands. The United Kingdom, Ireland, and Denmark joined in 1973, Greece in 1981, and Spain

and Portugal in 1986. Thus, currently 12 countries belong to the EC. Nevertheless, most data

at the time of this writing are aggregated for

the first 10 members and are thus generally reported as EC10, excluding Spain and Portugal.

Wheat is produced in all EC countries (figure 3-1). Four countries, however, produce over

75 percent of the wheat: France, West Germany,

Italy, and United Kingdom. production of

wheat in the EC increased from 36 million metric tons (MMT) in the 1960s to a peak of 82

MMT in 1984, and then declined to 70 MMT

in 1986 (table 3-l). France is by far the largest

wheat producer in the Community, with about

35 to 40 percent of output in recent years. The

relative importance of France in EC wheat production has been fairly constant through time,

while Italy’s share has declined and that of the

United Kingdom has increased. Most of the increased production in the United Kingdom

occurred after 1973, which is when that nation

joined the Community. The production shares

in the other member countries are relatively minor and generally stable. The area of France

planted in wheat is 35 to 37 percent of EC total, and average yields generally exceed those

of other EC members by a production share of

5 points.

The EC has always been both an importer and

exporter of wheat (figure 3-2). Imports have

been primarily for blending and improving the

strength of the indigenous crop. Prior to 1971,

imports generally exceeded exports. Since then

49
50

● Each dot represents 500,000 metric tons.

SOURCE: Adapted from U.S. Department of Agriculture, Major World Crop Areas and Climatic Profiles, Agriculture Handbook 884, 1987.

Table 3-1.—Share of Wheat Production in the European Community, 1960=86 (percentage)

Country 1960-63 1970-73 1980-83 1984 1985 1986

West Germany. . . . . . . . . . . . . . . . . . . . . . 4.4

France. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.3

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.7

Netherlands . . . . . . . . . . . . . . . . . . . . . . . . 1.5

Belgium/Luxembourg . . . . . . . . . . . . . . . . 2.3

United Kingdom . . . . . . . . . . . . . . . . . . . . 9.0

Ireland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4

Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4

Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5

Total wheat production (MMT) . . . . . . . . 36.5

14.6

35.7

19.6

1.5

2.1

10.2

0.6

1.3

3.9

9.4

1.4

48,0

13.7

39.0

14,3

1.5

1.6

15.5

0,5

1.7

4.3

0.6

62,1

12.4

40.0

12.1

1.4

1.6

18.1

0,7

3.0

2.8

7.3

0.6

82.5

13.8

40.5

11.9

1.2

1.7

16.8

0.9

2.8

2.5

7.4

0.5

71.5

13,8

36.4

12.9

1.2

1.8

19.7

0.7

3.2

3.4

6.3

0.5

70.3

SOURCE: Toepfer international The EECGra/n MarketRegu/at/ens, 19&Y87(Hamburg, West Germany: October 1986)
51

Figure 3-2.-Wheat Supply and Disappearance for the European Community ●

I

0 I I I I I T I

1981/62 1984/85 1989/70 1974/75 1979/80 1984/85 1988/87

%x original member atatea in 1967/88,9 membe+r * in ?980/8?, thereafter 10 member atatea

SOURCE: International Wheat Council, Wxld Wheat SbMsflcs (London: various iaauea)

the reverse has been true, and since 1977 ex- In the past 10 years the proportion of wheat

ports have exceeded imports at an escalating used for feed has increased from 25 to 32 perrate. cent, and that used for human consumption has

Domestic usage of wheat in the EC is quite

high. In 1985/86, it accounted for 77 percent

of total usage, which is far greater than in the

other wheat exporting countries. Domestic utilization has increased somewhat in recent years

following a general decline. The primary domestic use is for human consumption in the

form of bread products. Compared with other

exporters, however, domestic use of wheat for

feeding purposes is relatively high in the EC.

decreased from 69 to 60 percent. Thus feed use

of wheat has increased in relative importance.

An important feature of the EC marketing system, with implications for quality control and

maintenance, is that relatively little is stored

between marketing years. This is a result of the

Common Agricultural Policy (CAP) and is also

likely related to the relatively high cost of storage in France due to climatic conditions. Typically only 15 to 20 percent of wheat produc-
52

tion is stored, although this has increased in

recent years. By comparison, all the other wheat

exporters, with the exception of Argentina,

store a substantially larger proportion. Since

the early 1970s, the share stored has increased

significantly in the United States and decreased

in Canada.

Productivity

Wheat growing in France is located generally in the area around Paris. Wheat production extends north of Paris, and across to the

southwest. There is scattered but relatively minor production in the southern parts of France.

The largest five production regions accounted

for 55 percent of the wheat in recent years (8).

Winter soft wheat is the predominant type

produced in France. In addition, small amounts

of spring soft wheat and Durum are produced.

(Similar comparisons are not available for the

EC.) Though Durum production has been relatively incidental, it has increased substantially

in recent years. Yields for winter soft are greater

than spring soft, which exceed those of Durum.

Yields in France are substantially greater than

in other exporting countries (figure 3-3). In

1986, French wheat yields were 2.5, 2.4, 3.1,

and 3.7 times as great as those in Canada, the

United States, Argentina, and Australia, respectively. However, yields in France have decreased since their peak in 1984, while they

have declined to a lesser extent in the United

States, Argentina, and Australia.

To evaluate productivity growth between

countries, a semilog model was estimated over

the time series 1962-86. France had the fastest

growth rate, with an average of 1.3 percent yield

growth per year. This compares with 0.73 percent for the United States and lower values for

other exporters.

Figure 3-3.-Wheat Yields of Major Exporters

6

5

1

0

— Franc e

----- United State s

– ‘––– Argentin a

------ - Australia

1962 1 - 1970 1975 1960 1965 1967

SOURCE: International Wheat Council, Woti Whest Sm@lc.s (London: various issuea).
53

Exports

The United States has always been the largest

exporter of wheat, followed by Canada, the EC,

and Australia, in approximate order of importance. U.S. exports have been more variable

than those of other exporters, and decreased

between 1981/82 and 1986/87. The EC has traditionally been a relatively minor exporter, but

since the mid-1970s exports have increased and

the growth has exceeded that of other exporters

(figure 3-4). The U.S. market share peaked at

49 percent in 1973/74 but dropped to 29 percent in 1985/86 (figure 3-5). The EC market

share increased from 6 percent in the mid-1970s

to 17 percent in the recent years. Other exporters have maintained relatively constant positions.

The proportion of production exported can

also be compared. The EC exports a relatively

small proportion of their production—24 percent in recent years. Other exporters ship substantially greater shares, especially for Canada,

Australia, and, to a lesser extent, Argentina.

Thus, compared with other countries, exports

are relatively less important in the EC.

The largest export markets for the Community (in descending order) are the U. S. S. R.,

Egypt, Algeria, Poland, Morocco, and Syria (figure 3-6). Other, less important markets are

Figure 3-4. Wheat Exports by Major Exporters

1964/65 1969/70 1974/75 1979100 1984/85 1987/E&

a Sk @i*al ~m~, mat= in 1*7/*, 9 member states in 1960/81, 10 member ~~~ in ~mber 1-I ‘heae 12 ~km

b Preliminary

SOURCE: International Wheal Council, ~dd Whaaf Statisffcs (London: various issuea)
54

Figure $5. -Market Share of Wheat Exports by Major Exporters

a

I I I I I 1

u

1964/65 1969/70 1974/75 1979/00 1984/85 1987/88b

as~ ~gln~ ~e~~ ~t~m in IM7&, 9 member states in 1S%0/81, 10 member state in -m~r l-t t~mafter 12

bPraliminaiy

SOURCE: International Wheat Council, Wrk# Whast SmUsdca (London: various issues)

largely located in the Mideast and Africa, which U.S. share declined continually. In Poland, too,

have had above-average growth rates in imports the EC has shown growth that offset losses for

(18). Exports from the EC to the U.S.S.R. were the United States.

nil in the 1970s, but increased substantially after 1981/82. Following Canada, the EC is the

second most important wheat exporter to the

U.S.S.R.

The EC market share of the U.S.S.R. market

reached 21 percent in recent years, while the

U.S. share dropped from 63 percent to nearly

21 percent. Similarly, the EC market share in

Algeria went from virtually nil in the early

1970s to over 50 percent in the 1980s while the

The EC is the largest exporter of wheat flour,

with dominating positions in each of the principal markets. Compared with other exporting

countries, flour exports are of great importance

to the EC. In the 1970s from 40 to 70 percent

of wheat exports from the Community were in

the form of flour (table 3-2). This pattern has

been facilitated by important commercial relationships and by the flour export subsidy program of the EC.
55
56

Table 3-2.—Percent of Wheat and Flour Exports That Are Flour

Year EC* France Canada United States

1963/64 . . . . . . . . . . . . 37.1 18.1 9.9 11.1

1964/65 . . . . . . . . . . . . 27.7 14.3 7.6 11.1

1965/66 . . . . . . . . . . . . 26.0 15.2 6.7 8.6

1966/67 . . . . . . . . . . . . 47.5 22.9 6.1 9.3

1967/68 . . . . . . . . . . . . 30.8 14.7 7.1 6.9

1968/69 . . . . . . . . . . . . 33.0 12.4 11.2

1969/70 . . . . . . . . . . . . 24.3 13.6 8.6 10.7

1970/71 . . . . . . . . . . . . 64.7 31.7 5.9 7.1

1971/72 . . . . . . . . . . . . 52.2 17.9 5.0 7.3

1972/73 . . . . . . . . . . . . 41.7 15.1 4.1 3.7

1973/74 . . . . . . . . . . . . 47.0 14.9 4.2 3.1

1974/75 . . . . . . . . . . . . 34.5 18.5 4.7 2.8

1975/76 . . . . . . . . . . . . 37.6 15.7 4.7 2.5

1976/77 . . . . . . . . . . . . 61.3 18.6 6.0 6.2

1977/78 . . . . . . . . . . . . 69.1 20.9 4.8 4.9

1978/79 . . . . . . . . . . . . 44.7 32.8 5.1 4.5

1979/80 . . . . . . . . . . . . 40.2 27.2 4.6 4.1

1980/81 . . . . . . . . . . . . 34.1 16.6 3.7 4.1

1981/82 . . . . . . . . . . . . 31.3 15.1 3.0 2.7

1982/83 . . . . . . . . . . . . 21.8 9.3 1.9 4.6

1983184 . . . . . . . . . . . . 26.1 13.4 3.4 5.7

1984/85 . . . . . . . . . . . . 22.4 10.5 2.2 3.2

1985/86 . . . . . . . . . . . . 24.0 11.0 2.1 4.7

asix o~ginal rnernberstatesto1967168, nine member states to 1980181, and IO member states from 1981182.

SOURCE: international Wheat Council, Wor/d Wheat StatNics (London: various issues)

In recent years the importance of EC flour

exports relative to wheat has declined and it

now accounts for 22 percent of exports. Thus,

the increase in EC exports noted earlier has

been disproportionately larger for wheat than

for flour. Also, the percent of exports in the

form of flour is less for France than for the EC

as a whole, suggesting that other EC member

countries must export a larger proportion of

flour compared with wheat. Flour is less important for the United States and other wheat

exporters. The principal wheat flour market is

North Africa, which receives just under half

of world exports. This is followed by sub-Sahara

Africa. Both of these markets have had fairly

rapid growth. Other markets are the Mideast,

U. S. S. R., and Latin America, each of which receive declining volumes.

Farm Sector

There are approximately 1 million farms in

France of which about 700,000 are considered

full-time. More than half of all farms are less

than 20 hectares and account for about 15 percent of all farm sales; while 4 percent of all

farms exceed 100 hectares and account for

about 25 percent of all farm products. French

farms, as American farms, therefore are not a

homogeneous entity as structural and income

disparity between farms is quite large.

Production technology for wheat is very similar to that used in the United States—especially

on large farms. Cultural practices for wheat include plowing, discing, and drilling wheat in

the fall. Fertilizer is applied in spring and fall

Photo credit: OTA France Study Team

Production technology used in France is about the

same as that in the United States. Shown are typical

harvesters and tractor with spring-tooth plow found

on the larger farms.
57

and herbicides and insecticides are used as obtain data to verify this observation proved

needed. The study team’s casual observation fruitless since input data is not collected by

is that more fertilizer is used in wheat produc- crop. Intensive use of fertilizer would explain

tion in France than is used in most other coun- in part France’s high productivity of wheat distries, including the United States. Attempts to cussed earlier.

WHEAT QUALITY IN FRANCE

Data have been collected by the Institute

Technique des Céréales et de Fourrages (ITCF)

in France on the quality of wheat as well as

other crops, Data obtained for crop years 1976

to 1986 are presented here briefly as a general

description and to identify trends, The two most

important categories are Standard and Superior

milling wheat, Up to 20 production regions are

delineated by the ITCF data. Crop quality data

are collected by variety, each of which were

previously assigned to one of the above categories and aggregated using a weighted average across producing regions (figures 3-7 and

3-8). (The weights used were the percent of

planted area to each region during 1987; similar area figures were not available for earlier

years.)

Though the protein level for Standard wheat

exceeds that of Superior wheat, the other direct measures of quality of protein (strength)

are greater for Superior than Standard. This

may confirm why the French sometimes rely

more on alveograph and Zeleny tests for trading and policy, Another important observation

is that in the past 2 years alveograph measures

were substantially greater than the long-term

average. Correlations between the quality characteristics and trends are shown in table 3-3.

There are positive and significant relationships

between protein, Zeleny, and alveograph. Of

particular interest is that in general there is no

correlation with trend. With one exception, all

of these are not significantly different from

zero. This indicates that significant positive or

negative trends are not apparent and suggests

that noted increases in yield have occurred

without sacrifices in crop quality. The one exception is that the farinograph of Superior

wheat has a significant negative trend.

Wheat samples from the 1987 crop were obtained to compare with U.S. wheat standards

and end-use performance. Seven samples were

obtained at various locations in France and analyzed using official U.S. methods and procedures (table 3-4). Four of the wheat samples

graded U.S. No. 1 and one each graded No. 2,

Table 3-3.—Correlation Between Wheat Crop Quality Characteristics and Trend

Characteristics Protein Zeleny Hagberg Ash Alveograph Farinograph Trend

Superior wheat:

Protein . . . . . . . . . . . . . . . . . . .

Zeleny . . . . . . . . . . . . . . . . . . .

Hagberg . . . . . . . . . . . . . . . . . .

Ash . . . . . . . . . . . . . . . . . . . . . .

Alveograph . . . . . . . . . . . . . . .

Farinograph . . . . . . . . . . . . . . .

Trend . . . . . . . . . . . . . . . . . . . .

Standard wheat:

Protein . . . . . . . . . . . . . . . . . . .

Zeleny . . . . . . . . . . . . . . . . . . .

Hagberg ... . . . . . . . . . . . .

Ash . . . . . . . . . . . . . . . . . . . . . .

Alveograph . . . . . . . . . . . . . . .

Trend . . . . . . . . . . . . . . . . . . . .

0.80’

0.80’

–0.14

–0.34

1.0

—

1.0 0.83’ –0.19

–0.58’

1.0

—

–0.33

–0.13

–0.20

1.0

—

–0.28

–0.58*

0.36

0.07

–0.67”

1.0

0.11

0.22

–0.08

–0.37

0.41

–0.57”

— 1.0 —

—

—

—

—

—

— —

—

— — — — — —

1.0 0.77”

1.0

0.13

–0.32

1.0

–0.24

0.08

–0.82’

1.0 —

0.81 ●

0.63’

0.31

–0.73’

1.0

—

–0.13

–0.38

0.25

0.68

0.27

1.0

—

—

—

—

—

—

—

—

— —

— —

—

—

— — —

.Indicates significant figures at the 10-percent level.

SOURCE Office of Technology Assessment, 1989.
58 I
59

*

*

*

* -

*

*

*

*

*

I I
Table 3-4.—Analytical Results of French Wheat With Comparison to U.S. Factors

U.S. grade and factors

Shrunken French factors

and broken

—

Miscellaneous Total

Dockage F M DKT kernels Defects Moisture TW impurities impurities Sprout

Site Grade 0/0 0/0 % % % % % % % 0/0 Broken

Sica, Rouen ... ... ... ... .. 1 SRW 0.4 0.1 0.5 1.6 14.1 0.3 1.1 0.5 1.9

Sica, LaRochelle ... ... ... .1 SRW 0. 1 0.0 0.5 0.2 0.7 14.1 0.1 0.2 0.5 3.4

Sica, LaRochelle ... ... ... .1 SRW 0. 1 0.0 0.0 0.2 0.2 14.1 0.05 0.15 0.0 2.2

LaFrarcide, Blois. ... ... ...3 SRW 0.2 0.2 4.5 0.3 5.0 11.6 61.5 0.2 0.6 4.5 1.9

Barett Farms, Authieux. .. ..1 SRW 0.61 0.11 0.6 2.1 12.3 59.2 0.3 0.8 1.4 4.6

Coop Drecx, Loonsa .. .....2 S R W 0.26 0.1 3.5 0.4 4.0 13.9 0.1 0.4 3.5 4.1

Benoist Orgerus. . . ........4 SRW 0. 0 0.0 7.9 0.0 7.9 13.35 60.4 0.1 0.1 7.9 0.2

Average . . . . . . . . . . . . . . . . . . 0.24 0.07 6.9 1.2 3.07 0.2 0.5 2.6 2.6

aComposite of 13 farms

FM = Foreign material

DKT = Damage kernel total

TW = Test weight

SOURCE: Office of Technology Assessment, 1989.
61

No. 3, and No. 4. Averages for each of the U.S. OH. The results indicated that none of the soft

factors and comparable French factors are also wheat would be acceptable as U.S. soft wheat

shown. flours based on a number of tests. Generally,

The seven wheat samples were also analyzed the French wheats are an intermediate qualfor end-use performance for soft wheat at the ity, somewhere between U.S. soft and Hard Red

Soft Wheat Quality research lab at Wooster, Winter wheats.

EUROPEAN COMMUNITY PRICE AND INCOME POLICIES

In 1962 the Common Agricultural Policy was

enacted, which is the overriding policy affecting agriculture in the EC, Its specific goals were

to encourage increased production, stabilize

markets, ensure a fair standard of living to the

farm sector, and encourage security of supply.

The three overriding principles of the CAP are:

I. creation of a single community market,

2. an internal preference for community products, and

3. common sharing of policy costs.2

These objectives have led to a complex system

of mechanisms to regulate the market. As discussed in this section, there are no official grade

standards in the EC or individual countries, and

it is the criteria for the intervention price mechanism that has important impacts on quality

control, Further, distinct efforts have been

made to change these criteria to achieve policy objectives.

The most important prices and regulations

in the EC are target and threshold prices, intervention prices, variable import levies, and

export subsidies. The target and threshold price

are somewhat generic and are not directly influenced by quality. The target reflects the price

that EC producers should receive for their

grain. The threshold price is related to the target price by marketing costs and represents the

minimum price for importing wheat. Given that

world prices are generally below the threshold,

a variable import levy (VIL) is calculated generally as the difference between these prices

(e.g., threshold price minus world price). Complex adjustments are made in the VIL devia-

‘Material in this section draws from: references 7 and 17; and

various issues of Toepfer International.

tions to account for quality differentials of imported wheat and external marketing and

transportation costs.

Since EC domestic prices generally exceed

world prices, and since production has increased, the CAP uses an export restitution or

subsidy to allow disposal of surpluses. In general, the export subsidies are the differences

between local and world prices. Actual export

refunds can be established by traders using

fixed refunds for each zone (“droit commun”),

or by tender. Increasingly in recent years the

latter has become the dominant mechanism,

As a result, the EC has had increased discretion about the value of export refunds. In the

past these have been generic across the quality

of wheat being exported. In 1986/87, however,

the EC allowed a 10 European Currency Unit

(ECU) per MT larger subsidy for milling wheat

being exported from France than for feed wheat

being exported from the United Kingdom, due

to the superior quality of the French wheat. The

differential has been eliminated in 1987/88 because of the deteriorated quality of the French

crop, and likely because of political problems

administering differentials between countries.

Recent Developments

The single most important policy instrument

affecting producer price levels and quality in

the EC is the intervention price (1P). It is at this

level at which the EC is obligated to purchase

wheat so long as it meets certain quality and

eligibility criteria. The IP is similar to the U.S.

loan rate, both providing a price floor below

which local prices seldom fall. An important

difference, however, is that there is 100-percent

eligibility in the EC so long as quality require-
62

ments are met, whereas in the United States

producers have to be program participants.

Intervention prices are negotiated in ECUs,

which is a common price across all member

countries. Monetary Compensatory Units (MCUs)

then apply to individual countries for currency

translation. Thus, prices in a local currency

may change in the opposite direction of a

change in the 1P if there has been a change in

the MCU. Intervention prices and MCUs are

set annually by the European Commission for

the first month of the marketing year. Monthly

increments are legislated for sales to intervention in later months.

The EC also sets price differences in the 1P

for different qualities of wheat. The recent history of EC policy prices is shown in table 3-5.

Target and threshold prices increased through

1983/84, decreasing moderately thereafter. In

1982/83, the European Commission was starting to be concerned about EC prices getting out

of line with world prices. However, program

prices did not begin to decline until 1984/85.

Intervention prices generally changed in the

same magnitude as the target price.

Given the downward pressure on market

prices relative to the 1P in recent years, the

European Commission has adopted a number

of measures to reduce the use of the intervention mechanism. Two of these have been direct reduction in the realized intervention price.

As of July 1986 the EC introduced a co-responsibility levy of 5.38 ECU/MT, or 3 percent. This

is essentially a tax on production to be collected

at the point of first sale. The purpose of the tax

was to “make producers feel the real realities

of the market. ” Realized intervention prices

were reduced another 6 percent beginning with

the 1987/88 marketing year. Effectively the intervention agency of each country could pay

only 94 percent of the nominal intervention

price, and only during certain periods. These

adjustments are ex-post and therefore not

reflected in the prices shown in table 3-5. However, the point is that the effect is to reduce the

floor under which producer prices are supported.

In addition, three indirect actions have been

introduced over time that essentially reduce the

attractiveness of the intervention. First, the

period in which grain could be eligible for intervention has been reduced. Second, in recent

years payment is deferred. In 1987/88 for example, payment would be deferred for 110 days,

implying a forgone cost of interest of 3 to 4 percent. Third, the minimum quality standards to

be eligible for intervention have been tightened

Table 3-5.—European Community Intervention Quality Requirements for Wheat

Feed wheat Bread wheat Quality wheat

Requirement 1987188 1986/87 1984/85 1987/88 1986187 1984185a

1987188 - 1986/87

Sound basic grain. . .........% min 88 88 88 88 88 90 88 88

Moisture b . . . . . . . . . . . . . . . . . . 

0

/0 max 14.5-15.5 14 16 14.5-15.5 14 16 14.5-15.5 14

Natural weight. . . . . . . . . . . . . . Kg/Hl min 72 72 68 72 72 72 72 72

Broken grains . . . . . . . . . . . . . . 0/0 max 5 5 5 5 5 5 5 5

Grain and mixture. . .........0/0 max 12 12 12 12 12 5 12 12

Inc. shrunken kernels. . ......0/0 max 12 12 12 12 12 — 12 12

Impurities. . . . . . . . . . . . . . . . . . 0/0 max 3 3 3 3 3 3 3 3

Sprouted grains . . . . ........0/0 max 6 6 8 6 6 6 6 6

Germination. . . . . . . . . . . . . . — — — 85 – – 85

Falling no. . . . . . . . . . . . . . . . — — — 220 220 180 240 240

Protein c . . . . . . . . . . . . . . . . . — — — 9.5 9.5 10.5 14

Sedimentation . . . . . . . . . . . . — — — 20 20 – 35 35

Dough testd . . . . . . . . . . . . . . — — — positive positive — positive positive

Relevant intervention

price (ECU) . . . . . . . . . . . . . . . 170 170 183 179 179 196 183 183

aFa~to~~ limits li~t~d are for the “minimum quality” reference price; to be eligible for the “medium quality” reference price protein mUSt be 11.5 perCent, sedimentation

25, and falling number 260.

bDiffers by country. C(N x 5.7) Of dv matter.

dFirst stage of the European baking test.

SOURCE: Office of Technology Assessment, 1989.
63

periodically. These changes

the next section.

Administration of the

are discussed in

Intervention

Price Mechanism

Each member country has an intervention authority that is responsible for administering EC

policies. In France, this is Office National

Interprofessionnel des Céréales (ONIC). Only

licensed elevators (OS) are eligible to sell grains

to ONIC—i.e., producers cannot use the programs directly, as in the United States. If an

OS elevator decides its best marketing option

is the intervention mechanism, the managers

contact ONIC with quality specifications and

locations. ONIC can take possession or ask the

OS elevator to store the grain for them under

a negotiated rate. ONIC pays the OS after the

deferred time period, including monthly increments in accordance with the month of sale.

Quality is determined at the expense of the

seller. If either party rejects the first analysis

of quality, a second may be used, the results

of which are binding. Costs of the second analysis would beat the expense of the losing party.

In general, one of the responses of the European Commission in recent years has been to

tighten the quality standards to be eligible for

intervention. This has reduced the attractiveness of the intervention mechanism, resulting

in lower market prices. The quality requirements were consistent during the period

1982/83 to 1985/86.

The EC system recognizes three types of

wheat for purposes of intervention—feed,

bread, and quality. In some cases the factor

limits are the same. The principal differences

between bread and feed wheat are the end-use

characteristics represented by germination, falling number, protein, sedimentation, and a

dough test. Thus to be eligible for the higher

intervention price of bread wheat, minimum

levels of these characteristics are required. If

these characteristics are sufficiently high, the

wheat would be eligible for the intervention

price for quality wheat.

A number of important changes have been

made in recent years. Falling number requirements were increased and protein decreased

for bread wheat in 1986/87. Test weight was

increased for feed wheat from 68 to 72 kilograms per hectoliter (kg/hl) in 1986/87, even

though the EC recommended higher levels.

Another end-use test, germination, was introduced for bread and quality wheat in 1986/87.

There has been much controversy about changes

in moisture requirements. In 1986/87 moisture

was decreased from 16 to 14 percent for bread

wheat and feed wheat. However, actual implementation was at the discretion of the individual countries, and allowances were made up

to 15 percent if subjected to adverse weather.

In 1987/88 individual countries were allowed

to fix higher ceiling levels for moisture. Some

chose 15.5 percent; others, including France,

chose 15 percent.

The intervention prices described in table 3-5

are subject to legislated premium and discounts

for certain quality factors. Implicit in the prices

is a premium of 3.59 ECU/MT for quality wheat

over bread wheat, and 9 ECU/MT for bread

wheat over feed wheat. Other adjustments exist for moisture, test weight, and individual

factors.

THE FRENCH GRAIN INDUSTRY

The grain marketing system in France is dom- are largely determined by private negotiations,

inated by farmer-owned cooperatives for origi- with some terms standardized. Most of the connation and multinational traders for exports to ditioning of grain that does occur happens at

third countries. Transactions between parties the point of origination.
64

Marketing Channels

About 70 percent of the grain that enters the

French marketing system is originated by farmerowned cooperatives; the balance is from private and multinational traders. Grain for domestic use is shipped largely by truck, and to

a lesser extent by barge and rail. Most flour

mills are located close to the production point,

and they are relatively dispersed, thereby requiring transport over relatively short distances.

Sixteen ports in France export grain but the

Port of Rouen dominates, with 47 to 53 percent

of total grain exports. The four largest ports in

1985/86 handled 76 percent of the grain exports

from France (10).

Although trucks dominate, rail transport has

been increasing. Unit trains commonly used

have 20 cars holding 60 tons per car (a total

of about 44,000 bushels per train). Shippers can

use either their own boxcars, or those of a pool

owned by private companies. Barges are active

in northern France but have difficulty competing with railroads, which are indirectly subsidized by the Government.

Organization of Firms

in Wheat Marketing

The French wheat marketing industry has

three key components. One is the farmer-owned

cooperatives largely involved in origination

and, to a limited extent, exporting. The second

is the private grain traders, some of which are

French and others multinational. These firms

specialize 1argely in cost, insurance, and freight

sales (c.i.f.). The third is the domestic milling

industry.

Cooperatives

Much of the present marketing system is

based on developments in the world wheat

economy of the 1930s. At that time ONIC operated as a national market board and all grain

had to be sold to OS storage facility elevators,

which collected taxes and administered quotas.

As noted earlier, OS elevators still exist even

Photo credit: OTA France Study Team

Trucks provide most of the transportation for grain to

domestic destinations and to port. Here a truck is

unloading wheat at the port of La Rochelle.

though ONIC no longer operates as a national

wheat board. Any firm can be licensed as an

OS elevator so long as certain conditions are

met.

A large proportion of the grain is delivered

to the local OS elevator at the time of harvest

due to generally limited on-farm storage. Mechanisms are set up through ONIC and the OS

elevators for financing of harvest sales. Farmerowned cooperatives are the dominant first handler of grain in France, with about 70 percent

of the origination. They are similar in structure to those in the United States. Functions

performed by these elevators include origination, conditioning, storage, financing, and input sales.

Two national unions of cooperatives exist.

One (UNCAC) was originally created to promote production and export of French grains.

It represents about 60 to 65 percent of the local

cooperatives. In the last 5 years UNCAC has

been active in exports, in part through its recent affiliation with Toepfer. About 70 percent

of their export sales are made within the EC.

As a matter of policy they are not active in domestic transactions (e.g., to processors) that
65

would be competitive with their members. The

other national cooperative (UGCAF) is not active in exports and is primarily involved in

inputs.

The local elevators visited by the study team

largely operated multiplant satellite-type systems. Many collection points exist for origination, storage, conditioning, and, to some extent,

transshipment to larger houses. Two examples

include the Sarthe and CAVAC. Sarthe has

15,000 members, and sales are distributed—

with 30 percent from crops, 30 percent from

livestock, and 410 percent from inputs. They

operate 60 collection points with shipments

either by truck or rail, depending on the economics. Total storage capacity is 320,000 MT.

Sarthe is affiliated with UNCAC. CAVAC is located in west central France and has 100 silos,

but only 6 or 7 large ones. Total storage capacity is 165,000 MT, and 60 percent of the grain

handled is exported through their own export

elevator.

Exporter s

Most of the grain shipped from France is by

the multinational exporters, though there are

several private French companies (e. g., Levy,

Souffle). Also, as indicated above, cooperatives

are involved in exports to a limited extent, particularly to other EC countries. Some of the exPhoto credit: OTA France Study Team

Local elevators are similar in structure to those in the

United States. They are owned largely by national

cooperatives and are part of multi plant satellite

systems that originate, store, condition, and transship

grain to large facilities.

porters operate their own facilities, while others

simply buy f.o.b. and make c.i.f. sales. Only a

few private exporters are involved in origination, largely because of the dominance of the

cooperatives as first handlers. Cargill has recently expanded in-country origination. The

private exporters dominate in sales to non-EC

destinations. Perhaps the single most important risk in exporting is that of fixing restitutions with the EC for third-country sales. Thus,

the risk of restitutions and documentation apparently provide significant barriers to smallscale exporters.

Milling Industry

The flour milling industry in France is very

diverse and fragmented. Most of the firms are

family-owned, and about 20 percent of the capacity is owned by cooperatives. A total of 1,215

mills produced 5 million MT of flour in 1985.

The largest company is Grand Moulin de Paris,

which has 15 to 20 percent of the market share

and produces 900,000 MT of flour in 14 mills.

It is the dominant exporter and is also involved

in the gluten industry. The mills are dispersed

geographically and are largely located at the

point of wheat production (11).

An important reason for the current structure and operating practices of the industry is

the quota system. In 1935 there were 9,000 mills,

flour consumption was declining, and there

was a surplus of wheat. In order to control supply a quota mechanism was implemented, with

maximum allocations of wheat per mill. Thus,

even though many firms left the industry, the

remaining could not readily expand output. The

quota system still exists today, but its administration has been liberalized. Part of the reason

for the tremendous competitiveness of flour exporters is that the purchase of wheat for flour

that will be exported is exempted from quotas.

Thus firms with excess capacity, and likely low

marginal milling costs, could utilize that capacity for export.

An important feature of the milling and baking industry in France is that of gluten. This

industry began in the mid-l970s to extract gluten from wheat. Gluten is used as an additive to
66

French port facilities use technology similar to that used in the United States for loading ships.

Here a ship is being loaded with wheat at the port of La Rochelle.

low-protein wheat to produce leavened breads.

This technological development has been an

important growth industry in France and the

EC, and has provided much flexibility for the

millers in meeting contract specifications.

Storage Capacity and Elevator

Equipment

In January 1985 total storage capacity was

53 MMT (table 3-6); by comparison, total grain

production in France in the past 6 years has

ranged from 46 to 59 MMT. Nearly half the capacity is at the country elevator level, followed

by on-farm and terminal silos. In 1985 the average turnover rate (average of the best marketed

production over the past 5 years divided by total storage capacity) of the country elevator sector was 1.56.

There is a drastic disparity in the average size

of elevators. Forty percent of the country elevators have less than 1,000 MT storage capacity, and can hold about 5 percent of the marketed production. Most of the country elevators

serve as collection points and ship to more central elevators for conditioning and reshipment.

In 1986, 64 percent of the country elevators

were owned by cooperatives and the average

capacity of all such elevators was 3,833 MT (table 3-7). Most country elevators are served exclusively by truck, with about 20 percent and

4 percent also served respectively, by rail and

truck. The average terminal elevator holds

20,195 MT. Nearly one-third of the country elevators are equipped with dryers, but only 17

percent of the terminals have dryers. However,

the latter have greater capacity. Most of the ele-
67

Table 3-6.–Storage Capacity for All Grains in France, 1985 and 1986

Storage site Capacity (M MT) Percent

On-farm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5

Silos and cells . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Threshing floors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Corn cribs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Country elevator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25.8

Cooperatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Private merchants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Terminal silos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6

Marketing centre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sea ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

River ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ONIC (rented) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2

Processors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9

Wheat milling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Feed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.0

January 1985 August 1986 January 1985

SOURCE: Port Authority of Rouen.

vators have ventilation equipment. The average cleaning capacity at the country elevator

level is 35 MT/hour, substantially lower than

at the terminal elevator.

Conditioning’

In general, grain is conditioned (dried,

cleaned, and treated for insects) at the first receiving grain elevator. Since grain is conditioned when stored, it is not subject to deterioration during storage. Country elevators and

receiving points are equipped with modern

technology. Cleaners, barley sizers, dump pits,

loading legs, belts, and augers were similar to

those found in elevators throughout the United

States. Based on a small sample, there does appear to be more use of the Redler chain conveyor in place of belt conveyors prevalent in

the United States.

The study team also observed a different type

of storage facility, which from the outside appeared to be a long, flat building, but inside consisted of numerous vertical bins. These bins are

often filled by along conveyor, either belt or

chain, running the length of the long building

3

0bservations in this section are based on a tour by the OTA

study team of selected facilities throughout north and west

France.

NA 33

(10.2) NA (1$1)

(5.2) NA (lo)

(21) NA (4)

29.4 48

(18.5) (21.5) (35)

(6.0) (6.5) ( n )

(1.3) (1.4) (2)

6.9 11

(21) (2.7) (4)

(1.4) (1.6) (3)

(21) (2,6) (4)

2.9 4

1.9 4

( n ) ( n ) (2)

(0.8) (0.8) (2)

— 100

under thereof, with the individual bins filled

by a diversion off the chain conveyor.

Sampling equipment differs markedly among

individual elevators, with one observed by the

study team using a very primitive type of pan

or bucket at the endgate, with one or more sampies being used to represent the truckload.

Others have hydraulic-operated vacuum probes,

There appears to be no requirement on the part

of Government agencies as to the method of

sampling, which is left to the discretion of the

individual operators.

Photo credit OTA France Study Team

France uses a unique storage facility that consists of

numerous vertical bins that are filled by along

conveyor running under the length of the roof.
68
69

Drying

Wheat as well as corn in France are harvested

at moisture levels above that normally experienced in the United States. Until 1987, French

wheat has had a base moisture of 16 percent

in intervention standards. This base then carried into the market channel. A reduction of

intervention moisture level has required that

wheat be dried to 15 or 14.5 percent. All the

firms interviewed by the study team insisted

that 16-percent moisture could be safely stored.

with the change in intervention base, pricing

and discounts also changed. Regardless of intervention moisture, most wheat is apparently

harvested below l5-percent moisture in normal

seasons. In some regions and in some years

weather prevents drying in the field and some

wheat is dried at the elevator. Since essentially

all wheat is stored off the farm following harvest, drying takes place at the first handler or

shortly after delivery into the market channel.

Based on study team interviews, drying of

wheat is relatively infrequent.

Corn in France is harvested at much higher

moisture levels than in the United States. Shrink

tables, for example, go up to 50-percent moisture content. Moisture levels reported by producers and elevators indicate that 30 percent

is not unusual for corn harvested as shelled

corn. This means high-temperature dryers are

essential. In some regions shelled corn is stored

on the farm. One of the farms visited by the

study team had a form of batch-in-bin dryer

with an oil-fired burner.

High-temperature dryers at the elevator are

similar to those used in the United States. The

study team also encountered elevator managers

who, because of concern for breakage, were

using two-stage drying or aeration for removing the final points of moisture. Much of the

corn in the Loire Valley has been harvested on

the ear and stored in long, very narrow cribs.

Under these circumstances, drying takes place

through natural aeration. However, grain handlers in the region reported problems with mold

and alfatoxin from corn stored in this manner.

The heavier grain production region farther

south is apparently harvesting with combines,

and ear cribs are not in general use outside of

this one region.

CIeaning

Throughout the market channel, impurities

and broken kernels appear to be of minor concern, especially for wheat. The study team was

repeatedly told that farmers deliver clean grain

(below 0.5-percent impurities) and that cleaning is seldom necessary to meet export or intervention limits. Millers, however, have more

stringent requirements and a variety of responses. Some country elevators clean every

load as it is delivered from the farm and reclean

again as the grain is being loaded out of storage for delivery to millers.

Photo credit: OTA France Study Team

Cleaners, as shown here, are found at every mill and

country elevator. It is not uncommon for country

elevators to clean every load of wheat as it is delivered

from the farm and reclean again as it is being loaded

out of storage—especially for delivery to millers.
I

t

70

However, at least one miller indicated to the

study team that country elevators did not properly clean their grain and that it was necessary

to reclean at the mill. The team in fact observed

cleaners at one mill removing significant quantities of stones, straw, and other impurities. It

was not clear if the same type of cleaners and

scalpers were being used at both locations or

if the mill cleaning was a more refined form

of removing all of the nonmillable materials to

a level below that delivered from the country

elevators.

Cleaners are present at every mill and country elevator. The study team occasionally found

cleaners at export elevators but saw little evidence that they were used except for extraordinary and very unusual situations. Producers are

paid net of the screenings, which is reflected

in the final payments. Primary incentives for

cleaning at the country elevator level include

contracts that specify a maximum 2-percent impurities, a desire to reduce storage problems,

resale of screenings, and the general expectations of millers that wheat would be clean even

though the contract limits may be loose.

Infestatio n

Insects are seldom a problem. Grain is

checked for insects throughout the marketing

system; when insects are found the grain is immediately fumigated. Some elevators treat with

a contact insecticide as the grain is placed into

bins. Empty bins are treated before placing

grain into them.

● hdbg

The variety of wheat is extremely important

to the French wheat industry, especially at

farms, country elevators, and flour millers.

when it comes off the farm, wheat is placed

in bins by groups of varieties according to milling yield and baking characteristics—good,

average, feed wheat, etc. Although some blending of different qualities does occur on wheat

moving to export channels in France, there does

not seem to be the desire or necessity to blend

wide margins of different qualities.

Pricing and Commercial Trading

Several aspects of the grain marketing system in France have significant impacts on the

commercial operation of the grain trading system. First, there are no “official” standards with

factor limits and grades in France. EC standards, as described earlier, are for intervention

purposes only. At least in the past only a very

small proportion of the wheat went into intervention and EC standards consequently had little direct impact. However, they do have an

indirect impact because they prescribe the characteristics that are measured, some of which

reflect end-use value. These have been adopted

in part or in whole in commercial transactions.

Second, variety plays a key role in some transactions. It is not uncommon for variety to be

specified in contracts, and in some cases certain varieties are excluded. A third important

component is the lack of an “official” inspection agency (i.e., like the U.S. Federal Grain Inspection Service). Private surveying companies

compete to provide this service. Where appropriate, the contract appoints the surveying company. In general, quality is specified as per private contracts and negotiations, with terms

varying across transactions. Quality limits and

delegation of surveying/inspection companies

are negotiable terms of a commercial transaction. When survey/inspection agencies are

not required (e.g., in flour mills), then the longterm commercial relationship between participants assures the integrity of the system.

Grain trading is facilitated in part through

the use of the “Paris Contract.” This prescribes

standardization to grain trades and provides

integrity through arbitration. It provides standardized terms regarding delivery, quality, etc.

The Paris Contract therefore is used extensively

for hedging purposes, with trades being as far

as 9 months in advance. In addition, the contract is used for procurement purposes in some

cases, such as by exporters. However, for others

such as flour millers, greater specificity is

needed and the contract is not used for procurement, though it maybe used for hedging. The

contract has specific quality requirements, typi-
71

cally: specific weight, 76 kg/hi; 15-percent moisture, 4-percent broken, 2-percent impurities,

and 2-percent sprout. For comparison, these

are greater than those required for EC intervention.

In addition, addendums for feed and milling

wheat contain provisions for slight deviations

in quality. Specific premiums and discounts are

established in this contract for deviations in

quality and for the exclusion of varieties. The

deviations are the limits beyond which the merchandise can be rejected.

Premiums and discounts play an important

role in valuation of particular lots of grain as

well as in the allocation across end-users. These

exist throughout the marketing system in

France and are established by market pressures.

Two mechanisms influence actual premiums

and discounts. One is the associated factor

limits that exist in the intervention price mechanism described earlier. These are fixed for

each market year by the European Commission

and apply only to grain entering intervention.

The Paris contract also establishes premiums

and discounts and associated limits. Table 3-8

shows the discounts and allowable limits for

both feed and milling wheat. For each factor,

tolerances from the contract specification and

a maximum deviation are given. At that level

the buyer has the right to reject and/or the contract is settled by arbitrage. In several cases the

discount rate increases for higher levels of deviation (e.g., moisture, impurities). In the milling wheat contract varieties can either be specified, or excluded, and different tolerances

apply. Evaluation is based on 50-grain samples.

For example, in a specified variety contract of

80 percent of one or more varieties then 40

Table 3-8.—Price Adjustments in the Paris Contract for Feed and Milling Wheata

Discount rateb c Maximum deviations

Factor (percent) Unit before arbitrage

Test weight:

Feed . . . . . . . . . . . . . . . . . 1 1 kg/hl 3 kg

Milling 1 1 kg/hl 2 kg

Moisture . . . . . . . . . . . . . . . . 1 first 1 0/0

1-1/2 second 0

/0 20/0

Broken. . . . . . . . . . . . . . . . . . 1/4 per point 30/0

Sprouted . . . . . . . . . . . . . . . . 1/2 per point 3 %

Impurities . . . . . . . . . . . . . . . 1 per point 1-20/0

2 per point 2-4% 4 %

Hagber d. . . . . . . . . . . . . . . . 1/1000 per second 15 seconds

Protein d 

. . . . . . . . . . . . . . . . . 0 0.0-0 .290/o

1.2 0.30

1.6 0.40

2.0 0.50 50 %

Zeleny d . . . . . . . . . . . . . . . . . 0 1

0 2

1.2 3

1.6 4

2.0 5 60/0

Variety: d e

Specified f . . . . . . . . . . . . . 0 0-2 grains of 50

1/2 3 grains of 50

1 4 grains of 50

1 -1/2 5 grains of 50 5

Excluded . . . . . . . . . . . . . . 0 0-2 grains of 50

1/2 3 grains of 50 3

aunless indicated otherwise price adjustments are the same for milling and feed wheat

bAdjustments are made to Pre-tax Prices.

cprorated per 1/10 percent.

dApply t. milling wheat OnlY

eBased on samples of 50 grains and using electrophoresis.

fvarieties in contracts are either specified, or excluded.

SOURCE: Office of Technology Assessment, 1989.
72

grains out of 50 would have to conform and

with discounts as follows:

38-39 grains out of 50 = no discount

37 grains out of 50 = 1/2 percent

36 grains out of 50 = 1 percent

35 grains out of 50 = 11/2 percent

Samples with less than 34 grains of the specified varieties could be refused or settled by arbitrage.

All of these discounts are expressed as a percentage of price. A recent example is that despite the abnormally large supply of sprouted

wheat in the 1987 crop, the trade decided not

to increase the discount but rather allowed it

to be reflected in flat prices. An interprofessional committee meets periodically to review

these discounts but, in general, they have not

changed appreciably in percentage terms.

These discounts apply to all grain delivered subject to the terms of the Paris Contract. Consequently, at least in principal, the discount rate

does not vary across regions in response to locational supply and demand conditions, but the !I actual amount discounted varies depending on

1 the quality characteristics of a particular lot.

I

As noted, variety is often a contract term,

used as a proxy for end-use quality. In practice

contracts may specify either an individual variety, a category of varieties, or excluded varieties. Given that varieties are in general not

usually distinguishable, various mechanisms

(described below) are used to assure the integrity of variety specification. Premiums and

discounts exist in commercial transactions for

specific varieties.

Producers have three basic alternatives for

pricing, The dominant form is referred to as

“Account Pricing,” which essentially is a pooling mechanism by individual cooperatives.

About two-thirds of the wheat is purchased by

first handlers using this approach. Producers

receive about 90 percent of the expected total

price at the time of sale. The dominance of account pricing is due to the predominance of

cooperatives in originating grain, and the cooperative by definition is selling for the account

of the producer. The second alternative is total payment at the point of delivery. About 30

percent of the transactions use this mechanism.

The third alternative is delayed pricing, used

in only about 3 percent of the transactions.

In one case seen by the study team, storage

charges were not used because of the monthly

increments in the intervention price. In another

case, farmers were free to sell under a quoted

delayed price, and storage was provided by the

elevator with charges to the producer, giving

farmers the option of selling out of elevator storage at the time of their choice.

Several procedures/mechanisms are used at

the country elevator level to verify the variety.

First, in most cases the cooperative has sold

seed to the producer, thereby knowing its variety. Sales of certified seed ranged from 40 to

50 percent in one region to 80 percent in

another. Second, producers must declare the

variety at the time of first sale on the “Acce”

certificate. These certificates were originally

implemented for tax purposes but also serve

this important additional purpose. Penalties exist for incorrectly stating the variety. Third,

cooperatives can evaluate questionable lots by

a fairly rudimentary acid procedure, or by requesting an electrophoresis from a laboratory,

However, normally these are not required,

given the above. By knowing the varieties at

the time of receipt, country elevators can bin

by varieties or by categories, and sell on the

basis of varieties. In general these mechanisms

are adequate for assuring variety at the point

of first sale.

VARIETY DEVELOPMENT AND RELEASE

Earlier in this chapter, it was demonstrated proved along several dimensions. And the prethat productivity growth in France has ex- vious section indicated that the French marceeded that of all other exporting countries with keting system places tremendous emphasis on

no sacrifice in quality. In fact, quality has im- the variety, or categories of varieties, as indica-
73

tive of end-use quality. France has a rigid system for the development and release of varieties. This operates through a catalog of official

varieties that is a prerequisite to production and

marketing of seeds. Certain criteria have to be

met for a variety to be considered, including

both agronomic and end-use quality.

Two Government agencies, under the authority of the French Minister of Agriculture, control the release of new varieties and the production and distribution of seed for wheat,

corn, soybeans, and others. Groupement National Interprofessionnel des Semences et

Plants (GNIS) controls the production and distribution of certified seed, regulating many of

the same factors used in seed laws in the United

States—purity, germination, accurate labeling,

etc. The regulations are promulgated and enforced by various departments in GNIS. Their

authority extends to the contracts between seed

companies and growers.

Control of new varieties is achieved through

the Comite Technique Permanent de la Selection des Plantes Cultivees (CTPS), composed

of representatives of plant breeders (in fact

every breeder is automatically invited to designate a representative), producers, millers, and

other users. There are 55 to 60 members on this

committee, evaluating every potential new variety. CTPS sets the criteria, establishes the

tests, evaluates the results, and recommends

to the Minister of Agriculture those varieties

to be registered in the official French catalog.

A third agency indirectly involved is the Institute Techniques des Céréales et de Fourrages.

ITCF was created in 1959 as an association between the Farmers Union and the Cereal Producers and Cooperatives and is financed by a

tax of 3.7 francs/MT on cereals. It has responsibility for research and extension and is working primarily for the benefit of producers and

their cooperatives. Most of the responsibility

for testing and quality evaluation resides with

ITCF, but other research agencies and laboratories—private and public—also provide test facilities.

The annual catalog of varieties (Catalogue

Official des Especes et Varieties) lists all the

varieties of a particular crop that are licensed.

A variety can only be produced and marketed

legally after it is registered and listed in this

catalog. All varieties are subject to automatic

removal from the catalog 10 years after registration. A variety may also be removed at any

time if problems arise. The catalog is a licensing mechanism, but it is also the market mechanism, subject to the catalog restriction, that

determines what is produced. In 1986, for example, the top three varieties (Festival, Fidel,

and Camp Remy) were seeded on 45 percent

of the area planted.

In general, CTPS considers both agronomic

and quality factors. However, before a variety

is accepted for testing it must meet three general criteria:

●

●

●

Distinguishable—The variety or line must

differ from other known varieties on at

least one important morphological or physiological characteristic. In the case of

wheat protein, chemistry is evaluated

through electrophoresis to establish a

unique pattern that is used as a “fingerprint” for that variety, even in commercial

sales where variety is specified.

Homogeneity—A variety or line is considered homogeneous if the tested plants reproduce the same genetic characteristics

as other plants selected from the same variety or line. In the case of wheat, 200 seeds

are planted and no more than two plants

may be differentiated by physiological or

morphological characteristics. A bulk seed

test is also required in which fewer than

three plants in 1,000 maybe differentiable,

Stability-A line is considered stable if successive generations conform to the original essential characteristics.

CTPS has developed a system of grading candidates for the catalog that allows for a tradeoff between yield, agronomic characteristics,

and end-use quality. Basically each new variety must prove superior to existing varieties in

either quality or productivity to obtain approval.

This is achieved by selecting a “witness” variety in each region to serve as the standard

against which the new variety is measured. The
74

I

I

I

witness variety is generally the most popular

one planted by farmers. In the case of wheat,

a tableau exists with yield v. quality in a twoway matrix with a quantitative scale. Any new

variety must equal the yield of the witness and

be equal to the average yield of all new varieties under test. The tableau differentiates between bread quality wheat and feed quality

wheat. Additional points may be garnered for

insect and disease resistance. As an example,

the quality parameter is “W” from the alveograph (a measure of strength) and comparisons

are made to Capitole, a variety released in 1964

and reinstated in 1984. (The zeleny test was

used previously and abandoned; however, the

EC has since incorporated Z into the intervention mechanisms, thereby making the Z score

more important). If a variety being tested has

a W equal to 90 percent of Capitole, then the

yield would have to be between 97 and 106 percent of that of Capitole, depending on other

agronomic characteristics. These are fairly formal and rigid mechanisms and all breeders are

aware of the tableau.

In the case of corn (and feed wheat), the primary criterion is yield. Other agronomic considerations include rate of maturity, resistance

to lodging, tolerance to cold at planting time,

and susceptibility to insects and disease. As

with wheat, there is a numerical scale of points.

Each variety is given a score between O and

5 for resistance to diseases and insects, with

zero being very susceptible. Although end-use

quality is less important in registering corn than

in registering wheat and although the tests are

less extensive, quality corn generates a maximum of 10 points on the registration scorecard.

The points for quality are assigned by CTPS,

on the basis of type (white corn gets an automatic 5 points; waxy and opaque, 10), protein,

and oil. The minimum oil content for garnering points is 10 percent, 4 to 8 points above

traditional commercial varieties.

The time required for testing, approval, and

distribution of new varieties has been shortened

by many breeders, who gamble on approval and

multiply the seeds while the tests are under way.

GNIS estimated 7 years between identification

of a new line and commercial distribution of

the variety. A commercial breeder estimated

a minimum of 4 to 5 years but with an additional 4 years of research preceding the identification of the new line.

QUALITY CONTROL IN FRANCE

Four important features of the French marketing system have an overriding impact on the

organization of the system for grading and inspection, some of which were discussed earlier.

First, no official standards establish standardized numerical grades; EC standards are only

used for intervention purposes. Private contracts for trading purposes have evolved and

in a sense provide standards for trading. (ONIC

tried to implement official standards with numerical grades during the early 1980s but abandoned the effort due to nonuse.) Second, the

private contracts specify important factor limits

and premiums and discounts for deviations

(however, the penalties are substantial). In addition, variety (or sometimes excluded varieties)

is a contract term. Third, no official agency is

responsible for sampling and inspection; private surveying companies play this role. Fourth,

throughout the marketing system the great emphasis on commercial relationships and competitive pressures assures the integrity of the

system.

Throughout the system a number of factors

are measured, depending on the terms of the

contract (table 3-9). Samples are obtained by

various methods, from hand-dipping to mechanical diverter samples, depending on location and who is obtaining them. Portion sizes

for analysis are reduced to a workable size by

different methods. Sample dividers such as the

boerner are seldom used. More often than not

the samples are handmixed and hand-dipped

from a container. The final portion analyzed

is hand-adjusted to obtain the exact portion size

desired.

Producer deliveries are sampled and inspected when they arrive at the first receiving

elevator. Every truckload is inspected by ele-
75

Table 3-9.—French Grading Procedures

Factor Measure Procedure

Test weight . . . . . . . . . . . . . . . . . . . kg/hl

Moisture . . . . . . . . . . . . . . . . . . . . . . 1llOO

/o

Extraneous matter . . . . . . . . . . . . . 1/10%

Broken kernels . . . . . . . . . . . . . . . . 1/10%

Sprouted kernels . . . . . . . . . . . . . . . 1/10%

Miscellaneous impurities . . . . . . . . 1/10%

Grain impurities . . . . . . . . . . . . . . . 1/10%

SOURCE: Office of Technology Assessment, 1989.

Kilograms per hectoliter determined (in most cases) by use of Dickey John

Grain Analyzer (GACII)

Determined (in most cases) by use of the Dickey John Grain Analyzer

(GACII)

Sieve 100 grams (in some cases, two separate 50-gram portions) over a l-mm

sieve. All material passing through is extraneous. This becomes a component of the factor impurities (see below).

From the above sieved sample, remove all broken kernels. This includes all

kernels of which the endosperm is partially uncovered and from which the

germ has been removed.

From the above sieved sample, remove all sprouted kernels (the line on

sprout is similar to U.S. line).

Includes material that passes through the l-mm sieve plus weed seeds,

husks, chaff, straw, sand stones, etc. (foreign material and dockage combined in U.S. standards) and damaged kernels such as mold, heat damaged,

smutty, etc.

Includes shrieved kernels of the above 100-gram sample that passes through

a 2-mm (5/64) X 20-mm sieve, plus kernels that are frost-damaged, greendamaged, insect-damaged, sick-damaged, other grains, and all material included from miscellaneous impurities above.

vator personnel. Samples are obtained in a variety of ways, from a mechanical trier to a quart

container that is used to obtain the grain as it

flows from the truck to the dump pit. Almost

all producer grain is sampled and inspected by

elevator employees. Each inbound truck or

trailer is checked for test weight and moisture.

Broken kernels, impurities, and sprouted kernels are also examined, but this varies some,

depending on the elevator and the overall quality of the crop. Some elevators run a falling

numbers test rather than pick for sprouted kerPhoto credit: OTA France Study Team

Sampling equipment differs markedly among local

elevators. Some utilize a primitive type pan or bucket

at the endgate. Others have hydraulic vacuum probes

as shown here.

nels. Producers must also declare the variety

of wheat. Each load delivered must be accompanied by a document that declares the owner,

weight, taxes, variety of wheat, and other identification and quality information.

Wheat is binned at the country elevator by

varieties representing milling yield and baking

characteristics. Some elevators will turn and

sample the grain from each bin in order to run

various end-use tests that were too technical

and too time-consuming to conduct at the time

of harvest. This is sometimes done in conjunction with the millers, who are searching for

good-quality milling wheat. Other elevators

maintain composite samples of all the grain

placed into each bin, which may be used for

analysis. Either way, the elevator operator has

a good idea about the physical and chemical

qualities of the wheat in each bin.

Generally, grain moving to mills is not sampled or inspected because the mills request specific wheat varieties that have undergone chemical tests and that meet the desired baking

requirements. Grain moving to export channels

is either sampled and inspected at the shipping

point or at the receiving elevator by a surveying company, depending on terms of the contract. Grain shipped to elevators must meet the

quality specified in the export contract. Grain
76

Photo credit: OTA France Study Team

Computers are used at many local elevators to

assemble data on every quality factor tested

on each truckload of grain.

not meeting specified export contracts may be

rejected by the surveying company or receiving elevator,

No Government agency exercises authority

over quality or quantity of grain as it moves

through market channels. The only agency that

may influence quantity or quality is the Service des Instruments de Service (weights and

measures). It tests all inspection and weighing

equipment annually for accuracy. This includes

grain industry and surveying company equipment and instruments.

Private surveying companies such as SGS and

Thionville provide the closest thing to uniform

inspection. They check all grain moving in export channels and, at the request of the interested parties, provide inspection at interior

locations in France. SGS handles by far the

largest percentage of inspection, but other surveyors may be used depending on terms of the

contract.

Inspection procedures vary considerably

throughout the marketing system, as can be expected when no supervising body insures uniformity. Surveyors have tremendous control of

overall export shipments, including weighing,

sampling, and inspecting the grain and running

chemical analyses required in the contract.

They have authority to stop loading when grain

does not meet the quality specified by the contract. Controls to stop loading are located next

to the sampling station in order to immediately

halt operation if “off contract” grain is running.

Exporters deliver as close to the contract quality limits as the surveying company permits.

SGS issues certificates and, depending on terms

of contract, may accept responsibility for quality and quantity at destination.

Wheat variety is extremely important to the

wheat millers in their effort to process good

baking-quality flour. Millers often go directly

to the country elevator and test wheat. Electrophoresis is commonly used for testing varieties. Mills request a specific wheat quality in

their contract. If the wheat does not meet the

desired specifications when it arrives at the mill

it is sent back to the shipper. The normal contract specifies the following quality factors: test

weight 76 kg/hl, 40-percent broken kernels, and

2. O-percent sprouted, which are the same as the

Paris Contract. There are very few problems

with biological defects such as mold, sick

wheat, and soon in French wheat, but sprouted

kernels are a problem. The French millers use

Photo credit: OTA France Study Team

Wheat variety is a very important indicator of quality.

Farmers must declare the variety of wheat delivered to

the local elevator. One method of verifying the variety

is electrophoresis technology which can identify

the exact molecular structure of the grain.
77

infrared reflectance to test moisture, protein,

starch, ash, etc.

Export flour in France moves much faster

from mill to vessel than it does in the United

States. Seldom is flour placed in storage in

France. It moves direct from the mill to the vessel and is almost always aboard the vessel

within 2 weeks of milling. (U.S. flour is usually placed in storage at the port waiting for

a vessel often for up to 30 days or more.) The

French seldom if ever have insect problems.

French millers fumigate the mill one to three

times per year for insect infestation. In France,

sacked flour is transported from the mill to the

port in open-top boxcars covered with tarpaulins. It is placed in slings and when it arrives

at the port the contents of the entire car is slung

from the rail car to the vessel.

FINDINGS AND CONCLUSIONS

The wheat produced in France is a winterplanted soft wheat. The quality is generally a

lower protein, medium-strength wheat and the

end-use performance is somewhere between

U.S. soft and hard winter wheat, Yield growth

of wheat in France and the EC has exceeded

that of other exporters. Yet the quality of recent wheat crops has exceeded the long-term

average. This indicates that yield growth has

occurred without sacrifices in crop quality,

A major reason for no sacrifice in wheat quality while yields have increased is the variety

development and release program. Release of

varieties is subject to approval by the Government. Formally, a committee makes recommendations to the French Minister of Agriculture,

who in turn licenses a variety. Criteria for release include both agronomic and quality factors. And a trade-off between a measure of enduse performance and yield is included in the

criteria.

The principal agricultural policy in the EC

is the Common Agricultural Policy, which includes the intervention price as the key instrument affecting producer prices and quality

differentials. No official grade standards exists

in the EC and it is the criteria for intervention

that largely are adopted as minimum standards

for the market. The intervention price includes

premiums and discounts for quality factors and

differences in end-use performance criteria between feed, bread, and quality wheat, Several

actions have been taken in recent years to reduce the effectiveness of the 1P, One has been

to tighten the quality requirements to be eligible for nonfeed intervention prices. Despite

these efforts, it does not appear that quality has

improved.

One important characteristic of the French

marketing system is limited on-farm storage,

And only a relatively small proportion of wheat

production is stored between crop years, thereby minimizing problems associated with interyear storage. A large proportion of grain is delivered to the marketing system at harvest. As

a general rule, conditioning of grain (drying,

cleaning, and treating insects) is done at the

first point of sale. Wheat is generally clean at

the farm level due to good weed control and

proper combine adjustment. However, all elevators have cleaners and it is a common practice to clean the grain as it is received, as well

as while loading out. Incentives to do so include

contract requirements, resale of screenings, and

a desire to reduce storage problems.

Variety plays an important role in marketing

French wheat. It is used because the end-use

performance of each variety is known, and direct measures of end-use performance are not

very expeditious. In practice, transactions

specify a particular variety, categories of varieties, or excluded varieties.
78

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

r

I

I

! 11.

,#

I

I

I

Eurostat, Statistical Office of the European

Community, Brussels, various issues.

Eurostat, Evolution des Capacities de Ze Stockage (Paris: November 1986).

Groupement National Interprofessionnel des

Semences et Plants, French Seeds (Paris: 1987).

Institute Technique des C&ales et des Fourrages, Soft Wheat Quality French Harvest

(Paris: various issues).

International Wheat Council, “Market Report,”

London, June 4, 1987.

International Wheat Council, WorZd Wheat

Statistics (London: various issues).

Newman, M., Fulton, T., and Glaser, L., A Comparison of Agriculture in the United States and

the European Community, ERS Staff Report

AGE 5870521 (U.S. Department of Agriculture,

Washington, DC: June 1987),

Office National Interprofessionnel des C&6ales,

Marche Des Cereales (Paris: various issues).

Office National Interprofessionnel des C&6ales,

P]antes de Grande Culture (Paris: 1987).

Sosland, M., “French Merchant Capitalizes on

EC Grain Marketing Potential,” World Grains,

May 1987.

Sosland, M., “Highly Fragmented French Mill12.

13,

14,

15.

16.

17.

18.

ing Industry Makes Impressive Gains, ” WorZd

Grains, September 1987.

Toepfer International, The EEC Grain Market

Regulations, 1984/85 (Hamburg, West Germany: September 1984).

Toepfer International, The EEC Grain Market

Regulations, 1986/87 (Hamburg, West Germany: October 1986).

Toepfer International, The EEC Grain Market

Regulations, 1987/88 (Hamburg, West Germany: September 1987).

U.S. Department of Agriculture, Foreign

Agriculture Service, “EC Levy Reduction Price

Thermometer,” Foreign Agriculture Circular,

FG-9-87, August 1987.

U.S. Department of Agriculture, Foreign

Agriculture Service, Attache Report FR-5084

(Paris: American Embassy, 1985).

U.S. Department of Agriculture, Foreign

Agriculture Service, “European Community

Grain Policies and Developments,” Foreign

Agriculture Circular, FG-42-81, Dec. 11, 1981.

Wilson, W., Riepe, J., and Gallagher, P., “Analysis

of Demand for Wheat Quality Characteristics, ”

background paper prepared for the Office of

Technology Assessment, U.S. Congress, 1988.”
Chapter 4

The Canadian Grain System
CONTENTS

I

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Page

Overview of Production and

Marketing . . . . . . . . . . . . . . . . . . . . . . . 81

Production . . . . . . . . . . . . . . . . . . . . . . . . 81

Production Technologies . . . . . . . . . . . . 85

Domestic Utilization . . . . . . . . . . . . . . . . 87

International Trade.. . . . . . . . . . . . . . 89

Prices . . . . . . . . . . . . . . . . . . . ........0 91

The Canadian Wheat Board . . . . . . . . . . . 92

Historical Background and Current

Objectives . . . . . . . . . . . . . . . . . . . . . . . 92

Producer Pricing and Policy ....... 94

Grain Handling in Canada . . . . . . . . . . . . 95

Transportation. . . . . . . . . . . . . . . . . . . . . 95

Cleaning . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Drying . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Blending . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Fumigation. . . . ., . . . . . . . . . . . . . . . . . . 98

Quality Control of Canadian Wheat . . . . 98

Variety Development and Release . . . . 98

The Canadian Grain Commission ....100

Findings and Conclusions. . . . ...105

Chapter A References . . . . . . . .......,106

Figures

Figure No. Page

A-1. Wheat-Growing Regions

of Canada.. . . . . . . . . . . . . . . . . . . . ., 82

4-2. soil Zones of Western Canada . . . . . 83

A-S. Protein Content of Wheat in

Western Canada . . . . . . . . . . . . . . . . . 84

A-A. Wheat Yields of Major Exporting

Countries . . . . . . . . . . . . . . . . . . . . . . . 84

A-S. Wheat Stocks/production Ratio,

United States and Canada . . . . . . . . . 89

Tables

Table No. Page

A-1. Canadian Grain Production and

Exports . . . . . . . . . . . . . . . . . . . . . . . . 83

Table

4-2.

4-3.

4-4.

4-5.

4-6.

4-7

4-8,

4-9,

4-1o.

4-11.

4-12.

4-13.

4-14.

4-15.

4-16.

4-17.

4-18.

4-19,

4-20,

No. Page

U.S. and Canadian Wheat Area

and Yields . . . . . . . . . . . . . . . . . . . . . 85

Canadian Wheat Stocks at

July 31. . . . . . . . . . . . . . . . . . . . . . . . . 86

Energy Sources for Drying Wheat

on prairie Farms, 1981 . . . . . . . . . . . 87

Canadian Domestic Wheat Milling,

1980/81 to 1984/85 Averages . . . . . . 88

Canadian Wheat Exports by Grade,

1981/82 to 1986/87. .. . . . . . . . 90

Share of Canadian Wheat Exports

by Country, 1970/71 to 1985/86, . . . 90

Global Wheat Imports by Region,

Selected Years . . . . . . . . . . . . . . . . . . 91

Average Export Prices of Wheat,

1970-84 . . . . . . . . . . . . . . . . . . . . . . . . 91

Wheat Import Prices by Class,

Basis Canal F Japan, 1970/71

to 1984/85 . . . . . . . . . . . . . . . . . . . . . . 92

Annual Price Indices, Major Wheat

Exporters, 1970-84. . . . . . . . . . . . . . . 92

Handlings of Wheat at Canadian

Terminal Elevators, 1986/87 Crop

Year. ... ..... . . . . . . . . . . . . . . 95

Wheat Dried at Terminal Elevators,

1986/87 . . . . . . . . . . . . . . . . . . . . . . . . 96

Terminal Elevators in Western

Division Equipped With Drying

Machinery . . . . . . . . . . . . . . . . . . . . . 97

Canadian Wheat Varieties . .......100

Export Grade Determinants of

Red Spring Wheat .... . .........101

Export Grade Determinants of

Amber Durum Wheat. ... ... ... ..102

Quality Tests Used in Canada. ....103

Grade and Variety in Canada .. ...103

Pesticides Screened for

in Canada . . . . . . . . . . . . . . . . . . . . . .105
Chapter 4

The Canadian Grain System

Canada is the second largest wheat exporter, Board (CWB), the Canadian Grain Commission,

following the United States. The wheat pro- and the variety release and control procedure.

duced is mainly hard red spring, which is high These interrelated influences have a significant

in protein. Canadian wheat has a reputation impact on the quality of grain exported from

for being high quality and very uniform. Canada. *

A number of institutions and institutional *This chapter is based on findings of an OTA study team con- relationships influence the quality of Canadian sisting of Dr. Colin A. Carter, Dr. Andrew Schmitz, Mr. David

wheat. These include the Canadian Wheat M. Orr, and Mr. Robert A. Zortman.

OVERVIEW OF PRODUCTION AND MARKETING

Production

Wheat contributes more to farm cash receipts

in Canada than any other commodity. Beef is

a close second. It is largely for climatic and

agronomic reasons that wheat completely dominates the Canadian cereal grain industry. Normally about 29 million hectares are cropped

each year in Canada and close to 40 percent

of this is sown to wheat. Most of it is grown

in the western “prairie” provinces of Alberta,

Saskatchewan, and Manitoba (figure 4-1). In

contrast, corn production takes place largely

in the eastern province of Ontario. Almost all

the wheat is grown under dryland conditions,

with a very short growing season, The farms

are quite large in western Canada (average size

per producer is about 275 hectares) and the

trend is towards even larger and more mechanized operations. Annual precipitation in the

prairie regions ranges from 350 to 550 millimeters. The predominant crop is spring wheat

rather than winter wheat. The planting season

for spring wheat is in May and the harvesting

takes place in late August through early

October.

Measured by volume, the major grains/oilseeds produced are wheat, barley, corn, oats,

and canola (table 4-1). In terms of value, the

order of importance is wheat, canola, barley,

and corn. Normally about 75 percent of the

wheat, 50 percent of the canola, and 50 percent of the barley is exported.

Western Canada can be divided into four soil

zones, which correspond closely to climatic and

productions patterns: brown, dark brown, gray

wooded, and black (figure 4-2). Low precipitation is the restrictive factor affecting crop production in the brown and dark brown soil

zones. The gray wooded zone has a very short

frost-free period (often less than 80 days) and

low natural soil fertility. The black soil zone

is very fertile and it usually receives more precipitation than the other soil zones (average

4100+ millimeters). Its frost-free period may exceed 100 days. The wheat yields in the black

soil zone are generally higher and less variable than in other areas of western Canada. But

the protein content of this wheat is typically

low (figure A-3) compared with the wheats grown

in the brown and dark brown soil zones. Protein content is important to the producer since

it is a factor in the grading of No. 1 and No,

2 Canadian Western Red Spring (CWRS) wheat.

Normally Saskatchewan produces over 60

percent of the wheat in western Canada. The

province of Alberta produces around 23 percent and Manitoba, approximately 15 percent.

The yields in Manitoba and Alberta average

about 2 metric tons per hectare (MT/ha), while

in Saskatchewan the wheat yields average 1.8

MT/ha.

About 85 percent of Canada’s production is

Hard Red Spring wheat, which is high in both

protein content and baking strength, both

81
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,

,

I

,

Figure 4-1 .—Wheat-Growing Regions of Canada

I

I

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I

1

I

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I

I

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I

British I Columbia Alberta I

i

-------------- -- - -

Saskatchewan

• Each dot represent 500,000 metric tons.

SOURCE: Adapted from U.S. Department of Agriculture, Major World Crop Areas and Climatic Profiles, Agriculture Handbook 664, 1987.

desirable characteristics for pan bread. In contrast, the dominant wheat in the United States

is Hard Red Winter and in Australia, white

wheat. Four major classes of wheat are grown

in Canada: Hard Red Spring (HRS), Red Winter (HRW), Soft White Spring, and Amber Durum. The red spring wheats are used around

the world to blend with softer, weaker wheats

(from other countries) for bread flour. Allpurpose flour for rolls, cakes, and muffins is

milled from the red winter wheat and the soft

white wheat. Durum wheat, some 10 percent

of production, is used for pasta products.

It is worth noting that production has increased considerably over the last 15 years,

from 9 to 24 million metric tons (MMT). Much

of the increase is due to increased area rather

than to yield improvements. There are year-toyear yield fluctuations in each exporting region

but, on average, Canadian wheat yields have

not increased significantly since the early 1970s

(figure 4-4). This is in sharp contrast to the case

in the United States and the European Community (EC). To statistically measure the

growth of wheat yields in each major exporting region, yield was regressed on time for the

1970-84 period. According to the estimated

equations, the growth of yields in Canada and

Australia is not statistically different from zero.

Alternatively, yields in the EC have grown annually by 121 kilograms per hectare (kg/ha). U.S.
83

Table 4-1.—Canadian Grain Production and Exports (thousand metric ton)

Crop year (August 1 through July 31)

Average

Grain crop 1982183 1983184 1984/85 1985/86 1986/87 (1982 to 1987)

Wheat:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Oats:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Barley:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Rye:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Flaxseed:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Rapeseed/Canola:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Corn:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

Soybeans:

Production. . . . . . . . . . . .

Exports . . . . . . . . . . . . . .

26,736

21,367

26,505 21,199 24,252

21,765 17,583 17,714

31,850

20,352

26,108

19,756

3,637

105

2,773 2,670 2,997

122 18 44

3,658

250

3,147

108

13,965

5,648

10,209 10,296 12,443

5,536 2,781 3,794

15,030

6,528

12,389

4,857

933

314

828 664 598

747 376 277

658

166

736

376

752

430

444 694 902

621 560 623

1,057

660

770

579

2,225

1,271

2,609 3,428 3,508

1,498 1,456 1,456

3,949

2,126

3,144

1,561

6,513

(248)

5,933 7,024 7,472

203 (42) 118

6,665

N/A

6,721

8

735 944 1,048

(219) (104) (2)

988

N/A

913

(156 )

NOTE: The data for 1988/87 are preliminary.

SOURCE: Canada Grains Council, Stafisfica/ Harrdbook ‘66(Winnipeg, MB: 1988~ Canadian Grain Commission, Carradian Grain Expor?s 1986/87(Winnipeg, MB: 1987)

Figure 4.2.—Soil Zones of Western Canada

I

110° 100°

■ Black and tranistional soil zone ❑ Gray wooded soil zone

❑ High lime soil zone ❑ Black soil zone

S=URCE: L.E. Evans, “Spring Wheat Production in the Black and Gray Soil

Zones of Western Canada,” Wheat Production in Canada: A Review,

A.E. Slinkard and D,B. Fowler (eds.) (Saskatchewan: University of

Saskatchewan Extension Division).
84

Figure 4-3.— Protein Content of Wheat in

Western Canada

60

50

40

20

10

0

Saskatchewan Manitoba

Black Soil

Protein content

❑ under 120/0 ❑ l2,0-

■ 14.0-14.9% ■ ove r

12.9% ❑ 13.0 - 13.9%,

14.9%

SOURCE: L.E. Evans, “Spring Wheat Production in the Black and Gray Soil

Zones of Western Canada,” Wheat Production in Canada: A Review.

A,E SIinkard and D.B. Fowler (eds,) (Saskatchewan: University of

Saskatchewan Extension Division),

Figure 44.-Wheat Yields of Major Exporting Countries

.————

.----- -

Canada

USA

Australia

1971 1973 1975 1977 1979 1981 1983

International Wheat Council, 1987.
85

yields have grown by 37 kg/ha per year. This

converts to an annual growth rate of about half

a bushel per acre in the United States.

Production Technologies

The area planted to wheat and wheat yields

are less in Canada than in the United States.

Over the 1972-85 period the Canadian area

planted to wheat averaged 11,110 hectares annually, while the U.S. area averaged 26,467

hectares (table 4-2). During the same period

Canadian wheat yields averaged 1.8 MT/ha,

compared with 2.2 MT/ha in the United States.

However, variability in wheat area and yield

is larger in the United States than in Canada.

The higher yield in the United States is due

to climatic conditions, varieties grown, and fertilizer usage. The winter varieties grown there

normally receive more rainfall than the spring

varieties grown in Canada. Only 20 to 25 percent of U.S. acreage is sown to the lower yielding spring varieties, compared with more than

95 percent of the acreage in Canada. In addition, the varieties grown in the United States

are generally “semidwarf or short-straw types.

Many of these have higher yields than the taller

wheats, but Canadian regulations prevent the

growing of most semidwarf varieties. It has

been estimated that Canadian wheat yields

would improve significantly if semidwarf varieties were permitted (5). In the past few years

a selected small number of semidwarf varieties

have been licensed in Canada, which should

contribute to higher average yields in the future.

It is difficult to obtain data on crop-specific

fertilizer application. However, it is generally

true that Canadian farmers apply less fertilizer

to wheat land than U.S. farmers do. During the

1984/85 season, sales in western Canada included 891,050 MT of nitrogen and 456,865 MT

of phosphate fertilizers.

As the use of phosphate fertilizer is relatively

constant from crop to crop, the application to

wheat can be approximated by dividing total

phosphate sales by total cropped acreage. This

works out to about 17 kg/ha (15.5 pounds (lbs)/

acre), which is only about half the rate recommended by Agriculture Canada. Nitrogen application varies substantially by crop because

of the large amount of fallowing on the Canadian prairies. Agriculture Canada recommends

that approximately 60 lbs of nitrogen be applied

in Canada but on stubble land only 410 to 45 lbs

are actually applied. Its application on summerfallow is highly variable. In the 1984/85 season,

891,050 MT of nitrogen were sold in western

Table 4-2.—U.S. and Canadian Wheat Area and Yields

United States Canada

Area Yield Area Yield

Year (1,000 ha) (100 kg/ha) (1,000 ha) (100 kg/ha)

1972 . . . . . . . . . . . . . . . . . . . . 19,142 22.0 8,640 16.8

1973 . . . . . . . . . . . . . . . . . . . . 21,913 21.3 9,430 17.1

1974 . . . . . . . . . . . . . . . . . . . . 26,453 18.4 8,934 14.9

1975 . . . . . . . . . . . . . . . . . . . . 28,125 20.6 9,474 18.0

1976 . . . . . . . . . . . . . . . . . . . . 28,703 20.4 11,252 21.0

1977 . . . . . . . . . . . . . . . . . . . . 26,986 20.6 10,114 19.6

1978 . . . . . . . . . . . . . . . . . . . . 22,862 21.1 10,584 20.0

1979 . . . . . . . . . . . . . . . . . . . . 25,274 21.3 10,488 16.4

1980 . . . . . . . . . . . . . . . . . . . . 28,783 21.3 11,098 17.3

1981 . . . . . . . . . . . . . . . . . . . . 32,634 22.5 12,427 19.9

1982 . . . . . . . . . . . . . . . . . . . . 31,539 23.5 12,554 21.2

1983 . . . . . . . . . . . . . . . . . . . . 24,843 24.3 13,697 19.4

1984 . . . . . . . . . . . . . . . . . . . . 27,085 23.3 13,158 16.1

1985 . . . . . . . . . . . . . . . . . . . . 26,196 23.0 13,688 17.4

14-year average . . . . . . . . . . 26,467.0 21.7 11,109.9 18.2

14-year standard

deviation . . . . . . . . . . . . . . 9,337.2 7.3 3,995.0 6.3

Coefficient of variation. . . . 2.83 2.97 2.78 2.89

SOURCE” International Wheat Council, world Wheat Statistics (various annual issues).
I

I

I

,

,

I

I

,

,

I

I

86

Canada. The average application was therefore

about 34 kg/ha (30.3 lbs/acre). The application

of fertilizer in the United States is much closer

to the recommended rates. Although difficult

to measure, it appears that Canadian wheat

farmers use about 75 percent as much fertilizer

as U.S. farmers do.

A major difference in cropping practices between Canada and the United States is the practice of summer-fallowing in Canada. Fallowing is conducted to preserve soil moisture and

control weeds. Although beneficial to the soil,

this practice has been recognized as seriously

affecting the future productive capacity of

Canadian prairie lands (11). The area fallowed

ranges from 20 to 25 percent of total arable land

in the prairie provinces. The area in summerfallow has been gradually reduced over the past

25 years. A large increase in 1970 can be attributed to the Lower Inventories for Tomorrow

(LIFT) Program, which paid farmers to set aside

acres. An increase in 1987 from 20.5 to 21.3

million acres was due to the dry conditions on

the prairies and the poor financial returns from

crop production. Despite pressures to change,

fallowed acreage is unlikely to decline much

further in the foreseeable future.

Although herbicide application rates vary

from region to region, the rates in Canada are

similar to those in the United States. Of course,

summer-fallowing in Canada reduces the need

for herbicide, and therefore some Canadian

farmers use very little chemical weed control.

The chemical licensing laws differ between the

United States and Canada, and from time to

time products are available in one country but

not the other, Avadex, Banvel, Brominal, HoeGrass, MCPA, and 24-I) are the most common

chemicals used to control weeds in wheat.

Ninety-five percent of the wheat acreage was

treated in 1984. Since wheat production is more

intensive in Manitoba than in Saskatchewan,

however, this 95-percent treatment rate does

not apply across the entire prairie region.

A large percentage of the Canadian wheat

crop is swathed before it is harvested. This practice is more common in Canada because of the

cool climatic conditions that normally prevail

during the harvest there. Swathing the wheat

results in a more rapid ripening and drying of

the grain. According to the 1981 Census, virtually every farm in western Canada had a swather that year. The self-propelled swather is by

far the most popular. The same census indicated there were about 125,000 grain combines

in western Canada, and that 71 percent were

self-propelled.

As indicated later in this chapter, Canada

tends to store a larger percentage of its wheat

crop than the United States does. Table 4-3 provides a breakdown of where these stocks are

held. On average, during 1976 to 1987,35 percent of the stocks were held on-farm. Most

farms have small bins that hold from 1,500 to

5,000 bushels. These bins are generally assembled from rolled steel sheets and they have eiTable 4-3.-Canadian Wheat Stocks at July 31 (thousand metric ton)

Transfer elevators and

Year On-farm Primary elevators Interior terminals Export terminals Stocks

1976 . . . . . . . . . . . . . . 1,580 (20%) 2,896 (35°/0) 6 (0.07%) 2,586 (32°/0) 8,044

1977 . . . . . . . . . . . . . . 7,166 (54%) 2,538 (19°/0) 7 (0.05%) 2,517 (19%) 13,324

1978 . . . . . . . . . . . . . . 5,280 (44%) 4,019 (33%) 19 (0.16°/0) 1,747 (14%) 12,105

1979 . . . . . . . . . . . . . . 9,117 (61 %) 3542 3 ,579 (24% ) 6 (0.04 %) 1,542 (10%) 15,015

1980 . . . . . . . . . . . . . . 4,218 (40%) (34%) 9 (0.08%) 1,749 (16%) 10,604

1981 . . . . . . . . . . . . . . 1,483 (18°/0) 3,598 (43%) 4 (0.05%) 2,159 (26°/0) 8,315

1982 . . . . . . . . . . . . . . 3,605 (38%) 3,605 (38%) 46 (0.48%) 2,139 (22%) 9,549

1983 . . . . . . . . . . . . . . 2,125 (21 %) 4,134 (420/o) 9 (0.09%) 2,328 (240/o) 9,913

1984 . . . . . . . . . . . . . . 1,940 (19%) 3,247 (36%) 3 (0.03%0) 2,687 (30%0) 8,962

1985 . . . . . . . . . . . . . . 970 (14%) 1,577 (23%) 2 (0.03%) 3,609 (520/o) 6,972

1986 . . . . . . . . . . . . . . 700 (90%) (43%) 27 (0.34%) 2,966 (380/o) 7,884

1987 . . . . . . . . . . . . . . 4,797 (420/o) 2,694 (24%) 5 (0.04%) 2,880 (260/o) 11,288

12-year average . . . . . 3,565 (350/0) 3,236 (32%) 12 (0.12%) 2,409 (240/o) 10,164

NOTE: Parentheses report percentage of total wheat stocks.

SOURCE: Canadian Grains Council, S@tlstlCal Anrrual (various annual issues).
87

ther cement or wooden floors. The cold prairie winters facilitate wheat storage as there are

few insect or rodent problems.

Both heated and unheated drying are used

on prairie farms. The trend in recent years has

been toward unheated air drying on individual bins (i.e., aeration drying). But heated drying is still very common in the northern parts

of the wheat belt. The 1986 Census conducted

by Statistics Canada reported a total of 15,973

grain dryers in the three western prairie

provinces. Table &I reports the energy sources

used to dry wheat on prairie farms in 1981. A

total of 464,000 MT were was dried on the

prairies that year, most commonly by propane.

Fourteen percent of the drying in Alberta was

done with natural gas, which is readily available in that province. Electricity is also an

important energy source, especially in Saskatchewan.

Domestic Utilization

The domestic market absorbs about onefourth of all Canadian wheat sales in any given

year, with the remainder being exported. Ninetyfive percent of Canadian wheat originates in

western Canada, and prairie farmers depend

much less on the domestic market than eastern Canadian wheat farmers do.

On average, about 10 percent of Canadian

production is milled at home, 10 percent is sold

domestically as feed, and 5 percent is used locally as seed. The market for domestic milling

wheat has limited growth potential because the

Table 4-4.—Energy Sources for Drying Wheat

on Prairie Farms, 1981

Province

Principal heat source Manitoba Saskatchewan Alberta

Fuel oil . . . . . . . . . . . . . — 1% —

LPG . . . . . . . . . . . . . . . . 83% 57% 77%

Natural gas — — 14%

Solar . . . . . . . . . . . . . . . 3% — —

Electricity . . . . . . . . . . . 14°/0 270/o 90/0

Forced air . . . . . . . . . . . — 15% —

Other fuels . . . . . . . . . . — — —

Amount dried

(thousand metric

tons) . . . . . . . . . . . . . 176 221 67

SOURCE: Statistics Canada, Agricultural Census (Ottawa: 1981).

demand for flour and semolina has leveled off

in Canada and exports of flour have fallen dramatically. Average flour exports over the lg77-

81 period were 1.1 MMT, declining to an average of only 0.494 MMT over 1981-85. Canada

has lost market share in the international flour

market largely because of an increase in subsidized sales from the EC and the United States.

The per capita consumption of wheat (for human food) in Canada stands at about 80 kg per

year compared with 75 kg in the United States

and 96 kg in the EC. Per capita consumption

is gradually declining, but a very slow rate of

population growth offsets this to maintain total consumption at a relatively constant level.

About 9.5 percent of the wheat produced on

the prairies is milled in Canada (table 4-5). In

comparison, over 28 percent of Ontario’s wheat

is milled domestically. More important, Ontario’s share of this domestic milling market

is increasing. Four reasons for the change can

be cited: Ontario’s proximity to the large mills

and the population in eastern Canada; its production of soft white wheats, which are preferred for pastry flour; its increasing production of HRS wheats, which can be blended into

bread flour grists; and the millers’ preference

for an alternative supply source to avoid dependence on the monopolistic CWB (which can

price western wheat up to $11 per bushel under the revised 1986/87 two-price system).

Given that Ontario wheat is becoming more and

more acceptable to millers, the production of

wheat has increased at a much faster rate there

than in the rest of Canada. Acreage in Ontario

has almost doubled in the past 10 years, although it exhibits considerable year-to-year

variability. In the future, the production of

wheat outside of the CWB designated area may

continue to increase, particularly if the CWB

continues to discriminate by charging more for

domestic than for export sales.

The production of hard spring wheat has also

become a factor in eastern Canada. Data on

spring versus winter acreage are not readily

available, but there is every indication that

spring wheat production is on the increase in

Ontario. About 30,000 acres of spring wheat
88

Table 4-5.—Canadian Domestic Wheat Milling, 1980181 to 1984185 Averages (thousand metric tons)

Annual milling

Annual wheat For For Milling as percent

Class production Total exportation domestic use of production

CWRS . . . . . . . . . . . . . . . . . . . . . 19,836 1,927 487 1,440 9.7

Durum . . . . . . . . . . . . . . . . . . . . . 2,568 125 37 88 4.9

CWS White . . . . . . . . . . . . . . . . 560 127 — 127 22.7

CWR Winter. . . . . . . . . . . . . . . . 338 37 — 37 10.9

Total Prairie . . . . . . . . . . . . . . . . 23,302 2,216 524 1,692 9.5

Ontario Winter. . . . . . . . . . . . . . 669 190 17 173 28.4

Total . . . . . . . . . . . . . . . . . . . . 23,971 2,406 541 1,865 10.0

SOURCE: Statistics Canada, unpublished data.

are now grown in Ontario. This is less than half

the acreage in Quebec and about the same as

in the Maritime provinces (8) If the two-price

system (discussed in more detail later) is left

unchanged, eastern Canada may capture 50

percent or more of the domestic milling market, provided the hard wheat produced there

proves to be of suitable quality. As of December 1987, the two-price system was still operating, although the Government has indicated

it will most likely be eliminated in the future.

This announcement was probably brought on

by large production increases of milling wheat

in eastern Canada, which is outside of the

CWB’s jurisdiction. It gave no details as to how

or when the price discrimination system would

be eliminated, but the Government indicated

that western farmers would be compensated

for losses resulting from the elimination of the

two price-policy.

Unlike milling wheat, most of the feed wheat

consumed on the prairies is either handled outside the licensed elevator system or used onfarm. However, the subsidized freight rate

structure encourages the movement of feed

grains off the prairies. Demand for wheat for

animal feed in western Canada remains fairly

constant, at 2 to 2.5 MMT per annum, and

shows little response to price changes. The feeding of wheat in the United States is much more

responsive to market conditions, with the price

of wheat relative to corn acting as a major determinant of feed wheat usage. In 1983-84, for

example, the use of wheat as livestock feed

nearly doubled in the United States as the relative price of corn rose dramatically. It remained

high in the United States in 1984-85, at approximately 11.2 MMT (35 percent of total use), but

then declined to 7.7 MMT in 1985/86.

As a percentage of total use, domestic feed

usage is normally higher in Canada (about 40

percent of total domestic use) than in the United

States. In Canada, the share of wheat in total

domestic feed grains is also relatively high, at

around 12 percent per annum. For the United

States this figure averages only 4 to 5 percent.

The feed market offers the most potential for

increased wheat demand in Canada, but given

the relatively high feeding rates for wheat now

and the introduction of higher yielding dwarf

barley varieties, the volume of wheat used for

feed is not expected to increase dramatically.

Sales of feed wheat from the prairies to eastern Canada have been falling off because of increased corn production in Ontario and Quebec. A significant shift in the location of

livestock production in response to changes in

transportation rates on grains would alter this

situation, but this is not likely to occur.

The domestic feed grain market has been analyzed in depth by the Canada Grains Council

(3). The three major markets for prairie feed

grains they studied are the feed market in western Canada, the feed market in eastern Canada, and the export market. From 1974 to 1983

the feed market in western Canada showed no

signs of growth, the demand from the eastern

Canadian market declined, and the export market grew slowly.

Although wheat stocks fluctuate considerably from year to year, they averaged close to

13 MMT from 1960 to 1986, about 80 percent

of production. The stocks-to-production ratio
89

in Canada is higher than in the United States,

where the ratio was 60 percent of production

over this period (figure 4-5). Furthermore, Canadian stocks are largely held by farmers (or

farmer-owned grain cooperatives), while in the

United States the government carries a large

amount of stocks.

Canada has historically been the second

largest exporter of wheat, with a market share

ranging between 18 and 26 percent over the

past 15 years. The other major exporters are

the United States, the European Economic

Community, Australia, and Argentina. The

United States and Canada account for over 60

percent of the wheat trade.

Several different categories of wheat are

traded internationally, but Canada specializes

in high-quality and Durum wheats. Canada’s

ability to compete in the international market

is enhanced by the fact that it offers a highFigure 4-5. —Wheat Stocks/Production Ratio, United States and Canada

)

I

I

— United States

--– Canada

n I 1 I 1 1 1 1 1 I I I 1 I 1 1 1 1 1 I I 1 I 1 1 1

1964 1968 1972 1976 1960 1964 1966
I

quality, uniform product. High-quality wheats

(No. 1 and No. 2 CWRS) represent over half

of Canada exports, whereas medium-quality

wheats account for almost two-thirds of U.S.

exports. No. 1 CWRS is by far the dominant

grade exported—accounting for 45 percent of

exports on average (table 4-6). The major importers of these high-quality wheats are, in order of consumption, the U. S. S. R., China, Japan,

Brazil, and the United Kingdom (UK) (table 4-7).

The high-quality wheat market is growing

very slowly compared to the medium-quality

market. Improvements in baking techniques

worldwide permit flour of lower protein content to be used without sacrificing bread quality, which in turn reduces the need for highquality Canadian wheat in blends.

Global trade in wheat increased from 54

MMT in 1970 to over 100 MMT in 1985. Large

gains were made in the 1970s, when the grain

trade grew approximately twice as fast as world

production. Canada’s wheat exports grew by

about 30 percent. There was also an important

distributional shift in the pattern of the world

wheat trade. Wheat imports by industrial countries stagnated, and the centrally planned economies increased their purchases dramatically

(table 4-8). The CWB established a firm position in this market, and it now exports more

than half its wheat to centrally planned

economies.

During the l970s, Canada sold about 20 percent of its wheat to Western Europe, but this

declined to 10 percent in the early 1980s as sales

decreased to the UK. Sales to Japan as a percentage of total Canadian exports are also less

important. The markets in Eastern Europe, the

U. S. S. R., and Latin America have increased in

importance. The sales strategies of the CWB

Table 4=6.-Canadian Wheat Exports by Grade, 1981182 to 1986187

Year Average

Grades 1981182 1982/83 1983/84 1984/85 1985/86 1986/87 1981-1986

No. 1 CWRS . . . . . . . . . . . . . . . . 54.2 46.0 45.3 63.5 38.6 22.7 45.1

No. 2 CWRS. . . . . . . . . . . . . . . . 12.5 13.1 13,0 4.8 15.7 13.2 12.0

No. 3 CWRS . . . . . . . . . . . . . . . . 12.7 15.9 17.9 11.4 21.4 27.6 17.8

Durum . . . . . . . . . . . . . . . . . . . . . 12.9 12.8 12.0 10.7 8.0 9.6 11.0

Feed . . . . . . . . . . . . . . . . . . . . . . 1.0 3.0 0.6 1.0 8.3 19.8 5 . 6

Others. . . . . . . . . . . . . . . . . . . . . 6.7 9.2 11.2 8.6 8.0 7.1 8.5

SOURCE: Canadian Grain Commission, Exports of Canad/an Gra/n and Wheat Flour (various issues).

Table 4.7.–Share of Canadian Wheat Exports by Country, 1970171 to 1985186

United West

Crop year Brazil China Egypt India Italy Japan Kingdom U.S.S.R. Germany Others

1970/71 . . . . . . . 2.9

1971/72 . . . . . . . 2.6

1972173 . . . . . . . 2.3

1973/74 . . . . . . . 6.8

1974/75 . . . . . . . 8.8

1975176 . . . . . . . 4.3

1976177 . . . . . . . 7.6

1977/78 . . . . . . . 5.4

1978/79 . . . . . . . 7.8

1979/80 . . . . . . . 6.9

1980/81 . . . . . . . 8.3

1961/82 . . . . . . . 7.3

1982183 . . . . . . . 7.2

1983/84 . . . . . . . 6.4

1984185 . . . . . . . 6.7

1985/86 . . . . . . . 5.7

20.3

20.8

28.0

11.8

21.2

9.9

14,9

20.9

23.5

17.6

16.9

17.3

21.1

16.1

16.3

14.8

4.1

0.6

0.2

.

1.7

3.4

1.2

0.2

0.1

1.8

0.1

3.1

2.6

2.7

6.0

4.5

2.8

3,0

4.5

3.9

1.1

-

. . . .

0.2

0.5

2.4

. . . 

. . . 

(percent)

2.8 8.6

3.7 10,1

2,3 8.7

5.9 14.4

5.2 10.6

5.6 13.2

3.9 10.2

5.9 8.5

3.0 9.1

4.6 8.6

5.1 8.5

2.9 7.6

3.0 6.4

3.5 6.2

1.3 7.7

2.1 7.3

13.4

10.3

8.0

10.2

14.4

10.0

10.2

10.1

9.8

9.2

7.8

7.6

5.3

4.5

3.7

4.0

4.2

19.4

26.7

13.6

2.8

26.0

9.3

10.6

14.0

13.7

25.5

28.0

33.2

31.8

35.3

30.1

3.4

1.7

1.6

2.8

0.8

1.0

2.6

0.4

0.1

-

-

0.1

0.1

...

. . . 

34.3

26.3

19.4

31.5

31.7

26.1

38.5

34.8

30.7

39.2

27.7

27.1

23.7

25.9

26.4

33.3

SOURCES: 1970/71 to 1980/81 from Canada Grains Councii, Wheat Grades for Carrada (Winnipeg, MB); 1981/82 to 1984/85 from Canadian Wheat Board, Annua/ Repofi,

1964/85.
91

Table 4-8.—Global Wheat Imports by Region, Selected Years (million tons)

Developed Centrally planned Developing

Year countries countries countries Total

1969/70 . . . . . . . 14.6 (290/o) 12.4 (24%) 23.7 (47%) 50.7

1974/75. . . . . . . 11.8 (19%) 14.1 (22%) 37.5 (59%) 63.4

1979/80. . . . . . . 13.8 (16°/0) 28.2 (33%) 44.0 (51 %) 86.0

1984185 . . . . . . . 12.2 (12%) 39.5 (380/o) 52.7 (50°/0) 104.4

SOURCE: International Wheat Council, World Wheat Statist/cs, 1986.

have also changed over the last 15 years. In the

1960s, most Canadian wheat sales were made

to multinational grain companies that in turn

sold to an importer. In the 1970s the CWB began dealing directly with importers. This of

course was facilitated by growing importance

of the centrally planned economies in the market and their use of state trading agencies to

import grains. The multinational companies

now only play a limited role in marketing Canadian wheat; the CWB deals directly with customers in most cases.

Although international trade in feed wheat

is relatively small, Canada is a major exporter,

as is the EC and Australia. The U.S.S.R. is the

largest user of feed wheat in the world and in

1986/87 about 25 percent of its wheat imports

(approximately 4 MMT) was of feed quality.

This was supplied primarily by Canada and the

EC.

In the early 1970s Canadian exports of flour

were about 5 percent of wheat exports, and this

has since fallen to less than 2.5 percent. In

wheat equivalents, flour exports fell from

700,000 to 4150,000 MT over the last 15 years.

Commercial markets for Canadian flour (e.g.,

the UK) have disappeared, and almost all of

Canada’s flour exports are now in the form of

food aid shipments.

Prices

Wheat prices rose dramatically in the 1973/74

crop year (table 4-9). They dropped somewhat

during the mid and late 1970s, rose again in

1981, but since then have continued to decline.

A key factor in the downward trend is increased

yields. In the 1960s yields grew by approximately 2.5 percent per annum, then slowed to

an average of 2.2 percent per annum in the

1970s. Growth in the 1980s has averaged 3.6

percent thus far, largely because of achievements in China, India, and Argentina. Yields

have also noticeably improved in the EC and

the United States. This upward trend can be

expected to continue while input prices remain

relatively stable.

Table 4-9.–Average Export Prices of Wheat, 1970-84

(measured in dollars per metric ton)

Year Argentina Australia Canada France United States

1970 . . . . . . . . .

1971 . . . . . . . . .

1972 . . . . . . . . .

1973 . . . . . . . . .

1974 . . . . . . . . .

1975 . . . . . . . . .

1976 . . . . . . . . .

1977 . . . . . . . . .

1978 . . . . . . . . .

1979 . . . . . . . . .

1980 . . . . . . . . .

1981 . . . . . . . . .

1982 . . . . . . . . .

1983 . . . . . . . . .

1984 . . . . . . . . .

54.69

59.81

66.78

92.16

176.69

171.03

136.78

96.09

108.31

141.63

170.04

184.94

177.91

144.76

133.22

54.90

53.43

58.14

65.85

148.74

187.31

153.73

125.20

104.17

132.22

163.01

190.29

174.14

156.92

156.13

61.30

64.01

67.09

98.94

205.95

177.79

163.99

119.45

116.23

159.18

182.21

200.65

180.98

172.84

172.97

75.93

91.44

89.80

127.80

149.64

148.29

154.38

177.77

203.23

203.91

213.41

183.88

165.04

153.67

153.65

58.02

61.94

64.25

108.10

176.53

166.70

146.21

113.30

127.13

157.71

178.31

178.64

164.74

162.10

153.33

SOURCE: 1970-S0 from Canada Grains Council, Wheat Grades for Canada: Ma/ntain/ng Exce//ence (Winnipeg, MB: 19S5); 19S1-84

from U.N. Food and Agriculture Organization, Trade Yearbook, 19S2 and 19S4 (Rome).
92

Table 4-10.-Wheat Import Prices by Class, Basis C and F Japan, 1970171 to 1984185 (dollars per tonne)

I

1

,

I

Australian U.S. No. 2 U.S. No. 2 U.S. No. 2 U.S. No. 2

Standard No. 1 CWRS Dark North Hard Winter Hard Winter Western

White 13.50/0 Spring 140/0 13 ”/0 Ordinary White

1970/71 . . . . . . . . . . . . . . . . . . . . 68 76 73 73 68 69

1971/72 . . . . . . . . . . . . . . . . . . . . 64 72 70 69 65 65

1972173 . . . . . . . . . . . . . . . . . . . . 83 105 98 100 99 99

1973/74 . . . . . . . . . . . . . . . . . . . . 180 224 213 220 223 215

1974/75 . . . . . . . . . . . . . . . . . . . . 183 223 215 206 192 187

1975/76 . . . . . . . . . . . . . . . . . . . . 159 204 200 185 168 162

1976/77 . . . . . . . . . . . . . . . . . . . . 126 154 148 140 128 125

1977/78, . . . . . . . . . . . . . . . . . . . 127 146 138 131 125 132

1978/79 . . . . . . . . . . . . . . . . . . . . 161 179 168 166 154 159

1979/80 . . . . . . . . . . . . . . . . . . . . 204 234 220 216 207 194

1980/81 . . . . . . . . . . . . . . . . . . . . 216 264 243 230 220 201

1981/82 . . . . . . . . . . . . . . . . . . . . 202 234 215 213 203 191

1982/83 . . . . . . . . . . . . . . . . . . . . 196 225 211 215 201 202

1983184 . . . . . . . . . . . . . . . . . . . . 187 227 213 212 189 182

1984/85 . . . . . . . . . . . . . . . . . . . . 174 212 196 188 177 167

SOURCE: 1970171 to 1980181 from CanadaGralns Council, WheafGrades forCarrada; 1981/82to 1983-84 from international Wheat Council, Wor/d WheatStafkWcs, 1985;

1984/85 from International Wheat Council, Rev/ewof Wor/d Wheat Sltuatlon, 1984/85.

Table 4-10 shows that import prices for

premium Canadian wheat (No. ICWRS 13.5

percent) dropped approximately 20 percent,

from $264 to $212 per metric ton between

1980/81 and 1984/85, with prices for other

classes of wheat showing similar declines. The

premium received for CWRS wheat has held

its own, while the discount on U.S. HRW wheat

has increased (table 4-11). This seems contrary

to the conventional wisdom of the early 1980s

that the spread between Canadian and U.S.

wheat was narrowing (2). The Canadian price

premium spiked up in 1974, 1976, and 1981,

when there were temporary shortages of highprotein wheat. But another reason the Canadian CWRS wheat price appears to have been

maintained is that the quality (with uniformity

as the key factor) of U.S. wheat has declined

in the eyes of some importers. This has allowed

the CWB to continue to charge a premium for

the reputation Canada has developed for selling wheat of uniform, predictable quality.

Table 4-11.—Annual Price Indices,

Major Wheat Exporters, 1970=84

(dollars per metric ton)

Year Argentina Australia Canada United States

1970 . . . . . 89.5 89.8 100.3 94.9

1971 . . . . . 94.2 84.2 100.9 97.6

1972 . . . . . 99.9 87.0 100.3 96.1

1973 . . . . . 89.0 63,6 95.5 104.4

1974 . . . . . 101.3 85.3 118.1 101.2

1975 . . . . . 100.0 109.5 104.0 97.5

1976 . . . . . 89.5 100.6 107.3 95.7

1977 . . . . . 80.1 104,3 99.5 94.4

1978 . . . . . 86.9 83.6 93.3 102.0

1979 . . . . . 89.0 83.1 100.1 99.1

1980 . . . . . 94.4 90.5 101.2 99.0

1981 . . . . . 98.6 101.5 107.0 95.3

1982 . . . . . 92.7 90.8 94.3 85.9

1983 . . . . . 78.7 85.4 94.0 88.2

1984 . . . . . 75.1 88.0 97.5 86.5

SOURCES: 1970-80 from Canada Grains Council, Wheat Grades for Canada; updated data from U.N. Food and Agriculture Organization, Rome.

THE CANADIAN WHEAT BOARD

The Canadian Wheat Board is the sole marketing agency for wheat, oats, and barley grown

in Canada and destined for export or domestic

human consumption. The CWB may also market these grains in domestic feed grain markets

when additional supplies are required, but producer sales to the domestic feed grain market,

handled by the private trade, are usually adequate for this market.

Historical Background and

Current Objectives

The CWB, established as a Crown Agency

by the Canadian Wheat Board Act of 1935, was

preceded by two earlier Federal Government

marketing boards. Those were set up to market wheat during World War I. During World

War 11, the CWB was empowered to market all
93

Canadian grains, but following the war it

returned to marketing wheat only. Prior to 1966,

the CWB’s statutory authority had to be renewed every 5 years. In 1966 this requirement

was dropped, however, and the Canadian

Wheat Board Act became permanent legislation. In 197A the sale of western grains for use

in animal feeds within Canada was removed

from the CWB’s jurisdiction and returned to

the private trade. The CWB is the residual supplier in the domestic feed grain market.

The Canadian Wheat Board Act gives the

CWB three major responsibilities:

to market wheat grown in western Canada

to the best advantage of grain producers,

to provide price stability to producers

through an annual “pooling” or price-averaging system, and

to ensure that each producer obtains a fair

share of the available grain market.

The CWB is a government agency and it is

basically a sales agency as it owns no physical

facilities for the handling of grain. It employs

the services of both private and cooperative elevator companies to carry out the logistics of

physically handling the grain. Even though it

is a government agency, the CWB’s responsibility is to bring the highest possible returns

to producers and give them equitable access

to the export market. Consumer welfare is not

an overriding concern of the Board.

The CWB is the world’s largest single grain

marketing agency. It has three to five commissioners, who are appointed by the Government.

They have a staff of about 525. The commissioners periodically seek advice from an advisory committee elected by farmers, but the

advisory group has no real control over the commissioners. Unlike the Australian Wheat Board

(see ch. 5), the Canadian Board is not directly

responsible to producers. It answers to the Federal Government.

Most of the wheat produced in western Canada is marketed through the CWB since it has

monopoly rights over all wheat exports and all

domestic sales for human consumption. Approximately 95 percent of wheat production

enters the primary elevator system and the remainder is used on-farm for feed or seed or sold

locally. Of the wheat that does enter the elevator system, 97 percent is delivered to the CWB

and 3 percent is delivered to the private trade.

The private trade is only permitted to buy feed

wheat, which they subsequently sell on the Winnipeg cash and futures market. The CWB, unlike the Australian Wheat Board, does not trade

on the futures market.

The CWB markets grain in two basic ways.

The largest proportion of sales are made under contracts negotiated annually between the

CWB and buyers. This is in contrast to earlier

years, when most sales were made through accredited exporters. Although this type of sale

no longer dominates, most sales made by the

CWB still involve a degree of participation by

private trading companies operating as accredited exporters for the CWB.

Sales by the CWB maybe made under individual contracts or under provisions of a longterm agreement. Such agreements specify the

minimum and usually maximum quantity of

grain shipped each year during the life of the

agreement. Specific grades of grain are usually

not maintained, but the types of grain are identified.

The distinction between the two basic types

of sales made by the CWB is not very clear cut.

Most sales in fact involve private trading customers, and, when special credit is involved,

the Canadian Government as well. The degree

of participation by any one of these agencies

depends on the buyer. For example, in sales

to the U. S. S. R., negotiations on grades, quantities, prices, and other terms are carried out

entirely by CWB. Once the contract terms are

established, private trading companies obtain

necessary documentation and supervise ship

loading. For commercial sales, however, such

as those to mills in Western Europe, accredited exporters conduct all negotiations, buy

grain from the CWB on a cash basis, and assume responsibility for all aspects of the sale.

Even in such commercial sales, however, the

CWB is normally involved, whether it be in market development or assisting with negotiations

in some aspect of the contract.
94

I

,

,

I

The CWB is very involved in market development programs. Programs for particular

countries frequently involve milling and baking tests and, in the case of feed grains, feeding trials to determine if grains available in Canada are suitable for the country’s needs. If

Canadian grains lack particular necessary qualities, discussions with plant breeders are held

to determine whether new varieties possessing

the desired qualities can be developed.

Producer Pricing and Policy

The CWB achieves price stability for grain

marketed by producers through a price pooling system. Receipts received by CWB from

sales of a particular grain are “pooled” in a single fund.

At the beginning of each crop year (August

1st), the Government establishes initial producer prices for grain sold to the CWB. These

prices are announced in advance, normally in

April, to allow farmers to adjust their seeding

intentions. Separate prices are established for

each grade of wheat. Receipts from CWB sales

into the domestic and export market are then

“pooled.” Producers receive the initial payment

at the time of delivery. In some years they receive an interim payment during the crop year

(if prices strengthen considerably), and a final

payment once the crop year is over. The pool

is then closed and CWB deducts its administrative expenses, interest costs, etc., from the

pool. Each producer receives the price (before

freight deductions) no matter what date the

wheat was sold to the CWB within a particular

crop year. CWB has separate “pools” for HRS

wheat and Durum.

When selling to the CWB, producers’ marketing costs are deducted in two stages. Freight

costs and primary elevator handling costs are

deducted from the initial payment at the time

of delivery. Other costs, which include interest, insurance, storage, etc., and the Board’s

operating costs, are later charged against the

“pool” before the final payment is made to the

farmers.

Domestic sales of wheat by the CWB to millers takes place at prices that are partially insulated from world levels. This is referred to as

the two-price wheat policy, and it was established in 1967. During the 1970s the Canadian

Government fixed the domestic price to mills

at relatively low levels and thus subsidized consumers (assuming the millers and bakers passed

this saving on) when world prices were above

these levels.

The two-price policy has been very controversial over the years and it has gone through a

number of changes. Currently the domestic

price is allowed to vary with a price band of

$255 to $330 per MT, and the Government is

no longer involved in subsidizing either producers or consumers if the world price falls outside this range. As of December 1987 the CWB

charged the minimum price of $255. Since its

inception, producer gains from the 2-price program have roughly offset their losses. Consumers have received benefits of close to $500

million, which have come at the Government’s

expense.

In addition to pooling, the CWB regulates producer deliveries to primary elevators through

quotas. The quota system is used to ensure that

the kinds and quantities of grain needed to meet

sales are delivered when required, and that each

producer receives a fair share of available

markets.

The entire quota system is currently under

review. Some farmers believe the system is inequitable because each wheat farmer is assigned abase acreage whether the farmer’s land

is seeded or not, and quotas are announced by

the CWB as a fixed number of bushels per assigned acre. No allowance is made for varying

yields from farm to farm, or even for irrigated

land. On the other hand, farmers in southern

Saskatchewan who normally benefit from the

current quota system argue that the price pooling system is inequitable from their vantage

point. Some of these farmers brought a lawsuit

against the CWB in 1987 because the Board allegedly subsidized the price of No. 2 and No.

3 CWRS wheat with higher prices received for

No. 1 CWRS.
95

GRAIN HANDLING IN CANADA

Canadian farmers deliver most of their grain

to country elevators. Canadian elevator numbers have declined from 5,800 in 1933 to 3,000

today. The three Wheat Pools (Alberta, Saskatchewan, and Manitoba), which are forms

of producer cooperatives, own approximately

1,800 elevators; the United Grain Growers (a

grain cooperative) have about 500 elevators.

The remainder are owned by private companies. Thus about 80 percent of elevators are

owned by farmer cooperatives and the remaining 20 percent are privately owned. Because

of costs, these elevators are capable of storing

only a portion of farmers’ grain at harvest. As

a consequence, on-farm storage is substantial,

and the delivery quota system controls the flow

of grain to the elevator system.

Transportation

Canada has two transcontinental railway

companies, C P Rail and Canadian National,

that move grain from elevators to export sites.

Because of the location of production, grain has

to be carried long distances over land before

it can be eventually exported. Canadian grain

moves essentially in only two directions from

point of production—either east or west.

The wheat produced in western Canada must

be moved over vast distances to reach a seaport. Most is moved by rail rather than truck

or barge. The farmers deliver their grain to primary elevators located on rail lines. The rail

freight rates are regulated by the Government

and they have not changed much in the last 90

years. Prior to the turn of the century the Federal Government entered into an agreement

with the Canadian Pacific Railway to fix rates,

and in return the railway received a subsidy.

Until the inflationary period of the 1960s and

1970s, these rates were generally considered

adequate to provide a return to the railways (7).

With inflation, the railways discontinued investment in the transportation system, which

rapidly deteriorated. Farm stocks of wheat were

high and the CWB could not transport all the

grain sold. After much study and negotiation,

the Federal Government increased its subsidy

to the railways and farmers are now paying a

larger portion of shipping costs. Variable freight

rates (e.g., discount for unit trains) are now being used more and more extensively. As a result, the Canadian grain transportation bottlenecks have almost disappeared.

The CWB, which has monopoly control over

wheat destined for export markets, owns no

marketing or transportation facilities. Rather

it contracts for these services with the national

railroads and with the cooperative and private

elevators. The CWB controls the grain delivered by farmers to country elevators by the

quota system discussed earlier, and coordinates

logistics with national railroads. Grain cars are

allocated to country elevators under a block

shipping system whereby western Canada is

divided into 49 shipping blocks. Boxcar allocation to these blocks is determined jointly by

the CWB and railways.

Interior terminals are relatively unimportant

in the overall grain marketing system (table

4-12). Farmers bypass interior terminals in

order to avoid handling and elevation charges

(approximately $12/MT) there and again at the

export terminal. The Canadian system is not

designed to move wheat by rail directly from

the interior terminals to an export vessel. The

inland terminals have the capability to clean

grain to export standards, but, so far, this has

not been taken advantage of. Interior terminals

normally hold less than 1 percent of the carTable 4-12.—Handlings of Wheat at Canadian

Terminal Elevators, 1986187 Crop Year

(thousand metric tons)

Receipts at terminal Wheat

Thunder Bay. . . . . . . . . . . . . . . . . . . . . 9,529.9

Vancouver. . . . . . . . . . . . . . . . . . . . . . . 6,358.8

Prince Rupert . . . . . . . . . . . . . . . . . . . . 3,183.4

Churchill . . . . . . . . . . . . . . . . . . . . . . . . —

Interior terminals . . . . . . . . . . . . . . . . . 41.9

Total, . . . . . . . . . . . . . . . . . . . . . . . . . 19,113.9

SOURCE: Canadian Grain Commission, Canadian Grain Exports, 1988/87 Crop

Year.
I

ryover wheat stocks and have a combined storage capacity of approximately 154,000 MT,

which is largely unutilized. During the Thunder Bay worker’s strike in the fall of 1986, however, the Canadian Wheat Board sent clean

grain by rail directly from the inland elevators

to transfer elevators on the St. Lawrence River.

This demonstrated the feasibility of cleaning

inland on an ongoing basis if necessary.

Most of the grain cleaning to export standards is carried out at terminal points (e.g., Thunder Bay, Vancouver, Prince Rupert) that are

thousands of miles from the point of production. The two main types of cleaners used are

the indent cylinder machines and screen machines. The cyclinder machine, which is not

used in the United States, separates kernels on

the basis of length and removes short from

longer material. The screen machine separates

by thickness and width.

As with drying equipment, the cleaning

equipment used in various terminals is very

similar from facility to facility. Most terminals

carry out “single pass” cleaning, which means

the grain does not have to be elevated more than

once. This is especially true in Vancouver,

where storage capacity is much more limited.

The majority of the cleaning of prairie grain

takes place at the terminals since there is limited

cleaning conducted on-farm or at primary elevators.

The rationale for terminal cleaning is largely

historical (9). Originally most of the exportdestined grain moved through Thunder Bay,

where terminal cleaning first started. In the

past, grain companies typically stored grain for

longer periods of time, and cleaning improved

the storability of the product. There was not

as much concern about throughput efficiency,

and as new terminals were built cleaning facilities were routinely installed.

The export capacity of the Canadian system

has been increased from 20 to 30 MMT over

the past 10 years. As of 1986, there were 1,860

primary elevators, 22 terminal elevators, 28

process elevators, and 24 transfer elevators. In

1965 the storage capacity of primary elevators

was 10.7 MMT, but by 1986 this declined to

7.7 MMT, a reduction of 28 percent (4). As a

result, throughput rates have increased and

there is added pressures for more inland cleaning to improve overall efficiency.

In the past, grain companies earned significant profits from terminal cleaning. This resulted from the sale of reclaimed grain and

screenings for feed purposes (9). The farmer

is assessed a cleaning charge ($1.67/MT) and

is not paid for dockage. A report prepared for

the Grain Transportation Agency recommends

experimentation with the cleaning of grain to

export standards on farms or other inland positions (Leibfried), Economic incentives over

time suggest there will probably be more inland cleaning.

The cleaning assignment in Canada is very

similar from terminal to terminal (9). Most

plants try to clean grain as it is received at the

terminal, rather than putting it into storage first

and then taking it out to clean. The cleaning

by-products consist of refuse screenings and

whole grain. The screenings are pelleted and

sold as feed, while the whole grain is either sold

to the CWB or the private grain trade.

Drying

A total of 3,934 MT of wheat were dried at

inland terminals in the 1986/87 crop year (table 4-13). The amount dried inland was higher

than normal because of the Thunder Bay dock

strike that season. The amount dried at all terminal elevators represented less than 3 percent

of the total handled, which is the norm.

The dryers used in the terminal elevators are

generally fed by belts and use gravity to move

wheat through heated units. Natural gas and

propane are common energy sources. Terminal elevators in western Canada equipped with

Table 4-13.—Wheat Dried at Terminal Elevators,

1986187 (metric tons)

Artificial Natural

Location drying drying Total

Inland terminals . . . . . . . 3,443 491 3,934

Thunder Bay . . . . . . . . . . 494,839 362,077 856,916

Pacific Coast . . . . . . . . . 381,731 322,626 704,357

SOURCE: Canadian Grain Commission: unpublished data.
97

machinery for artificial drying are listed in table 4-14. Drying capacity is a constraint to the

operation of most terminal elevators in years

when damp grain is common. In a normal year

only about 5 percent of the wheat handled in

these facilities requires drying, which is easily

handled.

Vertical cement bins are used for storage in

almost all terminal elevators in western Canada. Cargill has a flat storage bin in Thunder

Bay, but its storage capacity is minimal. Some

of the transfer elevators in eastern Canada use

Table 4-14.—Terminal Elevators in Western Division

Equipped With Drying Machinery (at Aug. 1, 1987)

Location Capacity of

Elevators heater section

Manitoba:

Winnipeg:

Elders Grain Co. Limited “W” . . . . . . . . . . 22

22

Saskatchewan:

Moose Jaw:

Elders Grain Co. Limited . . . . . . . . . . . . . . . 21

Saskatoon:

Northern Sales Co. Limited. . . . . . . . . . . . . 70

91

British Columbia:

North Vancouver:

Pioneer Grain Terminal Limited . . . . . . . . . 71

Prince Rupert:

Prince Rupert Grain Limited . . . . . . . . . . . . 75

Saskatchewan Wheat Pool . . . . . . . . . . . . . 60

Vancouver:

Alberta Wheat Pool. . . . . . . . . . . . . . . . . . . . 56

Pacific Elevators Limited. . . . . . . . . . . . . . . 42

United Grain Growers Limited . . . . . . . . . . 22

326

Ontario:

Thunder Bay:

Cargill Limited . . . . . . . . . . . . . . . . . . . . . . . . 50

Manitoba Pool Elevators No. 1 . . . . . . . . . . 28

Manitoba Pool Elevators No. 3 . . . . . . . . . . 40

Parrish & Heimbecker, Limited. . . . . . . . . . 13

Richardson Terminals Limited . . . . . . . . . . 44

Saskatchewan Wheat Pool No. 4 . . . . . . . . 74

Saskatchewan Wheat Pool No. 6 . . . . . . . . 70

Saskatchewan Wheat Pool No. 7 . . . . . . . . 53

Saskatchewan Wheat Pool No. 8 . . . . . . . . 8

Saskatchewan Wheat Pool No. 15 . . . . . . . 42

United Grain Growers Limited “A” . . . . . . 22

United Grain Growers Limited “M” . . . . . . 23

467

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 906

NOTE: Heater capacity based on wheat.

SOURCE: Canadian Grain Commission: unpublished data

steel tanks for storage. However, it is important to note that these transfer elevators do not

“process” grain. Vertical cement bins are common at the terminals because the Canadian

Grain Commission does not allow blending and

thus a significant number of grades must be

kept separate. This is the reason that unit trains

with only one grain/one grade would greatly

enhance the efficiency of the terminals. For

wheat alone, as many as 10 different grade separations may be required. Consequently, the

Canadian terminals have a large number of

“small” storage bins. For example, one Vancouver facility has over 100,000 MT storage capacity that is divided into about 120 different

bins. Since the United States has no restrictions

on blending and fewer grades of wheat, horizontal storage is more common there. Horizontal storage is less costly than vertical storage.

Blending

The Canadian Grain Commission regulates

the blending of grains from different grades.

Blending is not restricted at the primary elevators, but at terminal elevators only 2 percent

of the higher grade can be a blend from a lower

grade. If 1,000 MT of No. 1 CWRS are delivered to a terminal elevator, for example, no

more than 20 additional MT of No. 1 CWRS

can be created through blending. If blending

above the allowable 2 percent occurs at the terminal, the grain can be confiscated.

In July 1987 the Canadian Grain Commission

warned grain companies against blending No.

1 and No. 2 canola to create more No. 1 than

was actually delivered to export positions. The

cargoes were shipped to Japan and, although

they were officially graded No. 1, Japanese importers were complaining. Some farmers have

questioned the Canadian Grain Commission’s

approach since it gives the Japanese the benefit of buying lower priced No. 2 canola that

otherwise would have been blended into No. 1.

The fact that blending is not restricted at primary elevators gives grain companies the potential to profit from blending. This is especially

true for CWB grains. As agents of CWB, the

companies buy CWB grain from the farmer at
98

primary elevators. But CWB does not purchase fumigation is conducted under the Grain Comthe grain from the elevator companies until it mission’s supervision. The most common treatreaches the terminal location. The creation of ment involves placing phosphine tablets in the

the value through blending is therefore not cap- infested grain as it flows from conveyor belt

tured by CWB. to storage bin. The bin is sealed, and the tablets

emit a gas that kills the insects.

Fumigation

Canada’s cold winters tend to minimize insect infestation but occasionally it occurs, and

QUALITY CONTROL OF CANADIAN WHEAT

Quality control is achieved in the Canadian

grain industry by very rigid regulations enacted

by the Government. These regulations are in

two major areas of importance: 1) licensing of

new varieties; and 2) the establishment of the

Canadian Grain Commission, which supervises

the handling of grain. The Commission’s quality control system involves all facets of the grain

industry from breeding of new varieties to

delivery of grown products to consumers. Of

equal importance, however, is the system that

establishes the criteria for the release of new

varieties—where quality control really begins.

Variety Development and Release

The maintenance of quality standards in the

Canadian system begins on the farm. The Canada Seeds Act requires that a new variety of

wheat be extensively tested before it is licensed

by the Minister of Agriculture for sale as seed.

The Seeds Act dramatically reduces the number of varieties released and thus limits the

varietal options available to farmers. From 1923

to 1986, only 34 new CWRS varieties were released in Canada (10), roughly one new variety

every 2 years. In the early 1980s, in contrast,

33 new varieties were released in North Dakota

over a 5-year period (10), for an average of more

than 6.5 new varieties each year.

The chosen new varieties are compared in

controlled experiments to Neepawa, the statutory standard, and to several existing varieties

at numerous locations across the prairies. Trials

are replicated four times at each location to enhance statistical reliability. Evaluation for disease resistance is most extensive at this stage.

Each year’s data are reviewed by three Expert

Committees (on grain breeding, grain diseases,

and grain quality). An entry may be rejected

from the test and thus from licensing consideration by any one Committee at any stage. Varieties may remain in the Co-operative Test for

3 years. If, at that point, all three Committees

recommend that a variety be licensed, the plant

breeder submits an application to the Plant

Products and Quarantine Directorate of Agriculture Canada. A license may then be issued

under authority of the Federal Minister of Agriculture.

The three Expert Committees play an extremely important role in this process, as each

one effectively has veto power over the licensing decision. Similarly, approval from each

Committee essentially ensures that a variety

will be licensed. The justification for vesting

this level of control in the Committee structure

is that the Committees are made up of the foremost experts in each field. The Expert Committee on Grain Breeding, for instance, consists largely of plant breeders and geneticists

who review results on agronomic characteristics such as yield, time to maturity, resistance

to lodging, height, etc. The Expert Committee

on Grain Diseases consists mainly of plant

pathologists who concern themselves with the

degree of disease resistance shown.

The Expert Committee on Grain Quality is

the most diverse of the three groups. Members

are cereal chemists, marketing experts (from

the Canadian Wheat Board and the Canadian
99

International Grains Institute), the Chief Grain

Inspector of the Canadian Grain Commission,

and users of the end product (milling companies). Such abroad cross-section of participants

might well be expected to disagree over the

merit of proposed new varieties. However, potential conflicts are limited by the strict definition of “quality” that the Committee must apply.

Generally, new varieties of wheat must make

a positive contribution to existing varietal stock.

This improvement must be in concert with

Canada’s reputation for exporting high-quality

wheat. New varieties must therefore conform

to a number of fixed criteria that effectively

serve to define “quality” as it applies to licensing of varieties. The source of these standards

is the Canada Grain Act and, specifically, the

schedule of official grades set out in the Act.

In order for a new variety of wheat to comply

with the quality criteria it must meet two basic

requirements.

First, it must be equal in quality to the standard variety for the class of wheat into which

it will be licensed. For example, if a new variety of Hard Red Spring wheat fulfills the grading requirements of the Canada Western Red

Spring wheat class, it must have milling and

baking qualities equal to those of the Neepawa

variety.

Testing for quality (relative to the standard

variety) is conducted largely by Agriculture

Canada, the Government’s research agency, at

the A and B test levels and by the Grain Research Laboratory of the Canadian Grain Commission during the Co-operative Test phase.

Samples are assessed for quality at each stage

in the breeding program, but the most comprehensive testing is conducted during the Cooperative Test phase. New varieties are tested

against minimum standards based upon the

standard variety for the class. Characteristics

tested include protein content, gluten strength,

flour yield, flour appearance, kernel weight,

kernel hardness, and overall baking quality,

which includes flour properties, theological

dough properties, and baking results. If the proposed variety fails to match consistently or to

surpass any of the “quality” standards, the

Committee on Grain Quality must reject the variety from consideration for licensing in that

class. Consequently, no variety can be licensed

into a given class unless it meets all the milling

and baking quality criteria regardless of agronomic merit.

Second, if a new variety is not equal in quality to the standard variety, it may be licensed

into a different class, providing its kernels can

be distinguished from the standard variety of

the higher quality class by visual means. This

visual distinguishability criterion was applied

in the case of Glenlea wheat, a high-yielding

but lower protein feed wheat licensed into the

Canada Utility class. If the different quality variety is not visually distinguishable from the

grain of an existing class, it cannot be licensed

into any class. Visual distinguishability thus becomes a grading factor for wheats that do not

match the milling and baking characteristics

of the standard variety. In the context of this

report, “quality” covers the spectrum from low

(useful for feed) to high (primarily useful for

pan breads and to upgrade local grists). The production of high “quality” wheat v. low “quality” wheat is dependent on variety and on geographic, climatic, and management conditions.

As a result of these stringent licensing regulations Canadian wheat is very uniform. On

average, over one-third of western Canadian

wheat production achieves the top grade category of No. 1 CWRS. Similarly, about 27 percent grades No. 2 and the remaining 37 percent No. 3 or lower.

Many of the semidwarf spring wheats grown

in the United States are higher-yielding than

Canadian varieties, but since most of them are

not visually distinguishable from existing Canadian varieties they are not licensed. Some farmers “smuggled” seed into Canada in the early

1980s and started growing those wheats and

selling them as “unprescribed” varieties. This

meant they were sold for feed prices. Most were

not visually distinguishable from CWRS varieties, and there was a fear of possible mixing

into CWRS grades. But the Canadian Grain

Commission found the contamination of CWRS

grades with unlicensed varieties to be a problem
100

of minimal proportion (6). It has been estimated

that the economic costs of this regulation are

high, representing between 5 and 17 percent

of annual net farm income in Canada (5).

By 1985 approximately 500,000 acres of

wheat were seeded to unprescribed varieties

(6). The Census figures for 1986 indicate that

close to 600,000 acres were planted that year.

In response to farmers’ desire to produce semidwarf wheats, the Canadian Government followed the advice of the Committee on Unprescribed Varieties and licensed Oslo wheat in

1987. Oslo is visually distinguishable from

Neepawa and it has become eligible for the

newly established “Prairie Spring” grade.

The Canadian Grain Commission

The Government and regulatory agency responsible for the quality control of Canadian

grain and for the supervision of its handling

is the Canadian Grain Commission. The Commission has the legislative authority for licensing grain-handling facilities, setting grade

standards, providing official inspection and

weighing services, handling foreign complaints, and ensuring that quality is maintained

on grain moving through the system. The Commission is totally fee-supported and assesses

fees to recover its operating costs.

Licensing of Elevators

The Commission’s licensing authority is used

to maintain quality control throughout the

Canadian handling system. An elevator cannot

handle grain under the Canada Grain Act unless licensed by the Commission. The act requires plans for construction or alteration of

elevators to be submitted before a license is issued. It also requires elevators to maintain handling equipment and storage facilities in sufficient condition to minimize damage of grain

while handling and to prevent deterioration

during storage. Licensed elevators are inspected by Commission inspectors. Failure to

comply with license requirements may result

in suspension or loss of license.

Grade Standards

The Commission has responsibility for the

grading system. And it has established grade

standards into two categories: primary and

export standards. It also provides for experimental grades. The inclusion of experimental

primary grades in the Canadian system allows

for testing unlicensed varieties that do not fit

into the normal marketing patterns. The overall grading structure for various wheat types

grown in Canada is outlined in table 4-15.

In addition to the specific numerical grade,

the terms Canada, Canadian Western, and Canadian Eastern are included in the grade designation to depict the geographical location of

production. Export grade specifications for Red

Spring and Amber Durum wheat are outlined

in tables 4-16 and 4-17.

Other tests are performed on wheat samples

for the purpose of maintaining quality and statistical reporting even though they do not

directly affect the numerical grade. The typiTable 4-15.—Canadian Wheat Varieties

Red Spring: 3 grade tables (grades 1-3 and feed)

Canadian Western (primary)

Canadian Western (export)

Canadian Eastern (primary)

Amber Durum: 2 grade tables (grades 1-5)

Canadian Western (primary)

Canadian Western (export)

Soft White Spring: 3 grade tables (grades 1-3 and food)

Canadian Western (primary)

Canadian Western (export)

Canadian Eastern (primary)

Utility: 3 grade tables (grades 1, 2, and feed)

Canadian Western (primary)

Canadian Western (export)

Canadian Eastern (primary)

Prairie Spring: 2 grade tables (grades 1, 2, and feed)

Canadian Western (primary)

Canadian Western (export)

Canadian Eastern and Western combined (primary)

Red Winter: 3 grade tables (grades 1-3 and feed)

Canadian Western (primary)

Canadian Western (export)

Canadian Eastern (primary)

White Winter: 1 grade table (grades 1-3 and feed)

Canadian Eastern (primary)

SOURCE: Office of Technology Assessment, 1989.
Table 4.16.—Export Grade Determinants of Red Spring Wheat (Canadian Western)

Foreign material

Other matter

Total removable material Mineral matter

Total

Large seeds and including other

Grade name 5 Buckwheat 4.5 R.H. wild oats Stones Total Ergot Sclerotinia cereal grains

No. 1 C.W. Red Spring 0.3% broken grain 0.1 0

/0 including 0.2°/0 including 0.033%0 0.066 %

0.05% small seeds

0.01 % 0.01% 0.40%

0.05% wild oats

No. 2 C.W. Red Spring 0.3% broken grain 0.1 0

/0 including 0.1 0

/0 including 0.033% 0.10 %

0.050/0 small seeds

0.02% 0.02 % 0.75 %

0.05°/0 wild oats

No. 3 C.W. Red Spring 0.30/o broken grain 0.1% including 0.2°/0 including 0.066 ”/0 0.10%0

0.05% Sinai! seeds

0.04 % 0.04% 1.25%

0.05°/0 wild oats

Canada Western Feed 0.5% broken grain 0.1 0

/0 including 0.5°/0 including

0.050/0 small seeds

0.10 ”/0 0.250/o 0.10% 0.10% 5.0%

0.1 0

/0 wild oats

Wheats of other classes Sprouted

Total including Total including

Contrasting contrasting Minimum hard severe Heated and Shrunken and broken

Grade name classes classes -

vitreous kernels Severe sprouted binburnt Shrunken Broken Total

No. 1 C.W. Red 0.3 ”/0 1 .5% 65.00/o 0.1 % 0.50/0 0.05°/0 including 1 6.00/0 5.0 ”/0 7.0%

Spring binburnt kernel

per 1,000 grams

No. 2 C.W. Red 1.5 ”/0 3.0 ”/0 35.0% 1 .5% 0.40°/0 including 4 10.0 % 8.0% 11 .0%

Spring binburnt kernels

per 1,000 grams

No. 3 C.W. Red 2.5% 5.0% No minimum 5.0% 1.0% including 6 No limit 13.0% No limit providing

Spring binburnt kernels broken tolerances

per 1,000 grams not exceeded

Canada Western No limit (10.9°/0 Amber No minimum No limit No limit 2.5°/0 including No limit 50.0% No limit providing

Feed Durum only) 2.5°/0 binburnt broken tolerances

kernels not exceeded

SOURCE: Canadian Grain Cofnmission, Officia/ Grain Grading Guide, 1987,
102

0

o
103

cal tests performed by the Commission on Red

Spring and Amber Durum wheat are outlined

in table 4-18.

Canadian standards rely heavily on the wheat

classification system. The system begins with

their variety licensing program and the milling and baking qualities of the wheats produced. Commission inspectors are trained in

varietal identification, and whenever they suspect that a sample contains unlicensed varieties, it is sent to Winnipeg and undergoes varietal testing. If the sample contains unlicensed

varieties, the grain is segregated and handled

separately.

To qualify for grades 1 and 2 Canadian Western Red Spring Wheat, the variety must be equal

to or better in milling and baking quality than

the variety Neepawa, as mentioned earlier. In

the case of Amber Durum, the variety must be

equal to or better than Hercules. According to

Commission officials, even though Hercules is

the standard Durum variety, the variety Wakooma is actually the working standard. Hercules has been replaced by Wakooma as the predominant variety planted and someday may

replace Hercules as the official standard. This

Table 4-18.—Quality Tests Used in Canada

Spring wheat Durum wheat

Wheat

Test weight, kg/hl

1,000 kernel weight

Protein

Alpha-amylase activity

Falling number

Flour yield

Flour

Protein

Wet gluten

Ash

Color

Starch damage

Alpha-amylase activity

Maltose value

Baking absorption

Bread

Loaf volume

Blend loaf volume

Farinogram

Extensigram

Alveogram

Wheat

Test weight, kg/hi

1,000 kernel weight

Wheats of other classes

Protein

Ash

SDS sedimentation

Falling number

Milling yield

Semolina yield

Semolina

Protein

Wet gluten

Ash

Agtron color

Speck count

Spaghetti (dried at 39 and 70 ‘C)

Color

Cooking quality

Stickiness

Color loss

SOURCE: Canadian Grain Commission, Ouality of Canadian Grain Exports, Grain

Research Laboratory, 1986.

variety based grading system is outlined in table 4-19.

Standard Samples.—The Canadian inspection system develops standard samples to help

with visual inspection. These samples are developed yearly for all grades of Class 1 grains.

Each year at harvest, grain is collected from

primary elevators and railcars unloaded at terminal and transfer elevators. The grain collected represents both old and new crop. The

collection process has been designed to assure

that the major grading factors for each year’s

crop and a cross-section of all production areas

are represented.

In 1987, over 45,000 samples were collected

in this process. These were used to determine

the 1987 crop quality and identify the major

grading factors by location. Once the quality

data had been collected on these samples, large

quantities of grain representing the major grade

Table 4-19.—Grade and Variety in Canada

Grade Varieties

No, 1 C.W., 2 C.W., 3

C.W. Red Spring

No. 1 C. E., 2 C. E., 3

C.E. Red Spring

No. 1 C.W., 2 C.W., 3

C.W. Amber Durum

No. 4 C.W. Amber

Durum

No. 5 C.W. Amber

Durum

No. 1 C.W. & C. E., No. 2

C.W. & C. E., and No. 3

C.W. & C.E. Soft

White Spring

No. 1 C.W. & C. E., No. 2

C.W. & C. E., and No. 3

C.W. & C.E. Red

Winter

No. 1 C. E., No. 2 C. E.,

No. 3 C.E. White

Winter

No. 1 C.W. & C, E., No, 2

C.W. & C.E. Utility

No. 1 & No. 2 Canada

Prairie Spring (Red)

C.W. & C.E. Feed

Registered varieties equal to

Neepawa

Registered varieties equal to

reference varieties of

acceptable end-use quality

Registered varieties equal to

Hercules

Registered varieties of Amber

Durum

Any variety of Amber Durum

Registered varieties equal to

reference varieties of

acceptable end-use quality

Registered varieties equal to

reference varieties of

acceptable end-use quality

Registered varieties equal to

reference varieties of

acceptable end-use quality

Glenlea, Wildcat, Bluesky

HY 320, 0slo

Any variety of wheat except

amber durum

SOURCE: Canadian Grain Commission, Offlc)a/ Grain Grad/rig Guide, 1W7.
104

factors were ordered from the specific locations

identified by the initial samples. After being collected the grain was blended to provide primary

and export standard samples. In the case of primary standard samples, each sample represents

the minimum quality for each grade. For export standard samples, they represent the average quality from the entire crop for each grade.

Primary standard samples serve as a guide

for grading grain at the domestic level. The samples collected are graded, analyzed, and tested

by the Commission. They are then blended to

represent the minimum quality for each grade

and in some instances are sent to the Grain Research Laboratory for quality testing. After being tested, the samples and all test data are sub1

mitted to the appropriate Grain Standards I Committee for approval. Once approved, these

samples are used by official and private inspectors as guides for grading domestic grain. They

are provided to each official inspection point

and, upon request, to grain companies’ inspection departments, who in turn distribute them

to their inspectors at primary elevators. When

a conflict of interpretation exists during grading between the primary standard sample and

official grade definitions, official grade definitions prevail.

Export standard samples are collected and

prepared in the same manner as primary standard samples except they are only applicable to

Western grain. Export standard samples are

prepared for Red Spring wheat, Amber Durum

wheat, and any other grain the Commission

deems will be exported during the year. These

samples are prepared to ensure that overseas

buyers will receive shipments close to the average crop quality for each grade purchased. Minimum test weight, maximum limits of admixtures, and other grading factors are established

by these samples.

Commission inspectors use the samples to

govern the grading of export grain. These samples are also supplied to overseas buyers as representative samples of the quality of wheat they

will receive during the coming year. Whenever

there is a conflict in interpretation during grading over the official grade, the export standard

sample prevails.

Protein Testing.—In addition to grade factors,

protein content is determined on all Red Spring

wheat shipments. When protein content is determined it does not affect the numerical grade.

CWRS wheat grades 1 and 2 are segregated by

protein content but other grades and classes

are not. Protein content is also determined on

Amber Durum and Red Winter wheat shipments upon request. Protein results are reported on a 13.5 percent moisture basis. In cases

where the buyer requests a different moisture

basis, the Commission will provide this service.

Infestation. —The Commission has established a zero insect tolerance for all grains.

According to its regulations, when grain is

found to be infested in the primary, process,

or terminal elevator, the operator must immediately notify the Commission of the nature and

extent of infestation. Samples of grain from the

infested bins must be taken and forwarded to

the Commission in Winnipeg. The grain must

then be treated according to procedures issued

by the Commission and no other grain maybe

received or shipped while the infested or

fumigated grain is being loaded out.

If the Commission finds infestation while inspecting grain at a terminal elevator, the primary elevator that shipped the grain is placed

under quarantine. The elevator is required to

turn each bin and draw a sample that is identified by elevator name, location, and bin number. These samples are sent to Winnipeg for

analysis. The infested bins are then treated under procedures issued by the Commission. The

bins that are not infested can be shipped according to instructions issued by the Commission.

If a primary elevator ships infested grain to a

terminal elevator more than once in a crop year,

the primary elevator’s license can be suspended. Officials indicated that one license was

suspended in 1986.

The Commission allows infested grain to be

loaded into railcars and fumigated during transit. Regulations established for these shipments

include placarding, etc. Aluminum phosphide
105

is the main compound used for fumigation. The

Commission stresses good housekeeping, use

of aeration, and turning bins to control infestation.

Pesticide Residues.—The Commission has

been surveying and testing wheat for pesticide

residues for over 15 years. The pesticide screening program has four objectives:

10

2.

3.

4.

Ensure that pest control products do not

result in residue levels that exceed tolerance in export shipments. The Commission is not responsible for licensing these

chemicals but works closely with other

government agencies on issues surrounding pest control and potential health

hazards.

Prevent contaminated grain from entering licensed terminal elevators. This involves surveying grain stored in primary

elevators.

Identify grain that is contaminated as it

enters the terminal elevator. Contaminated grain must be disposed of according to provisions of the Act and regulations.

Obtain samples from each ship loaded for

export for testing. This program involves

screening samples for 16 of the 58 compounds licensed for cereal grains. Five

hundred grams from each cargo are tested

using gas chromatography. Table 4-20 lists

the compounds currently being screened.

According to the Commission, surveys over the

1978/79 and 1979/80 crop years for aluminum

phosphide/phosphine, carbon disulfide, carbon

tetrachloride, ethylene dichloride, and ethylene

dibromide indicated that 98 percent of the crop

did not contain harmful levels of these substances. As such, these substances are not routinely tested on cargo shipments. Currently,

only aluminum phosphide/phosphine is sanctioned to treat infested grain.

Table 4.20.—Pesticides Screened for in Canada

carbaryl Iindane

carbathiin Iinuron

carbofuran malathion

chlorpyrifos methoxychlor

demeton metribuzin

dimethoate oxydemeton-methyl

disulfoton trial late

endrin trifluralin

SOURCE: Canadian Grain Commission, Quality Contro/ for Pesticide Residues

in Canadian Grain at the Grain Research Laboratory,

FINDINGS AND CONCLUSIONS

Canada’s standard class of wheat is Hard Red

Spring, which is high in both protein and baking strength. Over the years Canada has established a reputation for producing not only a

high-quality but also a very uniform wheat. And

the premium received for Canadian Western

Red Spring wheat has held its own, while the

discount on U.S. Hard Red Winter wheat has

increased. A major reason CWRS wheat has

maintained its price is that quality (with uniformity as the key factor) of U.S. wheat has been

declining in the eyes of some importers. This

has allowed Canada to continue to charge a

premium for the reputation it has developed

for selling wheat with a uniform, predictable

quality.

Three major factors affect the marketing system and the quality of wheat in Canada:

1. the Canadian Wheat Board,

2. the Canadian Grain Commission, and

3. the licensing of new varieties.

The CWB is the sole marketing agency for

wheat grown in Canada and destined for export or human consumption. It is a government

agency and mainly a sales agency, as it owns

no physical facilities for the handling of grain.

The CWB's responsibility is to bring the highest possible returns to producers and give them

equitable access to the export market. Quality

is a primary marketing tool used by CWB.
106

The Canadian Grain Commission is the regulatory body responsible for the quality control of Canadian grain and for supervision of

its handling. It has the legislative authority for

licensing grain handling facilities, setting grade

standards, providing official inspection, and ensuring that quality is maintained on grain moving through the system. The Commission’s

licensing authority is used to maintain quality

control throughout the handling system. Among

other things, it requires elevators to maintain

handling equipment and storage facilities in efficient condition to minimize damage of grain

and to prevent deterioration during storage.

Failure to comply with license requirements

may result in suspension or loss of license.

The most fundamental aspect of the Canadian system with regard to quality is its variety development and release policy. The system requires that a new variety of wheat be

extensively tested before the Minister of Agriculture can issue a license for sale as seed. This

requirement has significantly reduced the number of varieties released but has assured Canada of reliable, uniform wheat. New varieties

must make a positive contribution to existing

varieties, and must conform to a number of

fixed criteria that define quality as it applies

to licensing. As a result of these stringent licensing regulations, Canadian wheat is very

uniform.

1. Canada Grains Council, “Grain Grading for Efficiency and Profit, ” Winnipeg, MB: 1982. ) 2. Canada Grains Council, Wheat Grades for

Canada—Maintaining Excellence (Winnipeg,

MB: 1985).

3. Canada Grains Council, The Structure of the

Feed Grain Market in Western Canada (Winnipeg, MB: 1985).

4. Canada Grains Council, Statistical Annual, various issues.

5. Carter, C., Loyns, A., and Ahmedi-Esfahani, Z.,

“Varietal Licensing Standards and Canadian

Wheat Exports,” Canadian Journal of Agricultural Economics 31 (November 1986), pp.

361-377.

6. Committee on Unprescribed Varieties, “Report

of the Committee on Unprescribed Varieties,”

Winnipeg, MB, July 1986.

7. Gilson, C., Western Grain Transportation Report on Consultation and Recommendations

(Ottawa: Supply and Services Canada, June

1982).

8. Hunt, L. A., and Bulman, P., “Wheat Production

in Eastern Canada, ” unpublished manuscript,

Department of Crop Science, University of

Guelph, 1986.

9. Leibfried, J. L., “Grain Handling Efficiency

Study,” prepared for the Grain Transportation

Agency, Winnipeg, MB, 1987.

10. Leisle, D., “The Canadian Varietal Registration

System and Varietal Development,” presented

to 91st Technical Session, Association of Operative Millers, Toronto, ON, May 1987.

11, Senate of Canada, Soil at Risk (Ottawa: 1984).
Chapter 5

The Australian Grain System
CONTENTS

Page

Overview of Marketing and Production .109

Exports . . . . . . . . . . . . . . . . . . . . . ......112

productivity . ......................11 5

Quality . ..........................11 6

Farm Sector. . . . . . . . . . . . . . . . . . . . . ..116

The Australian Wheat Board . .........117

Historical Background and Current

Objectives . ......................11 7

Quality Control by AWB . ...........118

producer Pricing and Policy .. ... ...l23

Export Marketing . .................12 5

Industries Assistance Commission. ...126

Grain Handling in Australia. . .........127

Bulk Handling Authorities. . .........128

Transportation . . . . . . . . . . . . . . . . . . . . .129

Storage Types, Capacities,

and Design . . . . . . . . . . . . . . . . . . . . . .130

Infestation Policies and Practices ....136

Royal Commission into Grain Storage,

Handling, and Transportation. .. ...138

Variety Development and Release . . . ...139

Role of AWB . .....................13 9

Procedures for Release. . . . . . . . . . ....140

Findings and Conclusions. . ...........141

Chapter 5 References. . ...............14 2

Figures

Figure No. Page

5-1. Wheat-Growing Regions of

Australia. . . . . . . . . . . . . . . . . . . . . ...110

5-2. Wheat Supply and Disappearance

I

5-3

5-4

5-5

for Australia. . ...................11 1

Market Share of Wheat Exports by

Major Exporters . ................11 4

Wheat Yield by Major Exporters in

Tons/Hectare . ...................11 5

Australian Wheat Marketing

System. . . . . .....................12 8

Table

5-1.

5-2.

5-3,

5-4,

5-5.

5-6,

5-7,

5-8,

5-9!

5-10,

5-11,

5-12.

5-13.

5-14.

5-15.

5-16.

5-17.

5-18.

TabIes

No. Page

Production of Wheat in Australia. .110

Australia Wheat Supplies and

Disappearance for 1961/62 to

1987/88 . .......................11 2

Domestic Uses of Wheat by Type

of Flour, Australia, 1982-87. . . . . . .112

Wheat Exports as Percent of

Production for Major Exporters ...113

Total Wheat Exports by Major

Exporters . . . . . . . . . . . . . . . . . . . . ..113

Percentage of Wheat Receivals by

Class and State Averages,

Australia. . . ....................11 6

Typical Analysis for the Australian

Milling Wheat Classes . ..........117

Principal Class and GradeDetermining Factors for

Australian Wheat, 1987/88........120

New South Wales, Varietal

Discount List, 1988/89 . ..........122

Guaranteed Minimum Prices for

Wheat in Australia, 1976/77

to 1987/88 . ....................12 4

Derivation of Final Guaranteed

Minimum Prices for Wheat in

Australia, 1986/87 . ..............124

Authorized Handlers of Wheat in

Each State . . . . . . . . . . . . . . . . . . . . .128

Handling, Transport, and Other

Deductions, 1986/87 . ............129

Principal Growers’ Deductions for

Handling, Storage, and Freight. ...130

Total Storage Capacity . . . . . . .. ...131

Country and Port Storage Profile ..131

On-Farm Storage Capacity,

1984-85 . .......................13 2

Quality Guidelines for Wheat

Breeders, 1976, and Proposed

for 1987 . . . . . . . . ................140
Chapter 5

The Australian Grain System

Australia is the fourth largest wheat exporter,

following the United States, Canada, and the

European Community. Australia’s market share

in recent years has ranged between 11 and 18

percent. production is quite volatile compared

to other exporters. Of particular importance is

that a large proportion of Australian wheat is

exported—up to 80 or 90 percent in recent

years.

The wheat produced in Australia is exclusively white. It is generally considered a weaker

wheat, with protein in the area of 9 to 11 percent, although some regions are capable of producing wheat with 14 to 15 percent protein.

Wheat in Australia has a reputation for being

very dry, with harvest moisture about 9.5 percent, and for having relatively superior “hygiene, ” in terms of overall cleanliness and lack

of infestation. Levels of impurities are generally less than 0.4 percent, and insect problems

have been virtually eliminated despite a climate

very conducive to insect proliferation.

A number of institutions and institutional

relationships influence the quality of wheat

produced, marketed, and exported in Australia. These include the Australian Wheat Board

(AWB), monopoly grain handling authorities

in each state, variety release and control procedures, and a set of receival standards applied

at the point of first sale. These interrelated influences have important impacts on the quality of wheat exported.1

IThis chapter draws on the OTA paper “A Comparison of

Quality Factors of the Australian and United States Grain Systerns, ” based on the findings of an OTA study team consisting

of Dr. William W. Wilson, Mr. David M. Orr, Mr. Robert A. Zortman, and Dr. Michael J. Phillips that traveled to Australia in

1987. Dr. Wilson integrated the findings of the team into the OTA

paper,

OVERVIEW OF MARKETING AND PRODUCTION

Wheat production in Australia is limited to

the south and east coasts and to Western Australia (figure 5-1). The largest wheat-producing

state is New South Wales, followed by Western Australia, Victoria, South Australia, and

Queensland (table 5-1). Over the past 10 years

production shares across the four largest wheatproducing states were: New South Wales, 35

percent; Western Australia, 29 percent; Victoria, 16 percent; and South Australia, 11 percent.

The distribution of wheat production across

states is relatively constant.

Production has been on a slightly increasing

trend over the past 20 years (figure 5-2). However, of particular importance is that production is quite volatile through time. Substantial

reductions in production were observed at least

four times in the past 25 years, and several of

these are directly attributable to drought conditions (e.g., in 1982/83). In each case these were

followed by above-normal production in subsequent years.

The area planted in Australia has been increasing since the early 1960s. There was a

sharp reduction in 1970, but since then it has

increased gradually. After peaking at 12.9 million hectares in 1983, the area planted dropped

to an estimated 10.0 million hectares in 1987,

This reduction has occurred because of the decreasing relative profitability of wheat—caused

by the simultaneous occurrence of lower wheat

prices and a rapid escalation in Wool prices,

with pasture and sheep production providing

an alternative use of the land.

In recent years domestic use has accounted

for only about 15 percent of total demand, a

decline from earlier years (table 5-2). The principal source of domestic demand is for human

consumption. Wheat used for feed ranged from

35 to 48 percent of domestic use in 1979/80 to

1982/83, but declined to 9 percent in 1985/86

(4). Bread bakers use 45 percent of the flour

produced in the domestic industry and the

starch/gluten manufacturers use 22 percent

109
110

Figure 5=1.—Wheat-Growing Regions of Australia

I I 1

I I

● Each dot represents 500,000 metric tons.

SOURCE: Adapted from U.S. Department of Agriculture, Major World Crop Areas and C/imat/c Profiles, Agriculture Handbook 664, 19S7.

Table 5-1.-Production of Wheat in Australia (thousand metric tons)

New South South Western

Seasona Wales b Victoria Australia Australia Queensland Tasmania Australia

1976-77 . . . . . . . . . . . . . . . . . . 5,142 1,789 832 3,249 794 4 11,800

1977-78 . . . . . . . . . . . . . . . . . . 3,946 1,497 511 2,945 569 2 9,370

1978-79 . . . . . . . . . . . . . . . . . . 6,640 2,998 2,086 4,400 1,962 3 18,090

1979-80 . . . . . . . . . . . . . . . . . . 6,001 3,250 2,349 3,739 846 4 16,188

1980-81 . . . . . . . . . . . . . . . . . . 2,865 2,538 1,650 3,315 485 3 10,856

1981-82 . . . . . . . . . . . . . . . . . . 5,910 2,467 1,695 4,803 1,482 3 16,360

1982-83 . . . . . . . . . . . . . . . . . . 1,500 692 5,534 755 8,876

1983-84 . . . . . . . . . . . . . . . . . . 8,981 3 , % 2,843 4,316 1,922 3 22,016

1984-85 . . . . . . . . . . . . . . . . . . 5,805 2,666 2,031 6,580 1,579 4 18,666

1985-86 . . . . . . . . . . . . . . . . . . 5,911 2,225 1,879 4,377 1,730 4 16,127

Ten-season average . . . . . . . 5,258 2,380 1,657 4,326 1,212 3 14,835

%tober 1 to Septembar 30.

blncluding A.C.T.

SOURCE: Australian Wheat Board, Annual Repoti WS5@3.
111

Figure 5-2. -Wheat Supply and Disappearance for Auatralia

1961/62 1964/65 1969/70 1974/75 1979/60 1964/65 1987/66

SOURCE: International Wheat Council, World Wheat Statistics (London: various issues).

(table 5-3). Australia is a major manufacturer

and exporter of gluten.

Exports reached a peak of 16.1 million metric tons (MMT) in 1985/86, but declined to a

projected 11.0 MMT in 1987/88 as production

dropped. In the mid-1980s, 80 to 90 percent of

the wheat produced in Australia was exported.

This is very high compared with other exporters

(table 5-4), again indicating the relative importance of wheat exports in Australia. The decline in the recent year is largely due to the reduced production.

Traditionally, Australia carried minimal

stocks between crop years. Beginning in the

late 1970s, however, ending stocks began to increase. In the mid-1970s ending stocks were

about 14 to 22 percent of production, but the

percentage increased to 47 percent in 1984/85,

reaching 8.6 MMT. Carryover stocks dropped

thereafter, to less than 4 MMT in 1987/88. Compared with the United States and, traditionally,

Canada, ending stocks as a percent of production are lower. This suggests that despite the

variability in production, Australia is less willing or able to hold over stocks between years.
112

Table 5-2.—Australia Wheat Supplies and Disappearance for 1961162 to 1987188 (million metric tons)

supply Disappearance End-of-year

Year Beginning stocks Production Total Domestic Exports Total carryover

1961/62 . . . . . . . . .

1962/63 . . . . . . . . .

1963/64 . . . . . . . . .

1964/65 . . . . . . . . .

1965/66 . . . . . . . . .

1966/67 . . . . . . . . .

1967168 . . . . . . . . .

1968/69 . . . . . . . . .

1969/70 . . . . . . . . .

1970/71 . . . . . . . . .

1971/72 . . . . . . . . .

1972173 . . . . . . . . .

1973/74 . . . . . . . . .

1974/75 . . . . . . . . .

1975/76 . . . . . . . . .

1976177 . . . . . . . . .

1977178 . . . . . . . . .

1978/79 . . . . . . . . .

1979/80 . . . . . . . . .

1980181 . . . . . . . . .

1981/82 . . . . . . . . .

1982/83 . . . . . . . . .

I 1983184 . . . . . . . . .

1984/85 . . . . . . . . .

1985/86 . . . . . . . . .

1986/87 . . . . . . . . .

1987/88 . . . . . . . . .

0.7

0.5

0.6

0.6

0.7

0.5

2.2

1.4

7.3

7.2

3.4

1.5

0.5

1.9

1.7

2.7

2.1

0.8

4.6

4.3

2.0

4.9

2.3

7.6

7.3

6.6

6.7

8.4

8.9

10.0

7.1

12.7

7.5

14.8

10.5

7.9

8.6

6.6

12.0

11.4

12.0

11.8

9.4

18.1

16.2

10.9

16.3

8.8

22.0

18.3

16.6

16,8

12.4

7.4

9.6

10.6

7.7

13.2

9.7

16.2

17.8

15.1

12.0

8.0

12.5

13.2

13.6

14.5

11.5

18.9

20.8

15.1

18.4

13.8

24.3

25.9

25.1

24.1

19.0

2.1

2.0

2.1

2.7

2.5

2.4

2.7

2.3

2.4

2.7

2.8

3.4

3.2

3.0

2.7

2.6

2.6

2.5

3.4

3.5

2.4

4.2

2.6

2.6

2.9

2.7

2.7

4.8

6.2

6.9

7.3

4.8

8.5

5.7

6.7

8.2

9.0

7.8

4.1

7.4

8.5

8.2

9.8

8.1

11.7

13.2

9.6

11.0

7.3

14.2

15.1

16.1

14.8

12.2

6.9

8.2

9.0

9.9

7.3

11.0

8.3

8.9

10.6

11.7

10.6

7.6

10.6

11.6

11.0

12.3

10.7

14.2

16.6

13.1

13.4

11.5

16.7

17.3

17.9

17.5

14.9

0.5

0.6

0.6

0.7

0.5

2.2

1.4

7.3

7.2

3.4

1.5

0.5

1.9

1.7

2.7

2.1

0.8

4.6

4.3

2.0

4.9

2.3

7.6

8.6

7.3

6.6

4.1

NOTE: 1987/88 data are preliminary.

SOURCE: fWJl~ to IS851496: World Wheat S~aMlcs (Lcmim: various years); 7S8M?7 ● nd W87M8: IWC Market Report; and U.S. Department of Agriculture, Foreign

Agricultural Service, “World Grain Situation Outlook,” FG 9-88, Washington, DC.

Table 5.3.—Domestic Uses of Wheat by Type of Flour, Australia, 1982-87a (in percent)

Uses 1982 1983 1984 1985 1986 1987

Industrial:

I Starch/gluten manufacture . . . . 20.1 18.6 20.6 22.7 24.0 22.3

I Other . . . . . . . . . . . . . . . . . . . . . . 1.3 0.8 0.3 0.2 0.1 0.2

Human consumption:

Bread bakers. . . . . . . . . . . . . . . . 54.3 55.0 48.6 47.4 45.8 44.8

Pasta cooks . . . . . . . . . . . . . . . . NA NA 9.1 8.8 7.8 7.5

Biscuit . . . . . . . . . . . . . . . . . . . . . 7.0 7.3 6.7 16.4 6.7 7.1

Pasta . . . . . . . . . . . . . . . . . . . . . . 3.3 3.1 3.3 3.1 3.3 3.4

Packeted flour and mixes. ., ., 8.8 8.3 6.5 7.4 6.4 6.8

Food . . . . . . . . . . . . . . . . . . . . . . . 4.2 5.8 5.0 4.0 5.9 7.9

Total (000 MT). . . . . . . . . . . . . . . . . 1,043 1,036 1,123 1,139 1,144 1,208

Export (000 MT) . . . . . . . . . . . . . . . 102 91 63 61 61 73

Grand total (MMT) , . . . . . . . . . . . . 1,145 1,126 1,187 1,200 1,205 1,281

acrop year ending June w.

SOURCE: Survey conducted by Bread Research Institute, Sydney, 1987.

Exports creased U.S. exports (table 5-5). The market

share for Australia was in the area of 10 to 12

Australia typically produces between 2.5 and percent in the late 1970s, and reached 18.5 per4.0 percent of the world’s wheat. Argentina and cent in 1985/86 (figure 5-3). Again, it was priAustralia are the principal exporters that re- marily the market shares of Australia and Arduced exports in the past 2 years, offsetting in- gentina that fell since 1986.
113

Table 5-4.—Wheat Exports as Percent of Production for Major Exporters

Year EC10a United States Canada Australia Argentina

1961/62 . . . . . . . . . . . . . . . . .

1962/63 . . . . . . . . . . . . . . . . .

1963/64 . . . . . . . . . . . . . . . . .

1964/65 . . . . . . . . . . . . . . . . .

1965/66 . . . . . . . . . . . . . . . . .

1966/67 . . . . . . . . . . . . . . . . .

1967/68 . . . . . . . . . . . . . . . . .

1968/69 . . . . . . . . . . . . . . . . .

1969/70 . . . . . . . . . . . . . . . . .

1970/71 . . . . . . . . . . . . . . . . .

1971/72 . . . . . . . . . . . . . . . . .

1972/73 . . . . . . . . . . . . . . . . .

1973/74 . . . . . . . . . . . . . . . . .

1974/75 . . . . . . . . . . . . . . . . .

1975/76 . . . . . . . . . . . . . . . . .

1976177 . . . . . . . . . . . . . . . . .

1977/78 . . . . . . . . . . . . . . . . .

1978/79 . . . . . . . . . . . . . . . . .

1979180 . . . . . . . . . . . . . . . . .

1980/81 . . . . . . . . . . . . . . . . .

1981/82 . . . . . . . . . . . . . . . . .

1982183 . . . . . . . . . . . . . . . . .

1983/84 . . . . . . . . . . . . . . . . .

1984185 . . . . . . . . . . . . . . . . .

1985/86 . . . . . . . . . . . . . . . . .

1986/87 . . . . . . . . . . . . . . . . .

1987188 . . . . . . . . . . . . . . . . .

13.7

13.5

15.4

19.4

19.1

16.9

15.3

15.8

20.5

10.3

13.2

16.4

13.0

17.5

25.2

12.4

14.7

19.0

23.6

27.4

29.1

25.4

27.7

24.7

24.1

23.4

22.3

58.4

58.8

74.7

56.5

65.9

57.0

50.5

35.0

42.0

54.6

39.1

76.6

67.4

57.9

55.3

44.4

54.9

67.2

64.4

63.6

63.6

54.6

59.0

54.9

37.5

48.1

76.0

126.3

58.6

82.2

66.6

90.1

62.3

56.7

47.1

51.6

131,3

95.1

108.1

70.6

81.0

72.2

57.0

80.8

61.9

92.4

84.3

74.4

79.9

82.1

82.7

75.3

66.2

91.0

72.0

74.5

77.3

72.4

67.3

67.1

75.0

45.2

77.7

114.7

90.2

62.8

61.9

75.3

68.7

82.7

86.4

64.6

81.5

88.6

67.4

82.5

64.3

82.5

97.3

93.3

98.0

47.7

32.6

39.0

56.9

91.1

35.2

30.7

43.1

32.6

17.2

28.5

39.2

22.8

28.7

36.1

53.0

31.6

49.3

58.3

45.0

45.8

65.3

59.7

68.4

50.6

50.6

42.0

aggregated for first Iomembersofthe European Community. It excludes spain and poffu9al.

SOURCE: lntemationai Wheat Council, Wor/d WheatStatisf/cs (London: various issues~ 1988/87 from U.S. Depatiment ofAgriculture, Foreign Agricultural Service, FG-9-88) Washington, DC.

Table 5-5.—Total Wheat Exports by Major Exporters (million metric tons)

Year ECa United States Canada Australia Argentina Total

1963/64. . . . . . .

1964/65. . . . . . .

1965/66. . . . . . .

1966/67. . . . . . .

1967/68. . . . . . .

1968/69. . . . . . .

1969/70. .....

1970/71 . . . . . . .

1971/72. . . . . . .

1972/73. . . . . . .

1973/74. . . . . . .

1974175. ..,...

1975/76. . . . . . .

1976/77. . . . . . .

1977178. . . . . . .

1978179. . . . . . .

1979/80. . . . . . .

1980/81 . . . . . . .

1981/82. . . . . . .

1982/83. . . . . . .

1983/84. . . . . . .

1984/85. . . . . . .

1985186. . . . . . .

1986187. . . . . . .

3.8

5.4

5.5

4.2

4.4

5.0

3.1

4.7

6.5

5.5

7.1

3.9

4.5

7.4

10.3

12.7

14.0

14.1

14.9

17.2

15.0

15.0

23.1

19.6

23.4

20.0

20.2

14.7

16.5

19.8

16.9

32.0

31.1

28.3

31.5

26.4

31.5

32.4

36.6

42.1

49.3

39.3

38.3

38.2

25.1

27.3

15.1

11.9

14.8

14.8

8.9

8.7

9.0

11.6

13.7

15.6

11.7

11.2

12.1

12.9

15.9

13.5

15.0

17.0

17.8

21.1

21.2

19.1

17.6

20.8

7.8

6.5

5.7

7.0

7.0

5.4

7.3

9.5

8.7

5.6

5.5

8.0

8.1

8.4

11.1

7.2

15.4

11.1

11.4

8.5

11.6

15.1

16.1

14.9

2.8

4 . 4

7.9

3.1

1.4

2.8

2.1

1.7

1.3

3.5

1.1

2.2

3.1

5.6

2.7

3.3

4.7

3.9

4.3

7.5

9.6

8.0

6.3

4.3

55.8

50.5

62.0

55.8

51.2

45.7

50.7

54.3

52.5

68.3

63.1

63.4

66.5

61.8

72.4

71.7

86.0

94.0

100.7

96.1

100.3

104.1

87.0

90.1

1987188. . . . . . . 16.0 43.4 23.6 12.2 3.8 95.8

aEUrOpaarlcOrnrnUfllty comprised oforlglnal membarstatesto 1987188, 9membarstates to 1980/81, lomemberstatesto December 1985, thereafter 12 members.

SOURCE: international Wheat Council, Wor/d bWreat Statistics (London: various issues~ 1988/87 from U.S. Departmentof

Agriculture, Foreign Agricultural Service, FG-9-88, Washington, DC.
114

Figure 5-3. Market Share of Wheat Exports by Major Exporters

—

—

— Australi a

---- - E C

a

– – – United State s

— Canad a

-

-- Argentin a

1964/65 1969/70 1974/75 1979/80 1984/85 1987/88

%x original member states in 19S7/SS, 9 member atates in 19S0/S1, 10 member States in Decembai 1985, thereafter 12 members

SOURCE: International Wheat Council, World Wheat Statistics (London: various issues).

The largest six importers of Australia are the

U. S. S. R., Egypt, China, Japan, Iran, and Bangladesh (in approximate rank over the past three

market years). In 1985/86 these countries

bought 70 percent of the wheat exported. The

U.S.S.R. is now the single largest importer, purchasing 20 percent of Australia’s wheat in 1985/

86. This is a fairly recent change, with substantial Soviet increases in wheat purchases beginning in 1979/80.

Australia has the dominant position in two

markets—Iran and Malaysia. However, in several markets Australian market shares have decreased substantially. In China, it dropped from

48.3 percent in 1969/70 to 19.6 percent in

1984/85. Decreases in market shares have also

been observed in Egypt, in Indonesia since

1979/80, and in Malaysia since the mid-1970s.

Market shares in the remaining countries do

not illustrate trends, but are sporadic. Australia and the United States compete in most markets, with the exception of Iran. They are the

principal competitors (defined as the largest

two suppliers) in a number of markets, including China, Egypt, Iraq, and Indonesia.
115

Australia exports are exclusively white wheat

generally of medium protein level. Thus, it

mainly competes with U.S. white and Hard Red

Winter (HRW) wheats.

Productivity

Yields in Australia are nearly always the

lowest among major exporters, ranging from

1.4 to 1.5 metric tons per hectare (MT/ha) in

recent years (figure 5-4). This is in comparison

to French wheat yields of up to 6.0 MT/ha and

U.S. yields of 2.3 to 2.6 MT/ha. Another notable feature of yield behavior in Australia is

sharp reductions in 1972, 1977, and 1982, generally consistent with drought conditions. Yield

behavior is very erratic, as when it increased

from 0.7 MT/ha in 1982 to 1.7 MT/ha in 1983.

This has important implications for the grainhandling storage system and for export

strategies.

To evaluate the productivity growth between

countries, a semilog model was estimated over

the time series 1962-86. The fastest growth rate

was that of France, followed by the United

States. No significant trend was registered for

Australia, suggesting a nil growth rate in productivity. A number of reasons account for the

low yields in Australia, including low prices,

low rates of fertilization, and little rainfall.

Figure 54.-Wheat Yield by Major Exporters in Tons/Hectare

6

5

2

1

0

— Australi a

---- - Canada

-——— United States

— . — Argentina

1 I I I I I I

---- ---- .- —- . -—- ---- - 1962 1965 1970 1975 1980 1985 1967

SOURCE: International Wheat Council, World Wheat StatLstlcs (London: various Issuea).
116

Quality

Seven classes of wheat are produced and marketed in Australia: Prime Hard (APH), Hard

(AH), Australian Standard White (ASW), Soft,

Durum, General Purpose (GP), and Feed. Each

to some extent is further segregated by protein

level or by level of nonmillable materials. The

Australian Wheat Board publishes crop quality data for wheat entering the marketing system for APH, AH, ASW, and GP.

Generally, about 68 percent of the wheat received is classed as ASW, 15 percent as AH,

and the remainder split between the other two

classes (table 5-6). In 1983/84 and 1985/86, the

proportion classed as GP jumped. The magnitude of the increases would suggest a trend

toward GP wheat, but this conclusion would

be preliminary given only 2 years of data. In

both 1983/84 and 1985/86 crop quality problems

developed because of rains during harvest, resulting in an increase in weather damage. Also

of interest is the apparent decrease in recent

years of both APH and AH wheat,

The principal quality difference between

classes is the protein level and the end-use performance associated with protein (e.g., water

absorption) (table 5-7). ASW protein levels are

generally about 10 percent. Compared with U.S.

Hard Red Winter and Western White (WW),

Australian wheats have higher test weight and

extraction rates. Protein levels for HRW are

similar to AH, and those of white are similar

to ASW. Water absorption for AH is similar to

HRW, but WW is substantially less absorptive

than ASW.

Farm Sector

The farm sector in Australia, like that in most

exporting countries, is going through a transition. The most important structural shift is

toward fewer total farms. In addition, the number smaller than 500 hectares is dropping, while

those greater than 500 hectares are increasing.

Wheat farming in Australia involves extended

rotations with clover and sheep. The study

team’s casual conversations with producers indicated they used to plant 4 years of wheat and

2 years of pasture. Due to reduced wheat prices

and increased sheep/wool prices, however, they

are now following a 2-year rotation of wheat

and 4 years pasture. One objective is to increase

the soil nitrogen. Fertilizer use has dropped

sharply since the peak in 1981/82, both in total

and per hectare of cropland.

I

1 Table 5=6.—Percentage of Wheat Receivals by Class and State Averages, Australia tI

I Australia Australia I

I prime hard Australia hard standard whitea General purposeb

Years (APH) (AH) (ASW) (GP)

1976/77 . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 18.4 64.5 8.4

1977178 . . . . . . . . . . . . . . . . . . . . . . . . . 14.2 17.2 62.8 5.8

1978179 . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 15.6 69.2 10.9

1979180 . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 16.1 74.3 4.9

1980181 . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 14.5 77.6 4.1

1981182 . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 19.9 68.1 4.3

1982183 . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 13.8 72.3 3.8

1983184 . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 12.4 51.5 29.5

1984185 . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 13.0 77.5 3.1

1985186 . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 13.0 64.7 17.8

Averages over 10 years:

Australia . . . . . . . . . . . . . . . . . . . . . . . . 7.1 15.4 68.3 9.2

New South Wales . . . . . . . . . . . . . . . . 15.9 25,7 45.2 13.2

Victoria . . . . . . . . . . . . . . . . . . . . . . . . . — 90.7

South Australia . . . . . . . . . . . . . . . . . . — 24.1 72.7 3.2

Western Australia . . . . . . . . . . . . . . . . — 5.1 87,3 7.6

Queensland . . . . . . . . . . . . . . . . . . . . . 28.6 29.9 26.0 15.5

Tasmania. . . . . . . . . . . . . . . . . . . . . . . . — — — —

alnclude$ minor quantities of Durum and soft wheat.

bjncludes Australian feed wheat.

SOURCE: Australian Wheat Board, Annual Repofls.
117

Table 5-7.—Typical Analysis for the Australian Milling Wheat Classes

Australian Australian

prime hard 14°/0 Australian hard standard white Australian soft

Wheat:

Test weight (kg/hl). . . . . . . . . . . . . . . .

1000 kernel weight (g). . . . . . . . . . . . .

Grain hardness (P. S. I.) . . . . . . . . . . . .

Protein (11 0/0 moisture). . . . . . . . . . . .

Ash 0/0 . . . . . . . . . . . . . . . . . . . . . . . . . .

Falling number (see) . . . . . . . . . . . . . .

Flour extraction 0

/0 . . . . . . . . . . . . . . .

79.4

35.2

15

14.2

1.50

494

75

80.0 80.5 78.0

37.2 35.2 34.8

14 17 27

12.2 10.8 8.5

1.50 1.38 1.38

460 422 325

74 75 74

Screenings:

Total screenings 0

/0 (2mm screen) . .

Flour:

Protein (3.50/0 moisture) . . . . . . . . . . .

Wet gluten 0/0 . . . . . . . . . . . . . . . . . . . .

Diastatic activity (mg) . . . . . . . . . . . . .

Ash 0/0 . . . . . . . . . . . . . . . . . . . . . . . . . .

Farinogram:

Water absorption% . . . . . . . . . . . . . .

Development time (rein) . . . . . . . . . . .

Extensograph:

Extensibility (cm). . . . . . . . . . . . . . . . .

Maximum height (B. U.) . . . . . . . . . . . .

Area (cmb

) . . . . . . . . . . . . . . . . . . . . . . .

2.5

13.1

40.0

192

0.50

65.6

6.0

23.2

460

140

2.6 3.1 3.2

11.0 9.6 7.5

33.7 28.8 2.2

237 195 116

0.48 0.47 0.45

65.8 60.8 52.4

4.7 3.4 1.9

22.8 20.1 19.6

365 320 190

112 95 43

SOURCE: Australian Wheat Board, Australian Wheat Industry Guide

THE AUSTRALIAN

The single most important institution in the

Australian wheat industry is the Australian

Wheat Board. The AWB is involved in variety

control, the establishment of grade standards,

administration of producer price policy, and

domestic and export sales. In addition, it has

established procedures for resolving many potential problems associated with quality. One

important function is setting receival standards,

which essentially form the basis of the grading

system in Australia. Government producer

price policies (described in a subsequent section) are administered by the AWB.

Historical Background and

Current Objectives

The AWB began in 1939 as a wartime defense

organization. Prior to that wheat marketing was

conducted by private traders and exporters. The

1939 legislation gave the AWB the authority to

receive, handle, and market Australia’s wheat

crop. It became the sole buyer and seller of Australian wheat; storage, handling, and transporWHEAT BOARD

tation were provided by each state’s bulk handling authority (BHA).

Operation of the current AWB stems from

1948 legislation. From then on the AWB was

subject to legislation with a sunset clause every

5 years. AWB performance was reviewed every

5 years. Legislation was under the auspices of

the Wheat Industry Stabilization Acts of 1954,

1958,1963, 1968 and 1974, and the Wheat Marketing Acts of 1979 and 1984. The current legislation expires with the 1988/89 crop marketing year. An Industries Assistance Commission

(IAC) is currently investigating the performance

of the wheat industry. A new wheat marketing

act will have to be passed prior to the 1989/90

marketing year. Complementary legislation in

each state is also required for the AWB to operate nationally.

The current AWB has a broad objective and

a number of statutory functions (AWB submission to IAC). The broad objective is to “perform

its functions with the object of securing, developing, and maintaining markets for Aus-
118

tralian wheat and maximizing the return to

growers from the marketing of Australian

wheat.” This objective should be attained in

consultation with the Grains Council of Australia (an organization representing growers).

Specific statutory functions of AWB are:

1. to control:

—the marketing of Australian wheat within

the States and Territories,

—the interstate marketing of Australian

wheat,

—the overseas marketing of Australian

wheat, and

—the export of wheat from Australia;

2. in appropriate circumstances, to import

and market overseas wheat within Australia;

3. to encourage and promote the sale and use

of Australian wheat, both within Australia and overseas;

4. to cooperate, consult and enter into agreements with, and make recommendations

to, the Bulk Handling Authorities (BHAs)

authorized to receive wheat on behalf of

the AWB;

5. after consulting the BHAs, to determine

standards:

—for the receival and classification into

grades of wheat delivered to the AWB,

—for categories of wheat containing one

or more classes and grades of wheat, and

–for the condition and quality of wheat

outturned to buyers by the BHAs;

6. to encourage, fund, and arrange the conduct of research relevant to the marketing

of wheat; and

7. to provide advice and recommendations

to the Commonwealth and States relating

to the marketing of wheat.

In meeting the above objective and functions

the AWB has a number of powers. Selected

powers of interest include:

1. to enter into tripartite barter arrangements;

2. to arrange for third parties to provide finance to wheat buyers;

3. to contract for or charter vessels for the

carriage of wheat by sea;

4. to arrange for or establish, maintain, and

operate facilities for overseas storage and

handling of wheat;

5. subject to the approval of the Minister, bor6

row to raise moneys; and

subject to the guidelines determined by the

Minister—enter into a deal with cornand

wheat commodity futures contracts, currency futures contracts, forward exchange

contracts, interest swaps and combined

currency and interest swaps, for hedging

purposes.

The Board consists of a full-time chairman, a

part-time Commonwealth Government representative, five wheat growers, and four specialists (one of whom is a wheat grower). As first

indicated, the AWB has the statutory objective

to maximize returns for growers, the Board itself is controlled by growers, important functions are given to the AWB for purpose of meeting the objective, and a number of powers are

given the AWB to facilitate its operation.

Operationally the AWB virtually controls all

aspects of wheat marketing. With the exception of domestic stockfeed sales, all wheat must

be delivered by growers to the AWB. The AWB

authorizes a sole Bulk Handling Authority in

each state for purposes of handling and storage, and negotiates rail rates. The BHAs essentially provide the physical functions of storage

and handling at country and export terminals

for the AWB. The AWB is the sole seller of

wheat to both the processing industry (nonstockfeed), and to exporters. Most exports are

made directly by the AWB, but in some years

up to 30 percent maybe made to private traders

for re-export. The AWB also operates a price

pool to facilitate purchasing from producers.

Quality Control by AWB

One of the important functions of AWB is

the establishment of standards for receival and

classification of wheat into grades. Through the

receival standards, variety control, and marketing arrangements, AWB virtually controls

the quality of wheat throughout the marketing

system. This control has an influence on variety development, release, and selection. Indeed,

Australia has developed a reputation for wheat
119

that is dry, clean, insect-free, and uniform, and

promotion materials exploit these points.

Although receival standards can be revised,

in recent years there has been minimal change.

Beyond the five dominant classes of wheat already described, Durum and soft wheats are

grown, but due to limited production and export are not discussed further here. APH and

AH are bread-making wheats segregated primarily by protein level—APH is 13 to 15 percent, and AH is 11 to 14 percent, depending

on variety. ASW is a multipurpose wheat with

intermediate hardness and protein—normally

9 to 11.5 percent. GP includes the same varieties as the other classes but is inadequate in

terms of test weight, weather damage, or untillable material. GP wheats can be used as

lower-grade milling wheats. Feed wheat is a default class and is only suited for feed purposes.

In addition to classes, locations (by state) can

be specified to account for the fact that the same

class produced in different states may have

different performance characteristics.

Receival Standards

The receival standard essentially equals what

may be referred to as grade standards in other

countries. A slight difference is that all wheat

is inspected and an official grade determined

at the point of first sale, which forms the basis

of the financial transaction between the AWB

and grower. The underlying rationale is that

if tight standards are applied at the first sale,

most problems associated with quality are mitigated. Having rigid untillable material standards at the point of first sale, for example, gives

producers an incentive to harvest clean wheat

and precludes problems further downstream

in the marketing system.

The same receival standards apply to all

states, but end-use performance of a class may

vary by point of export. Thus, the state maybe

referenced as a quality descriptor in export

transactions. The receival standards for 1987/88

are shown in table 5-8. There are two categories each for AH and GP, depending on protein level, falling number, and level of defects.

It is of interest to note, however, that the tolerance level for some factors are the same across

classes. For example, the level of millable material is the same for the top four grades. The

tolerances for moisture, insects, and contaminants match across all classes and categories.

Important grade-determining factors include

protein, variety, and the extent of damage (e.g.,

falling number or defects). In general, wheat

with excessive damage is classed as GP or Feed.

Given the classes listed in table 5-8, wheat is

further segregated by protein within the class

APH and AH (and there is a proposal to do so

within ASW). These segregations include 13,

14, and 15 percent protein in APH, and 12 and

13 percent in AH.

A load of wheat that does not meet these

standards cannot enter the marketing system.

As a result, combined with wide price differentials, farmers have a tremendous incentive to

minimize at least the level of untillable material. It is not uncommon for growers to have

a “second” screen installed on their combines

equal to that of the receival standards (2 millimeters) to avoid excessive levels of nonmillable materials.

The AWB has the ability and responsibility

to make changes in the standards through time

as deemed necessary by production and marPhoto credit: OTA Australia Study Team

Production technology used in Australia is very similar

to that used in the United States. Emphasis, however,

is placed on wheat being free of untillable materials.

Australian farmers commonly install a second screen

on their combines to avoid excessive levels

of nonmillable materials.
120

Table 5-8.-Principal Class and Grade-Determining Factors for Australian Wheat, 1987/88

Hard General purpose

Factors (APH) No. 1 No. 2 ASW No. 1 No. 2 Feed

Test weight (kg/hi). . . . . . . . . . . . . . . .

Moisture content (max. 0

/0) . . . . . . . .

Protein minimum (11 0/0 moisture

basis) . . . . . . . . . . . . . . . . . . . . . . .

Falling number minimum . . . . . . . . . .

Untillable materiala (max 0/0):

Total. . . . . . . . . . . . . . . . . . . . . . . . . .

Below screen . . . . . . . . . . . . . . . .

Small foreign seeds below

screen . . . . . . . . . . . . . . . . . . . . . .

Growth defects:

Sprouted grains (max. %) . . . . . . .

Fungal strained grains (max. 0/0). .

of which fuoarium . . . . . . . . . . . .

Dry green, sappy green, and

frost affected grains

affected by disease

or drying . . . . . . . . . . . . . . . .

Heat damage . . . . . . . . . . . . . . . . . .

Ball smut . . . . . . . . . . . . . . . . . . . . .

Insect damage . . . . . . . . . . . . . . . . .

Grain contaminants

Sticks, stones, earth and sand . . .

live insects . . . . . . . . . . . . . . . . . .

Dead insects (max. per 1/2 Iitre) . .

74

12

74

12

74

12

74

12

71

12

68

12

62

12

12.8

350

11.5

300

11.0

250

—

—

—

300

—

—

7

5

7

5

15

10

25

15

50

30

7

5

7

5

1 1 1 1 5 10 20

2

5

2

2

5

2

5

10

2

nil

5

2

nil

10

5

1

50

5

—

50

5

1 1 2 1 10 20 —

nil nil nil nil nil nil —

nil nil nil nil nil nil —

1 1 1 1 2 2 4

nil nil nil nil nil nil nil

nil nil nil nil nil nil nil

5 5 5 5 5 5 5

Dashes indicate not applicable.

aMaterial~ pa~~ing through a 2.millimeter screen and/or material other than wheat kernels remaining on top Of Screen after Sieving.

~Other units exist specifically for chemicals, ergots, and seed.

SOURCE: Office of Technology Assessment, 19S9.

ket conditions. Traditionally the ASW class was

sold as FAQ (Fair Average Quality) in the early

1970s. Since then the grading system has

evolved to reflect increased segregation. A number of changes have occurred in recent years.

First, the list of approved varieties changes to

reflect availability and experience with marketing particular varieties. Indeed, a variety

may change classes between years. Several

differences existed in the administration of the

standards in 1984/85 and 1985/86. Discounts

were then built directly into the standards for

excessive millable material and for foreign seed,

ergot, and sprout damage. But, these discounts

only applied to the GP class.

Price Differentials

The receival standards facilitate segregation

into relatively homogeneous categories, and

therefore aid the AWB in its sales and marketing programs. An important quality control tool

is the use of price differentials for different

classes and categories of wheat. This is the

mechanism used to send market signals to producers. (A detailed description of the pricing

mechanism is provided later in the chapter.)

Of particular importance is the differentials between classes. The interim advance payments

(90 percent of the Preliminary Guaranteed

Price) for the different classes in 1987/88 are:

Percentage

$/A of ASW

APH ., ... , . . . . . . . . . 137.87 113

AH No. 1 . . . . . . . . . . . 126.15 104

No. 2 . . . . . . . . . . . 121.59 100

ASW . . . . . . . . . . . . . . . 121.59 100

GP No. 1. .., . . . . . . . . 115.07 95

No. 2. ....., . . . . . 92.93 76

Feed . . . ., . . . . . . . . . . 89.03 73

These prices are received by producers at the

time of first sale. Final payments, and payments

for protein within APH and AH, are a result

of pooling (discussed in the following section).

The point is that there are premiums for qualities above ASW, and fairly substantial discounts
121

for grades below ASW. This is ultimately the

AWB mechanism that reflects incentives for

improving quality, or that precludes quality deterioration.

Variety Control

An important aspect of quality control in the

Australian wheat industry in the Variety Control Scheme (VCS) administered by AWB. VCS

is discussed here as it applies to the receival

standards and pricing. The standards are essentially physical characteristics that are easily

measured, and with the exception of protein

do not directly reflect end-use characteristics.

At least three important end-use characteristics—grain hardness, flour milling, and dough

processing characteristics—vary by variety and

region of production. Since these cannot be

measured easily, the VCS was implemented to

facilitate segregation. VCS essentially is used

to provide incentives/disincentives to producers, and for variety identification. The latter is

a prerequisite for segregation and marketing.

VCS is not regulatory but is used to identify

varieties, which are then used, in conjunction

with protein and physical characteristics, for

classification and pricing. Each year prior to

planting, the AWB lists varieties by region (i.e.,

silo groups within each state) that will be eligible for each class. Where appropriate, discounts

for certain varieties grown in certain silo groups

are listed. A separate list is published for each

state, Producers then choose varieties for seeding based on agronomic and price differences.

An example of the variety discount list for

1988/89 in New South Wales is shown in table

5-9. Several points are of interest. Only certain

varieties in specified silo groups are eligible for

APH or AH. Some varieties maybe AH or ASW

in the same silo group, depending on protein

level, but ASW in other silo groups regardless

of protein. Some varieties may have discounts

($3 or $5/MT) if grown in some silo groups. For

example, Hartog would receive a $3/MT discount for ASW if grown in silo group 4, 5, or

6. Unregistered varieties, in addition to any red

wheat, are classed as feed wheat. In Victoria,

only certain varieties grown in silo group A are

eligible for AH. All others are ASW, Feed,

and/or subject to discounts.

Enforcement of VCS requires some mechanism of variety identification at the point of first

sale. But, most varieties are not easily distinguishable visually. To resolve this problem

AWB uses an affidavit system, Upon delivery

to the country elevators, producers must

declare the variety and sign an affidavit indicating its name. Based on this declaration, wheat

is classed and segregated. Three mechanisms

are used to enforce the integrity of the affidavit mechanism. First, penalties (including financial and prison) could be imposed if AWB could

prove a false declaration. (Prosecution is difficult, however, because under current rules

AWB would have to prove the producers “had

intended” to produce and deliver another variety.) Second, AWB conducts spot checks

using electrophoresis, and these have a high

profile—or at least the intent does. Third, there

is peer pressure (at least alleged) among producers that violation would eventually harm

the reputation of Australian wheat, thereby resulting in long-term negative consequences.

Other Quality Control Mechanisms

Each state has one Bulk Handling Authority

authorized to receive, store, and handle wheat

for AWB. In general these are state-owned monopolies or farmer-owned cooperatives, but the

statutory or organization structure may vary

across states. These BHAs are fully integrated,

from the country elevator onward and including the export terminal. Wheat received into

BHA is the property of AWB, which contracts

for standards of operations that influence grain

quality. In addition, most wheat is sold and delivered at harvest, with very little stored on-farm

for post-harvest delivery.

One important institutional relationship between AWB and the BHAs that facilitates quality control is the logistical coordination of quality requirements. Each BHA submits a weekly

composite sample of wheat by location (and

silo) to AWB. This is then subjected to more

extensive quality evaluation. Through this process AWB knows the physical and end-use char88 - 377 0 - 89 - 5
122

Table 5.9.–New South Wales, Varietal Discount List, 1988/89

Silo group

Wheat variety 1&2 3 4 5 6

Banks . . . . . . . . . . . . . . . . . . . . .

Comet . . . . . . . . . . . . . . . . . . . . .

Condor . . . . . . . . . . . . . . . . . . . .

Corella . . . . . . . . . . . . . . . . . . . .

Dial . . . . . . . . . . . . . . . . . . . . . . .

Eagle . . . . . . . . . . . . . . . . . . . . . .

Egret . . . . . . . . . . . . . . . . . . . . . .

Gather . . . . . . . . . . . . . . . . . . . .

Grebe . . . . . . . . . . . . . . . . . . . . .

Harrier . . . . . . . . . . . . . . . . . . . . .

Hartog . . . . . . . . . . . . . . . . . . . . .

Kamilaroi . . . . . . . . . . . . . . . . . .

Kite . . . . . . . . . . . . . . . . . . . . . . .

Millewa . . . . . . . . . . . . . . . . . . . .

Olympic . . . . . . . . . . . . . . . . . . .

Osprey . . . . . . . . . . . . . . . . . . . .

Quarrion . . . . . . . . . . . . . . . . . . .

Rosella . . . . . . . . . . . . . . . . . . . .

Skua . . . . . . . . . . . . . . . . . . . . . .

Sunbird . . . . . . . . . . . . . . . . . . . .

Bunco . . . . . . . . . . . . . . . . . . . . .

Sunder . . . . . . . . . . . . . . . . . . . .

Seneca . . . . . . . . . . . . . . . . . . . .

Suneig . . . . . . . . . . . . . . . . . . . .

Sunkota . . . . . . . . . . . . . . . . . . .

Sunstar . . . . . . . . . . . . . . . . . . . .

Takari . . . . . . . . . . . . . . . . . . . . .

Vasco . . . . . . . . . . . . . . . . . . . . .

Vulcan . . . . . . . . . . . . . . . . . . . .

PH/AH/ASW

AH/ASW

AH/ASW

$3

AH/ASW

.$3

$5

PH/AH/ASW

G P 2

AH/ASW

PH/AH/ASW

DR/FEED

AH/ASW

$3

$3

AH/ASW

$3

$3

AH/ASW

ASW

PH/AH/ASW

AIH/ASW

PH/AH/ASW

AH/ASW

PH/AH/ASW

PH/AH/ASW

AH/ASW

AH/ASW

AH/ASW

PH/AH/ASW

AH/ASW

AH/ASW

$3

AH/ASW

$5

PH/AH/ASW

G P 2

AH/ASW

PH/AH/ASW

FEED

AH/ASW

$3

ASW

AH/ASW

ASW

ASW

AH/ASW

AH/ASW

PH/AH/ASW

AH/ASW

PH/AH/ASW

AH/ASW

PH/AH/ASW

PH/AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

ASW

AH/ASW

ASW

ASW

$5

AH/ASW

GP2

AH/ASW

$3

FEED

AH/ASW

ASW

ASW

AH/ASW

ASW

ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

ASW

AH/ASW

AH/ASW

ASW

AH/ASW

ASW

ASW

$5

AH/ASW

GP2

AH/ASW

$3

FEED

AH/ASW

ASW

ASW

AH/ASW

ASW

ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

ASW

AH/ASW

AH/ASW

ASW

AH/ASW

ASW

ASW

$5

AH/ASW

GP2

AH/ASW

$3

FEED

AH/ASW

ASW

ASW

AH/ASW

ASW

ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

AH/ASW

ASW

AH/ASW

NOTE:

l. Varieties marked in bold italics are those approved by the New South Wales Standing Advisory Committee on Wheat for sowing in each particular Silo Group. For

detailed information on approved varieties, including the diseaae resistance of varieties, growers should consult the Department of Agriculture.

2. All deliveries are subject to normal receival standards. Varieties discounted at $3and S5pertonnewiiibe received into theASW Ciaes, ifthe sampie satisfies the

ASW standard.

3. Oniy varieties iistedfor Prime Hard (PHh Australian Hard (AH)and Durum(DR)wiii be received into these classes.

4. Registered varieties are those which are entered in aregister maintained by the Registrar of Cereai Cuitivars in Australia.

Enquiries regarding the status ofvarfeties not iistedaboveshouid be directed tothe Board’s State Manager or growers may consuit aMaster Variety List attheir

normal receivai point.

SOURCE: Australian Wheat Board, “Chairman’sLettec” No. 46, October 1987.

acteristics of wheat throughout the marketing

system. In addition, at least for the principal

buyers, AWB knows the quality requirements,

so it can coordinate shipping and loading

orders to meet buyer specification. At the extreme this could entail segregation within a

class for particular buyer needs.

Essentially only two transactions are made

in the Australian wheat market—one between

the grower and AWB, and the other between

AWB and the importer. In the middle is AWB,

which, through coordination with the BHAs,

has tremendous control over quality. As a resuit the benefits of restrictive quality control

can be directly captured. Thus blending between grades is generally limited, as is loading

to factor limits, as would be the case if there

were multiple transactions, each of which required quality evaluation subject to grade limits.

AWB irresponsive to market needs insetting receival standards and relative prices. As

an example, the Board is currently in the process of experimenting with further segregation.

ASW received by AWB has not in the past been

segregated on the basis of protein. Consequently, producers received essentially an average price, masking any implicit values associated with protein and providing a disincentive

to maintain or increase protein levels. In addition, lack of protein segregation created problems in marketing. During the same time average protein levels in ASW have declines, while
123

the world market has placed greater importance

on protein. As an example, the U.S.S.R. has become the most important market, and buyers

there have indicated to the AWB that “we are

not interested in 10 protein ASW. ” In early December 1987, the U.S.S.R. apparently told AWB

that 12 percent would be the minimum acceptable protein level. But only 20 to 30 percent of

the ASW crop is above 12 percent protein,

thereby limiting marketing growth in this now

very important market (19).

In an attempt to rectify this long-term trend,

AWB has introduced a “Quality Testing Pilot

Scheme” to try to avert the apparent long-term

decline in protein and to encourage production

of high-protein wheat. To that end, eventually

the AWB wants to segregate by protein within

the ASW class and to make payments reflect

the protein level. The timetable of planned implementation is:

●

●

●

1987/88—pilot testing system to collect data

and experiment with equipment (using

whole grain analysis);

1988/89—payment incentives could be introduced as early as 1988/89 depending on

success of the trials in 1987/88; and

1989/90—implement a complete data testing system and payments for protein

within ASW.

This scheme aims to give growers an indication of market signals in the case of the protein

market. In addition, a recent letter to growers

from AWB strongly suggested that differential

payments may also be introduced for moisture

and foreign material.

Producer Pricing and Policy

Prices received by producers are pooled

across returns from sales and are net of all costs

associated with handling, transport, finance,

and sales. The principal policy regarding price

and income in Australia is the Guaranteed Minimum Price (GMP). Operations of the GMP and

pooling are integrally related and do have an

impact on the signals transmitted in the marketing system regarding quality.

Guaranteed Minimum Prices

Current operations of GMP began in 1979,

although similar price stabilization schemes

have existed since 1948. GMP essentially is a

mechanism that provides a price floor for producers during a particular marketing season.

In general, GMP reflects returns from past marketing seasons and those expected during the

current season. Specifically, it is defined as the

higher of two amounts (24):

● 90 percent of the preliminary estimates of

GMP, or

● 95 percent of the average of the estimated

growers’ pool return of the two lowest of

the previous three seasons.

In practice, the second procedure is used and

deductions are made for estimated interest and

administrative costs. GMP then basically reflects a three-term moving average of returns,

including those estimated for the current season. The purpose of GMP is to provide some

degree of stability in growers’ incomes. By definition, however, it typically would be biased

downwards, given that only 95 percent of the

average is taken and that two out of three terms

in the average reflect low price years.

Operationally, separate GMPs are specified

for each of five categories of wheat, thus allowing a mechanism of transmitting marketing signals regarding quality. By October of each year

(just before harvest), preliminary GMP (PGMP)

is announced for producers (thus new crop signals are not directly transmitted until after

planting decisions are made). This PGMP is

then revised by March of the following year

(after harvest) and announced as the Final GMP

(FGMP). At the time of delivery, which normally occurs at harvest, an Interim Advance

Payment (IAP), net of deductions, is made that

is 90 percent of the PGMP. Adjustments to the

IAP are made at the time FGMP is made and

these are referred to as the Final Advance. To

illustrate this process, table 5-10 shows a brief

history of the GMPs for ASW and individual

classes in recent years. In addition, details of

the 1986/87 Final GMP are presented in table

5-n-a year in which GMP was increased be-
124

Table 5-10.–Guaranteed Minimum Prices for Wheat in Australia, 1976177 to 1987188

(dollar Australia/MT)

AH AH GP GP

Year ASW APH No. 1 No. 2 No, 1 No. 2 Feed

1976/77 . . . . . . . . . . . . 66.00

1977178 . . . . . . . . . . . . 66.00

1978/79 . . . . . . . . . . . . 75.00

1979/80 . . . . . . . . . . . . 114.71

1980/81 . . . . . . . . . . . . 131.92

1981/82 . . . . . . . . . . . . 141.55

1982183 . . . . . . . . . . . . 141.32

1983/84 . . . . . . . . . . . . 150.00

1984/85 . . . . . . . . . . . . 145.35

1985/86 . . . . . . . . . . . . 149.87

1986/87 . . . . . . . . . . . . 139.83 157.62 142.69 — 128.21 117.79 105.77

1987188a 

. . . . . . . . . . . 135.10 153.19 140.17 135.10 127.86 103.76 98.92

apreliminary Guaranteed Minimum pflces.

SOURCE: Office of Technology Assessment, 1989.

Table 5.11 .—Derivation of Final Guaranteed Minimum Prices for Wheat in Australia,

1986/87 (dollar Australia/MT)

Final Preliminary Interim Final

Category GMP GMP advance a

advance b

Prime hard . . . . . . 157.62 148.62 133.76 23.86

Hard. . . . . . . . . . . . 147.69 135.62 122.06 25.63

ASW . . . . . . . . . . . 139.83 130.62 117.56 22.27

GP1 . . . . . . . . . . . . 138,21 119,62 107.66 30.55

GP2 . . . . . . . . . . . . 117.79 100.62 90.56 27.23

Feed . . . . . . . . . . . 105.77 85.62 77.06 28.71

alntedm advance = Wpercento fpreliminary GMp.

bFinal advance = final GMp – inte~madvance,

SOURCE: Office of Technology Assessment, 1989.

tween October and March. The GMP is under-

, written by the Commonwealth.

I

Pooling I

A fundamental principle of AWB that has existed in some form since 1948 is price pooling

(pooling of handling costs is discussed later in

the chapter), which has two objectives. One is

to increase returns by selling through a monopoly (i.e., the AWB). The second is to share risks

across growers. Through the use of pooling and

underwriting of GMP, AWB can easily make

advance payments even though sales and pricing typically accrue over succeeding months.

Producers are paid 90 percent of PGMP at

delivery, net of direct costs of transport and

handling. In succeeding months wheat is priced

and shipped. Receipts from credit sales are received over extended periods. From these revenues are deducted operating, interest, and

administration costs, as well as the Interim Advance Payment. The balance is paid producers in the form of “Subsequent Payments. ”

As with any price pooling scheme, problems

can develop. In the case of Australia, these are

well documented in the recent Industry Assistance Commission investigation. Two problems

of particular interest are highlighted here. First,

given that prices do not differentiate by time

of sale, there is generally no incentive for postharvest delivery to BHA. As a result, on-farm

storage is limited, but extensive storage and

conditioning facilities exist at the country and

export elevators. Second, even though payment

differs across classes, 70 percent of wheat is

ASW, in which (at least currently) within-class

segregations and price difference do not exist.

As a result, price signals about protein are disguised within this grade. This problem has been

recognized by AWB, as discussed earlier, and
125

AWB is in the process of initiating procedures

to resolve it.

Producer Marketing Alternatives

Producers basically have four marketing alternatives: immediate delivery to BHA, deferred delivery to BHA, on-farm use for stockfeed, and grower-to-buyer sale to domestic

stockfeed. By far the most common alternative

is immediate delivery to BHA, normally concurrent with harvest. In this case extensive onfarm storage is not required and payment is received normally within 3 weeks. One constraint

to this option is that of waiting time at receival

points, which if excessive may justify at least

minimal use of temporary on-farm or field

storage.

The deferred delivery option was introduced

to facilitate the needs of producers who do not

deliver immediately at harvest. Under this

scheme delivery can occur between 2 and 14

weeks after a prescribed date for various delivery points. These dates may be as far forward

as May of the marketing season. Accrued interest on the Initial Advance Payment is paid

producers, but storage and other opportunity

costs are not. Producers may store wheat onfarm to use as feed. An alternative is to bypass

AWB and the BHAs and make direct growerto-buyer sales to the domestic stockfeed industry. This market is essentially a nonboard market and often is facilitated by private traders.

These four options are general but they do

illustrate alternatives for growers. To put these

into perspective, though growers may store for

feed or may sell directly for domestic feed, these

are extremely small markets. The disposition

of the crop is ultimately determined by underlying economics, which encompasses quality,

and by storage cost and availability. Given that

producers are implicitly charged a storage cost

by BHA, regardless of time of delivery, delivery at harvest is inevitably preferable unless special circumstances hold. As a result, relative

little on-farm storage capacity has developed

in Australia compared with other countries. In

turn, extensive storage takes place primarily

at country elevators and to a lesser extent at

export elevators.

Export Marketing

AWB is responsible for marketing all wheat

from Australia with the exception of domestic

stock feed. As noted, sales can be made directly

by AWB or by private trade. Most, however,

are direct cash sales negotiated by AWB, and

a number of institutional relationships (strategic tools) are used as part of the marketing mix.

AWB maintains an integrated sales and marketing strategy. For each customer this encompasses pre-sales, sales, and post-sales service.

These are promotional as well as technical, and

emphasize the quality advantage of Australian

wheat. A 5-year marketing plan concurrent

with AWB legislation is maintained with 40

countries, which are categorized with respect

to quality needs, price, etc.

Export quality specifications generally coincide with the class structure of the receival

standards. As recently as the mid-1970s, however, an FAQ system was used. Since then, increased class specificity has allowed greater

specification with respect to quality. A standard AWB contract is used, typically with reference to classes and grades. In addition, minimum protein levels are specified for APH, AH,

and at least half the ASW contracts. The port,

or state, is also specified/negotiated in many

cases to account for transport cost differentials,

availability of quantity and quality, and inherent quality differences at each port. Though capable of doing so, AWB is reluctant to export

on specifications other than those typically included in the receival standards. In practice,

AWB knows the quality and quantity of wheat

by location. In addition, it knows the quality

needs of specific larger buyers. Thus, coordination of shipments is intended to match quality needs of buyer. (Indeed, export terminals

tend to receive and bin wheat according to particular quality needs of specific buyers.)

Most wheat is sold and negotiated directly

by AWB. This is normally done on a free-onboard basis, but periodic cost and freight sales
126

t

,

,

I

are made. Prices are negotiated either as flat

figures or as basis contracts. AWB normally

reserves certain larger important markets for

itself—typically ones with Government buying

agencies or when end use is for nonfeed purposes. These markets include the U. S. S. R.,

China, Egypt, Iran, Iraq, and those in which

long-term agreements (LTAs) are maintained.

The alternative means of direct sales is

through private trade. Typically up to 30 percent of total exports are bought by private multinationals. But the combination of a reduced

crop in 1987/88, the preferred AWB markets,

and LTAs means that only 10 to 12 percent were

exported this way in 1988. Thus, the privates

essentially service the residual. A large proportion of the residual is taken by Japan—all of

which is bought directly from AWB by Japanese trading companies for resale to the Japanese Food Agency. As production in Australia

decreases, and/or as the number of “preferred”

customers increases, trading opportunities for

private exporters diminish.

AWB sells directly to private traders for resale to a third country. The procedure is initiated by the trader, who negotiates with AWB

on price, quality, shipping period, and market

(either declared as a specific third-country market, or to exclude certain market(s)). These markets potentially include all those that are not

Australia’s preferred customers. In practice

they typically include South America, private

importers of Southeast Asia (e.g., Malaysia, Indonesia, Thailand, the Republic of Korea, Sri

Lanka, and Yemen), New Zealand, and Fiji. In

general, to the extent possible, AWB has sought

to limit exporter competition in the same thirdcountry market on the idea that competition

would reduce returns to sales.

industries Assistance Commission

Currently two investigations of the grain marketing system in Australia are in progress. One

directly relates to export marketing and is referred to as the Industries Assistance Commission (IAC) mentioned earlier. The other is the

Royal Commission into Grain Storage, Handling,

and Transportation (discussed in a later section). The IAC is a product of the sunset clause

mentioned earlier, in which new legislation is

required every 5 years to continue operating

the AWB. This process requires analysis and

hearings by IAC. Selected highlights of the process, particularly as they relate to quality, are

discussed here. At this time submissions have

been made by AWB and the Australian Grain

Exporters Association (AGEA), and interim recommendations have been made by IAC.

While IAC encompasses many broad issues

related to wheat marketing and AWB, a number of crucial issues are specifically related to

wheat quality. AWB cites a number of advantages of a single seller (5,7,8), including bargaining power associated with direct negotiation,

coordination of logistics, and research. In addition, specific mention is made that Australia

has a reputation for “high quality wheat and

meeting exacting quality specification. ” Further, at least implicitly, this reputation has been

garnered and preserved only because quality

control procedures described in the previous

section are administered by a single seller. Citation, of course, has been made to U.S. quality problems, which are in part attributed to

a private trading system. Allegedly, centralized

control over varieties and hygiene is essential

for long-term advantages, whereas a fragmented approach could lead to short-term trading profits.

Private traders under the auspices of AGEA

have prescribed a 5-year plan for deregulation

of the wheat trading industry. The export feed

wheat market and domestic milling markets

would be deregulated to start with, and in subsequent years the export wheat market would

be deregulated. AGEA did indicate that current

quality standards would be inadequate in a

competitive trading environment:

Other changes would also need to take place

to provide for the maintenance of strict quality control. This could be administered by the

DPI [Department of Privacy Industries] in a

similar fashion as occurs currently with other

grains. However, we believe that, for example,

a more specific grading system for wheat would

need to be introduced as the current arrangements are considered to be too subjective and
1 2 7

unprecise for the maintenance of a strict quality control in a deregulated export and domestic market (1),

Most exporters recognize the hygiene reputation of wheat but generally claim these are

market phenomena and that premiums can and

should be market-determined. As the AWB has

not specifically pursued Feed wheat markets

in longer term plans (including variety development), development of these markets has allegedly been precluded.

The challenge put forth by IAC in their interim proposals was premised on the suspicion

that AWB is unlikely to be able to extract

premiums. Also, if disbanded, many functions

of AWB would merely be absorbed by wheat

boards at the state level. IAC has placed less

significance on the prerequisite of a single seller

to control grain cleanliness and hygiene.

Selected specific proposals in the interim report of IAC are (24):

● AWB sell wheat to private traders for export to any market, other than a small number of specified markets reserved for AWB;

●

●

●

the permit system for sales of Feed wheat

be extended to cover wheat for any domestic end use;

consideration be given to the further disaggregation of revenues and associated

costs currently covered by AWB’s pooling

arrangements, to enable payments to growers to reflect more closely actual market

returns and costs; and

the price underwriting arrangement be terminated.

In addition, the IAC has sought comment on

alternatives to the advance payment system, criteria for determining which markets should be

reserved for the AWB, and all aspects of variety control (24). Though these recommendations may appear bold, they may be merely interpreted as challenges to participants (e.g.,

AWB and AGEA) in the next stage of submissions and hearings. To put IAC into perspective, these are merely proposed recommendations and do not constitute policy. The next step

in the process is political. In previous IAC inquiries, only minimal recommendations have

been accepted in the political process.

GRAIN HANDLING IN AUSTRALIA

A number of unique attributes in the grain

handling and transport system affect the quality of wheat exported. These include:

1.

2.

3.

The

limited on-farm storage, but extensive storage throughout the market system;

state monopolies generally in both grain

handling and transportation; and

ownership by AWB from the point of first

sale until the point of export.

organizational operating practices of the

grain handling and transport industries are discussed in this section, with particular attention

to attributes that have an impact on quality.

Though possible in theory, there is limited

trade or transportation between states. This is

primarily due to tradition, geography, and

logistical constraints. As a result, wheat

produced in each state is generally destined to

be handled by the state BHA and marketed by

AWB. With limited on-farm storage, BHAs have

built extensive handling capacity to meet harvest peak demands. Also, considerable storage

capacity has been developed throughout the

handling system compared with other exporters. Given that, for the most part, storage is provided by handlers allegedly more experienced

and knowledgeable about grain storage, wheat

is less likely to deteriorate or be subjected to

infestation.

The wheat marketing system in Australia is

described in figure 5-5. The marketing system

is very simple and typically comprised of harvest sales by growers to the AWB, storage

within the handling system, and delivery by

BHA on behalf of AWB to the customer. Of particular importance here is the role of AWB and

the fact that it takes ownership at the point of

first sale, and retains it throughout. AWB has

control over quality evaluations, preservation,
128

Figure 5-5.—Australian Wheat Marketing System

Seaboard

Farm Local silo Sub-terminal terminal To customer

Property of

grower

SOURCE: Office of Technology Assessment, 1989.

and enhancement, which is exercised through

state BHAs. This applies specifically in the case

of infestation, but also to other parameters of

quality (e.g., segregation and cleanliness). An

important fundamental characteristic of wheat

marketing which underlies the system is that

of applying stringent quality requirements at

the point of first sale. This generally precludes

problems further in the marketing system. And

because there are only two financial transactions in the marketing system, each of which

requires sampling and inspection, there is limited incentive for blending to meet specifications or limits. In contrast, the U.S. marketing

system is characterized by a number of financial transactions within the marketing system.

Each requires a contract specification and generally incentives exist to blend to contract

limits.

Bulk Handling Authorities (BHAs)

As mentioned earlier, in each state a monopoly exists which is authorized to handle

wheat on behalf of AWB. Table 5-12 shows the

authorized handlers in each state. BHAs are

in general charged with the responsibility of

receival, handling, and storage. In these activities, they are responsible for sampling and inspection and application of receival standards

at the country elevator, as well as preserving

quality. An extensive storage and handling

agreement exists between each individual BHA

Table 5-12.—Authorized Handlers of Wheat

in Each State

State Organization

Queensland. . . . . . . . . . . State Wheat Board

New South Wales . . . . . Grain Handling Authority

Victoria . . . . . . . . . . . . . . Grain Elevator Board

South Australia . . . . . . . South Australian Cooperative

Bulk Handling Board Ltd.

Western Australia . . . . . Cooperative Bulk Handling

Ltd.

SOURCE: Australian Wheat Board, Wheat Industry Grade, 1987.

and AWB. This agreement provides detail regarding services provided and remuneration.

A responsibility of BHA is to preserve the

condition of the wheat, and if problems arise

penalties may be applied. Thus, an important

activity and cost of BHAs is related to conditioning which will be discussed later.

In general each BHA operates a centralized

system and logistics are closely coordinated

with AWB. The system is centralized in the

sense that laboratories and quality evaluation

as well as logistical planning is closely coordinated with AWB.

Cost of Handling and Storage Services

Costs for handling and storage of wheat are

essentially determined by the cost structure of

state BHAs. Formally, the Grain Storage and

Handling Agreement is the document which

specifies the price charged for these services.
129

On an annual basis the BHA for each state assesses its costs and anticipated output and determines a price for handling and storage. Presumably, the AWB does not or cannot negotiate

these fees and strictly relies on cost migration

of the BHA (32).

The agreement allows for differential pricing of services to growers but in practice there

have only been a few attempts to do so (39).

BHAs usually pool their costs and charge an

equal rate to each grower. As a result there is

limited incentive for participants to necessarily

choose the most efficient services (e. g., delivery location and time). This has likely resulted

in excessive handling and storage throughout

the system. Indeed, cost pooling is a principal

issue in the Royal Commission and a potential

solution to rationalization of the system.

The various components of handling and

storage costs for 1986-87 are shown in table 5-

13. Besides “handling and storage” there are

a number of other costs deducted in determinating producer prices. Of interest here is the cost

of handling and storage which varies from

$12.44/MT in South Australia to $17/MT in

Queensland. (For comparison this converts to

23.7 to 32.4 ¢/bushel.) The costs of handling and

transport have increased substantially through

time (table 5-14). Between 1979/80 and 1985/86,

these costs increased by 51 percent in nominal

terms.

The issue of handling and storage costs are

critical to the Royal Commission. In fact at least

part of the impetus for the Royal Commission

was the apparent high costs of handling and

transportation in Australia. Several submissions to the Royal Commission (refs. 1,2,39)

have attempted to make comparisons to other

exporters. Any international comparisons are

questionable for a number of reasons, particularly because handling and storage systems

serve different purposes indifferent countries.

In the case of Australia more extensive storage is required and the cost of conditioning (e.g.,

infestation) would exceed that of other exporting countries. Nevertheless, submissions have

raised the issue that costs of handling and storage in Australia exceeds costs in other exporting countries, and the rate of increase in handling and storage costs have also exceeded

those of other exporters. Spriggs et al. shows

that these costs increased 11 percent in real

terms in Australia in the past 10 years, compared

to a 7-percent decrease in Canada. Whether

these cost levels are due to lack of competition,

or peculiar handling tasks in Australia is central to the Royal Commission. The point is that

it appears the Australian marketing system has

been unresponsive to market fundamentals and

international competition.

Transportation

Grain is delivered from the farmer by truck

to country receiving points, subterminal, or

central receiving points, and in some cases

directly to export terminals. Each state and

BHA has established a grain flow to their export terminals. In some cases, grain is moved

by rail from the country receiving point to a

subterminal, unloaded and stored, and then

reloaded into railcars for shipment to port. In

other cases, grain is loaded into railcars at the

country receiving point, and railcars from several locations are sent to a central point for shipment as a unit to port. Each state regulates

transportation modes between country and export points within it.

Table 5.13.—Handling, Transport, and Other Deductions, 1986/87 (dollar/tonne)

New South Wales Victoria South Australia Western Australia Queensland

Handling and storage. . . . . . . . 16.70 14.63 12.44 13.05 17.00

Freight . . . . . . . . . . . . . . . . . . . . 24.44 21.71 6.69 14.37 15.70

Wharfage . . . . . . . . . . . . . . . . . . 1.76 0.88 1.05 0.50 1.40

Carryover . . . . . . . . . . . . . . . . . . 0.82 0.85 1.27 1.50 0.61

Two port loading. . . . . . . . . . . . 0.47 1.11 0.30

Other levies . . . . . . . . . . . . . . . . 0.50 0.50 1.59 2.34 2

-

00

Total . . . . . . . . . . . . . . . . . . . . 44.22 39.04 24.15 32.06 36.71

SOURCE: Australian Wheat Board, 1987.

 - t
130

Table 5-14.-Principal Growers’ Deductions for Handling, Storage, and Freights

I

I

1

I

I

New South South Western

Year Wales b Victoria b

Australia Australia Queensland Tasmania Australia

Handling and storage:

1979-80 . . . . . . . 12.00 7.00 7.00 11.90 10,50 10,24 9.96

1980-81 . . . . . . . 12.00 8.00 10.00 12.63 16.00 11.23 10.92

1981 -82. . . . . . . 14.40 10.35 11.35 11.67 16.00 12.44 12.73

1982-83 . . . . . . . 14.90 12.00 11.95 12.00 16.50 13.07 12.77

1983-84 . . . . . . . 16.50 12.95 12.43 13.42 2100 14.58 14.73

1984-85 . . . . . . . 17.20 13.75 12.74 13.05 20.00 15.00 15.29

1985-86 . . . . . . . 16.70 13.80 11.93 13.05 19.00 16.00 15.08

Freight:c

1979-80 . . . . . . . 15.71 12.38 5.09 9.23 11.98 11.67

1980-81 . . . . . . . 15.86 14.08 5.62 9.31 11.90 11.62

1981-82. . . . . . . 19.38 16.21 6.27 12.18 12.87 14.80

1982-83. . . . . . . 19.94 17.21 5.02 13.51 13.08 13,83

1983-84. . . . . . . 22.05 19.98 6.87 14.32 14.87 17.56

1984-85. . . . . . . 23.63 20.09 6.50 14.79 16.20 17.39

1985-86. . . . . . . 24.50 20.76 7.08 13.56 15.70 17.88

Total:

1979-80. . . . . . . 27.71 19.38 12.09 21.13 22.48 10.24 21.63

1980-81. . . . . . . 27.86 22.08 15.62 21.94 27.90 11.23 22.54

1981-82. . . . . . . 33.78 26.56 17.62 23.85 28.87 23.44 27.53

1982-83. . . . . . . 34.84 29.21 16.97 25.51 29.58 13.07 26.60

1983-84. . . . . . . 38.55 32.93 19.30 26.75 35.87 14.58 32.29

1984-85. . . . . . . 40,83 33.84 19.24 27.84 36.20 15.00 32.68

1985-86. ....., 41.20 34.56 19.01 26.61 34.70 16.00 32.96

acaculated for indicative purposes ordy.

%heprlncipaldeductlonsshown for NSWand Victoria arethestandard charge deducted fromgrowersat receival sites. in both states, growers are offered discounts

to encourage deilverles at apartlcular site or during a specified period.

cFreight figures shown for each state have been calculated by dividing the total dollar amOUnt deducted.

SOURCE: Australian Wheat Board, 1987.

In New South Wales, transportation has been

deregulated. However, until Port Kembla, the

newest port facility, comes online, existing port

terminals do not have the capability to unload

trucks. All grain is moved by rail. Transportation modes are regulated more in Victoria and

the rail line must be used to transport grain

more than 60 kilometers. In Queensland, grain

movement from country to export location is

regulated and grain is moved by rail only. South

Australia does not have its own railroad so grain

moves by truck to port locations or on the Australian National Railway. Western Australia

regulates the amount of grain moving by rail

from country to export locations. This rail system serves approximately 70 percent of the state

with the remaining 30 percent serviced by

truck, This state has a peculiar situation in that

both narrow and standard gauge tracks exist.

Several port locations are equipped to receive

grain on both gauges while others are dedicated

to only one.

Some grain moves across state lines by truck

and rail. In some cases, however, rail movement between states is hindered by the existence of both narrow and standard gauge tracks

between some states (and, in the case of Western Australia, within the state). The condition

of the track and equipment used to move railcars limits the number of railcars that can be

moved at one time. In Victoria, for example,

a maximum of 39 railcars can be moved as a

unit to port.

Storage Types, Capacities,

and Design

The Royal Commission into Grain Storage,

Handling, and Transportation has reported that

at least 75 percent of the wheat harvested is

handled by BHAs. The rest is handled by private firms or remains on-farm. Each BHA owns

and operates country receiving points and export facilities. These facilities consist of verti-
131

?4

Photo credit: OTA Australia Study Team

Railroads are primarily used to transport grain from

country terminals to port facilities in most states. Grain

rarely moves across state lines due in part to the

existence of different gauge tracks between states.

cal concrete or metal silos, flat (horizontal)

warehouses, and bunkers. Any one particular

facility may have a combination of these storage types. These facilities are linked together

to one or more export facilities within the state

by road and rail.

The type of capacities of storage, vertical,

horizontal, and/or bunker, varies by state (tables 5-I5 and 5-16). Several states have significant amounts of storage at their port locations.

Port storage ranges from approximately 7 percent of total storage in Queensland to 50 percent in South Australia. It is interesting to note

the differences in storage types. For example,

in Western Australia the bulk of storage is horizontal while in South Australia vertical storage predominates. This fact produces distinctly

different handling and storage problems for

each BHA and results in differing strategies for

similar problems, i.e., fumigation practices.

On-farm storage is increasing. Table 5-17 outlines on-farm capacities as of 1984-85. These

figures represent wheat, barley, oats, and sorghum, but provide an indication of the extent

of on-farm storage. On-farm storage in Western Australia is regulated in that only sealed,

Table 5-15.—Total Storage Capacitya (000 MT)

Country Seaboard

State storages storages Total

New South Wales. . . 5,887 309 6,196

Victoria. , . . . . . . . . . . 3,027 991 4,018

South Australia . . . . . 2,379 1,976 4,355

Western Australia. . . 4,724 2,064 6,788

Queensland . . . . . . . . 1,586 266 1,852

Tasmania . . . . . . . . . . 11 20 31

Australia. . . . . . . . . . . 17,614 5,626 23,240

aAt Sept. 30, 1988; excludes bunker and open bulkhead stores.

SOURCE: Australian Wheat Board, 1987.

Table 5.16.–Country and Port Storage Profile (000 MT)

Vertical Horizontal Bunker Total

Queensland

Port . . . . . . . 265 – —

Country. . . . 895 629 2,020

Total . . . . 1,160 629 2,020

New South Wales

Port . . . . . . . 297 –

Country. . . . 2,007 3,799 –

5,848

Total . . . . 2,304 3,799 5,848

Victoria

Port . . . . . . . 290 720 –

Country, . . . 1,983 922 1,652

Total . . . . 2,273 1,642 1,652

South Australia

port . . . . . . . 1,581 320 478

Country. . . . 1,915 464 —

Total . . . . 3,496 784 478

Western Australia

Port . . . . . . . 587 1,123 106

Country. . . . 242 5,296 2,458

Total . . . . 829 6,419 2,564

Australia (total)

port . . . . . . . 3,020 2,163 584

Country. . . . 7,042 11,110 11,978

Total . ...10,062 13,273 12,562

SOURCE: Office of Technology Assessment, 1989,

265

3,544

3,809

297

11,654

11,951

1,010

4,557

5,567

2,379

2,379

4,758

1,816

7,996

9,812

5,767

30,130

35,897

metal upright silos can be installed. These silos

are usually 5 MT capacities that can be pressure tested prior to fumigation.

There is a move to require that all on-farm

silos be painted white. Those interviewed believe this helps deflect heat build up and reduces

the incidence of infestation. In Victoria and

New South Wales, white on-farm silos are voluntarily being installed, and OTA’s study team

was told that regulations covering these sealed

metal silos are anticipated.
I

I

132

Table 5-17.–On-Farm Storage Capacity, 1984-85

New South Western South

Wales Victoria Queensland Australia Australia Australia

Average tonnes per farm. . . . . 292 167 251 186 81 209

Number of farms . . . . . . . . . . . 15,886 8,556 5,750 8,157 7,739 46,088

Estimated total on-farm

storage (ret) . . . . . . . . . . . . . . 4.64 1.43 1.44 1.52 0.63 9.66

Storage capacity as a

percentage of harvested

winter cereal and sorghum

production . . . . . . . . . . . . . . . 59 37 46 17 17 35

Increase in storage capacity

since 1978-79 (percent). . . . . 24 56 97 39 64 40

SOURCE: P. Howard and M. Lawrence, “Australian Grain Storage Capacity,” Quality Review of the Rural Economy S(4): 330-334, AGPS, Canberra, 1986.

Use of on-farm storage is increasing. Regulations are

anticipated indicating that only sealed, metal, upright,

pressure-tested silos, as shown here, can be used.

The mixture of storage and handling facilities is linked to increased production. Initially

several upright concrete silos with one leg, one

unloading pit for trucks using belts to feed the

leg, and a rail and sometimes truck loadout capabilities were constructed. This configuration

is similar to country elevators in the United

States. In Victoria and New South Wales, these

country receiving points were positioned along

rail lines at approximately 5-kilometer intervals.

As production increased, large flat warehouses

were integrated into these facilities.

Warehouses are fed from an inbound leg to

an overhead belt in the warehouse. At the warehouses visited, several channels with augers in

the floor ran the length of the warehouse. Aeration ducts installed on the floors running

Photo credit: OTA Australia-Study Team

Initially concrete upright silos, similar to those built

in the United States, were constructed in the country

along rail lines. As production increased, large flat

warehouses were integrated into the facilities.

across the width of the warehouse were also

installed. Unloading takes place by the augers

in the channels feeding belts that in turn feed

a leg. In some locations, incline belts were installed to connect the warehouse with existing

structures. Front-end loaders are used to push

the grain pile into channels on the floor.

With further production, bunker type storage was introduced. These plastic-covered

bunkers provide large-volume storage at reasonable cost. A bunker consists of three retaining walls lined with a plastic sheet, filled with

grain, and then covered with plastic. They are

aligned so that length runs north to south. This

prevents one side of the cover from deteriorating faster. The bunkers are filled by unloading

trucks at the bunker opening and then augering the grain into a pile. Special augering equipment with directional chutes is designed to aid
in this process. This produces a very smooth

grain surface that can then be covered with

polyethylene film or with woven and coated

polyvinyl chloride fabrics. These covers are

water-tight, resistant to puncturing, and sealable, since bunkers are fumigated on a regular

basis. Unloading takes place by rolling back the

cover to expose a portion of the pile. Front-end

loaders and augers are used to load grain into

trucks that are unloaded at the elevator for loading into railcars. This allows the bunker to be

resealed, since an entire bunker is not usually

unloaded at one time.

As more storage and handling capabilities

were required at subterminal and central receiving points, 5,000 to 10,000 MT sealed upright metal silos fitted with recirculation for

fumigation were integrated into the system. At

the same time, incline belts were installed in

some locations to replace existing legs or provide additional elevation capacity. In addition,

multiple truck unloading pits were installed.

A major project was also undertaken to seal

and retrofit existing upright concrete silos with

recirculation for fumigation. The new export

facility being built at Port Kembla in New South

Wales consists of sealed metal silos fitted with

recirculation for fumigation and incline belts.

These improvements to the system provide

BHAs with the capability to dedicate truck un-
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Bunker storage is used when wheat production is very

high. H consists of three retaining walls lined with a

plastic sheet, filled with grain, and covered with plastic.

The covers are watertight, resistant to puncturing, and

sealable, since bunkers are regularly fumigated.

Photo credit: OTA Australia Study Team

Photo credit: OTA Australia Study Team

Special augering equipment with directional chutes,

as shown here, is used to place grain in a

smooth pile for covering.

loading by grade (each unloading pit is designated a grade) and carry out effective fumigation in silos and bunkers.

BHAs are required to store grades separately.

In addition, grain designated for special customers is kept separate. Accomplishing this task

is difficult in some states because of the type

of storage and handling facilities available. In

Victoria, five segregations must be maintained;

in Queensland, seven; and in South Australia,

four. These are based on grade and do not include segregation by customer or the effects

that weather damage may have on a crop in

any particular year.

A major new initiative is the sealing and retrofitting of

upright concrete silos with recirculation for fumigation

at sub-terminals and ports. The new export facility

being built at Port Kembla in New South Wales, shown

here, is illustrative of this new requirement.

Storage systems consisting of large upright

concrete and metal silos, large flat warehouses,

and large bunkers make it difficult to segregate

these qualities and still provide flexibility for

loading out specific qualities. In upright silos,

facilities often have a limited number of bins,

each having very large capacities. The flat warehouses and bunkers are large enough for several segregations to be made. However, assessing specific qualities from this type of facility

is difficult since the grain must be unloaded

from one end.

Unless commingling of different qualities

takes place on grain received from the farmer,

i.e., ASW commingled in the same bin with
135

General Purpose, blending of differing qualities at the country and subterminal level for

shipment to a port is difficult. Facility design

at the subterminal facilities visited is such that

grain can be drawn from multiple bins for loading into railcars. However, blending grain from

flat warehouses and bunkers with grain being

drawn from bins would be nearly impossible.

In the case of the export facilities visited, Port

of Sydney and Geelong, blending of differing

qualities can and is done to some degree.

These port facilities contain a number of

smaller bins and are basically of a design similar to the older export facilities in the United

States. The one main difference is that each facility is divided in distinctly separate sections

based on the number of load-out spouts. Both

facilities have four separate delivery systems

fed from four separate sets of bins. Grain from

each delivery system is loaded into a separate

hold of the vessel.

In the case of Port Sydney, there is no way

for one delivery system to cross over to another

Photo credit: OTA Australia Study Team

Port facilities are of a similar design to older export

facilities in the United States. One difference is that

Australian facilities are divided into distinctly separate

sections based on the number of load-out spouts.

Grain from each section is loaded into a separate

hold of the vessel limiting the amount of

blending that can take place.

so blending can only take place within each system. There is a section in both facilities that

can be used for holding out-of-condition grain

and then reconditioning it for transport to

another part of the facility for shipment. At Geelong each delivery system feeds into 18 small

shipping bins. These shipping bins are, to a

limited degree, dedicated to a particular delivery system but can be directed across systems

at this point.

Facility managers at both locations indicated

that they do blend on a continuing basis. However, blending is limited to a very few factors

drawn from only a couple of bins and is not

undertaken to the degree found in the United

States.

Grain cleaners and grain dryers are not maintained at BHA facilities. Grain that is out of

specification on either factor is rejected. Commercial grain cleaning is available and must

be used before acceptance by BHA. The export

elevators and subterminal visited by the study

team all had dust removal equipment. Dust is

not reintroduced into the grain stream. It is collected and trucked to landfill sites. Each facility had installed equipment for applying protestants to the grain at the time of receiving.

In the facilities visited, this equipment was located on the inbound belts running from the

unloading pit to the inbound leg.

Facility cleanliness is a major concern, as is

maintaining grain free of infestation. Empty

storage space is swept out and sprayed with

an insecticide prior to receipt of grain. Dust

accumulation and grain spills are cleaned on

a continuing basis since the Department of Primary Industry (DOPI) inspects each facility

yearly and conducts random unannounced inspections. During these spot checks DOPI reviews the physical structures as well as the

records kept by each facility on their cleaning

program. Every month grain in storage is inspected for the presence of infestation. In facilities where bins can be turned, a portion of

the bin is unloaded (cored), sampled for the

presence of insects, re-elevated, and placed into

the same bin. In flat warehouses and bunkers,

the grain is probe sampled. If it is infested, it
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must be fumigated. In addition to general dayto-day housekeeping, every 2 months residual

insecticide is applied to all handling equipment.

Infestation Policies and Practices

In the early 1960s Australia stood to lose

major wheat-exporting markets due to the high

incidence of insect infestation in export shipments. In response, the Australian wheat industry requested the Government to enact legislation that would ensure continued access to

these markets. Export grain regulations promulgated in 1963 require that wheat, barley, oats,

and sorghum be free from live infestation and

otherwise fit for export.

Department of Primary Industry

The Export Control Act provides DOPI with

inspection authority for a wide range of agricultural products. The Export Inspection Service (EIS) of DOPI is the single entity responsible for checking meat, fish, dairy products, eggs,

honey, grain, fresh and processed fruits and

vegetables, and other horticultural and plant

crops.

EIS’s primary role is to ensure exports meet

acceptable quality and hygiene standards and

are correctly described in trade materials. EIS

interprets the terms “free from” and “practically free from” pests to mean nil. In other

words, the tolerance for live insects and pests

is zero. The service also has zero tolerance for

rodent carcasses and excreta and for particular weed seeds and other pests subject to

quarantine by importing countries.

The basis for EIS policies is outlined in a 1981

report by the Working Party on Infestation in

Grain set up by the Standing Committee on

Agriculture to examine alternative pest control

strategies and provide recommendations so that

Australia could continue providing insect-free

grain. The Working Party concluded that Australia should not issue phytosanitary certificates

on grain known to contain live insects. This

conclusion was based on the percent of shipments requiring phytosanitary certification and

a statistical analysis of their sampling systems.

This analysis determined that, even when no

insects are found, a high probability exists that

shipments actually contain insects. The Working Party felt that in order to comply with the

terms “free from” and “practically free,” as

spelled out by the International Plant Protection Convention, a zero tolerance had to be

maintained.

The Working Party’s goal in 1981 was to recommend actions that could be taken to ensure

insect-free grain. Any recommendation was to

take into account the elimination of chemicals

for insect control due to insect resistance and
137

the problem of pesticide residue. The Working

Party’s recommendation was to “institute a program to modify three quarters of the country

storage system to methods of pest control which

do not rely in any way on the use of chemical

protestants. Until the program of modifying

storages is complete all State Authorities should

continue to develop strategies aimed at extending the useful life of protestants. ” This recommended program was to begin in 1982 and be

completed in 10 years.

All indications are that this recommendation

was adopted. Research began at the Government research agency (Commonwealth Scientific and Industrial Research Organization, or

CSIRO) on technologies for sealing upright

silos, flatware houses, and bunkers so they

could be fumigated. This technology was developed and implemented at facilities suitable

for sealing. Upright silos were fitted with recirculation for methyl bromide fumigation. Metal

silos that are gas-tight, fitted with recirculation,

and pressure-tested prior to fumigation have

been constructed and installed. Modified atmosphere technology was refined and implemented in some locations. Research continues

on other technologies for controlling infestation.

Insecticide, Fumigation, and Other

Insect Control Measures

All chemicals used to treat infested grain

must be approved by the Australian Government. In addition, each state has control over

the chemicals and labeling requirements within

its boundaries. Furthermore, AWB provides

guidelines on chemical usage and application

rates. This resulted in some chemicals being

approved for use on a national level while being banned in some states. In other instances,

such as phosphine, each state has approved the

chemical but they may have different labeling

requirements. Fumigation in transit, either in

vessels or railcars, is prohibited.

The BHAs require that empty storage spaces

be cleaned and sprayed with a contact insecticide prior to the receipt of grain. Grain that will

be in storage more than a certain period must

The AWB provides strict instructions on chemical use

and application rates to treat infested wheat. Signs,

such as the one shown here, are found at every major

collection point in the system.

be treated with an insecticide upon receipt. In

New South Wales, this period is 4 weeks. Insecticides have been approved for use on specific insect species in some states.

Residue Testing

Australians are quite concerned about pesticide residue levels in grain. These concerns

stem from the continued use and dependence

on protestant-type chemicals that leave a residue and from public, as well as importing countries’, concern regarding these residues. Great

emphasis is being placed on marketing grain

that meets importing countries specific residue
138

level requirements and the requirements

adopted by the Codex Alimentarius Commission.

Two groups continually monitor grain for the

presence of pesticide residue: the Australian Government Analytical Laboratory of EIS and the

AWB Laboratory. Samples from each export

cargo are collected by EIS and BHA inspectors

and forwarded to respective laboratories for residue testing. As part of BHAs’ ongoing infestation inspections, samples examined at country

terminals are sent to the AWB laboratory for residue testing. In addition, AWB has developed a

random survey procedure for further identifying

potential problems. Both laboratories use gas

chromatography technology for testing residue,

and they test for residues from all approved chemicals as well as for ethylene dibromide and carbon tetrachloride. The AWB Laboratory told the

study team that approximately 17,000 residue

tests were performed in 1986.

Research Areas

The Stored Grain Research Laboratory

funded by CSIRO, AWB, and the BHAs carries

out research and development work aimed at

ensuring that Australian grain is free from

pests. Currently two major research areas are

under investigation: flow-through phosphine

fumigation and fluidized bed heating.

Flow-through phosphine fumigation is being

examined for use in silos and warehouses that

cannot be sealed and made gas-tight. This research involves using aluminum phosphine

generators to provide constant low-level phosphine concentrations to unsealed silos or warehouses. According to CSIRO scientists, this

technology has been tested in several unsealed

silos and warehouses with great success. Work

is continuing on this technology, with the hope

of full acceptance shortly.

Fluidized bed heating involves rapid heating

of the grain to kill insects, followed by rapid

cooling to safe storage levels. The thrust of this

research is to develop continuous-flow in-line

systems compatible with handling rates for integration into existing facilities. A pilot plant

designed for a 100-MT/hour capacity has been

built and tested with good results. CSIRO scientists stated that in trials this plant was able

to handle 200 MT/hour. According to literature

provided by CSIRO, a 50()-MT/hour unit is the

minimum capacity required for successful integration. The literature published in 1984 indicated it would cost $1 million (U. S.) to construct such a unit.

Royal Commission into

Grain Storage, Handling,

and Transportation

A commission was established in light of the

current problems in the grain handling and

transport system in Australia. The impetus behind the Royal Commission was concerns about

the efficiency and cost-effectiveness of the existing grain distribution network, This is the

first comprehensive examination of this system

in at least 50 years, despite 5-year reviews of

the AWB by the Industries Assistance Commission.

Four issues are generally raised about the

handling and storage industry: the increased

use of on-farm storage (including private storage), grain insect control, the cost of storage,

and handling and segregation. Underlying

these are various perceptions related to grain

quality and insect control. First, AWB places

significant emphasis on cleanliness and hygiene standards (which refers to both cleanliness and the insect control program) in marketing, which may be jeopardized in a more

commercial environment. It is commonly believed that increased use of on-farm storage

would result in more infestation and/or pesticide residues. Also, deregulation of the marketing system would add difficulties in controlling insects.

Second, a perception exists that a monopoly

handler who does not take ownership of the

grain is needed to administer the hygiene standards traditionally practiced in Australia, Private handlers would have less incentive to exercise control and more incentive to blend to

factor limits. Private traders contend that by

not blending to limits, AWB is in fact “giving

away” a quality factor and not receiving a
139

premium; the AWB contends it sometimes intentionally ships more of a preferred quality

attribute for purposes of reputation. A third perception is that segregation of wheat into many

categories assists the AWB in marketing efforts.

Indeed, recent efforts may result in increased

segregation. This has the potential effect of requiring more extensive storage facilities, and

likely underutilized capacity throughout the

system.

Many people maintain that current hygiene

standards are appropriate in Australia. Thus,

a major problem for the Royal Commission is

how to get the benefits of increased competition (i.e., lower handling costs) without jeopardizing grain quality. Extensive modeling was

conducted to analyze the impacts of alternative

competitive environments. Results indicated

that elimination of the state monopoly BHAs

and transport as well as pooling of port service

costs would lower the average costs of distribution from $58/MT to $50/MT, a 14-percent

decrease. An issue haunting the Royal Commission, however, is whether sufficient competition would exist to realize these savings.

Underlying any evaluation of the alternatives

is that increased competition or increased use

of farm storage would result in a deterioration

in the quality of wheat. In recognition of these

savings and potential costs of increased infestation and pesticide residues, the Royal Commission made several points. In general, it indicated that alternatives exist for administering

current hygiene standards and that the costs

of doing so are likely below the benefits of increased competition (38).

VARIETY DEVELOPMENT AND RELEASE

Wheat is planted in Australia during winter

(May to July), grows during the spring, and is

harvested from September and October to January. The varieties are spring type—in the North

American sense, varieties that are planted

during the winter. All the wheat is white, and

any red varieties are classed as feed. All varieties have to meet certain milling criteria and

there is no active program to develop feed varieties. The GP and Feed grades are simply milling varieties, typically with excessive weather

damage.

The plant breeding industry is predominantly

public. Each state’s Department of Agriculture

includes public expenditures on breeding. Producers pay a checkoff (40 cents/MT) that is

matched by the Commonwealth and distributed

on a competitive basis. Cargill is one of the few

private breeders, or perhaps the only one, and

it recently released a hybrid that has gained 30

percent of the sales in New South Wales. Producers typically buy a new variety when released and use it for many years before replacing it with another one.

Role Of AWB

AWB has two important roles to play in the

development, release, and production of varieties. First, it administers the Variety Control

Scheme, as discussed earlier, which complements the activities of variety release. The VCS

is used for classification and segregation at the

country elevator level. In addition, through VCS

and explicit premiums for APH and AH, or discounts for ASW, AWB essentially provides the

incentives/disincentives for production of certain varieties in particular locations (silo

groups). Producers are not regulated in marketing varieties they produce, nor are breeders

formally regulated in release. But if a variety

is not prescribed it may be subjected to discount

from ASW, or may be classified as Feed, which

entails a substantial discount.

The second role of AWB is that it is a voting

member on the quality evaluation committee

in the release process of each state. These are

important committees that conduct quality tests

on advanced lines.
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To guide wheat breeders on quality, AWB

provided a broad set of guidelines in 1976.

These are general guidelines regarding quality but each variety must stand on its own in

the review process. The underlying rationale

is that all varieties conform to certain physical

criteria, as reflected in the receival standards.

These guidelines relate to milling criteria for

each grade and are intended to provide uniformity with respect to end-use criteria. They

are designed to reflect the values customers feel

are appropriate for each grade, given price

differentials and minimum end-use requirements. There were slight changes in the guidelines proposed in 1987, generally reflecting increased uniformity (table 5-18). Further, minor

requirements were also proposed with respect

to measurement standards. These guidelines

are implemented by AWB (presumably) in its

role on the quality committee discussed in the

next section.

Procedures for Release

Release of varieties ultimately is at the discretion of each state. While each has a slightly

different committee structure, the general procedures are similar, and those for New South

Wales are described here. Conformity with the

review process is essential for endorsement of

a variety by the committee and AWB. Three

committees are involved in the variety release

decision in this state: the Uniform Quality Testing (UQT) Committee, State Wheat Improvement Committee (SWIC), and Standing Advisory Committee on Wheat (SACW).

UQT is a quality evaluation committee. Voting members include the AWB, end-users, the

Bread Research Institute, and State Agriculture

Department Laboratories. In addition, observers may attend meetings. Extensive analyses

of end-use performance are conducted at multiple laboratories on advanced lines that have

been submitted. Tests include, but are not limited to, test weight, particle size index, flour

yield, grain protein, falling number, color, loaf

score and volume, and measures from the farinograph, extensograph, resistograph, and

visograh. Results are compared with control

varieties that vary with respect to the criteria.

SWIC evaluates the agronomic characteristics of submitted varieties. Tests included are

primarily for yield and disease resistance but

also include other production-related criteria.

Though not specific, a variety is expected to

have a yield greater than or equal to the variety it intends to replace.

The Standing Advisory Committee on Wheat

receives data and recommendations from UQT

and SWIC committees. Members include representatives from the state farm associations,

the registered seed growers association, and,

in the case of New South Wales, the Hard and

Soft Wheat Growers Association and the Prime

Table 5-18.–Quality Guidelines for Wheat Breeders, 1976, and Proposed for 1987

Extensogram

Proteina Hardness Height Extensibility Viscograph

percent PSl BU CM BU

1976 Guidelines:

soft . . . . . . . . . . . . . . . . . . . . . . .

ASW . . . . . . . . . . . . . . . . . . . .

AH . . . . . . . . . . . . . . . . . . . . . .

APH . . . . . . . . . . . . . . . . . . . . .

1967 Guidelines:

soft . . . . . . . . . . . . . . . . . . . . .

ASW

Soft grained. . . . . . . . . . . .

Hard grained . . . . . . . . . . .

AH . . . . . . . . . . . . . . . . . . . . . .

APH . . . . . . . . . . . . . . . . . . . . .

less than 10

9.5-12.0

11.5-13.0+

12.5+

Below 9.5

9.5-11.0

10.0-11.5

11.5-13.0+

13.0+

Over 22

16-24

10-17

10-14

Over 22

20-24

16-20

14-17

14-16

200 * 50

350 * 50

450 * 50

550 * 50

200 * 50

350 * 50

350 * 50

450 * 50

550 * 50

Over 17

Over 18

Over 20

Over 22

Over 17

Over 18

Over 19

Over 20

Over 22

—

—

—

480+

450+

450+

450+

450+

a

1987 proposal to measure protein on Ii-percent moisture basis.

SOURCE: Australian Wheat Board, 1967.
141

wheat Association. Formally, this committee

evaluates the information and makes a recommendation to the State Minister of Agriculture,

who in turn makes the official decision on

whether a variety is released. In evaluating the

information SACW is much more judgmental

than the other two committees. The criteria are

not completely rigid and are somewhat responsive to the perceived needs of the market. In

recent years, for example, more emphasis has

been placed on quality, particularly the protein

level, in response to apparently declining levels

of protein.

Given the recommendations of SACW, the

Minister of Agriculture in each state formally

releases a variety. In particular, the Minister

prescribes a variety that, if produced in a specified silo group, would not be subject to varietal

discounts by AWB. If produced in nonspecified

silo groups, it would be subjected to possible

discounts. Thus, the State Minister of Agriculture can override the intents of varietal discounts applied by AWB.

FINDINGS AND CONCLUSIONS

The single most important institution affect- Wheat in Australia is noted for its high standing the marketing system and quality of wheat ard of “hygiene, “ i.e., cleanliness and lack of

in Australia is the Australian Wheat Board. It infestations. This degree of cleanliness is asis the sole buyer of wheat, with exception of sured by the combined effects of the receival

that used for stock feed. AWB is also virtually standards, the substantial price differentials,

the sole seller to both domestic milling and ex- and harvesting technology that has adapted to

port markets. the former.

A number of mechanisms used or administered by AWB influence the quality of wheat

produced in Australia and exported. First is the

development and administration of receival

standards. Wheat must meet these standards

at the point of first receival; if not, it is precluded

and destined to the feed market. An important

underlying concept of the marketing system is

that applying stringent standards at the point

of first sale generally mitigates problems later.

Second, price differentials for class and

grade, and for variety in some cases, are established by AWB. This is the key mechanism used

by AWB to provide incentives to improve or

maintain wheat quality.

The Variety Control Scheme is administered

to facilitate segregation by classes, and to provide incentives via price differentials. VCS is

not regulatory but is used to identify variety

at the point of delivery, which then is used for

segregation into classes. Administration of VCS

depends on producers declaring variety at delivery.

Due to pricing policies and tradition, Australia has relatively little on-farm storage. However, extensive storage and handling capacity

exists within the marketing system. Blending

is very limited at the country elevator due to

lack of incentive and possibly to infrastructure.

Export elevators do blend, but the process is

limited to a few factors.

In sum, the quality of wheat exported from

Australia is the result of a multi-faceted approach to marketing and regulations. The important influences include:

1. controlled variety development and release;

2. variety identification in marketing;

3. stringent receival standards administered

at first point of sale;

4. administered price differentials, to provide

quality incentives;

5. an institutional relationship that allows

ownership of wheat to be divorced from

handling;

6. no tolerance for insects throughout the system; and

7. limited on-farm storage.
142

CHAPTER 5 REFERENCES

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1. Australian Grain Exporters Associations, Submission to the Royal Commission on Grain Handling and Transport, Submission No. 184, July

1987.

2. Australian Grain Exporters Associations, Submission to the Industries Assistance Commission into the Wheat Industry, November 1987.

3. Australian Wheat Board, Australian Wheat Industry Guide.

4. Australian Wheat Board, Annual Report (various issues).

5. Australian Wheat Board, “Criteria for the Release of Wheat Varieties,” July 1987.

6. Australian Wheat Board “Chairmen’s Letter”

(various issues).

7. Australian Wheat Board, Submission to Industries Assistance Commission Inquiry into the

Wheat Industry, July 1987.

8. Australian Wheat Board, Response to Industries

Assistance Commission Draft Report on the

Wheat Industry, November 1987.

9. Bureau of Agricultural Economics, Institutional

Arguments in the Wheat Distribution System,

occasional Paper 99, Canberra, 1987.

10. Bureau of Agricultural Economics, Situation

and Outlook 1985: Farm Inputs.

11. Bureau of Agricultural Economics, Quarterly

Review of the Rural Economy, December 1987.

12. Bureau of Agricultural Economics, Wheat Marketing and Assistance (submission to the IAC),

August 1987.

13. Bureau of Agricultural Economics, Farm Survey Reports: Financial Performance of Australia Farms, March 1987.

14. Commonwealth of Australia, Grain, Plants, and

Plant Products Order, 1984.

15. CSIRO, Division of Entomology, Flow-through

Phosphine Fumigation—A New Technique,

Stored Grain Protestant Conference, 1983.

16. CSIRO, Division of Entomology, Large Scale

Evaluation of Fluid-Bed Heating as a Means of

Disinfesting Grain, Proc. 3rd Working Conference Stored-Products, Entomological, Manhattan, 1983.

17. Department of Agriculture New South Wales,

Implications of Pest Control for Grain Handling,

Report to the New South Wales Grain Handling

Enquiry, 1981.

18. Department of Primary Industry, Field Crops

Inspection Manual and Handbook, Australian

Government Publishing Service, 1986.

19. Financial Review, Dec. 7, 1987,

20. Howard, P., and Lawrence, M., “Australian

21.

22.

23.

Grain Storage Capacity,” Quarterly Review of

the Rural Economy, 8(4): 330-334, AGPS, Canberra, 1986.

Grain Handling Authority of NSW, Bulk Wheat

(various issues).

Grain Handling Authority of NSW, “An Historical View of NSW Variety Identification,” Bulk

Wheat, vol. 19, 1985, pp. 64-66.

Grain Handling Authority of NSW, “How Variety Decisions Are Made,” Bulk Wheat, vol. 21,

1987, p. 17.

24. Industries Assistance Commission, Draft Report

on the Wheat Industry, October 1987.

25. International Wheat Council, “World Wheat

26.

27.

28,

29.

30.

Statistics,” various issues.

Johnston, J., “On-Farm Storage–Its Role in the

Evolving Grain Handling, September to the Year

2000,” Division of Marketing and Economic

Services, NSW Dept. of Agr., P.O. Box K220,

Haymarket 2000, April 1986.

Knoll, R. F., “Wheat Varieties for the 1988 Season,” Bulk Wheat, vol. 21, 1987, p. 78.

NSW Farmers, Response to Industries Assistance Commission’s Draft Report on the Wheat

Industry, November 1987.

NSW Farmers, Submission to the Industries

Assistance Commission on the Wheat Industry,

July 1987.

Report of SCA Working Party on Infestation in

Grain, 1981.

31. Royal Commission into Grain Storage, Handling, and Transportation, “Overview of Existing System, ” Working Paper No. 1.

32. Royal Commission into Grain Storage, Handling, and Transportation, “Institutional Arguments,” Working Paper No. 2.

33. Royal Commission into Grain Storage, Handling, and Transportation, “Cost Structures,”

Working Paper No. 3.

34. Royal Commission into Grain Storage, Handling, and Transportation, “Competition and

Contestability,” Working Paper No. 4.

35. Royal Commission into Grain Storage, Handling, and Transportation, “Pricing Practices,”

Working Paper No. 5.

36. Royal Commission into Grain Storage, Han37

38

dling, and Transportation, “Evaluation-of Alternative Systems, ” Working Paper No. 7.

Royal Commission into Grain Storage, Handling, and Transportation, “Issues for the Royal

Commission Inquiry.”

Royal Commission into Grain Storage, Handling, and Transportation, “Preliminary Find-
143

ings and Options,” Discussion Paper No. 5, Can- Bureau of Agricultural Economics, Australian

berra, 1987. Government Publishing Service, Canberra, 1987,

39. Spriggs, J., Geldard, J., Gerardi, W., and Tread- 40. Stored Grain Research Laboratory, CSIRO, R&D

well, R., Institutional Arguments in the Wheat Support for the Grain Export Industry, undated.

Distribution System, Occasional Paper No. 99,
Appendixes
Appendix A

Glossary of Acronyms

ABIOVE –Trade Association of Oil

Processors (Brazil)

AGEA —Australian Grain Exporters

Association

AH —Australian Hard wheat

ANEC —Association Nacional dos

Exportadores de Cereais (Brazil)

APH —Australian Prime Hard wheat

ASW —Australian Soft White wheat

AWB –Australian Wheat Board

BHA –Bulk Handling Authority

(Australia)

CAP –Common Agricultural Policy (EC)

CFP —Commisao de Financiamento da

Producao (Brazil)

CIF —cost, insurance and freight

CONCEX —Conselho Nacional do Comerio

Exterior (Brazil)

CSIRO —Commonwealth Scientific and

Industrial Research Organization

(Australia)

CTPS —Comite Technique Permanent de

Selection des Plantes Cultivees

(France)

CWB –Canadian Wheat Board

CWRS —Canadian Western Red Spring

wheat

DOPI –Department of Primary Industry

(Australia)

EC —European Economic Community

ECU –European Currency Unit (EC)

EIS –Export Inspection Service (DOPI,

Australia)

EMBRAPA—National Soybean Research

Institute (Brazil)

FAQ –Fair Average Quality

FGMP —Final Guaranteed Minimum Price

(Australia)

FOB –free on board

GMP —Guaranteed Minimum Price

(Australia)

GNIS –Groupement National

Interprofessionnel des Semences et

Plantes (France)

GP

HRS

HRW

IAC

IAP

ICM

IP

ITCF

JNG

LIFT

LTA

MCU

MMT

MT

ONIC

OS

PGMP

SACW

SWIC

UGCAF

UK

UNCAC

UQT

USDA

U.S.S.R.

VCS

VIL

WW

–General Purpose wheat (Australia)

—Hard Red Spring wheat

—Hard Red Winter wheat

—Industries Assistance Commission

(Australia)

—Interim Advance Payment

(Australia)

—Imposto Sobre Circulacao de

Mercadoria (Brazil)

—intervention price (EC)

—Institute Technique des Céréales et

des Fourrages (France)

–Junta Nacional de Granos

(Argentina)

—Lower Inventories for Tomorrow

(Canada)

–long-term agreement (Australia)

—Monetary Compensatory Units

(EC)

—million metric tons

—metric ton

—Office, National Interprofessionnel

des Céréales (France)

–licensed elevators (France)

—Preliminary Guaranteed Minimum

Price (Australia)

—Standing Advisory Committee on

Wheat (Australia)

–State Wheat Improvement

Committee [Australia)

—one of two national unions of

grain cooperatives (France)

—United Kingdom

—one of two national unions of

grain cooperatives (France)

—Uniform Quality Testing

Committee (Australia)

—U.S. Department of Agriculture

—Union of Soviet Socialist Republics

–Variety Control Scheme (Australia)

—variable import levy (EC)

—Western White wheat

147
Appendix B

Glossary of Terms

I

I

,

I

,

A-Fix-A: Brazilian form of the delayed price payment used in the United States. The farmer receives an advance on which interest is paid, until at a day of the farmer’s choosing, the final price

of the grain is set.

Association Nacional dos Exportadores de Cereais

(ANEC, Brazil): A Brazilian trade organization

that sets the standards that determine the grading of export grain in Brazil.

Australian Wheat Board (AWB): The single most important government institution in the Australian

wheat industry. The AWB is involved in variety

control, the establishment of grain standards, the

administration of producer price policy, and domestic and export grain sales.

Blending: For purposes of this assessment, blending is the mixing of two or more grain lots to

establish an overall quality that may or may not

be different from any one individual lot. Blending is done for economic reasons, to achieve uniformity for improved handling, or to meet a particular quality specification.

Canadian Wheat Board (CWB): Established as a

Crown Agency in 1935, the CWB is the sole marketing agency for wheat, oats, and barley grown

in Canada.

Cleaning: For purposes of this assessment, cleaning is the removal of dockage, insects, and to a

degree shrunken and broken kernels from grain

by means of mechanical screening and scalping

devices. Precleaning is the removal of foreign material from grain before it is dried. Cleaning practices vary from country to country.

Combine: A machine that harvests grain. The first

combine was patented in 1836, since then selfpropelled combines of either conventional or rotary design have evolved and are used throughout the United States and other grain-producing

countries.

Common Agricultural Policy (CAP): The overriding

policy that regulates agriculture in the European

Economic Community (EC).

Condition Camara: The quality standard imposed

by the government on Argentinean grain.

Conselho Nacional do Comercio Exterior (CONCEX):

A Brazilian association of private traders and

Government agencies that acts in an advisory capacity on grain exports. It is not a Government

agency.

Corn: The seed of a cereal grass and the only important cereal crop indigenous to America (also

called maize).

148

Cultivar: An international term denoting certain

cultivated plants that are clearly distinguishable

from others by one or more characteristics, and

that when reproduced retain those distinguishing

characteristics. In the United States, “variety” is

considered to be synonymous with cultivar (derived from cultivated variety).

Drying: For purposes of this assessment, drying is

the removal of moisture from grain by various

methods. Air temperature, grain velocity, and airflow rate during the drying process have a greater

influence on grain quality than all the other grain

handling operations combined. Drying technology varies little from country to country.

Electrophoresis: A technique used to separate moleCules (e.g., DNA fragments or proteins) from a

mixture of similar molecules. By passing an electric current through a medium containing the

mixture each type of molecule travels through the

medium at a rate corresponding to its electric

charge and size. Separation is based on differences in net electrical charge and in size and arrangement of the molecules. This technique can

be used to identify and categorize grain varieties.

European Economic Community (EC): A group of

12 nations consisting of Belgium, the Federal

Republic of Germany (West Germany), France,

Italy, Luxembourg, the Netherlands, the United

Kingdom (UK), Ireland, Denmark, Greece, Spain,

and Portugal, that have banded together for political and economic reasons. The data used in

this report has been gathered from the first

10 members and does not apply to Spain and

Portugal.

Feed Grains: Grains, especially corn, characterized

as high-energy grains due to their relatively high

levels of nitrogen-free extract and low levels of

crude fiber.

Fumigation: For purposes of this assessment, fumigation is the destruction of pests by professional

personnel, trained in the application of fumigants,

i.e., chemicals that at a required temperature and

pressure can exist in the gaseous state in sufficient strength and quantities to be lethal to a given

pest organism. Fumigants are some of the most

toxic and unique pesticides. Methyl bromide and

hydrogen phosphide are the fumigants most commonly used on grain.

Gluten: A tenacious, elastic protein substance found

especially in wheat flour that gives cohesiveness

to dough.

Grade-Determining Factors: Factors selected as in-
149

dicators of quality and value that help determine

the grade of grain.

Grain: The seeds or fruits of various food plants including the cereal grasses (e. g., wheat, corn, barley, oats, and rye) and other plants in commercial and statutory usage (e. g., soybeans). Grain is

a living organism and as such is a perishable commodity that can be adversely affected by improper

harvesting, handling, storage, and transportation.

Grain Storage: Grain is stored in three basic ways.

Vertically, in upright metal bins or concrete silos;

horizontally, in flat warehouses or other facilities;

and on-ground in piles.

Guaranteed Minimum Price (GMP, Australia): A

mechanism that provides a price floor for grain

producers during a specific marketing season. It

is intended to provide some degree of stability

in growers’ incomes.

Hard Wheat: Wheat varieties that are high in protein (especially Hard Spring and Winter wheat

and Durum wheat).

Intervention Price (1P, EC): The price (negotiated

in ECUs) at which the EC is obliged to purchase

wheat, as long as the wheat meets certain quality

and eligibility criteria. The 1P provides a floor below which local prices seldom fall (similar to the

United States loan rate).

Junta Nacional de Granos (JNG, Argentina): An Argentinean Government agency that regulates the

grain industry in that country, It establishes grading standards (mandatory for export grain), conducts educational programs, licenses inspectors,

and enforces regulations.

Legume: A plant that is a member of the Leguminosae family that has the characteristic of forming

nitrogen-fixing nodules, Peas and beans are

legumes.

Maize: Indian corn (zea mays), more commonly

called corn in the United States.

Milling: Process whereby grain kernel components

are separated physically or chemically, and grain

is ground into flour or meal.

Moisture: Moisture content and uniformity is a critical factor in grain quality. If grain is too wet or

too dry at harvest, damage occurs. Moisture also

interacts with temperature and relative humidity in grain storage centers and during shipping,

when too much moisture can spur mold growth,

increase insect activity, and cause other quality

losses.

Oilseed: A seed or crop (e.g., soybeans) that is grown

largely for oil.

Pampas: An extensive generally grass-covered

plain, part of temperate South America east of

the Andes.

Plant Breeding: The development of plants with certain desirable characteristics. Grain breeding programs generally aim to improve yield and harvestability, increase disease resistance, and satisfy

apparently desirable quality goals.

Receival Standards (Australia): Standards that grain

has to meet when it is inspected and graded at

the point of first sale, when grain passes from the

grower to the Australian Wheat Board.

Sedimentation Test: A test that measures the quality of protein content in wheat. Ground wheat is

suspended in water and treated with lactic acid.

The portion that settles to the bottom of a graduated cylinder within 5 minutes is the sedimentary value.

Shrink: The loss of weight in grain due to the removal of water.

Soft Wheat: Varieties of wheat that contain low

amounts of protein. Winter soft is the principal

type of wheat produced in France.

Soybeans: A hairy annual Asiatic legume widely

grown for its oil-rich proteinaceous seeds and for

forage and soil improvement. Brazil is the second largest producer of soybeans in the world (after the United States).

Stress-cracks: Cracks in the horny endosperm of

corn caused by rapidly drying kernels with heated

air. Stress-cracking causes increased breakage

during handling and reduces flaking grit yields.

Unit-trains: A train consisting of a number of railcars (about 20 in France and 50 or more in the

United States) that depart from the same point

for the same destination with one bill of lading,

This is an efficient way of moving grain.

Variety: Any of various groups of plants of less than

specific rank. See cultivar.

Wet Milling: Process using water whereby corn is

tempered and steeped and converted into starches.

Wheat: Any of various grasses high in gluten cultivated in various temperate parts of the world for

the wheat that they yield, which is used in a vast

array of products.

Index

ABIOVE (Brazil), 36

ACA (Argentina), 15

Afghanistan, effect on corn exports due to Soviet

invasion of, 6

“A-Fix-A”, 37, 38

Africa

EC wheat exports to, 54, 56

see also individual countries in

Agricultural Stabilization and Conservation Service,

Us., 3 9

Agriculture

French system of, 56-57

practices and techniques in Argentina, 12

practices and techniques in Australian wheat, 116

practices and techniques in Canadian wheat, 85-86

taxes on Argentine, 18

techniques in Brazil, 32-33

Agriculture Canada, 85, 99

Algeria, wheat imports by, 53, 54

American Soybean Association, 40

Argentina

corn varieties in, 4, 20

Government policies affecting grain industry in,

17-18

grain growing regions in, 3, 6, 10

grain industry organization in, 15-16

grain markets and production of, 3-12

marketing practices, channels, and pricing

strategies of grain industry in, 15, 16-17

multigrain competition with U.S. by, 3, 8, 10

production and marketing technology of grain

industry in, 12-14

quality control of grain in, 18-23

trends in corn export and production in, 3-6

trends in soybean production and export in, 6-8,

15-16, 28

trends in wheat export and production in, 10-12,

53, 89, 112

see also specific agencies, committees, and

organizations

Association Nacional dos Exportadores de Cereais

(ANEC)–Brazil, 42, 44, 45, 46

Australia

grain handling practices in, 127-139

grain markets and production of, 109-116, 126

variety development and release in, 139-141

wheat exports by, 53, 89, 91, 109, 111, 112-115,

125-127

wheat grading system in, 117, 119-120

wheat growing regions in, 109

wheat marketing practices and pricing strategies in,

117-127

see also specific agencies, committees, and

organizations

Australian Government Analytical Laboratory, 138

Australian Grain Exporters Association (AGEA), 126,

127

Australian Wheat Board (AWB), 109

background and current objectives of, 117-118

wheat quality control methods of, 118-122, 139-141

Bangladesh, wheat imports by, 114

Bank of Brazil, 39, 40

Beef

production in Argentina, 12, 15

production in Canada, 88

Bilateral agreements, entered into by Argentina, 17

Blending

Argentine grain, 20, 21, 22-23

Australian grain, 134, 135, 138-139

Brazilian grain, 35, 43, 45

Canadian wheat, 97-98, 104

French wheat, 70

Bolivia, wheat imports by, 12

Bolsa de Cereals (Argentina), grain price

establishment by, 16, 17, 22

Brazil

corn and wheat production and consumption in, 27

Government policies affecting soybean industry in,

38-40

marketing practices, channels, and pricing

strategies of soybean industry in 35, 36-38

production and marketing technology of soybean

industry in, 32-35

quality control of soybeans in, 40-46

soybean competition with U.S. by, 27, 29, 46

soybean growing regions in, 27, 28, 31-32

soybean industry organization in, 35-36

soybean markets and production of, 27-31

wheat imports by, 10, 27, 90

see also specific agencies, committees, and

organizations

Brazilian Warehouse Act, 39

Bulk handling authorities (BHAs)—Australia

quality control facilitators by, 121-123

wheat storage, handling, and transportation

authority of, 117, 118, 127-129, 133-134

CACEX (Brazil), 40

Canada

grain growing areas in, 81

grain handling practices in, 95-98

quality control factors in, 98-105

wheat exports by, 53, 54, 81, 89-91, 109

wheat marketing practices and pricing strategies in,

92-94

wheat markets and production in, 81-92

see also specific agencies, committees, and

organizations

Canada Grain Act, 99

Canada Grains Council, domestic feed grain market

study by, 88

Canada Seeds Act, 98

Canadian Grain Commission, 81

quality control responsibility of, 100-105

wheat blending regulation by, 97-98

Canadian National, 95

Canadian Pacific Rail, 95

Canadian Wheat Board (CWB), 81

background and current objectives of, 92-94

wheat blending economics and, 97-98

153
154

I

I

I

I

I

t

I

wheat marketing role of, 90-91, 92, 93-94, 95

wheat pricing policies of, 87-88, 92, 94

Canadian Wheat Board Act (1935), 92, 93

Cargill, 65, 97, 139

Chicago Board of Trade, 17, 38

China, People’s Republic of

corn imports by, 3-4

soybean production by, 28

wheat imports by, 90, 114, 126

CLASPAR (Brazil), 40, 43

Cleaning, grain

in Argentina, 13, 21

in Australia, 135

in Brazil, 34, 43, 45

in Canada, 95-96

in France, 67, 69-70

Climate

Argentine grain quality affected by, 12

Australian wheat quality and yields affected by,

115, 116

Brazilian soybean production and, 31-32

Canadian wheat production and, 81, 85, 86

COAMO (Brazil), 39

Codex Alimentarius Commission, 138

Comite Technique Permanent de la Selection des

Plantes Cultivees (CTPS)–France, 73-74

Commissao de Financiamento da Producao (CFP)–

Brazil, 39, 43

Common Agricultural Policy (CAP), 51, 61

Commonwealth Scientific and Industrial Research

Organization (CSIRO), 137, 138

Competition

with U.S. grain exports by Argentina, 3, 8, 10

with U.S. soybean exports by Brazil, 27, 29, 46

with U.S. wheat exports by Australia, 114-115

with U.S. wheat exports by Canada, 81, 89-90, 105

with U.S. wheat exports by EC, 53-56

Condition Camara, 21

Conditioning. See cleaning, grain; drying, grain

Conselho Nacional do Comercio Exterior

(CONCEX)–Brazil, 40, 41, 42

Cooperatives

importance in Argentina of grain, 15-16

importance in Brazil of grain, 35-36, 37, 39, 43

importance in Canada of grain, 89, 95

importance in France of grain, 63, 64-65, 66, 72

Corn

Argentine production of and markets for, 3-6

export markets for U. S., 3, 6

production and storage in France, 69, 74

varieties in Argentina, 4, 20

see also Grain

Credit

marketing strategies in Argentina dictated by 16-17

marketing strategies in Brazil and, 38

use in Canadian grain trade, 93

Crush, soybean oil and meal creation by, 8, 15-16, 29,

35, 36

Data collection

on Argentine soybean crush, 16

on Brazilian soybean quality differences, 40-41

on Canadian fertilizer use, 85-86

on French wheat quality, 57-61

Department of Agriculture, U.S. (USDA)

grain quality study by, 40-41

grain standards of, 18, 19, 22, 45

Department of Primary Industry (DOPI)—Australia,

135, 136-137

Disease, grain

problems in Argentina, 19

problems in Brazil, 31

problems in France, 76

Drying, grain

in Argentina, 13, 21, 22-23

in Australia, 135

in Brazil, 33, 34, 35, 45

in Canada, 87, 96-97

in France, 66-67, 69

see also Moisture

Eastern Europe

grain imports by, 8, 31, 90

see also individual countries in

Economics

of Argentine grain market, 16-18, 21-22

of Australian wheat production and marketing, 109,

121, 123-125, 128-129, 139

of Brazilian soybean system, 36-38, 39, 45

of Canadian wheat production and trade, 91-92, 94

of Canadian wheat storage and blending, 97, 98

of EC wheat production and marketing, 61-63

of French grain trading system, 70-72

Education, orientation of Brazilian agricultural,

programs, 32

Efficiency

Brazilian agricultural production, 33

rail transportation, 14, 34, 64, 95, 129-130

Egypt, wheat imports by, 53, 114, 126

EMBRAPA (Brazil), 44

Equipment, agricultural

types and condition of Argentine, 12-13

types and condition of Brazilian, 32, 35

types and condition of Canadian, 86-87

Equipment, marketing

types and condition of Argentine, 12-13, 14

types and condition of Australian, 130-136, 138

types and condition of Brazilian, 34, 36, 44

types and condition of Canadian, 96, 97

types and condition of French, 66-67, 68-69, 74-75

Erosion, problems in Brazil, 32

European Commission

grain prices set by, 62, 71

quality standards of, 63

European Community (EC)

member countries of, 49

price and income policies of, 61-63

wheat exports by, 89, 91, 109

wheat imports by, 49-50

wheat markets and production of, 49-57

se also Western Europe; individual countries in

Export Control Act (Australia), 136
155

Export Inspection Service (EIS)—Australia, 136

Exports

Argentine Government’s influence on and

regulation of grain, 17-18, 21-23

Australian marketing of wheat, 125-127

Canadian wheat, 53, 54, 81, 89-91

French firms involved in grain, 65

markets for Argentine corn, 3-6

markets for Argentine soybeans, 8

markets for Argentine wheat, 10-12

markets for U.S. corn, 3, 6

markets for U.S. soybeans, 8, 31

markets for U.S. wheat, 10, 27, 53, 54, 114

quality and grade of Argentine grain, 21-23

restrictions on Brazilian soybean, 39-40

trends in Australian wheat, 109, 111, 112-115

trends in Brazilian soybean, 28-29, 31

trends in EC wheat, 53-56

see also Imports; Markets

FACA (Argentina), 15

Falkland Islands, effect on Argentine exports due to

war over, 6

Federal Republic of Germany. See West Germany

Fertility, soil

Argentine methods of maintaining, 12

problems in soybean-producing areas of Brazil, 31

Fertilizer

nitrogen-fixing legumes as organic, 12

use in Argentina, 12

use in Australia, 116

use in Canada, 85-86

use in France, 56-57

see also Agriculture

Flour. See Wheat flour

France

flour milling industry in France, 65-66

grain conditioning in, 67-70

grain variety development and release in, 72-74

marketing channels of wheat industry in, 64

pricing and commercial trading of grain in, 70-72

quality control in, 74-77

storage capacity and elevator equipment in, 66-67

wheat growing regions in, 52

wheat industry organization in, 64-66

wheat markets and production of, 52-57

wheat quality in, 57-61

see also European Community; specific agencies,

committees, and organizations

Fumigation. See Pesticides

Genetics

quality control through use of 19-21, 44-45

see also Seed

Gluten, 20, 65-66, 99, 110-111

Grading. See Grain; Quality; Standards

Grain

Argentine Government’s policies affecting, 17-18,

21-23

Argentine/U.S. competition in multiple types of, 3,

8, 10

Brazilian Government policies affecting, 38-40

cleaning, 13, 19, 21, 34, 43, 45, 67, 69-70, 95-96, 135

domestic utilization of Canadian, 87-89

grades in Argentina, 18-19, 21-22

grades in Brazil, 41-42

grading in France, 57-61, 73-74

moisture content of Argentine, 13, 18, 21, 22-23

pricing and commercial trading in France, 70-72

pricing mechanisms in Argentina, 16-17, 18, 21-22

pricing mechanisms in Brazil, 36-38, 39

quality in Argentina, 17-18, 19-23

varieties grown and exported by Canada, 81

see also Corn; Soybeans; Wheat

Grains Council of Australia, 118

Grain Transportation Agency (Canada), 96

Grand Moulin de Paris (France), 65

Groupement National Interprofessionnel des

Semences et Plants (GNIS)–France, 73, 74

Handling, See Blending; Cleaning, grain; Drying,

grain; Storage; Transportation

Hard and Soft Wheat Growers Association

(Australia), 140

Hedging, marketing and use of 17, 38, 70, 93

Imports

Argentine taxes on, 18

see also Exports; Markets; individual importing

countries

Imposto Sobre Circulacao de Mercadoria (ICM)–

Brazil, 39

Incentives

Argentine grain exports markets affected by

economic, 3, 6

for blending in U.S. grain marketing system, 128

for clean wheat delivery in Australia, 119

for inland cleaning of Canadian wheat, 96

for privatization in Argentine grain industry, 14, 15

for quality in Argentine grain system, 21-23

for quality in Brazilian grain system, 45-46

for quality in French grain system, 70, 71-72

for quality in U.S. grain system, 22-23, 45

for soybean processing in Brazil, 39

see also Subsidies

Indonesia, wheat imports by, 114

Industries Assistance Commission (IAC)—Australia,

117

grain marketing investigation by, 124, 126-127, 138

Industry

Argentine soybean crushing 14-15

Government policies affecting Argentine grain,

17-18

Government policies affecting Brazilian soybean,

38-40

handling techniques in Australian grain, 127-139

handling techniques in Canadian grain, 95-98

marketing practices and channels of Argentine

grain, 15
156

marketing practices and channels of Brazilian

soybean, 35

marketing practices and pricing strategies in

Argentine grain, 16-17

marketing practices and pricing strategies in

Australian grain, 117-127

marketing practices and pricing strategies of

Brazilian soybean, 36-38

marketing practices and pricing strategies in

Canadian grain, 92-94

organization of Argentine grain, 15-16

organization of Brazilian soybean, 35-36

organization of French wheat marketing, 64-66

players in Brazilian soybean processing and export,

35-36

production and marketing in Australian grain,

109-116

production and marketing in Canadian grain, 81-92

quality control in Argentine grain, 18-23

quality control in Australian grain, 118-123,

135-138, 139-141

quality control in Brazilian soybean, 40-46

quality control in Canadian grain, 98-105

technology use in Argentine grain, 12-14

technology use in Brazilian soybean, 32-35

variety development and release in Australian

grain, 139-141

workings of French grain, 63-72

Inspection. See Quality; Regulation; Standards;

Testing

Institute Technique des Céréales et de Fourrages

(ITCF)–France, 57, 73

Interest. See Credit

International Plant Protection Convention, 136

Intertek (Brazil), 42

Intervention price (1P) mechanism

administration of EC, 63

effects of, 61-62

Iran, wheat imports by, 12, 114, 126

Iraq, wheat imports by, 114, 126

Irrigation

use in Brazil, 32

see also Agriculture

Italy

corn imports by, 3, 4, 6

wheat production by, 49

Japan

soybean imports by, 8, 31

wheat imports by, 10, 90, 97, 114

Junta Nacional de Granos (JNG)–Argentina

grain regulation by, 17, 18-19, 21-23

storage and export facilities operated by, 14, 15

Latin America

wheat exports to, 56, 90

see also individual countries in

Legislation, See individual statutes

Legumes, Argentine use of nitrogen-fixing, 12

Licensing. See Regulation

Livestock. See Beef; Sheep

Loans, See Credit

Lower Inventories for Tomorrow (LIFT) Program—

Canada, 86

Malaysia, wheat imports by, 114

Maldive Islands. See Falkland Islands

Marketing

channels and practices for Argentine grain, 15

channels for French grain, 64

industrial organization of French wheat, 64-66

investigation of Australian system for grain,

126-127, 138-139

players and trends in Canadian wheat, 90-91, 93

pricing mechanisms in French grain, 70-72

of wheat exports in Australia, 125-127

Markets

Argentine corn export, 3-6

Argentine grain futures, 17

Argentine soybean export, 8

Argentine wheat export, 10-12

Australian wheat export, 114, 126

Brazilian grain futures, 38

Brazilian soybean export, 31

EC wheat export, 53-56

U.S. corn export, 3, 6

U.S. soybean export, 8, 31

U.S. wheat export, 10, 27, 53, 54, 114

Mexico, corn imports by, 3-4

Middle East

EC wheat exports to, 54, 56

see also individual countries in

Ministry of Agriculture (Brazil), 40, 41, 44

Moisture

levels of Argentine grain, 13, 18, 21, 22-23

levels of Brazilian grain, 34, 45, 46

levels of Canadian wheat, 104

levels of EC wheat, 63, 69

levels of U.S. wheat, 69

see also Drying, grain

Morocco, wheat imports by, 53

Netherlands, the, corn imports by, 3

Office National Interprofessionnel des Céréales

(ONIC)–France, 63, 64, 74

Paris Contract, 70-72, 76

Peru, wheat imports by, 12

Pesticides

application in Canadian wheat production, 86

Canadian use on stored grain of, 98, 104-105

French use of, 57, 70, 77

residue testing in Australia, 137-138

residue testing in Canada, 105

use in Australian stoarge facilities, 135-136, 137

PKB (Brazil), 42

Poland, wheat imports by, 53, 54

Policy

Argentine Government grain, 17-18
157

Argentine grain export markets affected by

Government, 3

Australian infestation practices and, 136-138

Australian producer pricing, 123-125

Brazilian erosion control 32

Brazilian Government grain, 38-40

Brazilian soybean processing encouragement, 29

Canadian agricultural subsidy, 86

Canadian wheat pricing, 87-88,92, 94

EC price and income, 61-63

Politics

Argentine grain export markets affected by, 3,6

Brazilian soybean pricing policies affected by, 39

grain prices and EC, 61

Precipitation. See Climate

Price premiums. See Incentives; Subsidies

Pricing. See Economics; Policy

Prime Wheat Association (Australia) 140-141

Protein. See Quality

Quality

Argentine Government influence on grain, 17-18,

19-23

control of Argentine wheat, 18-23

control of Australian wheat, 118-123

control of Brazilian grain, 40-46

control of Canadian wheat, 98-105

control of French grain, 67, 70-72, 74-77

of French wheat, 57-61

see also Regulation; Standards; Testing

Railroads. See Transportation

Regulation

of Argentine grain industry, 17-23

of Australian grain industry, 118-129, 136-138,

139-141

of Brazilian soybean industry, 38-40

of Canadian wheat quality, 97-105

of EC grain market, 61-63

see also Quality; Standards; Testing

Research

grain variety improvement, 73, 74

on technologies for controlling infestation in

Australia, 137, 138

on wheat quality trends in France, 57-61

Royal Commission into Grain Storage, Handling, and

Transportation (Australia), 126, 129, 130, 138-139

Sarthe (France), 65

SCS (France), 76

Seed

Argentine variety control of, 17, 19-21

Brazilian variety control of, 44-45

grain quality and French control of varieties of,

72-74

selection criteria and licensing in Canada, 98-100

selection criteria in Argentina, 19-21

selection criteria in Brazil, 32

variety development and release in Australia,

139-141

See also Genetics

Service des Instruments de Service (France), 76

SGS International Agency for Product Inspections

(Brazil), 42, 43, 44, 45-46

Sheep, production in Australia, 109, 116

Shrinkage. See Drying, grain; Moisture

Soft Wheat Quality research laboratory (Ohio), 61

Soil. See Agriculture; Fertility, soil

Soybean meal

Argentine production and export of, 8, 15-16

Brazilian production and export of, 29, 31, 35, 36

U.S. production and export of, 8

Soybeans

Argentine trends in production of and markets for,

6-8, 15-16, 28

Brazilian production of and markets for, 27-31

Brazilian/U.S. competition in exports of, 27, 29, 46

export markets for U. S., 8, 31

processing to meal and oil of, 8, 15-16, 29, 35, 36

see also Grain; Soybean meal

Spain, corn imports by, 3, 4, 6

Standards

Argentine grain quality, 18-19, 21-23

Australian receival 117, 119-120

Brazilian soybean quality, 41-42

Canadian wheat grading, 100-105

for new seed varieties in France, 73-74

USDA grain quality, 18, 19, 22, 45

see also Quality; Regulation; Testing

Standing Advisory Committee on Wheat (SACW)–

Australia, 140, 141

State Wheat Improvement Committee (SWIC)–

Australia, 140

Storage

Argentine grain, 15, 21, 22, 23

Australian wheat, 111, 127, 128-129, 130-136

Brazilian grain, 33-34, 35, 36, 38, 39, 43, 45

Canadian wheat, 86-87, 95, 96, 97, 111

French grain, 51-52, 66-67, 69

U.S. grain, 77, 111

Stored Grain Research Laboratory (Australia), 138

Subsidies

Brazilian grain price support, 39

Canadian railroad, 95

EC flour export, 54

EC grain price and export, 61-63, 87

French railroad, 64

for idling cropland in Canada, 86

U.S. grain price, 61-62, 87

see also Incentives

Syria, wheat imports by, 53

Taxes

Argentine agricultural, 18

EC wheat production, 62

effect on Argentine grain production, of, 18

on grain and grain products in Brazil, 39-40

Technology

Argentine grain marketing, 13-14

Argentine grain production, 12-13

Australian grain marketing, 130-136, 138

Brazilian grain marketing, 33-35, 36, 44
I

I

I

158

Brazilian grain production, 32-33

Canadian grain marketing, 96, 97

Canadian wheat production, 85-87

French agricultural production, 56-57

gluten extraction, 65-66

see also Equipment

Technology transfer, from U.S. private and

multinational firms to competing grain export

countries, 13, 32-33

Testing

Australian pesticide residue, 137-138

Canadian wheat quality, 100-105

EC end-use wheat, 63, 75

see also Quality; Regulation; Standards

Thionville, 42, 76

Toepfer International, 64

Trade. See Exports; Imports; Markets

Transportation

methods and costs for Argentine grain, 12, 14

methods and costs for Brazilian grain, 34, 45

methods and costs for Canadian grain, 95

methods for Australian grain, 129-130

methods for French grain, 64

Trucks. See Transportation

UGCAF (France), 65

UNCAC (France), 64-65

Uniform Quality Testing (UQT) Committee–

Australia, 140

United Grain Growers (Canada), 95

United Kingdom (UK)

ban on Argentine exports by, 6

corn imports by, 3, 6

wheat imports by, 90, 91

wheat production and quality in, 49

United States (U. S.)

corn export markets of, 3, 6

grain blending incentives in, 128

grain price subsidies in, 61-62

grain storage in, 77, 111

quality incentives in grain system of, 22-23, 45

soybean production and export markets of, 7-8,

28-29

wheat export by, 10, 27, 53, 54, 89, 109

wheat export competition with EC by, 53-56

see also specific agencies, committees,

organizations

Union of Soviet Socialist Republics (U. S. S. R.)

corn imports by, 3-4, 4-6

price premiums paid by, 6

soybean imports by, 8, 31

wheat imports by, 10, 53, 54, 56, 90, 114, 123

Variety Control Scheme (VCS)–Australia, 121, 141

corn export markets in, 3-4, 6

soybeans and soybean meal import by, 8, 31

wheat imports by, 10-12, 90

wheat production in, 10, 49-51

see also European Community; individual countries

.

West Germany, wheat production in, 49

Wheat

Argentine production and export of, 10-12, 19

Argentine varieties of, 12, 15, 19

Australian price differentials for classes and

categories of, 120-121

Australian price pooling for, 124-125

Australian variety control for, 121

Canadian variety development and release of,

98-100

domestic use of Australian, 109-111

EC and U.S. competition for export markets of,

53-56

European Community’s production and marketing

of, 49-57

French varieties of, 52, 57-61, 63, 72-74

grading in Australia, 115, 118, 119-120

growing regions in Australia, 109

growing regions in Canada, 81, 87-88

milling in Canada, 87-88

pricing mechanisms for EC, 61-63

producer pricing policy for Australian, 123-125

U.S. export of, 10, 27, 53, 54, 81, 109, 114

varieties in Australia, 82, 109, 115, 116, 119, 139

varieties grown and exported by Canada, 81-82, 85,

87-88, 89-90, 98-100, 103, 104

varieties in U. S., 82, 85, 99

see also Grain

Wheat flour

Canadian export of, 91

EC exports of, 54-56

milling industry in France, 65-66

Wheat Industry Stabilization Acts (Australia), 117

Wheat Marketing Acts (Australia), 117

Wisconsin Breakage Tester, 45

Working Party on Infestation in Grain (Australia),

136-137

Yields

agricultural practices affecting Brazilian grain,

31-32

trends in

trends in

trends in

trends in

trends in

trends in

trends in

Argentine grain, 19-21

Australian wheat, 82, 109, 115

Brazilian wheat, 44-45

Canadian wheat, 82-85, 91

EC wheat, 82, 91

French wheat, 52, 57, 115

U.S. wheat, 82-85, 91, 115

Western Europe

Argentine loss of wheat market in, 10-12