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A buyer's market in a changing world

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By Ken Root

We finally produced a big crop this year and now we are going to pay for it. The rejection of non-approved genetically modified corn by China has nothing to do with food safety but everything to do with market clout. The historical record of disputes with importing countries shows what happens when the importer gains dominance. It is a fact of business that advantage swings from side to side, and now the pendulum has moved away.

In a bit of historical perspective, U.S. exports of grain came into their present form in the 1970s. The huge Soviet purchases of 1972 set off a decade of production expansion and economic gain that was unprecedented. High prices seemed to drive even greater world demand, and U.S. farmers became quite proud of their ability to produce wheat, corn and soybeans that were held in high esteem by world buyers. Then the reversal and recession of the 1980s found us with bins full and buyers showing reluctance. Soon, importing countries began criticizing the amount of dirt and foreign material contained in U.S. wheat. Farmers were outraged and blamed the grain companies for adding foreign material into the grain to increase their profits.

I did many stories on the issue and even traveled to ports in Texas where wheat was loaded onto vessels for transport. The reality was that the practice of blending down No. 1 hard red winter wheat to No. 2 HRWW had been going on for the past decade. Grain merchandisers said that was what the buyer chose, so that was what they delivered. I asked dock workers, government graders and grain company officials about the practice of adding FM and they said they did not blend in dirt or trash but they did blend in a percentage of cheaper wheat that still met the buyer’s specifications. The hulls, stems and dirt were already there and showed up in normal handling of grain from inland elevator to unloading of export cargo.

The reality was, and is, that once the buyer realizes there is surplus supply, it is effective to complain about quality. In the 1980s this drove the price down even more. Lesson learned? Not a chance! Now we are seeing the same situation pop up in GM corn being shipped to China.

Since 2008, demand for corn has been strong. Expanding ethanol production put a floor under the market and short harvests ran up the price. The advantage swung to the seller. There is every indication that unapproved GM grain was in the market but the sellers winked, the buyers winced and bought it anyway. Now we have a record corn harvest in the United States, but years of high prices have brought on worldwide production from the Black Sea, South America and South Africa. Corn is plentiful and it is the buyer’s turn to show dominance.

Unfortunately, for all exporters, China is the only growth market for corn, so their closed and bureaucratic regulatory approval process backs up the system all the way to the laboratories of Monsanto, DuPont Pioneer and Syngenta.

It should be pointed out that there is nothing the Food and Drug Administration finds unsafe about approved GM corn. The problem is the Chinese regulatory approval process lags far behind breeding and marketing of seeds that carry traits biotech companies want to sell. The aggressive nature of business allows marketing to trump everything else unless government imposes fines and restrictions and sometimes those don’t work.

Here is another historical perspective. Remember the “Starlink Scare” of the late 1990s, when the first unapproved GM corn was found in food products? We dealt with it internally but did not address the international implications that might have prevented similar GM problems from popping up in the future.

Keeping grain segregated in our marketing system does not work. We saw that in the Starlink debacle and we see it every year with aflatoxin popping up in some region of the country. As a farmer told me after he had sold Starlink corn into the normal channels of trade: “Corn is corn and I sell it where I can get the most money!”

An official of the Federal Reserve has suggested that the way to remedy this situation is to have an international biotech approval process. That sounds as speedy as the World Trade Organization but a collaboration of science-based regulatory procedures with all exporting and importing countries “buying in” could bring uniformity to GMO approval. On the other hand, it would surely slow down the release of new products within the major grain exporting nations.

There may be a larger issue to observe as China is emerging as a dominant power in many areas. Over the past decade, China has moved out front in its accumulation of wealth. Now it is showing regional military power as it lays claim to more territory in the South China Sea between the mainland and long-time rival, Japan. China has decided it will go to the moon as a show of its technological advancement. We may be seeing a replay of ourselves 50 years ago in a country that sees itself at the top of the food chain, literally and figuratively.

Taking this paradigm one step further, China is long on people but short on resources to feed them. If they play the same game in procuring food that we have played in procuring oil, then every grain exporting country will be subjected to their influence. As China buys international food production companies and expands their status as the dominant importer of grain, they may not need to be part of an international consortium of any kind. Their economic power will reach all the way to the producers of meat and grain as they specify certain quality and quantity in return for a certain price. It may not be a big leap into the future to see China holding greater world power with their economic strength than we hold with our military hardware.

Editor’s note: Ken Root has been an agricultural reporter for 39 years. Root now does daily radio and television programming and is a columnist. He can be reached at kenroot@gmail.com.

Date: 12/16/2013



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