Miller Magazine Issue: 121 January 2020

44 COVER STORY MILLER / JANUARY 2020 from largely financialized markets. Price variations are now characterized by their suddenness and brutality. Grain trade helps to answer possible food production shortages due to climatic or other reasons. It contributes to the prosperity of farmers, industries, and consumers. In recent years, global grain markets faced increased volatili- ty, directly impacting stakeholders of the food chain. Price volatility makes planning for farmers and buyers the world over extremely difficult and may result in political unrest, like in the recent food prices peak in 2007-2008. Price volatility in the food supply chain threatens the long term competitiveness of agriculture. Therefore it is important to understand it and to identify the drivers and factors caus- ing market volatility. What are the most important factors affecting the glob- al grain trade? What are the most important challenges grain traders are facing today? Speaking to Miller Magazine, Andrey Sizov, managing direc- tor of SovEcon, lists the key challenges as ‘low prices, low margins, farmers becoming better educated and informed.’ Another prominent expert Dmit- ry Rylko, Director General of the Moscow-based Institute for Ag- ricultural Market Studies (IKAR) also agrees with Mr. Sizov. “The biggest challenge all over the world is associated with the fact that farmers get smarter and bigger (especially in our part of the world) and their awareness and bargain power have grown quite dramat- ically,” he says. He also complains that grain traders are lagging behind the digitization process. “The second chal- lenge is associated with the fact that the world around us has become digital, while grain trade is falling behind these processors. The question is how to digitalize our traditional values: reputation and personal relations.” The trade tension between the US and China is one of the key concerns for the world grain market. “Beyond the fundamentals of supply and demand, one of the key challenges for global grains trade in recent years has been increased tensions between major market players. How- ever, impediments to trade take many forms and non-tariff measures (NTMs) have increased in number and complex- ity over many years, and today represent one of the key challenges to the free flow of global trade.” IGC says. Societal demands also are a key driver in shaping the markets. Changing global consumption trends affects global trade flows. Consumers show increasingly press- ing expectations towards food, extending beyond food af- fordability to issues such as health, nutrition, food safety, sustainability, origin, convenience, environment, climate change, animal welfare, etc. At the same time, global con- sumption per capita is increasing, as well as self-sufficien- cy in some parts of the world. This will likely change glob- al trade flows. Sizov analyzes the effect of the changing global consumption in two parts: “1-Developed countries: sometimes it's awareness, sometimes it's miseducation (ie popularity of non-gluten diets). Somewhat lower meat con- sumption, especially red, and lower feed demand for grain. New CRISPR wheat varieties may attract new customers to new bread and pasta products. 2-Developing countries: still a good (but slower) growth of consumption of meat and poultry, bigger demand for feed grain.” There are also concerns about the outbreak of African swine fever in Asia among the grain traders. However, Mr. Sizov reminds that domestic consumption of grain feed in China almost hasn't changed. “Contrary to oilseeds markets the effect of ASF is muted,” he said. Mr. Rylko also expressed a similar view. “In my view, the impact is rather modest in comparison with Mr. Trump's tweets.” BLACK SEA EFFECT World grain trade will continue to grow as global demand strengthens. Therefore, competition between the export- ing regions is becoming fierce. The Black Sea Basin has grown considerably over the past five years, with Russia and Ukraine in the lead, and currently accounts for 1/3 of the world grain trade. And the experts predict that the domi- nance of the Black Sea region would continue in the long run. When asked whether Black Sea countries will be able to gain more market shares, "Yes, no doubt. The interest- ing thing is that in its price discovery and risk management the world continues to rely on the modest US item, named SRW, while the bulk of physical trade has shifted "from (Mexican) gulf to (Black Sea) see basin," Rylko answered. Mr. Sizov is more cautious about that. “It won't be easy. In fact, in 3 recent years exports from the region have been stagnating. I feel that both countries need reforms to climb to the next stage. In the case of Ukraine, such reform could be a farmland market liberalization,” he said. Dmitry Rylko Andrey Sizov