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Opinion: why wheat needs a champion

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You will have heard the great sucking sound made by developing countries vacuuming up an ever greater share of the world's commodities.

You will have read of Chinese cities built with steel forged from Australian iron, and wired with South American copper.

Well there's one commodity that developing countries don't want any more of – wheat.

The International Monetary Fund sounded a bum note for the grain's many champions by pointing out that emerging market countries are consuming less wheat than they did in 1993, as a proportion of global use.

That's a marked contrast with oil, for which emerging markets have raised their share of world consumption to a little over half, from 43.1% in 1993, and aluminium and copper, for which consumption rates have near-doubled to 60%.

Caveat agricola.

Out of fashion

Wheat's contrarian trend might not matter so much if it was down to surging demand in developed countries. If emerging nations were unable to keep pace with, say, a boom in Western wheat-to-ethanol plants.

But it doesn't. Consumption hasn't grown much in either developed or developing nations – rising a modest 13.5% between 1992-93 and 2007-08, according to US Department of Agriculture data.

And that increase disguises some choice declines, in Russia (down 20%) and China among emerging markets, and America and Canada among the emerged.

Against the grains

What the IMF data does provoke is an analysis of how wheat has lost the demand war to other grains.

It has been trounced in livestock feed, for example, by corn. The world used 8.8% less wheat in 2008 than in 1993, but 44% more corn.

Overall corn consumption jumped by more than 50% over the period, while soybean use nearly doubled. And this despite their prices rising faster than wheat's since 1993 too.

The consumption factor

There are two main takeaways from this analysis. The first is a reminder of the importance of demand in judging market tightness.

The rise of more than twice as much in global corn output since 1993 than wheat might imply a looser market, but that implication is far wide of the mark

The second should be call to arms by the wheat lobby.

On the face of it, it seems absurd that corn, a crop for which world trade is pretty much at America's whim, should have usurped wheat, which has huge producers in Asia, Australasia and Europe as well as North America.

National champion

But maybe that's the point. That America's stranglehold on corn has encouraged it to develop the corn-based syrup, ethanol, protein products and so on that have fostered, for US farmers, a virtuous circle of higher production and raised demand. With buoyant prices too boot.

Perhaps that's what wheat needs too. Not production aid, such as subsidies, price support or state stockpiling, but support for new ways of using the stuff.

It doesn't look like developing countries will have much of an interest. This could be an opportunity for Europe, one of the regions still most fixated on wheat, to show some innovation in its handout-heavy agriculture policy.

By Mike Verdin

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