Why would a Brazilian miller buy wheat from Canada when grain powerhouse Argentina is right next door?
That’s a question Edson Fernandes Csipai of Bunge Brasil had to answer a few times during a week of meetings at the Canadian International Grains Institute in Winnipeg.
“Canadian wheat is much, much better (than Argentine wheat),” Csipai said.
It has to be better because Canadian wheat costs more, due to preferential tariffs for South American grain and the distance Canadian grain has to travel to reach southern Brazil.
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“It’s a big advantage for Argentina,” said Csipai.
Bunge imports Canadian wheat for its Brazilian mills because it is a high-end miller and quality is king. About half its milling production is for baguette-style bread, which require good wheat.
Csipai said Argentine wheat suffers from quality and consistency problems. Its consistency is not as uniform as Canada’s, and protein levels and general milling quality have been slipping.
“The quality in Argentina is decreasing year by year,” said Csipai.
Farmers have switched to imported French wheat varieties that yield better but have lower protein and other qualities, he added.
“For a farmer it is good. For us as a miller, it is not so good,” said Cisipai.
The closeness of Argentina and preferential tariffs mean Canadian wheat costs $60 to $70 per tonne more than Argentine wheat for Brazilian buyers, which is a 20 percent advantage.
The Mercosur trading agreement means countries like Argentina get to sell products to Brazil with either no or low tariffs and taxes, while products from countries like Canada are hit much harder. Canadian grain has to pay both an import tax and a marine tax.
The only reason it is feasible for a Brazilian miller to import Canadian wheat is that the quality and consistency allow it to produce a premium-priced product and to run the mill more efficiently.
Csipai said Bunge can run its mills $20 per tonne more efficiently by using Canadian instead of Argentine wheat because it is cleaner, more consistent and has better protein.
Bunge would like better access to Canadian grain because of its advantages, but that would require a Canada-Brazil trade deal.
