Wheat strategy necessary to stave off competition

Canada’s wheat industry faces serious new competitors: Russia, Ukraine and Kazakhstan.

These low cost producers threaten the viability of the wheat industry here and in other traditional exporting countries.

Wheat is well suited to prairie conditions and is an important part of Canadian farmers’ crop rotations. To preserve its role requires a strategy to meet the challenges these new competitors present.

Russia and Ukraine appeared as competitors about 10 years ago as they began recovering from the turmoil following the collapse of communism. Observers at first questioned whether they could sustainably export large quantities, given antiquated and inadequate farm technology and logistics.

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However, there has been heavy investment in agriculture that has partly updated their technology and they have developed into major players in several markets, particularly North Africa and the Middle East.

In 2000, they held only five percent of the global export market, but by 2009 had grown to 28 percent.

The traditional exporter group, the United States, European Union, Canada, Australia and Argentina, generally lost market share over that period.

The U.S. fell from 28 percent in 2000 to 19 percent last year. Canada fell to 14 percent from 17.

Now the former Soviet countries want to flex their muscles even more. In recent months they have sold wheat in South America and announced intentions to build market share in Asia. Russia has a new state trading company working on long-term sales agreements with Asian buyers.

Russia has an ambitious target of doubling wheat exports, to 40 million tonnes from 20 million today, within 15 years.

There is a bit of hype in the target, but Russia and Ukraine are already investing in Black Sea ports and Russia has plans to improve its Pacific oriented infrastructure. In the next two to three years, it plans to invest up to $100 million to refurbish Pacific ports that are only one or two days sail away from major Asian markets.

To meet their goals, Russia and its neighbours must spend billions on railway, port and terminal infrastructure. They will also require years to prove to Asian buyers that they can be reliable suppliers of quality grain.

In this regard they will follow a similar path as South American countries did in the past decade as their soybean production and exports skyrocketed.

The difference is that while South American production rose, world soybean demand grew 37 percent, easily accommodating new supply. In the past 10 years, wheat demand grew by only 11 percent.

Wheat shortages can develop, as they did in 2008 after crop failures in Australia and Ukraine, but production since then has stormed back and there is now a price depressing surplus.

With no prospect of profits, Canadian wheat growers will continue to cut acreage, allowing former Soviet countries to increase market share.

We can’t afford to be in a race to see who can offer the lowest price.

The wheat industry should follow the lead of canola, mustard and flax and devise a strategy to identify weaknesses and improve competitiveness .

Ideas that could be included:

Build on Canada’s reputation as a reliable supplier of quality wheat and find additional ways to differentiate Canadian wheat from the competition and add value.
Increase investment in research and breeding in wheat to improve productivity, disease resistance and nutritional value. Genetic modification should be a part of this, but introduction of GM varieties must proceed in a way that does not disrupt trade.
Pursue more trade deals that improve access to foreign markets.

Bruce Dyck, Terry Fries, Barb Glen, D’Arce McMillan and Ken Zacharias collaborate in the writing of Western Producer editorials.