Looking out into the distant, Vince Peterson, vice-president for overseas operations with the U.S. Wheat Associates, said at the 2010 International Grains Council (IGC) Grain Conference that the global wheat market is going to be hard pressed to meet consumption demands with each passing decade if certain measures to incentivize wheat plantings and production aren’t adopted.
In his presentation, "Wheat Market Stability in the Coming Decades," Peterson showed how wheat consumption is expected to grow at a faster rate than the world’s population as developing countries with rising income levels add more "fast and convenient" wheat-based products to their diets.
"By the year 2050, we are looking at demand exceeding 900 million tonnes of wheat in the world," Peterson said. "We are going to have to produce and trade another 250 million tonnes worldwide than we are today."
Peterson noted that over the past 30 years, the amount of land area dedicated to wheat production is essentially unchanged. During that same time span, corn area has increased by 60% and soybean area has jumped by a whopping 300%. Driving this trend, he said, has been advent of biotechnology in corn and soybeans and the biofuel mandates in the U.S. and other countries that are increasing the profitability of those two crops at the expense of wheat. "Wheat has become the poor third cousin to these other crops when you look at profitability and production across the world," he said.
Over the next 40 years, the greatest increase in demand for wheat products will come from Africa and other countries in the "middle latitudes" where population growth is expected to soar, Peterson said. But most of the production will continue to come from the traditional wheat-producing powers in the northern and southern hemispheres.
"We are going to have to incentivize the production of wheat in the areas that are most able to produce it most efficiently," he said. "The trade is going to go from the southern and northern latitudes into the middle latitudes where the population growth is occurring."
Peterson outlined several ways in which wheat can gain land area in the upcoming decades.
"The easiest thing to do is let the price regulate ... for the wheat price to increase relative to corn and soybeans in order to start buying back land area from those crops around the world," he said. "It’s fine if you can do that, but we saw the last result of that in 2007-08 when wheat prices went to $500 to $600 on an f.o.b. basis and big importers had to pay $700 to $800 per tonne for wheat in the early months of 2008. Price regulation alone is probably not a very good way to promote stability in the wheat markets going forward."
A better way to guarantee stability, Peterson said, is to develop and commercialize biotech wheat, which would incentivize wheat production by farmers by increasing their efficiencies, reducing the cost of production and increasing yields. He pointed to a recent IGC report, which showed that soybean yield growth was double and corn yield growth nearly triple that of wheat over the last 30 years in the U.S., and that the pattern is being replicated worldwide. "The subject of biotechnology simply cannot be avoided," he said.
In addition, Peterson said, there must be vibrant and productive domestic flour milling and processing industries which operate within a fairer trading system than exists today. "In some cases, flour is moving in artificial manners," he said. "Its trade is promoted by import tariffs, export licenses and systems that are in one way or another crafted and manipulated in somewhat of a distorted fashion."
Developing a more level playing field for wheat trade is also crucial, he said, and that can be accomplished with a successfully concluded WTO agreement.
He noted that even U.S. farmers who have benefited from government subsidies are realizing they must make some tradeoffs.
"They are going to have to give up some government support in order to gain the future possibility of economic development in the middle band of countries (where wheat demand is expected rise)," he said. "It makes income grow, economic activity grow, and makes them better able to afford wheat food products that are going to be required for import as we look out over the next 30 years."
Peterson said a WTO agreement would also reduce government interference that often discourages investment and stifles free and open trade. "When you look at the big problems of instability that we had in the markets two years ago, in 2007-08, some of the impact came from interference that did not allow wheat to be sold to buyers that were prepared to pay for it. It imposed export duties, export embargoes and intervention systems within certain countries that took wheat off the market to protect global domestic industries."
