Importers fear ‘grain monopolies’
LONDON - Reuters
laborer spreads paddy for drying at a wholesale grain market in the Indian city of Chandigarh. Many importer countries fear that grain prices will go up. REUTERS photoA global race for grain trading power is putting more of the world’s vital cereals in the hands of fewer companies, with a string of recent acquisitions raising fears that consumers will pay even more for their food, while farmers are squeezed.
Archer Daniels Midland last week bid for Australia’s last independent grain handler GrainCorp, the latest in a series of moves by grain trading heavyweights to grab a larger slice of a booming market as developing economies seek food security.
The four “ABCD” firms - ADM, Bunge, Cargill and Louis Dreyfus - dominate global grain trading along with top global commodities trader Glencore and Japan’s Marubeni, both of which have made major acquisitions in the last few months. With food price volatility increasingly coming to the fore, most recently in the wake of drought in the U.S. and other key producing regions, concern is growing among importers about extra upward pressure on prices.
“The increasing concentration of power in the global grain market is not healthy. This will lead to grain prices being controlled by top trading companies,” said Rusman Heriawan, deputy agriculture minister of Indonesia, Asia’s top wheat importer.
The United Nations sounded alarm bells on market volatility this summer as corn alone surged around 40 percent in less than a month. Soybeans hit record highs, while wheat also shot up dramatically, reviving memories of the 2007/08 food crisis.
75 percent of market
“So-called grain majors account for about 75 percent of the global grain market. If they keep on merging with other grain companies, there is the possibility of a monopolistic situation,” said Han Sukho of the grains division at the Korea Rural Economic Institute.
“This will make things difficult for importing countries like South Korea. We might have to pay more than what things actually cost,” the assistant director of the state-run think-tank added.
South Korea is a major importer of both wheat and maize.
After a doubling in quarterly profits helped by the impact of drought on the grain trade, Bunge Chairman and Chief Executive Officer Alberto Weisser said on Oct. 25 that he expected industry consolidation to continue.
“I do believe that we will have more consolidation because the market has shown that it is necessary to have large companies” with geographically diverse assets and strong balance sheets “to operate and serve the market in these volatile times,” he said. “We are part of it.” Lee Gaus, vice president of International Futures Group, said there were some benefits from the consolidation for the grain trading companies, who will have more flexibility from expanded networks.
But consumers will feel the impact if importers and supermarkets are subject to higher prices, as the flexibility of supply reduces.
“There are efficiencies that are gained when you have this kind of consolidation. But, on the other hand, there’s a danger in a situation where you have more and more controlled by fewer and fewer,” he said.
“Ultimately this hurts the consumer. I don’t know any time that you can concentrate so much leverage in so few hands that it doesn’t eventually impact the consumer,” Gaus added.
Gaus also saw the consolidation as a threat to producers who are faced with fewer potential buyers for their crops - meaning that they might be forced to accept lower prices for their produce. Farmers are often dependent on the grain trading companies for their seed and fertilizers as well as providing a buyer for their crops. “It [grain market consolidation] has a negative impact, both on the many producers that feed into this very small number of traders and on the other end on their customers and ultimately consumers,” said Jodie Thorpe, policy adviser for Oxfam.
GRAIN MARKET ACQUISITIONSThe following are some of the key moves in the grain market during the last couple of years:
OCTOBER 2012 - Archer Daniels Midland bids $2.8 billion for Australia’s GrainCorp in a deal that could give it a platform to supply Asia.
MAY 2012 - Japanese trading house Marubeni Corp. agreed to buy U.S. grain merchant Gavilon for $5.6 billion including about $2 billion in debt. The deal positioned Japan’s top grains trader to benefit from China’s booming demand for imported corn from the world’s biggest supplier.
MARCH 2012 - Glencore agreed to buy Canada’s largest grain handler Viterra in a $6.2 billion deal to provide the world’s top commodities trader with a powerful position in both the Canadian and Australian markets.
DECEMBER 2010 - Canada’s fertiliser and farm products retailer Agrium buys AWB Ltd. Australia’s largest bulk wheat exporter, for around A$1.2 billion. Part of the business is subsequently sold on to Cargill.