Shi$ing Governance Structures in the Wheat Value Chain: Implica:ons for Food Security in the Middle East and North Africa

Transcription

1 Shi$ing Governance Structures in the Wheat Value Chain: Implica:ons for Food Security in the Middle East and North Africa Ghada Ahmed, Danny Hamrick & Gary Gereffi Center on Globaliza:on, Governance & Compe::veness Duke University Global Value Chains and Trade Policies for Food and Nutri:on Security Workshop Rome September

2 Outline Project overview Approach Wheat Industry GVC Wheat Trade and Chain Governance MENA s wheat GVC & Country Cases Implica:ons for MENA Conclusion 2

3 The Project GVC lens to unpack food security in MENA Focus on wheat Country- level case studies: Egypt, Iran, Saudi Arabia, Syria, United Arab Emirates, and Algeria Compara:ve analysis of wheat GVCs and food security strategies GOAL: Use GVC framework to analyze MENA vulnerabili:es & design more resilient food security strategies at the regional level 3

4 Approach Top down the global economy with a focus on lead firms and inter- firm networks, using varied typologies of industrial governance BoMom up a focus on countries and regions, which are analyzed in terms of various trajectories of economic and social upgrading or downgrading 4

5 Impact of Food Price Increases on Trade Balance ( ) 5

6 Constraints in MENA Inputs Production Processing Marketing Land Farms Elevators Mills Bakeries Water Labor Equipment Biotechnology Soft wheat Hard wheat Durum wheat Weighting Grading Blending Storage Milling Packaging Feed Mills Retailers Food service Food manufacturers Livestock GVCs Domestic International Trade Commodity traders Enabling Environment Public governance Infrastructure Financial networks Private governance Logistics networks Consulting services Source: Ahmed et al,

7 The ABCDs of the Grain Market Input Suppliers Grain Farms Grain Traders Grain Facili:es, logis:cs & Terminals Bulk Grain Buyers Grain Millers Processors Financial Services e.g. credit, futures, deriva:ves ADM Bunge Cargill Louis Dreyfus Glencore 70-90% of grains traded interna:onally are managed by the ABCDs Source: CGGC based on company reports & literature review 7

8 Key Variables in MENA s Wheat VC Governance Complexity Codifiability of Informa:on Capability Complex Network Informa:on & Technology Intensive TNCs Economies of Scale Global traders drive the flow of wheat & are involved in most of the VC MENA Government Agencies strong weak Governments influence segments of the chain through grain standards, subsidies, marke:ng and trade. 8

9 Key Events that Influenced Wheat Trade Source: CGGC based on literature review 9

10 Transforma:on in the VC Growth in TNCs Deregula:on From an Old Model to a New Model State monopolies control trade Trade liberaliza:on, deregula:on & priva:za:on of wheat boards Consolida:on Started in agrochemicals around 1960s to improve output Globaliza:on TNCs opened overseas offices & invested in mills and elevators Accelerated by mid- 2000s TNCs acquire input suppliers, small and large players in grain infrastructure TNCs invest in overseas assets, export facili:es, partnerships, technology and data analy:cs Financializa:on TNCs use forward future contracts & hedging to manage risk TNCs finance investments through public offerings, expand risk management & financial opera:ons 10

11 Saudi Arabia s Wheat Policy Timeline Import- Based Strategy Self- Sufficiency Strategy 1970s Achieved self sufficiency Increased tariffs on wheat &flour imports (100%) Subsidies peaked to $3 billion 1980s 1990s Started phasing wheat produc:on & incen:ves Water stress became a policy priority Ministry of Water created 2000s 2007 onwards Targe:ng self sufficiency Reduced wheat subsidies Introduced wheat produc:on quotas Reduced import wheat tariffs Source: CGGC based on FAO, 2011; Al- Zahrani, 2009, Sheoy, 2004, Al Maoery, 2009 Increasing wheat imports Investment in offshore agriculture Expand wheat infrastructure Introduced price controls & increased social spending 11

12 Egypt s Wheat Policy Timeline 1970s and prior Gradual easing of government control in land use & sales Last increase in the cost of subsidized bread 1980s Increase in government control Crea:on of PBDAC to help supply farmers with inputs 1990s Wheat price increases and stagnate cooon prices Bread, food, and social jus:ce protests Overthrow of Mubarak government 2000s Elimina:on of subsidized fino flour Easing of import restric:ons for fino Producers of fino flour and bread required to use imported wheat & shami flour subsidy eliminated Source: CGGC based on Kherallha et al 2000, Goldman 2013, MacFarland onwards Policies target expansion of storage Increase domes:c produciton Reduc:on in imports Wheat Shortages Overthrowing of Morsi government 12

13 2013 Saudi Arabia Wheat Value Chain Vulnerabili:es Production Processing Consumption Storage Small & Medium Inland Silos moved Mills Bakeries Farms to Ports Price fixing $0.27/loaf 2012: 6,000 farmers 1993: 34,000 farmers Imports- Increasing 12.5 %/year Currency Reserves Source: Oil 2013 Egyp:an Wheat Value Chain Vulnerabili:es Food subsidy 0.24% of GDP Increase labor and flour costs About 25% of bakeries will go out of business Up to 100% increase in bread prices Production Processing Consumption Red: Acute disruption points in wheat GVC Small & Medium Farms 9.5 million tons Storage Need for Modern Silos Importing 4-5 million tons Currency Reserves Source: Suez Canal & Tourism Mills Bakeries Bread rationing at 3 loaves Food subsidy 2% of GDP Available bread $0.7/ loaf 13

14 Transforma:on in the VC Poten:al Impacts on MENA s Food Security Deregula:on State plays a key role Government Failure Risk Shifts in the Wheat GVC From an Old Model to a New Model Consolida:ons - Traders are an oligopoly interac:ng with state monopolies Market Failure Risk Globaliza:on High dependence on TNC Market Failure Risk strong weak Financializa:on Increased food price vola:lity Market Failure Risk 14

15 Conclusion Five TNCs account for over 70 percent of global grain trade Globally, TNCS have seen an increase in power while na:onal governments have a diminishing role in wheat trade MENA is a convergence region where state- dominated old world models and TNC- led new world models meet, crea:ng unique challenges Need for collabora:on, transparency, and private sector par:cipa:on to meet food security needs 15

16 Thank You! Ques:ons? Ghada Ahmed 16

17 Annex 17

18 The Grain Price Hikes Source: World Bank,

19 MENA s Leading Sources of Wheat Morocco has imported 9.3% of MENA s wheat since 2007 Algeria has imported 16.6% of MENA s wheat since 2007 Libya Egypt has imported 25.9% of MENA s wheat since 2007 Syria Iraq Saudi Arabia Iran Mauritania Different regions within MENA rely on different countries as their leading source of imported wheat. Depending on the country, these rela:onships have persisted since 2007 France Russia No s:ckiness Australia SOURCE: FAO, total tonnage of wheat exported 19

20 Wheat Value Chain Wheat Value Chain Inputs Production Processing Marketing Land Farms Elevators Mills Bakeries Water Labor Equipment Biotechnology Soft wheat Hard wheat Durum wheat Weighting Grading Blending Storage Milling Packaging Feed Mills Retailers Food service Food manufacturers Livestock GVCs Domestic International Trade Commodity traders Enabling Environment Public governance Infrastructure Financial networks Private governance Logistics networks Consulting services Source: Ahmed et al,

21 Lead Firms Company Glencore Xstra Revenues (Billion USD) Assets (Billion USD) $ $ Company Operations Segments Metal and Minerals, Energy Products, Agriculture Products Cargill* $ $59.88 Archer Daniels Midlands (ADM) $89.80 $43.75 Louis Dreyfus Commodities* Origination and Processing, Food ingredients and applications, Agriculture services, Risk management, Finance Oilseed Processing, Corn Processing, Agriculture Services, Finance $63.59 $19.17 Proteins, Tropicals, Other Products! Bunge Limited $61.34 $26.78 Agribusiness, Sugar and Bioenergy, Food and Ingredients, Fertilizer Source: CGGC based on company 2013 annual reports 21