Shifting Governance Structures in the Wheat Value Chain Implications for Food Security in the Middle East and North Africa
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This document summarizes a research project analyzing the implications of shifting governance structures in the wheat value chain for food security in the Middle East and North Africa region. The project takes a global value chain approach, examining wheat trade and governance at the global, regional and country level through case studies of key countries. It finds that large transnational corporations play a dominant role in governing the global wheat chain, while governments still influence domestic segments. This complex governance system and other constraints pose vulnerabilities for food security in the MENA region.
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Shifting Governance Structures in the Wheat Value Chain Implications for Food Security in the Middle East and North Africa
- 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 26 2014
- 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. • 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 The Project
- 4. 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 Approach
- 5. Impact of Food Price Increases on Trade Balance (2007-‐2008) 5
- 6. Inputs Biotechnology Equipment Land Water Weighting Grading Blending Elevators Feed Mills Livestock GVCs Food service Bakeries Retailers Production Processing Marketing Commodity traders Domestic International Mills Milling Packaging Storage Soft wheat Hard wheat Durum wheat Farms Food manufacturers Enabling Environment Public governance Infrastructure Financial networks Private governance Logistics networks Consulting services Labor Trade 6 Constraints in MENA Source: Ahmed et al , 2012
- 7. 7 ADM Bunge Cargill Louis Dreyfus Glencore Input Suppliers Grain Farms Grain Traders Bulk Grain Buyers Grain Millers Processors Grain Facili:es, logis:cs & Terminals Financial Services e.g. credit, futures, deriva:ves 70-‐90% of grains traded interna:onally are managed by the ABCDs The ABCDs of the Grain Market Source: CGGC based on company reports & literature review
- 8. Key Variables in MENA’s Wheat VC Governance 8 Complexity Codifiability of Informa:on Capability TNCs MENA Government Agencies • Complex Network • Informa:on & Technology Intensive • Economies of Scale strong weak Global traders drive the flow of wheat & are involved in most of the VC Governments influence segments of the chain through grain standards, subsidies, marke:ng and trade.
- 9. Key Events that Influenced Wheat Trade 9 Source: CGGC based on literature review
- 10. 10 State monopolies control trade Transforma:on in the VC Growth in TNCs Deregula:on Consolida:on Globaliza:on Financializa:on Trade liberaliza:on, deregula:on & priva:za:on of wheat boards Started in agrochemicals around 1960s to improve output Accelerated by mid-‐2000s TNCs acquire input suppliers, small and large players in grain infrastructure TNCs opened overseas offices & invested in mills and elevators TNCs invest in overseas assets, export facili:es, partnerships, technology and data analy:cs TNCs use forward future contracts & hedging to manage risk TNCs finance investments through public offerings, expand risk management & financial opera:ons From an Old Model to a New Model
- 11. 1970s 1980s 1990s 2007 onwards 2000s Self-‐Sufficiency Strategy Import-‐Based Strategy • Targe:ng self sufficiency • Achieved self sufficiency • Increased tariffs on wheat &flour imports (100%) • Subsidies peaked to $3 billion • Reduced wheat subsidies • Introduced wheat produc:on quotas • Reduced import wheat tariffs • Started phasing wheat produc:on & incen:ves • Water stress became a policy priority • Ministry of Water created • Increasing wheat imports • Investment in offshore agriculture • Expand wheat infrastructure • Introduced price controls & increased social spending Source: CGGC based on FAO, 2011; Al-‐Zahrani, 2009, Sheoy, 2004, Al Maoery, 2009 Saudi Arabia’s Wheat Policy Timeline 11
- 12. 1970s and prior 1980s 1990s 2012 onwards • Increase in government control • Crea:on of PBDAC to help supply farmers with inputs • Gradual easing of government control in land use & sales • 1989-‐Last increase in the cost of subsidized bread • Wheat price increases and stagnate cooon prices • Bread, food, and social jus:ce protests • Overthrow of Mubarak government • Elimina:on of subsidized fino flour • Easing of import restric:ons for fino • 1996-‐ Producers of fino flour and bread required to use imported wheat & shami flour subsidy eliminated 2000s • Policies target expansion of storage • Increase domes:c produciton • Reduc:on in imports • Wheat Shortages • Overthrowing of Morsi government Source: CGGC based on Kherallha et al 2000, Goldman 2013, MacFarland 2013 Egypt’s Wheat Policy Timeline 12
- 13. Mills Production Processing Consumption Storage Inland Silos moved to Ports Mills Bakeries Production Processing Consumption Bakeries 9.5 million tons 2012: 6,000 farmers 1993: 34,000 farmers Imports- Increasing 12.5 %/year Importing 4 - 5 million tons Small & Medium Farms • Price fixing $0.27/loaf • 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 • Bread rationing at 3 loaves • Food subsidy 2% of GDP • Available bread $0.7/ loaf Storage Need for Modern Silos Small & Medium Farms 2013 Saudi Arabia Wheat Value Chain Vulnerabili:es 2013 Egyp:an Wheat Value Chain Vulnerabili:es Red: Acute disruption points in wheat GVC Currency Reserves Source: Oil Currency Reserves Source: Suez Canal & Tourism 13
- 14. Shifts in the Wheat GVC – From an Old Model to a New Model Globaliza:on – High dependence on TNC Market Failure Risk Consolida:ons -‐ Traders are an oligopoly interac:ng with state monopolies Market Failure Risk Deregula:on – State plays a key role Government Failure Risk Transforma:on in the VC Poten:al Impacts on MENA’s Food Security Financializa:on – Increased food price vola:lity Market Failure Risk 14 strong weak
- 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. 16 Thank You! Ques:ons? Ghada Ahmed Ghada.ahmed@duke.edu
- 17. Annex 17
- 18. The Grain Price Hikes Source: World Bank, 2011 18
- 19. SOURCE: FAO, total tonnage of wheat exported Algeria has imported 16.6% of MENA’s wheat since 2007 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 Morocco has imported 9.3% of MENA’s wheat since 2007 Egypt has imported 25.9% of MENA’s wheat since 2007 France Russia Australia No s:ckiness Libya Syria Mauritania Saudi Arabia Iran Iraq 19 MENA’s Leading Sources of Wheat
- 20. Wheat Value Chain Inputs Biotechnology Equipment Land Water Weighting Grading Blending Elevators Feed Mills Livestock GVCs Food service Bakeries Retailers Production Processing Marketing Commodity traders Domestic International Mills Milling Packaging Storage Soft wheat Hard wheat Durum wheat Farms Food manufacturers Enabling Environment Public governance Infrastructure Financial networks Private governance Logistics networks Consulting services Labor Trade 20 Wheat Value Chain Source: Ahmed et al , 2012
- 21. Company Revenues (Billion USD) Assets (Billion USD) Company Operations Segments Glencore Xstra $232.69 $154.93 Metal and Minerals, Energy Products, Agriculture Products Cargill* $136.65 $59.88 Origination and Processing, Food ingredients and applications, Agriculture services, Risk management, Finance Archer Daniels Midlands (ADM) $89.80 $43.75 Oilseed Processing, Corn Processing, Agriculture Services, Finance Louis Dreyfus Commodities* $63.59 $19.17 Proteins, Tropicals, Other Products Bunge Limited $61.34 $26.78 Agribusiness, Sugar and Bioenergy, Food and Ingredients, Fertilizer ! Lead Firms 21 Source: CGGC based on company 2013 annual reports