Analysis: Grain importers build silos as food prices soar

By Nigel Hunt

LONDON (Reuters) – Major grain importing countries are set to build more storage silos and expand strategic stocks after seeing the role played by record food prices in political upheaval in the Middle East and North Africa.

Egypt, South Korea and Saudi Arabia are among nations which have already unveiled strategic plans as grain markets adjust to the prospect of further supply crunches over the next few years.

Global demand for grain has risen steadily as consumers in emerging economies grow richer and suppliers have struggled to overcome erratic climatic conditions, which last year included Russia’s worst drought in decades and heavy rains in Australia.

The upshot has been a near-60 percent surge in key U.S. wheat prices in the year to March, while global food prices as measured by the United Nations hit their second straight record high in February.

Importers also no longer have the safety net of large stocks held by exporters such as the European Union, which has sold off the grain mountains it first accumulated in the 1980s and moved to more market-oriented policies.

Nomani Nomani, vice chairman of the General Authority for Supply Commodities (GASC) in top wheat exporter Egypt, said in February it was looking to improve and boost storage capacities.

“We have a long-term plan to improve storage capacity in Egypt and to build a network of silos that would allow GASC to purchase at the suitable time. We are also seeking improving performance of storage,” he said.

South Korea, the world’s fourth-largest grain importer, is also among those building a strategic grain reserve, while another major importer Saudi Arabia hopes to double wheat reserves within three years.

International Grains Council figures issued last week show a major shift in stocks from exporting to importing countries.

Major exporters are expected to be holding 104.5 million tons of grain by the end of the current 2010/11 season or 30.6 percent of the global total. A year earlier they had held 163.5 million or 40.5 percent, according to IGC figures.

“Now there is no longer this strategic stock in exporting countries so they (importers) need to reinvest for obvious food security reasons,” said Lars Hoelgaard, special adviser to the European Commission’s DG Agriculture and Rural Development.


Hoelgaard said major importers such as Egypt and Iran held quite high stocks in the 1970s but had reverted to “just in time” buying as exporters such as the EU began to build its grain mountains, content to let others pay storage costs.

China is expected to hold 114.6 million tons of grain by the end of 2010/11, more than the combined total of 104.5 million tons held by all the major exporters, according to IGC estimates.

Nie Zhenbang, state administration of grain head, said in an interview with the official Ziguangge magazine that China would continue to build up local government reserves of grains and edible oils and expand stockpiling capacities.

Mexico, the world’s second-largest maize importer, has not yet expanded its stocks but has plenty of space if necessary.

Maize stocks currently total around 2 million tons, little changed from previous years, but the national association of warehouses (AAGEDE) estimates there is storage space for about 11 million tons.

AAGEDE director Raul Millan said there is no deficit in storage space but that infrastructure is lacking in the southern part of the country where warehouses are not as well equipped.

Mexico has no strategic reserves of grain, although there are some stocks held by the government to hand out to the poor.

The United Nations’ Food and Agriculture Organization said on Thursday that global food prices hit a record in February, pushing further past the levels that triggered food riots in some countries in 2008.

Stockpiling by some major grain importers seeking to head off political unrest has been identified by the FAO as likely to cause further ripples in grains markets.

“Political instability in the regions and countries affects the markets by adding uncertainty: will a country buy or not buy, why it had bought so much now…those things are disruptive to the normal trade,” FAO economist Abdolreza Abbassian said.

(Additional reporting by Sherine El Madany in Cairo, Mica Rosenberg in Mexico City, Meeyoung Cho in Seoul, Shuping Niu in Beijing, Naveen Thukral in Singapore, Karl Plume in Chicago and Souhail Karam in Rabat; editing by Keiron Henderson)