The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
21 - 25 de Abril de 2008

The World

A global food crisis? Facing rising commodity prices, last week various world leaders warned about a global food crisis. This has lent more weight to the food versus fuel debate. At the same time we have seen a number of countries taking trade restricting measures limiting exports so as to assure domestic supplies of staple foods. Does all this mean that the world has run out of food? We see, rather, this more as question of price than of food shortages. Global food stocks of grains and oilseeds have indeed fallen over the last couple of years.

This due to changes in policies and growing demand for agricultural products. Part of that demand, of course, comes from the recent expansion of the biofuels industry. But, also improve incomes in a number of regions in the world have resulted in an increased demand for various food products, particularly animal protein products. Falling stock levels combined with increasing demand has left the food stocks more susceptible to changes in production levels due to weather related variables. With the food industry becoming increasingly globalized, logistics is factor contributing to the final cost of food. Since 2006, for example, the Baltic Dry index has increase close to fourfold. Another important factor explaining higher price levels has been the weakening in the value of the U.S. dollar, down 25 percent against the Euro since the start of 2006. While the world hasn’t run out of food, what this does mean is that food companies will have to adjust to a new and different operating environment.

Pumped – up cereal. Competing in a market characterized by a crowded field and changing eating habits, cereal companies are always looking for a new angle. Kellogg is now looking to build on their Frosted Flakes brand to give them an edge. They are positioning their Frosted Flakes Gold as “a whole grain entry” in the breakfast cereal market. Rather than being targeted at parents of toddlers, it is being “aimed at older kids [telling them that] the complex carbohydrates in whole grains provide longer-lasting energy”. To give legitimacy to the claim they are “associating the brand with sports” and have a partnership with ESPN, the cable TV sport channel. Now all they have to do is convenience consumer advocates of that this is really a healthy breakfast cereal, providing longer-lasting energy.

Mexico

Rethinking downward the economy – a follow up. Following the IMF revised forecast for the Mexican economy, Treasury officials went on the warpath, insisting that the IMF was wrong. And not just wrong, but wrong by a lot: for 2009 Treasury officials have said GDP would grow by 4 percent. There is nothing wrong with disagreeing with the IMF. The concern, however, is if the economy doesn’t respond, they run the risk of losing credibility with the financial markets.

Higher tortilla price. Faced last year with rising tortilla prices the government worked out an agreement with the tortilla industry to cap prices. Originally the agreement was to last only for a few months. Then it was extended and eventually ran its course. Now the government is saying that prices could increase by MX$0.50 in the next two months, but should not go above MX$8.50/kg. This means that the market will now face an unofficial official price.