The Agribusiness World Today

Ken Shwedel
Investigador de Agronegocios de Rabobank, México
9-13 de Marzo de 2009

The World

It’s the demand. Markets, of course, are the result of the interplay between supply and demand. Typically, though, commodity markets have been seen as supply driven. It appears, however, that presently demand considerations are now driving the markets. What is happening is consumers are very worried about the future: “the lack of confidence and poor economic news on a daily basis is taking a toll on consumers purchasing decisions.” Recent information coming out of the U. S. report initial projections of food consumption expenditures having “declined at an annualized rate of 14.8% in the last quarter of 2008.” This suggests that consumers are not just cutting back on “purchasing more expensive items, but are cutting back across the board. Cautiousness by consumers is also translating into changes in upstream buying policies: buyers are covering “only intermediate requirements and [are avoiding] prefinancing of forward purchases.” In the beef market in the U. S., for example, wholesale demand in the fourth quarter was down “7-8%. Looking at the three month period December 2008 through February 2009 demand is estimated to be down 5-7%.” Weak demand is not supporting prices at the farm level, even when production has not grown or projected to fall. Globally, for example, the USDA is estimating a contraction of beef production, with pork production expected to be essentially flat. While there are, of course, other reasons for a slowdown in farm level production, a rebound, in our opinion, will be demand driven.

Agricultural policy means something different in Venezuela. Policy decisions drive agriculture around the world. For the most part policies deal with income maintenance, market access, subsidies, research and promotion. When concerns run to consumer level prices, policies have focused on price controls, selective supports and direct production/distribution. In Venezuela policy, however, is taking a different course. Facing sporadic food shortages, and not just satisfied with —and probably because of— price controls, the government “has set quotas for 12 basic foods which are to be produced at the government’s controlled prices.” Food companies, including Polar Foods, have objected to this decree. But, in what may be an indication of their chances and what’s to come, the decree comes on the heels of the takeover of Cargill’s rice mill. The takeover was particularly surprising in that the motive for the seizure wasn’t for hording rice, but for allegedly avoiding producing “basic rice that is subject to government price controls.” The mill, however, “was designed exclusively to manufacture parboiled rice”. This, plus past government actions, do not speak well for the future of the food industry in that country.

Mexico

Clearing the air on GMO’s. Last week in the context of the Biosecurity Law the government published the “Special Regime for the Protection of Corn”. The key point of this decree is that it sets forth the legal context for the government to “receive and process requests for experimental plantings of genetically modified corn”. This is important because the legal framework for GM corn was lacking. With a clear legal framework Mexico is taking the necessary first step to provide farmers with the clarity and additional technologies that they will need to grow production in order to help meet future demand.