by Anton Bekkerman, Associate Agricultural Economics Professor at Montana State University
Article originally post on ageconmt.com website.
Earlier this week, I attended the annual meetings for a regional US Department of Agriculture group, NC-213, which focuses on research-based analysis of marketing and delivery of quality grains and bioprocess coproducts. The meeting brings together a multidisciplinary group of researchers from land-grant universities (mostly across the Plains states) and industry professionals to share and discuss the latest innovations in maintaining and improving grain quality, valuation of those innovations, and industry perspectives about how those innovations can be used in commercial environments.
One of the highlights of these annual meetings is an industry panel, which brings together leaders from the grains industry. This year, one of the panel members was David Green, who was recently elected as the executive director of the US Wheat Quality Council. Green discussed a number of issues—both opportunities and challenges—currently facing the wheat industry. But overall, these were summarized into two broad categories.
- Increasing unease about production contraction and increased food processing protocols.
Decreases in winter wheat planted acreage have been discussed in some of my previous posts. The most recent USDA winter wheat and canola seedlings report puts the winter wheat plantings at 32.3 million acres, which is 10% from already decreased 2016 acreage and the lowest since 1909. In Montana, there are approximately 1.9 million planted winter wheat acres, down 16% from last year and lowest since 2003-2004. While the reduction in planted acreage is a response to overall low wheat prices as well as lower wheat prices relative to other commodities, one of the concerns that Green discussed was current decisions could be a catalyst for long-run decisions to permanently allocate land away from wheat. Green noted that if a significant amount of land is permanently substituted to producing other crops, the wheat industry could become increasingly left out of political discussions, research dollar allocations, and reduced public and private research efforts such as the development of new varieties and improvement of processing equipment. Another consequence, which Green did not mention but is certainly possible given the histories of crops that have seen similar declines (such as barley) is reduced information availability and transparency that is characteristic of smaller, more specialty crop markets. This can reduce producers’ and agribusiness’ ability to track market changes, identify market risks, and successfully manage those risks.
Second, Green noted that there have been increased instances of food safety related recalls and stricter regulatory enforcements. For example, Green mentioned that standards for producing gluten-free flour have become progressively stricter and the detection thresholds for certain pathogens have been lowered, resulting in a more frequent number recalls. While food safety regulations are without a doubt good and have been crucial to making the U.S. food industry one of the safest (if not the safest) in the world, Green’s comments may be a signal that the trade-offs between the benefits of such regulations and the potential costs of making the regulations particularly stringent may need to be assessed.
- Need for innovations that go beyond simply becoming more efficient in wheat production and processing.A second, more long-term and recurring issue that Green brought up—perhaps because at low prices and stagnating demand for wheat products the issue seems more pertinent—is the need for wheat producers and processing industry to focus on improving product characteristics, rather than treating wheat as a commodity and focusing on maximizing production and processing efficiencies. Green noted an example of “whole wheat” products that, 10-years ago seemed to be on an long-run upward demand trend, has now stagnated at approximately 7-10% of wheat product market share. More broadly, Americans consumed 133 pounds of wheat flour in 2015, an amount that really hasn’t changed over the past 15 years. In part, the stagnating domestic consumption of wheat-based products potentially reflects the wheat industry’s struggles to differentiate themselves in the modern food marketplace. Green noted that there is a constant pressure from consumers to create new products. In the past several decades, these innovations have included whole wheat products, frozen wheat-based foods (e.g., frozen pizza), and flour tortillas and other foods targeting increased demand for ethnic foods. What’s the next hot product for the late 2010s? That’s the $64,000 question on everyone’s mind.
Consumers have also increased their demand for a higher volume and more accessible information about their foods. For example, large food retailers such as Walmart have begun to display information about how much energy was used to produce a finished product, while others have focused on improving traceability of ingredients from the farm to the retailers. For wheat producers and processors, these demands are currently a challenge. First, because wheat with particular baking characteristics (such as protein levels, falling numbers, etc.) is highly dependent on weather, processors often need to blend wheat from numerous farms to obtain flour with the desired traits. This makes farm-to-retail traceability difficult and expensive, at least when using existing traceability models. Furthermore, wheat that meets both yield and protein standards requires significant fertilizer inputs, which increases its overall energy use numbers because the production of fertilizer is so energy-intensive.While ideas for cost-effective traceability mechanisms are still scarce, improving efficient fertilizer use may be closer to reality than we think. Green mentioned that one way to do so is increasing research focus on precision agriculture techniques. I was excited to hear this because I am currently involved in a project at Montana State University and partly funded by the Montana Research and Economic Development Initiative that seeks to do just that: use highly disaggregated, field-specific yield, protein, and weather data to develop analytical recommendations for farmers to cost-effectively apply fertilizer at variable rates across their fields such that they minimize costs and environmental impacts while maximizing their wheat’s marketability and, ultimately, profitability.
So, while there was a bit of somberness during the discussion given the state of the 2016/17 agricultural markets, there was a definite streak of optimism and a call for renewed energy in research and innovation across the entire wheat supply chain. As someone who lives in a state where wheat production is a major economic driver and works on research that is intended to better evaluate wheat markets to help farmers make more informed decisions, this optimism was definitely a bit of comfort that I could bring back home.
Dr. Anton Bekkerman is an associate professor in the Department of Agricultural Economics and Economics at Montana State University, joining the faculty in 2009 after completing his PhD at North Carolina State University. Bekkerman’s primary areas of research are grain marketing, basis and price forecast modeling, understanding how grain prices are affected by changes in supply chain infrastructures and quality demands, and analyzing the economic trade-offs of adopting alternative dryland cropping systems in Montana. One of his current projects is an investigation of how new grain loading technologies are affecting prices that Montana farmers receive for their wheat. Bekkerman is also examining the economic impacts that Montana’s rapidly expanding dry pulse industry will have on the state’s crop industry. Although Bekkerman grew up on the east coast, he has recently made a small step toward production agricultural after acquiring three backyard chickens.