Current Issues
Cargill Statement on Food Markets and Trade
These are unprecedented times in global agriculture. A convergence of factors across the globe is driving prices and price volatility for staples such as rice, corn, soybeans and wheat to new highs, creating challenges across the food supply chain and for the Chinese people.
Some suggest that agricultural and food companies like Cargill are taking advantage of the global food crisis, which is hitting the poor especially hard. Those charges are not true. Around the world, Cargill is working with farm and food customers, humanitarian organizations and governments to help them manage through these challenging times.
Here are the facts behind what is happening in today’s global food and agricultural markets:
1) The increase in demand for many crops is unprecedented. Growing prosperity in the developing world is boosting demand for grains, oilseeds, meat and dairy products. This is a good development. It means that countries like Brazil, China, India and others have made real progress in improving the diets of their people.
This unusual increase in demand was unexpected. The U.S. Department of Agriculture predicted in 2003 that demand for food would increase by 90 million tons from 2004 to 2007; in reality it grew 250 million tons. The agricultural world was not ready for this incredible increase in demand.
2) Underpinned by escalating oil prices and government supports and mandates, corn, rapeseed, soybeans and palm oil have been diverted from food uses to biofuels.
3) In addition, the world is holding the smallest reserve stocks of food commodities in 35 years. Some of this is due to weather-related crop problems in parts of Australia, Europe, North America, Russia and the Ukraine.
4) After two decades of stable and relatively low food prices, governments and international institutions reduced funding for agriculture-related research and development. Agricultural productivity gains are slowing and now lag behind increases in global demand.
5) Oil prices have increased the cost of producing and transporting crops. High oil and gas prices have made it more expensive to operate machinery and buy fertilizers. It has also cause trans-ocean shipping costs to increase exponentially. It is about three-times more expensive to ship soybeans to China from Brazil or the United States, for example, than it was just a few years ago.
This convergence of factors has led us to the situation we now face.
At Cargill, we are working to help ease the effects of these price increases. We cannot solve the problem by ourselves. The world needs to increase food production to meet growing demand. It will take the coordinated efforts of farmers, governments and the private sector to bring stability back to the food supply and prices. As part of the global food supply chain, we are doing what we can to alleviate high prices. Cargill is taking a four-pronged approach to the situation today -- assist farmers, work with food customers, partner with humanitarian organizations and discourage government policies that place upward pressure on prices.
• For many of our farmer customers, higher commodity prices are translating into higher farm incomes. At the same time, however, farmers also are facing significantly higher costs for fuel, seed, fertilizer and feed.
o We are working to develop new marketing and risk management products and strategies that will help farmers, livestock producers and customers worldwide meet these challenges.
o We are bringing our best technology to China to help livestock farmers be more productive and crop farmers to increase yields.
o Overall, we have already trained over 2 million Chinese farmers on best practices in livestock production and fertilizer usage.
• At the other end of the supply chain, we are working with food manufacturers and retailers, food-service companies and government buying agencies to ensure uninterrupted supplies of raw materials and food ingredients and to help them mitigate the price risk agricultural commodities.
• Cargill also has longstanding partnerships with local, national and international humanitarian organizations like CARE International, the World Food Program, Feed My Starving Children, The World Initiative for Soy in Human Health, the Global Alliance for Improved Nutrition and others who are dedicated to eliminating hunger and rural poverty. We are working with these organizations where we can on strategies to deal with today’s unique challenges.
• We are encouraging government officials around the world to eliminate, amend or suspend policies like import tariffs, price controls, inflexible biofuels mandates, and export taxes, restrictions or bans that are exacerbating the supply situation and higher price situation.
• We are also encouraging governments and the private sector to increase their investments in agriculture research and agriculture infrastructure.
It has also been erroneously reported in the Chinese media that foreign grain trading companies control the prices of soybeans imported into China. The fact is no one can control the price of soybeans being imported into China. The global market determines soybean prices. There are very transparent international grain exchanges around the globe, including the Dalian Commodity Exchange and the Chicago Board of Trade, where international companies only have a small share of daily trading volumes that provide price signals to buyers and sellers of the value of the crops.
In markets around the world, Cargill and other international grain traders buy soybeans from farmers for transport to China. Farmers know what price they can get for their crops by following prices on the grain exchanges. In countries like the United States, Brasil, Canada and Argentina, the prices offered for crops are broadcast hourly on radio stations to farmers. Local, regional and international grain companies compete on price and service to attract grain and oilseeds from farmers.
There is also fierce international competition between the grain trading companies to sell to Chinese customers. To complete a contract to sell soybeans to Chinese buyers, a company like Cargill needs to have the best price and provide the best delivery. So having 4-5 international trading companies as well as several Chinese trading companies competing against each other to win contracts in China is what determines the final price of imported soybeans. Competition among these companies, in fact, keeps prices lower. The same goes for sales of soy protein meal and soy oil to and in China. Competition among international, regional and local companies is fierce and vibrant.
It is also important to note that international grain trade is open to investment. Chinese companies are welcome to make investments in establishing collection stations, shipping and storage facilities in the main areas of soybean production. Because international grain companies, including Cargill, have made large investments around the world, including in China, they are able to supply grains and oilseeds to customers at competitive prices.
At Cargill, we want to see stability return to food prices. Our corporate mission is to help people have enough nutritious, safe food for them to reach their potential. We are working to be part of the solution in this time of unique stress on our food system in China and around the world. We are working with the Chinese companies to provide the products and tools to help solve the problem. In the meantime, we will continue to do what we can to help the Chinese people by being a good employer, a trusted supplier of food and good corporate citizen.