Sunday, 20 March 2011

Japan Aftershocks

We've all been touched by the misery and destruction in Japan. The BBC had a television piece that caught parents coming to a destroyed building and helplessly calling the name of their son, thinking somehow he had survived and would crawl out of the rubble. Of course he didn't. It was heartbreaking.

The people who have to put emotion aside and think about economics, trade, and markets are starting to report what they're seeing. Japan is disproportionately more important to PEI than any other province. The country's fascination with Lucy Maude Montgomery's literary creations (Anne with e) brings a lot of tourists, almost pilgrims, to the province, but it's in the realm of food that Japan's impact has been the greatest.

Japan has very discriminating consumers. While most developed countries (Europe is slowly giving in)  have long ago accepted the production and consumption of genetically modified foods, Japan continues to resist.   GMO crops are not allowed on commercial farms, and while GMO foods and grains are imported, there's strong consumer opposition by many against what's considered there "unnatural" food, and  its these consumers who have given PEI farmers a valuable export market.   An Ontario company called Hendrick Agrifoods has developed a huge market for non-gmo food-grade soybeans in Japan. Hendrick has now taken over Atlantic Soy in Belle River, and buys from dozens of farmers growing about 30 thousand acres.  Another PEI  company buys non-gmo canola that's exported Japan raw, and crushed as oil.

Organic farmer Raymond Loo has been to Japan many times, and is developing new markets for jams and fruit (black currants, cranberries, haskap berries), even dandelions.  Essentially PEI (thank you Lucy Maude) has a sterling image there, and well-heeled and discriminating Japanese consumers allow PEI farmers and fishermen the chance to harvest and export products (like herring roe, tuna) they would be hard pressed to sell profitably anywhere else.  It's also given Island farmers a little breathing room in the GMO debate. Without these Japanese consumers,  the debate would have long since been settled.

The question now is will these consumers have the resources, and the emotional where-with-all to continue swimming against the GMO tide. Possibly the nuclear catastrophe will firm up their resolve to go with what's seen as natural.  

Here's what else market observers are saying  about Japan's agriculture trade with North America.

Quake to affect Canadian farmers


The fallout from Japan's earthquake will batter Canadian farmers as it reverberates through agriculture markets, although the impact is likely to be short term.

Japan is a major customer for many crops including corn, soybean and wheat. The country ranks among the top five customers for the Canadian Wheat Board, the global marketer for wheat grown in Western Canada.

"Sometimes they are our largest-volume export customer," said Maureen Fitzhenry, a Wheat Board spokeswoman. "Last year, they were third." Ms. Fitzhenry added that Japan is a particularly lucrative market for Canadian farmers because Japanese buyers demand the highest quality wheat "for which we ask a premium price."

Friday's earthquake damaged some of Japan's ports, feed mills and meat processing facilities. That prompted some analysts to speculate the country would reduce imports, at least in the short term. Ms. Fitzhenry said the CWB expects some short-term delays in shipments but added "we do not anticipate reduced overall exports to Japan, as they need to eat, and rely on shipments of top-quality Canadian grain."

Some analysts have estimated Japan's corn and soybean imports could fall up to 8 per cent. That would hit U.S. farmers especially hard.

The U.S. farm sector centres around corn and soybeans. The country is the world's largest corn producer and the crop is the most valuable grown in the U.S., worth an estimated $66-billion (U.S.) in total. Soybeans are second at about $39-billion, followed by wheat at $12-billion. Japan is the biggest buyer of U.S. corn and among the largest buyers of soybeans and wheat.

Futures for all three fell just over 1 per cent Monday morning on the Chicago Board of Trade, continuing a trend that had been under way before the earthquake. Prices for several agricultural commodities have been falling in recent weeks because of instability in North Africa and reports of big harvests in Brazil and elsewhere.

However, during the week  prices began to rebound on news that Japan's agriculture ministry had asked an industry group called the Feed Supply Stabilization Organization to release stockpiles of feed grains. That led to speculation Japan might start buying to replenish those stockpiles. All three commodities regained earlier losses and closed higher.

Despite the recent price swings, supplies for many agricultural commodities remain tight. Corn in particular is in short supply despite an expected near-record crop this year. That's because ethanol producers will consume as much as 40 per cent of the U.S. crop, a record high.

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