The market scenario for durum wheat shows signs that could precede a global crisis in the sector, with a potentially dramatic impact on Italian pasta production.
The issue serves as a reminder of the absolute urgency for Italy to slavishly transpose Directive (EU) 2019/633 on unfair commercial practices. Still subject to automatic application by 1.11.21.
Durum wheat and Italian pasta
The Italian pasta supply chain has evolved over the past decade due to the growth in demand for ‘100% Italian’ pasta and the increase in domestic durum wheat cultivation that has followed. The annual durum wheat requirements of the Italian milling and pasta industries are around 6 million tons, compared with domestic production barely reaching 4 million.
At the European level, Italy produces half of the durum wheat grown in the EU 28 (UK included) and imports 90 percent of the total coming in from non-EU countries. Moreover, the Bel Paese is the global leader in both per capita consumption of pasta (23 kg/year) and its production. With an export share of 60% and a significant increase in sales, +30% in the first half of 2020. (1)
Durum wheat, international prices soar
International durum wheat prices rose more than 25 percent in July from quotations that had already reached very high levels compared to the average of the past 10 years. An evolving phenomenon is observed, related to several factors affecting both supply and demand levers.
1) Growing demand
At the EU level , demand for durum wheat in the EU increased-from 8.2 to 8.7 mln t, in 2019-2020 compared to 2018-2019(Stratégie Grains, 2021. See note 2)-due to the increase in consumption stimulated by the pandemic.
Internationally , there is significant growth in demand from countries competitive in pasta production and other major importers:
1.1) China. The world’s second-largest exporter of pasta and noodles has already purchased the necessary quantities of durum wheat for the upcoming harvests in good time, with 12 mln t of imports expected by 2021 (+140%),
1.2) Turkey. Pasta production has increased tenfold in 10 years (to more than 2 mln t, 1.4 of which is for export), with an average p.c. consumption of 7.5 kg; that of bulgur (from quality durum wheat) has reached 1 mln t. (20% export) and local raw material (2.3 mln t) does not cover the need. Import of duty-free durum wheat exceeded 1.5 mln t in 2020,
1.3) Maghreb. Durum wheat production does not meet the quality and quantity requirements for producing pasta and cous-cous. Imports have thus reached:
– Algeria. 1.4 mln t of imports in 2018-2019 then halved in 2020 and now rising again, with the help of government subsidies aimed at stabilizing consumer prices in the domestic market. Per capita consumption 13 kg,
– Morocco. 1 mln t in 2020, mostly high quality (Canadian Western Amber Durum, CWAD, grades 1 and 2 out of 5. See footnote 3). Consumption p.c. 5 kg,
– Tunisia. High per capita consumption of pasta (17 kg), state aid for durum wheat production that reached about 950 thousand t, low-priced raw material imports of 600 thousand t (2020. See note 2).
2) Declining supply
The Wheat Market Outlook 9.8.21 from the Saskatchewan Wheat Development Commission (Sask Wheat)-an organization of farmers on the Canadian Saskatchewan Plateau (4)-offers useful updates on the international supply of durum wheat. (5) With forecasts falling dramatically, due to drought in the American and Asian continents and heavy rains in Europe.
2.1) Canada and the USA. Crop yields are projected to decrease by at least 12.5 million tons (durum and soft wheat). The production deficit in Canada and Russia is estimated may exceed the latest USDA(United States Department of Agriculture) forecast by 20 mln t,
2.2) Russia and the Black Sea. Wheat harvests in Russia have reached 50 percent, with a yield expectation of about 75 mln t (compared to the 85 mln t forecast in July by USDA). The tax on Russian exports, in response to Western sanctions, remains a major obstacle.
Heat and drought have also caused yields to fall in Kazakhstan, now estimated at 11.5 mln t,
2.3) Germany. DBV (
Deutscher Bauernverband
, the first German farmers’ confederation) has updated its estimate of wheat yields to 21 mln t (-1.8 mln t from the previous forecast), due to the tragic floods in July,
2.4) France. The rains resulted in widespread contamination of durum wheat with mycotoxins, in addition to its poor quality. It is not yet clear how much grain will be available for the international market, much of it already optioned by China and Algeria for shipments beginning in September,
2.4) South America. Official durum wheat yield estimates are still unchanged in Argentina, although rain will soon be needed and the weather does not show them on the horizon. In Brazil, drought and frost are negatively affecting production forecasts, with increased import requirements,
2.5) Australia. The only major exporting country with good yield prospects is suffering from logistics-related export difficulties. These difficulties are attributed to the increase in durum wheat stocks in Australia (+2 mln t in 2020, out of a 33 mln t harvest with 24 mln t of exports).
Italian pasta, between the anvil and the hammer
The signs mentioned above do not allow for an exact prediction of international durum wheat price trends in the 2021-2022 marketing year. Already appearing clear, however, are the surge in demand-partly already secured through futures-and the sharp contraction in supply due to climatic factors.
‘Quantity and quality of durum wheat are definitely a concern for the market’ (5).
Italian imports from Canada-already up 43.7 percent in 2020-21 (1.5 mln t in the first 11 months of 2020-21, as of the end of June, accounting for 26 percent of total Canadian exports. See note 6) – are expected to rise for the fourth consecutive year. And the Saskatchewan Agricultural Confederation (Canada) is now advising its members not to sell, waiting for prices to fly. (5)
Stop undercutting, the responsibilities of the Italian government
The real risk facing the milling and pasta industries in Italy in the year ahead is to work at a loss. An intolerable prospect, for the country-system, that could force the bankruptcy of many businesses and the loss of thousands of jobs.
The Italian government certainly cannot intervene in the dynamics of the international market, but it has a specific duty to protect milling and pasta companies by immediately banning below-cost purchases of semolina and pasta and other unfair trade practices by the large-scale retail trade, as well as requiring payment for foodstuffs within 60 days of delivery (30 days for perishables).
The ban on below-cost selling and other unfair trading practices is specifically prescribed by EU Directive 2019/633(Unfair Trading Practices, UTPs), which the Italian Parliament has already tried to disregard-at the behest of Coldiretti, Confindustria and Federdistribuzione lobbies-in the 2021 European Delegation Law. (7)
EU Directive 2019/633, automatic application from 1.11.21
If Palazzo Chigi does not immediately provide for the full transposition of EU dir. 2019/633 – as confusingly mentioned by Minister Stefano Patuanelli in press release 30.7.21 – it will be imperative to report to the European Commission the further delays of the Italian Republic and any (inadmissible) derogations from the precepts and prohibitions therein. (8)
In any case, the UTPs directive must be enforced by the Italian Antitrust Authority (AGCM, so-called Antitrust Authority), for the effective protection of operators in the agribusiness production chain in Italy, as of 1.11.21. That is, by the deadline set for its concrete implementation in the internal market, in line with the established case law of the Court of Justice. (9)
Dario Dongo
Notes
(1) Stockpiling pasta boosts Italy’s foodmakers. The Economist. 12.11.20, https://www.economist.com/business/2020/11/12/stockpiling-pasta-boosts-italys-foodmakers
(2) David McKee. Pandemic boosts durum, pasta consumption. World Grain. 5.3.21, https://www.world-grain.com/articles/15228-pandemic-boosts-durum-pasta-consumption
(3) Canadian Grain Commission. Wheat: Export grade determinants tables for Canada Western Amber Durum (CWAD) wheat. Update 1.8.21, https://www.grainscanada.gc.ca/en/grain-quality/official-grain-grading-guide/04-wheat/export-grade-determinants/cwad-en.html
(4) Dario Dongo. Glyphosate in wheat and Canadian legumes, all the fault of snow? GIFT(Great Italian Food Trade). 6.5.19, https://www.greatitalianfoodtrade.it/mercati/glifosato-nel-grano-e-i-legumi-canadesi-tutta-colpa-della-neve
(5) Sask Wheat. Wheat Market Outlook and Prices. Report 9.8.21, https://saskwheat.ca/wheat-market-outlook-and-prices
(6) Cliff Jamieson. Canada Markets. Canada’s Largest Customers Boost Imports. Progressive Farmer. 7/23/21, https://www.dtnpf.com/agriculture/web/ag/blogs/canada-markets/blog-post/2021/07/23/canadas-largest-customers-boost
(7) Dario Dongo. Unfair trade practices and the European delegation law, a critical analysis. GIFT (Great Italian Food Trade). 4/24/21, https://www.greatitalianfoodtrade.it/mercati/pratiche-commerciali-sleali-e-legge-di-delegazione-europea-analisi-critica
(8) See paragraph ‘Justice or revolt‘ in the previous article https://www.greatitalianfoodtrade.it/mercati/pastori-sardi-e-pratiche-commerciali-sleali-sanzioni-irrisorie-dell-antitrust-a-f-lli-pinna-e-altri-5-caseifici
(9) ‘By May 1, 2021, member states shall adopt and publish the laws, regulations and administrative provisions necessary to comply. They shall immediately notify the Commission of the text of such measures.
Member states shall implement the above measures by November 1, 2021′ (EU dir. 2019/633, Art. 13.1)
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
