Duration: 10/01/2003 to 09/30/2004

Administrative Advisor(s):

NIFA Reps:

Non-Technical Summary

Statement of Issues and Justification

New and emerging markets for value added products, increasing competitiveness, and trade are major issues, regionally and nationally, that frequently confront farmers, agribusinesses, and other firms in the grain and oilseed sector. The proposed research will identify and analyze value added markets for grains and oilseed products, and assess opportunities for the U.S. to increase competitiveness in world markets. The national and international inter-dependencies of the proposed research justify a multi-state research effort. The results of this research will have important economic benefits for the grain and oilseed marketing system from producer to consumer.

Importance of the Work

Grains and oilseeds are an important source of U.S. farm income and a major contributor to export earnings. Each year farmers plant over 250 million acres to food and feed grains, oilseeds, and cotton crops. The related value added products made from grains and oilseeds increase even more the economic importance of grains and oilseeds among farmers, agribusinesses, food handlers, processors, and retailers in domestic and world markets.

The globalization of world markets, expedited by international policy changes since the Uruguay Round, has created an increasingly competitive world economy. The movement to reduce trade barriers continues through the World Trade Organization (WTO). These efforts are a means to accelerate economic growth, increase incomes and improve living standards. Countries seeking increased regional trade have moved to create regional agreements that free up trade and investment among neighboring countries.

The European Union (EU) is the first, and perhaps best, example of successful regional integration that has increased intra-EU trade and accelerated economic growth. The EU plans for expansion by ten countries in 2004 will have important implications for global grain and oilseed markets. Many other nations have formed similar regional agreements. The North American Free Trade Agreement (NAFTA) among Canada, Mexico and the United States has improved trade among the three countries. Argentina, Brazil, Uruguay, and Paraguay formed the Common Market of the Southern Cone Countries (MERCOSUR) to stimulate trade among member countries. The agreement created a regional market with a population of over 200 million people. Several more groups, including the Andean Pact, the Central American Common Market (CACM), the Caribbean Community and Common Market (CARICOM), have signed agreements, and discussions are under way to form a Free Trade of the Americas (FTAA) that would include all of North and South America. All these agreements have the potential to create enormous opportunities for agribusinesses to seek new markets, both regionally and globally.

Biotechnology has created new opportunities for all participants in value added supply chains that increase profit opportunities as well as risks associated with the new opportunities. Through biotechnology research, new products with specialized traits for specific end uses are rapidly appearing in the market place. However, the new product discovery process from biotechnology is still in the introductory stages. Rapid advances in this discovery process are likely within the next five to ten years.

The biotechnology research process has enormous implications for change in the value added supply chain for crops. The process is creating a movement away from a marketing system that emphasizes commodity grain sold at the lowest price toward a marketing system that emphasizes value added products for customers who desire specific qualities in their product. Some examples of these specific qualities in specialty crops are high oil corn (HOC; seven percent oil on a dry weight basis or zero percent moisture), white corn, waxy corn, low fat soybeans, and cost reducing input seed products such as Round Up Ready soybeans and BT corn.

Farmers will face new choices and decisions in farm production and handling as well as in marketing via new marketing channels. New relationships will evolve among new and old players in the supply chain, and all will face new risks. Farmers will face new risks in purchasing supplies, new crop production risks, added price risks, new financial risks, and marketing risks. Grain handlers and processors will also face many new risks when buying from farmers and when selling to customers who have very specific end use demands for the product. Meanwhile, customers will also face new risks because the increased emphasis on product quality means that the product only has value to them if it satisfies their demands.

For consumers, price and value are still the major drivers. However, niche markets such as organics, natural, and non-biotechnology crops will continue to thrive. Nutraceuticals, a new word coined from the combination of food nutrients and pharmaceuticals, and other specialty foods will attract increased attention as the system deals with products for the improved nutrition of the elderly, lower and better fats and oils, nutrient fortification, and disease prevention and treatment.

The major stakeholders include farmers, farmer cooperatives, commodity associations, processors, exporters, input suppliers, agribusinesses, rural communities, and consumers.

This project contributes to several high priority research objectives at the national and regional levels. First, this research will improve the domestic market-development of grains and oilseeds by determining the potential within traditional and emerging markets and evaluating the policy options to enhance this potential. Second, this research provides an assessment of the profitability of new technologies and systems for new bio-based products. Finally, this research project examines the domestic and global competitiveness of grains and oilseeds in non-traditional products.

The national and international inter-dependencies of the proposed research justify a multi-state research effort. This research committee includes members and participants with expertise in several disciplines, including agribusiness, transportation, systems analysis, management, international trade, price analysis, policy analysis, finance, microeconomics and macroeconomics. No other committee can bring to bear the diverse skills, experience and contacts focused on these specific problems.

Multi-state research for international grain trade issues is effective because specialists from several areas can come together to solve a problem. Complex economic models are needed in several areas: for interactions among commodity market in several countries; for relationships with other sectors of the economy; and analysis of strategic behavior of governments. Further, specialists close to government decision processes know the range of feasible policy choices. Increasingly, scientists are also needed in the environmental and food-safety disputes of international trade.

A strong point of this committee has been its ability to include the right people at the table for particular research problems, even when the needs extend beyond the formal committee organization. Multi-state research funds will be leveraged to seek funds from commodity associations, state agencies, from the renewable energy portion of the 2002 Farm Bill, cooperative research agreements with the Economic Research Service and the Foreign Agricultural Service. Private agribusinesses will also be consulted for collaboration and funding.

The grain marketing research committee has plans for continuing three types of collaboration with other disciplines. First, sub-projects with external funding formally include participants from other disciplines when technical and economic research issues are both involved. Second, members of this committee informally exchange information with members of other disciplines at their respective institutions when there is no grant money. Agronomists, food technologists, and engineers provide studies or data that can be used in economic analysis. Third, scientists from industry also provide information on technical processing relationships, which makes it possible to conduct cost and location studies.

Many individuals have a history of collaboration with the grain marketing research committee and plan to continue this collaboration (Table 1). They have been willing to provide access to the literature and data from their discipline. They participate and function well in interdisciplinary projects and grant activity. Some of these scientists are currently involved with grain marketing research committee members. For instance, the Korea soyfoods project at Illinois and the alfalfa products research at Minnesota and Wisconsin are currently active. Iowa State will focus on value-added markets for corn and soybeans; Arkansas will focus on value-added markets for rice; and other researchers will focus on wheat, other feed grains and oilseeds.

Table 1: Collaborators with the Grain Marketing Committee

Likely Impacts.

Work on this project will foster more collaboration and dialogue among the participating institutions and individuals than would otherwise be the case. No one state has the resources to conduct research in all three (production, processing and distribution) sectors of the grain industry but, within the committee, research in all three sectors of the grain industry are well represented. This collaboration also has its spill-over benefits into the discharge of the teaching students and extension outreach responsibilities of the principal investigators.

The data and information assembled will be the most unbiased available about both grain based value-added enterprises and national and international grain trade. Unbiased information is critical to the autonomous functioning of grain markets. The information provides baselines for assessing the impacts of existing and proposed domestic grain policies and international marketing agreements. Data and information from the project will be available for economic and policy analysis at local, regional and national levels. Such analysis will identify winners and losers and be available to provide guidance for mitigation as desired. The information and results will assists farmers, processors, and trading firms in evaluating new trading opportunities and managing risks.

The likely impacts resulting from this project include the creation of economic information about new products, processes and specialized commodities. This information enhances the probability of increased profits to farmers, processors and trading companies. In this interdependent world, the created facts will have impact upon all players (producers, processors, consumers) in the grain industry. To the extent that the created information enhances grain-marketing opportunities for producers, they also enhance the economic well-being of the rural communities that those farmers inhabit. The unbiased information will help the players identify developing trends and to make more informed choices, which should work to enhance profitability, resolve entry, expansion or exit decisions, and identify developing trends.

The research committee has the scientific and technical know how to complete the proposed research activities. The committee has a vast understanding of the industry and many years of experience that qualify the members to examine the proposed issues in the grain and oilseed industry. The researchers have the econometric and mathematical models needed to conduct the analysis. The computer hardware and software is developed and available in the various universities. The research group has the contacts with the public and private sector needed to obtain the relevant data and information.