Something scary happened on Halloween this year. On that day, a child was born somewhere in the world who brought the global population tally to 7 billion. No one knows precisely when that child was born, but U.N. demographers picked Oct. 31 as the likely day, and the most likely birthplace is in India or another emerging country, where 97 percent of the increase in world population is occurring.
Even scarier is the projection by the U.N. Population Division that the world’s population will grow by another billion people by 2025. India will have more people than China after 2020, and sub-Saharan Africa will have more people than India before 2040. That is raising enormous questions over subsistence and the prospects for providing nutrition to areas where drought and the spread of deserts is curtailing crop production.
The growing need already is presenting a challenge to perishables supply chains around the world, but experts say it also presents an enormous opportunity for food suppliers in the United States and other global producers of grains and foodstuffs to step up to the plate. In fact, the market for U.S. food exports is so great the demand could become an important driver of the next growth cycle in the U.S. economy, according to Walter Kemmsies, chief economist of Moffatt & Nichol, a port design and engineering consultant.
“When we look back at (U.S.) economic cycles, we know that no two business cycles are driven by the same industries,” Kemmsies said. “In the next business cycle we are going into, it has to come from industries that are experiencing growth, and agriculture is a good example of that, so we think it will become one of the drivers of economic growth by the end of this decade.”
For the U.S., that would represent a bit of a turnaround from the broad industrial trends that have sent economic growth abroad in recent years. That’s because the very demographic changes in Asia that are driving demand for food imports are coming about because of the growing wealth brought from their exports of products to the U.S. and other developed markets that have outsourced production to those low-wage locations.
“As people move from rural to urban areas to take higher-paying jobs, their diets tend to become more protein-oriented, in particular beef, so in countries where there are fewer people working on the farms, the ability to produce the grain, much less the grain feedstocks that feeds the cattle, becomes a little challenged,” Kemmsies said.
Despite the loss of manufacturing power, the United States retains a strong agricultural sector. Large farms dominate the field, with their huge economies of scale brought about by mechanization and automation of production that requires fewer skilled workers, in sharp contrast to the sepia-toned image many have of small, family owned farms.
The family names today are Monsanto, Cargill and Archer Daniels Midland — the engineers of agricultural efficiency and umbrellas for supply chains that sprawl across the world the way fields of wheat and corn spread across Iowa and Nebraska.
The United States isn’t the lone supplier of food and grain to these emerging markets, of course. It faces strong competition from such countries as Argentina, Australia, Brazil and Ukraine, which have transportation systems that are better geared to get food and grain to ports for export than in the United States.
But U.S. agriculture enjoys a significant advantage in that it’s no longer labor-intensive, but more reliant on capital and technology, leaving it ideally suited to high-yield, high-volume flows. It has more advanced biotechnology and more reliable quality control and compliance surveillance. The United States also enjoys an abundance of fertile farmland and plenty of water, especially in the East and Midwest. Although farms are no longer big employers, agricultural exports would produce jobs in such sectors as laboratory testing, fertilizer and seed production, processing and operations in the transportation supply chain. “That’s where all the jobs are from this demand,” Kemmsies said.
U.S. agricultural exports, including grains, meat and beverages, in 2010 were valued at $118.8 billion, up 15 percent from 2009, according to figures from the U.S. Commerce Department. They have grown at an average annual rate of 2.6 percent since 2004.
Most grain still is exported in bulk shipments with grain moving in hopper cars by rail or on barges by water to the ports of export. But as overseas demand for more specialized U.S. grains increases, more grain exports are being containerized for export. Over the last seven years, 14 percent of grain exports moved in containers, compared with 10 percent in 2004.
The containerization of grains is mostly in wheat exports, but is starting to occur in soybeans, corn and sorghum. “Overall wheat exports are expanding thanks to a solid demand abroad and a competitive dollar both in bulk cargo and containers,” said Mario Moreno, chief economist of The Journal of Commerce and its sister company PIERS. Containerized wheat exports have expanded for three consecutive quarters at year-over-year rates of 73 percent in the fourth quarter of 2010, 243 percent in the first quarter of 2011 and 237 percent in this year’s second quarter. Bulk exports of wheat have grown for six consecutive quarters year-over-year. In the second quarter of 2011, bulk exports of wheat jumped 76 percent over the second quarter of 2010.
“We see continued opportunity for containerized agricultural exports to grow as the trend continues worldwide to demand quality food, food safety and traceability of food products all the way down the supply chain to the farm,” said Bruce Abbe, executive defector of the Midwest Shippers Association in Eden Prairie, Minn.
“There will be more specialized foods when it comes to human foods — low transfat soybeans and oilseeds, special varieties of grains, and so forth, that must be segregated from other commodity crops, of which about 90 percent are now shipped in bulk as animal feedstocks,” he said.
Although the movement of grain to containers that came three years ago when bulk rates were high has since reversed as bulk shipping rates have fallen, market forces overseas are building momentum for more grain exports in containers.
Importers in China, for example, who used to be able to get bank financing for a bulk ship load of grain imports before the Great Recession, no longer find such financing easy to come by. Instead, they find financing more readily available for smaller lots carried in containers. And the lack of sophisticated intermodal networks in countries such as China and India makes it easier to move grain in containers that can be trucked to remote locations not served by rail.
It’s not all fertile ground for U.S. exports, however. The U.S. transportation infrastructure for shipment of grain in containers is not set up for getting empty containers to the farms in the upper Midwest, where most grains, soybeans, sorghum and corn grow. “We must have continued, broader distributed, competitive service in the heartland and upper Midwest,” Abbe said.
The problem is that import containers are transported to population centers in the Midwest and not to rural areas where the grain is grown. Getting empty containers to grain-growing areas involves additional cost that often puts U.S. grain exports at a cost disadvantage to its global competitors whose transportation systems are better organized to get empty boxes to grain-growing areas.
Ocean carriers have plenty of empty containers ready for loading at import ports on both coasts or at rail terminals around Chicago, but those points aren’t close to grain-growing areas in the Dakotas or Missouri.
Maersk Line has seen its volume of U.S. containerized grain exports grow over the past two years. “Unlike other sectors, grain exports are not affected by downturns in the world economy,” said Jack Mahoney, director of trade management for Maersk Line in the U.S.
Maersk markets its grain export services to grain shippers, grain elevators and to brokers and traders. But it doesn’t supply empty containers to those shippers unless they’re located where there is demand for containerized imports. “We have plenty of imports that go to Chicago, so the amount of empty equipment we have there is generated by imports, and not by a decision to position empties there,” Mahoney said.
Grain shippers elsewhere in the Midwest have to pay to transport empty containers from Chicago to locations where they can load them. The shippers then pay again to ship the loaded containers back to Chicago or to another rail terminal for rail shipment to ports on both coasts.
“What we need is investment in infrastructure that lowers the handling costs,” Kemmsies said. “It has to do with scale. We have to be able to move larger amounts to key demand locations at grain elevators or at the ports, so we can get it onto the ships with low handling costs.”
He said it’s particularly important to start doing this now while U.S. exports are benefiting from the dollar’s low value so the United States can nail down overseas customers before currency shifts undercut the costs of U.S. products.
Fortunately, private investors are starting to invest in transload facilities around ports on the East and West coasts. Hopper cars unload the grain into a dump pit, from where it moves on above-ground conveyor belts and is then blown or conveyed into containers that are railed directly to ocean container terminals.
Union Pacific is building a transload facility at Yermo, Calif., 200 miles east of the ports of Los Angeles and Long Beach that will transload grain from the Midwest from hopper cars into containers that will be railed to those ports for export. North Dakota Port Services is building a transload facility, next to BNSF Railway’s Gavin Yard in Minot, N.D., that will load locally grown grain into empty containers that are railed in from Seattle and Tacoma filled with “frack” sand from China for use in the fracking process, which releases oil and gas from shale rock in the booming western part of the state.
On the East Coast, transload facilities have sprung up around Charleston, S.C.; Norfolk, Va.; New York; and Savannah, Ga., in recent years.
“We’ve had seven or eight transload operators build around our ports in the last two years,” said Curtis Foltz, executive director of the Georgia Ports Authority. As a result, Savannah has seen “very significant” growth in grain exports in the last two years, albeit from a low base, and is now averaging 500 to 600 40-foot equivalent units of grain exports a week. Exports now make up 53 percent of Savannah’s container volume.
“It’s been great for us, because it’s building our base and building a balanced container trade,” Foltz said. He expects two more transload facilities to open soon. “It’s a broader market opportunity for our industry in the foreseeable future.”