Possibility of Food War... Need to Establish a National Grain Procurement System

Continued COVID-19 Logistics and Workforce Movement Restrictions Inevitably Raise Grain Prices
Rice Self-Sufficiency at 97%, but Wheat, Corn, Soybean, and Barley Average Only 15%
Need to Secure Distribution Networks through Global Grain Elevator and Infrastructure Projects

[Sejong=Asia Economy Reporter Kim Hyunjung] "The coronavirus could trigger a food war." On the 21st of last month, agriculture ministers from the Group of Twenty (G20), including South Korea, focused on the potential food security crisis caused by the novel coronavirus infection (COVID-19). They examined the complex and concentrated food supply chains alongside restrictive measures and agreed on the need to strengthen international cooperation. Although it is not an immediate explosive issue, they reached a consensus that it could cause conflicts or crises between countries at any time.

In fact, as the COVID-19 situation began to disrupt global food supply due to restrictions on logistics and human resource movement, the possibility of rising food prices due to increased prices of imported raw materials also grew. South Korea is no exception. While the country’s rice self-sufficiency rate reaches 97%, the self-sufficiency rates for major grains such as wheat, corn, soybeans, and barley average only about 15%. This is not just a number on paper but means that the cost of a single meal could be shaken at any time by external shocks.

◆Border Closures and Logistics Disruptions... Rising Food Security Concerns= Currently, international grain prices remain relatively stable. According to the Korea Rural Economic Institute on the 20th, compared to the previous month, international prices of major grains in March fell due to bumper harvests: wheat (-5.2%), soybeans (-2.0%), corn (-1.7%), while Thai rice rose slightly (6.6%). Unlike the price shocks caused by global grain supply shortages in 2010-2011, the possibility of a sharp rise in international grain prices due to logistics disruptions is considered low. Additionally, South Korea’s estimated National Food Security Index (NFSI) for 2020 remains at 0.57, unchanged from the previous year, maintaining a stable 'green stage' status.

However, if the contraction of the international logistics system prolongs, it cannot be ruled out that food prices in countries dependent on raw material imports will rise consecutively. Especially in South Korea, where the self-sufficiency rate for major grains except rice is very low, there is constant exposure to risks from fluctuations in international grain prices. According to Statistics Korea, as of 2018, the domestic rice self-sufficiency rate was high at 97.3%, but for other major grains, it was only 1.2% for wheat, 3.3% for corn, 25.4% for soybeans, and 32.6% for barley. Notably, wheat, which has seen a recent surge in consumption as bread and noodles, improved to 1.8% in 2016 but has since been declining again.

Kim Yongjun, a research fellow at the Gyeonggi Research Institute, expressed concern, saying, "If the pandemic prolongs causing simultaneous disruptions in the international logistics system and reductions in global grain production, the crisis in food-deficient countries will expand, and the resurgence of protectionism could cause worldwide chaos."

Posco International's grain export terminal located at the Mykolaiv port in southern Ukraine. Posco International signed a contract to acquire a 75% stake in the grain export terminal with Ukrainian logistics company Orexim Group, becoming the first Korean company to hold operating rights for a grain export terminal located overseas. The terminal was completed and began operations in September last year. (Photo by Posco International)

◆Securing Distribution Networks, Starting Amid ABCD’s Dominance in the Grain Market= In the global grain market, a few multinational grain majors exert influence over supply and price determination. Four companies?Archer Daniels Midland (ADM), Bunge, Cargill, and Louis Dreyfus Company (LDC), collectively known as 'ABCD'?control more than 80% of the world’s grain distribution volume.

In South Korea, there is no established national grain procurement system. Procuring grains through a system means developing global grain elevators and grain terminal businesses and securing distribution networks to ensure stable volumes are imported domestically. There have been attempts before. In 2011, aT Grain Company, jointly invested by Korea Agro-Fisheries & Food Trade Corporation (aT), Samsung C&T, STX, and Hanjin, tried to form a joint venture with grain majors but failed at that time.

Recently, meaningful achievements have been made mainly by private companies. On the 11th, Pan Ocean signed a contract to acquire all 36.25% shares of EGT in the U.S., owned by Itochu International, through its U.S. subsidiary. EGT currently owns and operates a state-of-the-art export terminal located at Longview Port in Washington State and four supply facilities in Montana. Pan Ocean expects that upon completion of this acquisition, it will establish a foothold for its grain business to enter the global market by strengthening relationships with grain majors controlling over 80% of international grain distribution.

Prior to this, POSCO International signed a contract to acquire a 75% stake in a grain export terminal with Ukrainian logistics company Orekseem Group, gaining operational rights to a grain export terminal located at Mykolaiv Port, one of the largest export ports on the southern Black Sea in Ukraine. The terminal was completed and commissioned in September last year, currently exporting grains to the European Union (EU) and the Middle East and North Africa (MENA) region. According to POSCO International, as of May this year, sales volumes of wheat and corn reached about 300,000 tons, with increasing sales to China as well. A company official explained, "The EU and MENA regions have been fiercely competitive, dominated by major companies with extensive grain infrastructure, making it difficult for other companies to enter. Currently, demand is increasing due to COVID-19 and other factors, but supply is very unstable, causing high price volatility." He added, "As uncertainty grows, the importance of infrastructure that can secure grains stably increases. POSCO International owns a grain export terminal with a capacity of 2.5 million tons and plans to focus on expanding the value chain of its food business while striving to respond stably to grain market fluctuations."

This content was produced with the assistance of AI translation services.