De-commodifying Durum Wheat
Unlike many processed grain-based food and beverages, pasta is made almost exclusively from one ingredient: durum wheat semolina.
People can be fussy about the quality of pasta, making it relatively simple to de-commodify. Offering new emotions and attribute to consumers could work to brand some pasta as ‘better.’
Supplying emotions in a brand is the basic work of storytelling and marketing. These days, selling attributes requires measurement, reporting, and validation – the fast-growing field known as MRV, which Prairie Routes Research has written about previously.
De-commodifying bulk grain is not easy, since the infrastructure for production, handling and transportation globally relies on efficiencies, scale, and repeated blending. But as we have been hearing about a lot, identity-preserved traceability requirements are coming, in one form or another.
Case Study: Glyphosate Residue in Grain
While growing customer segments and new marketing opportunities exist for showing customers more about where food comes from, supply chain traceability can also be a bad thing for a brand… like when the Environmental Working Group (EWG) exposed elevated levels of glyphosate residue in Cheerios. Since this article was published in 2021, the science and bad news surrounding the glyphosate has intensified - at the same time as its use has increased for drying down field crops.
In the global trade in bulk grains, most countries and companies follow CODEX, “a collection of internationally recognized standards, codes of practice, guidelines, and other recommendations published by the Food and Agriculture Organization of the United Nations relating to food, food production, food labeling, and food safety”, according to Wikipedia. Some countries have negotiated bilateral trade agreements allowing for above-CODEX maximum residue limits (MRL’s) of various pesticides used in field production, because farmer use of in-crop pesticides has risen since Codex was written, and residues in bulk commodity crops as a result.
Companies are trying to manage pesticide residue and heavy metals in grain, with varying degrees of success. Grain handling companies have found some workarounds, such as only buying from farms that swath the crop rather than applying chemicals to cure it, and testing grain in farmers bins before calling it into the elevator to avoid contamination. But it’s getting harder, and more expensive.
Given modern-day consumer sentiment, it stands to reason that the price and the margin should be better for supply chain participants that can source grains with these kinds of attributes, and the logistics aren’t that complicated. Grain farmers in Canada already sign affidavits as part of sales contracts that are governed by the Canadian Grain Commission (CGC), stating that they complied with the label instructions on all applied pesticides.
Trading Documentation
Fertilizer affidavits could be added to grain contracts too, producing a mechanism to capture data on field-level greenhouse gas (GHG) emissions. It would not take much to digitize the whole data capture and sharing process, by connecting farm equipment logs into grain company inventory management software, and thus be able to cost-effectively provide this new information about the full provenance of durum wheat to a pasta processor.
The processor, in turn, could provide the documentation to a brand, who in turn could report it to consumers on a pasta package. Thanks to the depth and effectiveness of QR code technology, this could deeply differentiate a product from others on the shelf that can’t offer a line of sight to the attributes of the core ingredients.
When it comes to marketing attributes in grain-based foods, today’s pesticide residues are tomorrow’s Scope 3 emissions.
Banks and securities exchanges everywhere are preparing to force companies to gather and report on the nitrogen fertilizer applied on the primary crops and other Scope 3 emissions.
Crops represent a substantial volume of processed foods and beverage ingredients.
Summary
These days in durum wheat trading circles, the talk is all about the weather in Saskatchewan and Alberta, where the majority of world’s total supply is grown. Drought has caused crop ratings to fall steadily through July, and now that harvest is near, there’s no time left for yields to recover to earlier expectations.
The durum crop we get in the weeks ahead determines the supply that the globe has to work with until the 2024 harvest. Drought in Europe already cut production from last year and earlier expectations in growing regions like Spain and Italy. Nowhere else produces an export surplus of durum wheat, in the world.
European prices have been moving higher in recent weeks, at a faster pace than North American durum wheat markets have risen. Through the market pricing mechanism known as arbitrage, this means that North American durum wheat values will continue to strengthen in the weeks ahead.
Farmers won’t sell any more until they know what they have, and see that the market rally is stalling, which could be months from now. It will take high enough prices to force processors to use substitutes, or to become so unprofitable that they cut back on production.
This can have a lagged impact on pasta retail prices, but the correlation is neither direct nor reliable. Grain and processing companies use various mechanisms to internally manage market risks like hedging, which helps keep retail prices more stable than farmgate commodity prices.