Global Crop Production Conference discusses ag supply chain disruptions
Farming Smarter’s Global Crop Production Conference featured William Wilson, a professor of applied economics and agribusiness at North Dakota State University, who spoke on several topics including supply chain problems, changes in competition, Russia and Ukraine, and what that means for everyone.
Firstly, Wilson spoke about U.S. and global agricultural market and trade developments, sharing that his knowledge came from the fact that he is involved in agricultural affairs, including agricultural marketing, both in the U.S. and in several other countries around the world.
Wilson also spoke on climate change and how very serious in the world commodity market has been in the past few months and how there has been extremely constrained flows in the Pan Panama Canal due to water shortages. He mentioned that he did a lot of work for the Panama Canal and was involved in the feasibility study for the original Panama Canal expansion project in 2004 and during that time, the group had to make projections 25 years forward with and without the canal and also look at the risk of expanding.
“We’ve had restricted flows out of the Mississippi River because of water shortages,” said Wilson. “The city of
New Orleans is risking running out of fresh water. And you can see what happened to barge rates in this country. I went back to my work in Panama now 20 years later, and in 2014 we estimated the probability of what’s happening today, and the probability of that occurring was a less than two per cent chance. And (now) it’s happening. And I point that out because I never used to pay attention to climate change. And people would ask me, ‘don’t you worry about climate change when you think about new GM traits or new varieties of commodities or the Panama Canal or pork development? As you know, I have 20,000 variables in a model, I can’t worry about anything else’. But since about 2012, I’ve kind of realized the significance of climate change and that it’s happening in the world of economies and world agriculture and world logistics. And I think it’s something we all have to pay attention to.”
During Wilson’s presentation, he also spoke about the development of ESG (Environmental, Social and Governance) and sustainability.
“And when I first was asked about these things, I didn’t really know for sure what it meant, so I read the book on it called ‘ESG Investing for Dummies’,” said Wilson. “And I try to reach out to find out where the origins of this was. (There) was a survey of consumers conducted and sponsored by Cargill, done by the Hartman Group. And they surveyed consumers in the United
States and found out that 37 per cent of the consumers, primarily millennials, would be more likely to consume products if they were produced with sustainable practices. And as a result of that, at least in this country, there’s been a shift towards sustainability.”
“Everybody’s kind of on board with this effort towards ESG, but I’m sure this is going to be a rocky road in the future. Because in the past few weeks alone, the Wall Street money and the Financial Times are saying there’s financial backlash about this ESG movement and so there’s going to be a little fight on this,” said Wilson. “And certainly that was occurring in COVID, and the COP28 Conference in Dubai in the past few weeks. Mechanisms vary around the world to incentivize growers in the agricultural sector to reduce their carbon footprint. And we have many different types of companies and contract and contractual mechanisms moving forward, and that has given rise to the development of an industry we never even had before called renewable diesel. We’re at the forefront of that, but other countries are as well. We have 18 projects in this country (U.S.) to develop new renewable diesel, renewable diesel plants.”
As a result of these renewable diesel requirements, Wilson said, he was asked to talk about supply chains. He then showed slides about how this evolved in the period of time following COVID-19 and resulted in more congestion and increasing demand for products. This, Wilson said, was compounded by labour shortages and the advent of ‘near shoring’ and exacerbated by the use of certain manufacturing processes in the green and oil seed sector in the Americas. This, Wilson said, was compounded by the adoption of precision scheduling of railroads, the Chinese trade war, and labour shortages.
Wilson said that if the Phase One Agreement (China - U.S.) goes back into place they can expand and there will be no problem expanding, but the biggest problem is labour. To this day, Wilson said, they still have trouble hiring labour even though wages are very high, and this continues to be a problem in the Americas and in other places.
“The impact of that was for reduced train speed - increased time, reduced velocity and adverse impact on what we call secondary real farm market values,” said Wilson. “There were congressional hearings during this time period.
The California market testified against Union Pacific Railroad and said, ‘Your failure to deliver is about to kill millions of chickens.’ There was pressure to intervene.”
Wilson showed maps of all the soybean ships that were at sea when the
Red Sea and Suez Canal were bombed, approximately six weeks ago. Wilson highlighted the movements from Brazil to China, movements from the Black Sea to the Red Sea, the Suez Canal to China, as well as movements from the Persian Gulf through the Black Sea for the U.S. and China. However, Wilson said, there was hardly any movement going through the Panama Canal because of the impact of the reduced water flows in their reservation system.
“All of these ships are being impacted,” said Wilson. “The ship owners are forcing war insurance to be applied. Shipping costs go up. Ships are being diverted away from the Red Sea to go around Africa, which adds about 14 days transit time and about $2 million per vessel. These are major repercussions on the supply chain.”