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Establishing U.S. Wheat as Quality Standard in The Philippines

It can be an uphill battle to convince milling wheat buyers to opt for premium-priced, but better performing, U.S. wheat. Long-term investments funded by wheat farmers through state wheat checkoff programs, the Market Access Program (MAP) and the Foreign Market Development (FMD) program, however, have yielded significant gains.

In the Philippines, USW has helped flour millers and commercial food companies build and maintain a multi-year campaign to increase consumption of wheat-based foods. Over the past five years, annual per capita consumption of wheat in the island nation has increased from 23 to 29 kilograms. That is an annual demand increase of 600,000 metric tons of wheat, with an estimated 97 percent of that wheat coming from the United States.

U.S. wheat enjoys this level of market dominance because the program investments have helped USW stay “on the ground” in the Philippines and other Asian markets for decades, making trade and technical service calls and conducting wheat food production training. USW Regional Vice President Joe Sowers says the producer funds, FMD and MAP are essential to building trust with buyers and end-users who also look to USW for advice.

For example, a large Filipino flour miller had collaborated with USW on several activities and immediately following its participation in the Buhler-KSU Executive Milling Course at IGP Institute in Manhattan, KS, June 12 to 16, 2017, the mill started printing “Guaranteed 100% U.S. Wheat” on its flour bags. This effectively locked the mill’s 90,000 MT of annual wheat purchases into U.S. origin supplies. This change also influenced another flour mill that conducts cooperative shipping with the first mill to purchase only U.S. hard red spring (HRS) wheat even though Canadian spring wheat was offered at an FOB export price of $35 per metric ton less than U.S. HRS.

USW’s work to establish U.S. origin wheat as a quality standard for Philippine flour directly contributed to 175,000 MT of HRS sales in marketing year 2017/18 (June 1 to May 31) with an estimated FOB value of $50 million. Overall, the Philippines purchased more HRS and more U.S. soft white (SW) wheat than any other country in 2017/18.

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Protecting Vietnam’s Growing Demand for U.S. Soft White Wheat

Vietnam’s flour millers annually import a total of more than 1.8 million metric tons (MMT) of milling wheat and wheat consumption is projected to grow by 4 percent to 6 percent per year. Rapidly expanding demand there for cookies, crackers and cakes is an ideal target market for low-protein soft white (SW) wheat grown in Washington, Oregon and Idaho.

With funding from the Foreign Market Development (FMD) and Market Access Program (MAP), U.S. Wheat Associates (USW) has demonstrated the advantages of SW flour by introducing solvent retention capacity (SRC) analysis to Vietnam’s millers and manufacturers. Even though Vietnam imposes a 5 percent tariff on imported milling wheat and competing Australian wheat enters duty free, U.S. SW annual imports increased from about 39,000 metric tons (MT) in marketing year 2013/14 (June to May) to almost 93,000 MT in 2015/16.

That import pace continued into early 2016/17, but after discovering minor insect presence in some U.S. wheat and DDGS cargoes, the Vietnamese government on Dec. 1, 2016, required all U.S. shipments be fumigated with the insecticide methyl bromide. This effectively blocked U.S. wheat exports because methyl bromide is banned for most uses here and is impractical for bulk grain treatment.

USW Headquarters and Southeast Asia office staff immediately began working with the U.S. Animal and Plant Health Inspection Service (APHIS) to address this issue. USW provided some of the information APHIS used in an official response to Vietnam, which opened the door to negotiations. APHIS and shippers ultimately established specific insect control requirements that were acceptable to Vietnam’s Plant Protection Department. The restriction ended Aug. 31, 2017, a notably fast resolution to such a significant Sanitary/Phytosanitary trade barrier.

Soft white exports to Vietnam dipped to about 58,000 MT in 2016/17. Yet USW kept providing trade service and technical support visits to Vietnamese flour mills and bakeries. Although millers could not import U.S. wheat for the first three months of 2017/18, SW sales for the year rebounded to more than 93,500 MT, valued at almost $19 million. Total U.S. wheat exports to Vietnam, including hard red spring and hard red winter wheat, in 2017/18 reached almost 186,000 MT.

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Trade Service and Visit to the United States Help Increase U.S. Wheat Exports to Colombia

To help Colombian wheat buyers find ways to import more U.S. wheat, USDA Foreign Agricultural Service cooperator U.S. Wheat Associates worked closely with USDA and state wheat commissions to organize a visit to observe the quality and logistical advantages of the U.S. wheat supply chain.

Colombia is the largest wheat buyer in the growing South American market. There are several smaller flour mills there that find it difficult and price restrictive to try to purchase U.S. wheat from on their own. USW’s South America regional office saw an opportunity to overcome this constraint by bringing newer members of the purchasing and milling industries together to consider joint purchasing. They organized a trade team of high level executives from five major flour, cookie and pasta companies in Colombia, all traveling for the first time to see the U.S. wheat supply system. In June 2016, the team traveled to North Dakota, Montana and Louisiana to visit country and port elevators, to meet with wheat producers, U.S. pasta and cookie manufacturers and government agencies including the Federal Grain Inspection Service.

This trade service effort, funded by the Market Access Program (MAP), generated several positive results. One of the participants representing Colombia’s largest wheat buyer after observing how the Montana State Grain Laboratory tested feed and grain for the presence of vomitoxin (deoxynivalenol or DON), recommended that the company install the testing equipment at its mill. Now the testing is helping the mill make crucial judgements about the variability in wheat quality. In addition, the participant reports that the visit helped the company get more value from its purchases because its managers now better understand their options in U.S. wheat supply logistics.

Following the trade team visit, four of the companies established a wheat purchasing pool for the first time. Within six months, the pool purchased 220,000 MT of hard red winter (HRW) and soft red winter (SRW). U.S. wheat purchases by these companies increased 19 percent compared to the same period in 2015. One of the companies that attended the trade mission informed USW that it plans to purchase 13 percent more U.S. wheat in 2016/17 and 2017/18, valued at $3.0 million because of the advantages from pool buying. That miller also said it will change its formula for bread flour by blending more imported U.S. HRW in place of Canadian spring wheat because the ratio of quality to price is greater because it can pool buy U.S. wheat.

In 2016/17, total U.S. wheat exports to Colombia for marketing year 2016/17 exceeded 858,000 metric tons, which is more than 27 percent more than in 2015/16. That represents sales benefitting farmers in the southern and central Plains and the U.S. wheat supply chain in the Gulf of Mexico and Pacific Northwest.

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Reintroducing U.S. Wheat to Angola’s Expanding Flour Milling Industry

The West African nation of Angola is making good progress in its desire to improve food security for a rapidly growing population, currently estimated at 24.5 million people. The Angolan government believes that building its own food processing capacity is a crucial part of that effort to help reduce the cost of importing food, while creating jobs for the Angolan people and preserving foreign exchange. Angola currently imports an estimated 800,000 MT of processed wheat flour from various origins to produce popular baguettes and Portuguese style bread, but the country was not always dependent on flour imports.

USDA Foreign Agricultural Service cooperator U.S. Wheat Associates (USW) introduced hard red winter (HRW) wheat to Angolan milling companies in 1993 through the USDA PL 480 Title 1 monetization program. The industry processed a significant volume of HRW and Angolan bakers very much liked the quality of the HRW flour to make baguettes and Portuguese-style bread. When the Title 1 program ended in 2001, donated supplies of U.S. HRW were no longer available, and the Angolan government turned to subsidizing imported flour.

Recently improved economic prospects and the government’s new focus created an opportunity to begin increasing flour milling capacity. To build on its legacy of success, USW invested funds from the Market Access Program (MAP) for a part-time consultant to provide timely and accurate information about U.S. HRW to Angolan flour millers, bakers, grain traders and government officials.

In 2016, USW met with representatives of an Angolan flour mill that plans to expand its capacity beginning in 2017 and another mill that planned to re-open a mill that had been closed for 10 years. Wiese proposed using the Quality Samples Program (QSP) to demonstrate the value and utility of U.S. HRW to the mills’ staff and customers. Under QSP, USW coordinated the shipping of two separate HRW milling wheat samples from Kansas through an export terminal in Norfolk, Va., to the Angolan flour mills in late January 2017. After milling, analysis of the flour showed the HRW wheat met industry standards and produced good quality baked products, including the flour produced by the re-opened mill. With competitive prices and expanded storage, those mill managers say HRW will be strongly considered for import.

In a separate QSP activity, USW’s local representatives and staff from its West Coast Office in Portland, OR, worked through the North American Millers’ Association (NAMA) to purchase and mill HRW wheat and ship the flour to an Angola food processing company to demonstrate its use in pasta production. The U.S. Ambassador to Angola, Helena M. La Lime, and representatives from USW and NAMA celebrated the arrival of this shipment in a ceremony at the processing company on Feb. 28, 2017. Amb. La Lime highlighted the great potential U.S. wheat has in supporting Angola’s milling and food industries and said the United States “supports Angola’s efforts to diversify the economy through industrialization and increased local production of consumer goods.”

U.S. wheat farmers are pleased that their wheat has the potential to help improve economic conditions in Angola. Through trade service, technical support and training funded by wheat farmers and USDA, our organization tries to build lasting relationships with our valued customers around the world. And, assuming prices remain competitive in the changing world wheat trade, we hope that our support will lead to increased demand for HRW to produce great bread, pasta and other wheat food products for the Angolan people.

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Legacy of Training Sustains Market Leading U.S. Wheat Exports to the Philippines

With funding from several state wheat checkoff programs and USDA Foreign Agricultural Service export market development programs, U.S. Wheat Associates (USW) is helping new flour millers learn how to get the wheat they need from U.S. farmers, a strategy that has built a dominant market share in this growing Southeast Asian market.

USW has for more than 50 years helped Philippine flour millers use sophisticated purchase specifications that increase value and enable the millers to import five classes of U.S. wheat. However, the industry is undergoing a generational transfer of leadership to younger family members or staff.  Some knowledge gets passed down but this transition still requires significant training to assure new market participants can navigate the evolving international trading environment.

USW is addressing this transition through trade team visits to observe the U.S. wheat production and marketing systems, workshops on how to write the best U.S. wheat tenders and information on the quality and functionalities for every crop. These activities, funded by the Market Access Program (MAP) and the Foreign Market Development (FMD) program, help assure the next generation of decision-makers are familiar with the U.S. marketing system and the advantages of U.S. wheat classes in milling and end-product performance. The activities also prepare the industry for key quality concerns and opportunities in the current crop, helping them revise their specifications appropriately to maximize the value of the wheat they receive.

For example, in August 2015, USW sponsored a U.S. visit for new managers at Monde Nissin and Atlantic Milling. They learned that hard red spring (HRS) basis was at historic lows and low protein soft white (SW) stocks were very tight. As a result, these mills accelerated their purchasing pace and bought 110,000 metric tons (MT) of U.S. wheat sending substantial revenue back to the U.S. supply chain and farmers in the Pacific Northwest, Montana, North Dakota and South Dakota. This early purchase of U.S. wheat pre-empted the risk that both mills would consider purchasing lower priced spring wheat from Canada.

In October 2015, during a USW contracting workshop, market leading flour miller San Miguel used the information to revise confusing specifications in their contract language that helped reduce their import cost. This led them to make their first hard red winter (HRW) purchase in recent history. It is the fourth year in a row that San Miguel bought U.S. milling wheat exclusively, maintaining U.S. wheat as the quality standard in the Philippine market. In turn, this further reduces the chance that other mills may consider importing from other origins.

In marketing year 2015/16 (June to May), Philippine millers imported more U.S. HRS and SW wheat than any other country in the world. Its total imports of 2.164 million metric tons of U.S. wheat in 2015/16 ranks the Philippines at third among all countries. This represents more than 90 percent of total Philippine milling wheat imports and a substantial estimated return to the U.S. wheat supply chain.

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Trade Service, Technical Support Protect Soft White Wheat Exports to Korea

Perceptions of wheat flour quality can be difficult to change. Korean flour millers, for example, traditionally judge U.S. soft white (SW) wheat quality based on #1 Grade and a very low protein specification. Unfortunately, two years of hot, dry growing conditions in Washington and Oregon severely reduced the low-protein SW supply and spurred a price barrier to sales. Through trade service and technical support funded by the Market Access Program (MAP) and the Foreign Market Development (FMD) program, FAS cooperator U.S. Wheat Associates (USW) was able to show the millers that they could import higher protein SW at a much lower cost and still meet customer demand. In turn, this effort ended a significant decline in imports.

SW wheat is ideal for the cake, cracker and confection products that make up a large part of Korea’s flour consumption. Between marketing years 2013/14 and 2015/16, USW took a multi-tiered approach to maintaining this important market:

  • Representatives based in Seoul convinced millers to use Solvent Retention Capacity (SRC) analysis, rather than only using protein specifications, to measure SW flour performance.
  • Working with state wheat commissions, USW support staff in the United States shipped samples of the more abundant higher protein SW to Korea. Technical staff performed the SRC analysis on flour milled from the samples and successfully demonstrated equivalent performance.
  • The next step was to prove the SRC analysis and higher protein SW flour performance to downstream bakery and confectionery customers in a seminar supervised by USW South Asia Bakery Consultant Roy Chung. The largest commercial bakery in Korea saw the opportunities and purchased an SRC analyzer.
  • Finally, USW helped large flour millers understand how they could adjust grade and protein tender specifications. Two large millers did change their specifications and tendered for SW with slightly higher protein levels, which helped reduce import costs. The Korean Flour Millers Association also relaxed some of its grade requirements and received a discount of $5 per metric ton from the trade.

In marketing year 2013/14, before the challenge of higher protein levels appeared, Korean millers imported an estimated 731,000 metric tons (MT) of SW worth about $212 million. As the cost of very low protein SW increased, millers cut back on imports while learning about alternatives from USW. Total SW exports fell to about 538,000 MT in 2014/15.

Armed with new information and support from their customers, these millers were able to slightly increase SW imports in 2015/16 to about 565,000 MT, returning value to the U.S. wheat supply chain and farmers in Washington, Oregon and Idaho.

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