November 16, 2011

French wheat face competition in Algeria

French wheat sales to Algeria faces competition from the Black Sea shippers because of bug-damage requirements by state grain buyer OAIC, according to export lobby France Export Cereales.

Specifications for insect damage by the Office Algerien Inter-professional des Cereales will likely limit market access for Russian and Ukrainian wheat, Francois Gatel, head of the export lobby, said.

Wheat growing regions north of the Black Sea and Caspian Sea are prone to the most severe outbreaks of the sunn pest, an insect that sucks on grain kernels and can ruin quality, the United Nations' Food and Agriculture Organisation says. Algeria demands zero bug damage, Xavier Rousselin, arable-crops head at French crops office FranceAgriMer, said.

"The OAIC buys with specifications for a very low level of bug damage, which should strongly limit all wheat originating from the Black Sea," Gatel said. "The OAIC specifications are extremely drastic on bug damage."

Algeria accounted for 24% of France's wheat exports in the year through June 2011, according to crops office data.

Australia and Argentina "don't have this bug-damage problem and could be competitors," Gatel said. "For Australian wheat to come to Algeria is far. We do see Australian wheat in Egypt and the Arabian Peninsula. We could see some competition from the Argentineans."

Algeria, which won independence from France in 1962, bought 4.2 million tonnes of French soft wheat and 873,840 tons of the harder durum variety last season, according to FranceAgriMer. That amounted to 79% of the North African country's wheat imports, based on US government estimates.

France's wheat exports to Algeria will probably decline from last year after the North African country bought more than it needed to avoid any tension in the bread market, according to Gatel at France Export Cereales.

In the four months after July 1, France shipped 2.1 million tonnes of soft wheat to Algeria, 60% more than in the same period a year ago, according to the crops office. That pace would translate into full-year exports of six million tonnes and will not continue, according to FranceAgriMer's Rousselin.

Algeria is Africa's second-largest wheat importer after Egypt and is expected to buy 6.1 million tonnes of the grain in 2011-12, or 4.5% of world trade, the USDA forecasts. The North African nation's import requirements would be worth US$1.55 billion at current US Gulf export prices.

Ukraine may also target Algeria for exports, as well as neighbouring North African countries, according to Maria Kolesnik, an agricultural researcher at AAA, a consultant in Kiev. The Black Sea country is able to offer the grain at a discount of US$10-15 a tonne to French supplies, she said.

"Algeria, Morocco, Tunisia, this is our destination," Kolesnik said. "The situation is very good for Ukraine with a view on restoring these markets. Ukrainian wheat can compete with French wheat on quality."

France is already seeing more competition in the eastern part of the Mediterranean Sea, with "strong" competition from Russia and Ukraine in Egypt and destinations in the Middle East including Yemen, according to Gatel.

French wheat exporters to West Africa may see competing offers from Latin America, while in Morocco competition is "tough" because private operators are the buyers, rather than a state-grain office, Gatel said.

"There's no such thing as a captive market," Gatel said. "If the OAIC reviews its specifications or if other countries are a lot more competitive, you could imagine French wheat being challenged in Algeria."