CHS moves to strengthen its system to meet global demand
MINNEAPOLIS — With the world's population recently reaching 7 billion people, growing nations are focused on getting a dependable supply of food, either by producing it themselves or through imports.
Selling food to nations so they can achieve their so-called food sovereignty goals comes with challenges that, if managed appropriately, could be a great opportunity for U.S. agribusinesses, said Mark Palmquist, executive vice president and chief operating officer, Ag Business, for CHS, Inc.
Palmquist spoke Nov. 3 during the University of Wisconsin Center for Cooperatives' Farmer Cooperatives Conference in Minneapolis.
One challenge is the level of uncertainty involved when working with foreign governments. Unstable governments could impede shipping lanes. Even stable governments can intervene with regulations and distort markets, which can send the wrong market signals.
The world's economy issues are another challenge. For example, the weak dollar has helped exports by bringing a competitive price on the global marketplace, but a stronger dollar against the Euro due to Europe's economic issues would mean the Euro could be more competitive.
Countries seeking food sovereignty want to control the imported food's source, so nations that can't grow their own supply are investing in other parts of the world. They're putting money in other nations' production agriculture system or they're working with agribusinesses.
Food safety has become a major priority, which is why identity preservation can gain a premium. Palmquist said a U.S. premium on ag products going to many places of the world will exist for the next 10 to 15 years.
"Even in China, they're starting to pay for food safety," said Palmquist.
Foreign firms are coming into the United States to have a direct tie to American production. Export players are converging on America's Pacific Northwest to be close to strong Asian markets. Distribution assets are being aggressively pursued so much so that Palmquist questions if an asset bubble is being created. CHS has two export terminals in the area, one in Kalama, Wash., and a joint venture with Cargill in Tacoma, Wash.
The main gatekeepers in the Pacific Northwest still have large U.S. ownership, he said. The bottleneck with getting agricultural products to market is railroad capacity. Grain has to be moved into the region on railroads that are also used to transport other commodities. Still, America's infrastructure will be in better shape and have better capacity than other parts of the world, Palmquist said.
Proposed shuttles have been announced or are rumored in Idaho, Montana, North Dakota, South Dakota, Nebraska, Minnesota, Colorado, Oklahoma and Illinois, he said. These shuttles are large grain elevators that would have capacity to load 100- to 110-car trains. Five or six companies are behind the shuttle expansions to take products to the Pacific Northwest.
In a similar area to where shuttle expansions are occurring, local co-ops are hearing of entities who want to form partnerships. If co-ops don't want to form partnerships, some entities will offer to buy the co-op or plan to build nearby, said Palmquist.
The strategy CHS has to meet global food demand involves domestic investments, strengthening U.S. origination through a strong cooperative system and building their global grain and crop nutrient origination capability.
"We think we need to find ways to strengthen how we operate as a system," Palmquist said.
CHS wants to help the co-ops it works with to be successful long-term, he said. A couple ways it can do this are helping co-ops identify what type of grain to stock or figuring out the logistics of transporting grain.
Currently, 60 percent to 70 percent of CHS' grain is originally from the United States while 30 percent to 40 percent is bought and shipped from other areas of the world, said Palmquist. That helps with risk diversification. CHS is particularly growing into the area around the Black Sea.
Cooperatives in general have a competitive advantage over other businesses because importing nations see them as dependable and trustworthy, said Palmist. Buyers know cooperatives have an incentive to keep supplying gain and that the owners have an incentive to produce a quality product.