STORAGE WARS
A recent study by the European Commission into the storage capacity for cereal crops throughout the European Union serves to confirm a structural reform that is evident the world over. Increasing on-farm storage and investment at the point of production, brings with it a renewed independence for growers that functions to swing the market pendulum back in favour of the producer.
Over a ten year period between 2005 to 2015, farms across the EU directly added 32 million tonnes of storage, taking the on farm capacity to 143 million tonnes or 40 percent of the EU total. Farm level storage forms the single largest share of total capacity across Europe, which combined with cooperative store volumes, takes grower controlled facilities to over 50 percent of the market at 181 million tonnes.
Additional investments from the processing industry, the trade and major transport hubs have seen total EU wide capacity increase 20 percent from 300 million tonnes to 359 million tonnes. At the same time, average EU production grew just 11 percent as cereal harvests increased from 312 million tonnes to 346 million tonnes. In general, the European Commission report found that on an average season, there is no structural shortage across Europe. The distribution of this storage capacity however varies greatly between regions, fundamentally changing the structure of markets within individual member states. This distribution of storage capacity and location of assets impacts the timing and movement of cereals, making the increased investment of on-farm
Figure 1: 2015 EU Cereal Storage Capacity Allocations by Country (EU Commission)
100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 14,033 11,427 10,000 5,0663,821 311 0 AT BE BG CY CZ DE DK EE EL ES FI FR HR HU IE IT 10 | ADMISI - The Ghost In The Machine | March/April 2018 LT LU LV MT NL PL PT RO SE SI SK UK 1,4713,144 9,955 7,560 2,505 2,594 171 5,615 2,378 88 2,276 1,914 6,498 610 5,875 15,684 29,906 24,368 20,145 23,377 19,517 48,105
Transportation hub (including ports) Wholesale/Trade Processing industry Farming cooperative Individual farm
90,870
The EU Commission’s study also served to highlight Poland and the Baltic state of Latvia as two regions that showed a limited storage capacity relative to average crop size. In excessive years, the limited storage capacity sees shipments and movement of cereals at the peak storage need following harvest. Average monthly exports for both Poland and Latvia unsurprisingly peak in August and September, making growers in the region price takers rather than price makers to the market to facilitate movement.
Typically, the more established and traditional European producers in France, Germany and the UK, see a concentration of farm assets and cooperative run storage systems. The level of just in time inventory management purchasing from processors is more prevalent as established logistical infrastructure and availability of cereals (Grains, Oilseeds, Pulses and Proteins) from export orientated markets reduce the need for onsite storage facilities. Grower controlled assets form a combined on farm and cooperative interest make up 88 percent of French cereal storage (32% Farm / 56% cooperative / trade totalling 79.97mlnt), 71% of German facilities (42% farm / 29% cooperative totalling 34.15mlnt) and 77% of UK assets (62% farm / 15% co-operative totalling 11.68mlnt). Capacity and control over supply chain, places farmers movements and exports in particular, peak in Q2 and some 7 to 8 months following harvest.
In Bulgaria and Romania, inherited state assets from the previous communist governments provide the over storage capacity and logistics in the region. The trade is the largest stakeholder of EU Black Sea capacity with 50 percent of Bulgarian assets and 50 the trade has been diminished from the 85 percent and 62 percent of capacity held in 2005 by increasing on-farm investment, exports and shipments from the region still typically peak in August ahead of seasonal storage peaks in October (arrival of Corn harvest).
000 tonnes
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