Bloomberg News

French Wheat Faces Limits on Competition in Algeria, Gatel Says

November 15, 2011

Nov. 15 (Bloomberg) -- French wheat sales to Algeria face little competition from Black Sea shippers for the moment 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 Interprofessionnel des Cereales will likely limit market access for Russian and Ukrainian wheat, Francois Gatel, head of the export lobby, said by phone last week.

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 Organization says. Algeria demands zero bug damage, Xavier Rousselin, arable-crops head at French crops office FranceAgriMer, said last week.

“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 percent 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.”

The baking quality of France’s wheat generally corresponds to the requirements of Algerian millers, who produce flour used to make baguettes, according to Gatel. Bakers in Morocco, Senegal and Ivory Coast also make French-style breads, he said.

Main Customer

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

“Every year it’s the main customer for French wheat,” said Pierre Raye, an Paris-based analyst at InVivo, France’s biggest wheat exporter. “Their bread-making technique is very close to that of France.”

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 tons of soft wheat to Algeria, 60 percent more than in the same period a year ago, according to the crops office. That pace would translate into full-year exports of 6 million tons and won’t continue, according to FranceAgriMer’s Rousselin.

French Ties

Algeria’s per-capita wheat consumption was 212 kilograms (467 pounds) per person last year, data from the UN’s FAO show, trailing only neighboring Tunisia, a former French protectorate.

Russia is “100 percent interested” in exporting wheat to Algeria, according to Alexander Korbut, vice-president of the Russian Grain Union.

“The French have better logistics, but there’s an issue of price,” Korbut said. “We’re able to propose cheaper prices for wheat of the same quality even in the current season.”

Algeria is Africa’s second-largest wheat importer after Egypt and is expected to buy 6.1 million tons of the grain in 2011-12, or 4.5 percent of world trade, the U.S. Department of Agriculture forecasts. The North African nation’s import requirements would be worth $1.55 billion at current U.S. Gulf export prices.

Ukraine may also target Algeria for exports, as well as neighboring 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 $10 to $15 a ton to French supplies, she said.

‘Very Good’ Situation

“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.”

--With assistance from Marina Sysoyeva in Moscow and Kateryna Choursina in Kiev. Editors: John Deane, Claudia Carpenter

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.


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