Milling & Baking News - March 30, 2004 - 26

D A T A

Ethanol producers welcome end
of M.T.B.E. phase-out in states
WASHINGTON - New York and Connecticut joined California in phasing out
the use of methyl tertiary butyl ether
(M.T.B.E.) by the end of 2003, according
to the Renewable Fuels Association.
The three states' switch to ethanol as a
gasoline oxygenate will boost its use on
both coasts.
"Heralded as a clean air savior, all
three states found M.T.B.E. to be a drinking water contamination problem and
banned its use," the R.F.A. noted.
While the conversion to ethanol in
California started at the beginning of

2003, the switch in New York and Connecticut largely took place during November and December.
"From Nov. 17, 2003, to Jan. 5, 2004,
the average reformulated gasoline price
in New York dropped from $1.74 to
$1.68, according to the U.S. Energy Information Administration," the R.F.A. said.
"During the same time period, the E.I.A.
found conventional gasoline - not requiring an oxygenate - prices increased
by a penny."
Robert Dineen, president of the
R.F.A., said, "The ethanol industry re-

Saudi wheat production expected
to drop 400,000 tonnes in 2004
RIYADH, SAUDI ARABIA - The Agricultural Trade Office attached to the U.S.
Embassy in Riyadh forecast Saudi Arabian wheat production in 2004 at 1,600,000
tonnes, which would be 400,000 tonnes
below the estimated outturn in each of
the preceding three years. If the projection were to be realized, Saudi Arabian
wheat production this year would be
the lowest since 1,200,000 tonnes in 1996
and would compare with the country's
record-large crop of 4,070,000 tonnes
harvested in 1992.
The decrease in production from
recent years was forecast because of
Saudi government plans to lower the
guaranteed purchase price for domestically produced wheat to $266.67 a tonne
from the $400-per-tonne level that has
prevailed since 1995. It was expected
that the decline in the government's
procurement price would make it uneconomical for many of the Kingdom's
smaller growers to raise wheat.
According to the Agricultural Trade
Office, the new price regime would
favor the six huge farms owned by
shareholding companies and the couple
of very large farms owned by individual
wealthy Saudi citizens. Their costs of
production would stand to be lower
than those of the smaller farms.
Government policy in recent years had
been tilted toward the smaller producers, at least with regard to wheat. Since
1993, the mega-farms were not eligible
to collect the guaranteed price for wheat,
and their wheat production declined
dramatically. But the Saudi government
announced that this coming season, the
mega-farms would be eligible to receive
the guaranteed price once again.
Managers at some of the six mega26 / Milling & Baking News, March 30, 2004

farms estimated their wheat production costs at about $133 to $200 per
tonne, depending on the location,
water resources and infrastructure.
These mega-farms would have to turn
to rejuvenating their wheat production
capacity, though. Receiving the guaranteed price could encourage them to
make some of the capital investments
required, according to the trade office.
But it was expected that even with
some such investments, production
could fall short of domestic requirements, which could force Saudi Arabia
to import wheat.
"Given the fact that the majority of
the Kingdom's 4,000 wheat farmers will
not be able to economically produce
wheat and that large farmers will probably not invest huge amounts of needed
capital in upgrading their previously
productive wheat lands, it is highly
likely that the Kingdom will be turning
to imported wheat to make up for the
expected wheat shortage next year,"
said the trade office. "It is estimated that
the country may import at least 400,000
tonnes of wheat next year. When that
happens, it will be the first time in more
than two decades that the government
will officially turn to imported wheat to
satisfy part of the domestic wheat consumption estimated at around 2 million
tonnes per annum."
The trade office suggested two reasons
for the decision of the Saudi government
to lower the procurement price: to meet
World Trade Organization accession
requirements and to pave the way for
privatization of the nation's flour mills.
"It has been widely believed that the
Saudi government has been facing difficulties at the W.T.O. talks in Geneva

ally stepped up to ensure adequate and
affordable supplies were available from
coast-to-coast. New plants are built and
more are under construction. There
should be no doubt about the ethanol
industry's ability to supply any state
wishing to switch from M.T.B.E."
In its monthly newsletter, the R.F.A.
noted that expansion in the ethanol
industry continues, with one 40-million-gallon per year plant completed in
Nebraska and work starting on a plant
of the same capacity in Iowa.
Currently, 73 ethanol plans nationwide have the capacity to produce more
than 3.1 billion gallons annually. There
are 14 ethanol plants under construction.
(See table on facing page.) MBN

with leading wheat-producing countries that insist that the Saudi government open up its wheat market by doing away with or reducing significantly
the local wheat subsidy as one of the
conditions that the Saudi government
has to meet to get their support in the
agricultural negotiations," the trade office explained.
The trade office also pointed out that
the Saudi government has been holding talks with the World Bank concerning privatization of its six flour mills.
The total combined milling capacity of
the six mills is 5,600 tonnes of wheat
per day.
"Another sign of the government's
privatization intent was its decision
last year to reduce the import tariff on
wheat from 100% to zero," the trade
office said.
Prospective importers still have to
acquire a license from the Grain Silos
and Flour Mills Organization, an entity
responsible for implementing the government's grain policy, to import wheat.
And to date, no importer has applied for
such a license.
"If and when the mills are privatized,
traders will be allowed to buy wheat
on the world market," the trade office
said. "According to some reports, the
government will continue the current
wheat subsidy policy even if it goes
out of the flour milling business. If the
mills are privatized, the responsibilities
of purchasing and selling locally produced wheat are expected to pass from
G.S.F.M.O. to the Ministry of Finance
and National Economy. The ministry
will be responsible for purchasing
wheat at the guaranteed purchase
price and selling it to local millers at
subsidized rates, paying the difference
between the guaranteed purchase price
of $267.67 a tonne and the world market
prices for wheat." MBN
bakingbusiness.com/world-grain.com

http://www.bakingbusiness.com/world-grain.com

Milling & Baking News - March 30, 2004

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