Ongoing strikes slow French grain exports

Grain Brokers Australia January 28, 2020

ONGOING strikes in France over pension reform are disrupting the country’s rail services and port activities, and have the potential to severely impact the grains sector if a quick resolution is not found to the dispute that has now been running for almost eight weeks.

Pension reforms proposed by the French Government have sparked rail strikes which are affecting the country’s ability to export grain. Photo: Sarah Forgany, KENS 5

Like so many countries in the developed world, France is wrestling with how to fund its relatively generous pension schemes amid falling birth rates and an ageing workforce.

The country’s hard-left trade unions are trying to force President Emmanuel Macron to abandon the biggest overhaul to the French pension system since World War II.

France has 42 different pension schemes, each with varying levels of contributions and benefits, and Macron wants to streamline them into a single system that gives every pensioner the same rights for each euro contributed.

At just under 14 per cent of economic output, French spending on public pensions is among the highest in the world, a vital component of an expensive but treasured welfare state.

The government says the new system would reduce billions in future deficits in pension funds.

Impact on grain

The public-transport strike that has stymied rail freight services and a series of rolling stoppages by stevedores has left merchants struggling to get wheat and barley to port for export and to domestic consumers across the country.

According to French grain organisation Intercereales, the situation is now getting drastic.

There are more than 450,000 tonnes of grain, worth around €100 million (AU$166 million) blocked in French ports, unable to be loaded on to export vessels that are lined up at anchorage off the French coast.

The strike is paralysing this season’s grain-marketing campaign in the European Union’s biggest grain producer.

The big concern now is that merchants will be forced into loading optional-origin sales via alternate export pathways out of competing countries to meet their contractual obligations.

Switching origins

Additionally, buyers are reported to be switching purchases to other exporting regions such as northern Europe, Baltic countries, the Black Sea, the United States or Canada to avoid the possibility of getting squeezed on delivery due to inadequate logistics.

This was evident in the latest Egyptian tender, where there was only one French offer, and all the business went to Black Sea exporters.

France harvested 39.5M tonnes (Mt) of soft wheat in the current year from July 2019 to June 2020, its second-largest crop on record, and up 16pc on the drought-reduced 2018/19 crop.

Before the strikes, current-season exports outside of the EU were estimated to reach more than 12Mt, a four-year high, and up 14pc on 2018/19.

Reliant on rail

The grain industry in France is extremely reliant on rail freight to execute the massive grain-transport task from interior storages and railheads to ports around the country each season.

It is estimated that road freight costs an additional €4-6/t depending on the distance to port, effectively reducing France’s competitiveness in the global marketplace.

That said, French 11.5pc protein wheat is quoted at US$224 free on board (FOB) for a February loader, maintaining its discount to Black Sea values which closed last week quoted at $229/t FOB.

German and Baltic export premiums have been strengthening against French wheat values as domestic merchants and exporters look for alternative EU supplies in the wake of the French crisis. They closed the week quoted at around $228/t and $227/t respectively for 12.5pc protein wheat.

If you call the 11.5pc cent protein discount $3/t, they remain competitive and provide a cheap means of avoiding the French system.

All this comes at a time when French exporters were hoping to rebuild their export clientele after a poor production year in 2018/19 reduced its export surplus, forcing traditional wheat customers to other origins.

France had a rare shipment of wheat to China at the beginning of the season, and traders are hopeful French wheat will regain market share in West Africa and catch extra demand from Morocco, which had a poor harvest.

Barley bears brunt

On the barley front, France harvested a record 13.6Mt from 1.9M hectares in the current season.

This was up 2.5Mt or 22pc from 2018/19, and restores a healthy export surplus.

In terms of quoted export values, French barley remains extremely competitive.

It closed last week at around $191 FOB compared with Black Sea replacement at around $192 FOB and German at around $195 FOB.

The latest Saudi tender results are out, and at those values, it is hard to see exporters shorting French execution with the current industrial turmoil.

German barley is more expensive and has a freight disadvantage, so it is highly likely the business will go to Black Sea nations unless the Argentinians decide to pop their head in for a look.

Major reform is always difficult in politics, especially when it potentially affects the majority of the country’s constituents.

The unions in France hold a lot of power and finding a resolution could be drawn out.

We also know how militant the French farmers can be when they are riled.

It will be fascinating to see what action they take and what influence It has when the strikes start to materially affect their farm income and profitability.




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