French co-operatives must act to survive in global grain markets

France’s long-standing farm co-operatives will need to scale up further and build effective infrastructure to avoid being marginalised as niche players while global commodity giants broaden their footprint on international grain markets.

Through a series of multi-billion-dollar acquisitions this year, international operators have been extending their reach in the handling of wheat and other staple crops to capitalise on rising demand for food.

Fundamental change is unlikely to happen overnight in France, traders and analysts say, as closely held companies control its grain flows from farms to ports and are used to competing on the world market.

But French firms will have to sharpen their competitiveness as new players such as diversified commodities company Glencore join the ranks of the so-called ABCD majors — Archer Daniels Midland, Bunge, Cargill and (Louis) Dreyfus — that dominate grain flows.

“In the future, what will be really crucial for the cooperatives will be to defend their current role as an indispensable intermediary,” Yves Pelle, of PricewaterhouseCoopers in France, said. “Otherwise we could see these links in the grain sector breaking up, with farmers going directly to the likes of Cargill or Dreyfus to sell their crop.”

France’s cooperatives and private firms have used their close ties with farmers and well established logistical networks to develop massive export flows.

Their success in winning overseas sales owes much to France’s historical ties with former colonies on the African continent and to the cachet France has as a supplier of consistent grain volume and quality, aided by a temperate climate.

InVivo, France’s largest farm cooperative group and top grain exporter, expects to have shipped 7 million to 8 million tonnes in the 2011/12 season that ended on Jun 30.

Fellow cooperative players Axereal and Lecureur and family-owned Soufflet also export millions of tonnes, and together the firms claim the bulk of grain exports.

Yet if global traders become more aggressive in markets typically supplied by France’s grain groups, they could expose the weakness of French firms as single-origin exporters.

Record French grain exports in 2010/11, when Russia stopped exporting for the most of the season, deflected attention away from the long-term growth of cheaper Black Sea supply and lagging investment.

“France is a major grain-producing country and will remain one,” Mr Pelle said. “But to be honest, on grain markets the French origin does not offer extra quality.”

Some exporters raised concerns that French wheat lacks a unique selling point.

“German wheat is like a BMW car, while French wheat is a Renault,” the head of French grain exporters union Synacomex said. “If Algeria’s (state grain agency) OAIC changes its terms… we could lose a vital outlet for our wheat,” Jean-Michel Aspar added.

— Reuters