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Chapter 25
Marketing
INTRODUCTION
An efficient production system and a profitable market are required for an industry to be successful. Flexibility within the system and the ability to adapt to changes in demand are also required if an industry is to be sustained. Agriculture is no different from any other industry in this regard.
The production and export of wheat is a multi-billion dollar industry in western Canada. Although winter wheat is a minor player, its production and marketing is tightly woven into the fabric that governs the entire Canadian wheat industry.
Most of the wheat produced in western Canada is sold into the world wheat market. There are many questions that must be answered when we attempt to evaluate the opportunities and limitations for winter wheat in this market.
1. How large is the world wheat market?
2. How diverse is the world wheat market?
3. In what countries do people consume wheat as an important part of their daily diet?
4. How many different kinds of food products are made from wheat?
5. Are differences in wheat quality important to the consumer?
6. What factors influence world wheat consumption?
7. What are the relationships between world wheat supply and demand?
8. Are world wheat consumption patterns changing?
9. What level of wheat reserves are maintained in the world?
10. Which countries are major wheat importers?
11. How predictable are the needs of wheat importing countries?
12. What are the wheat quality requirements of importing countries?
13. Are world wheat import patterns changing?
14. Which countries are Canada's major competitors in the wheat export market?
15. What are the classes of common wheat sold by the major exporting countries?
16. What classes of common wheat does Canada produce?
17. What are the market opportunities for the classes of wheat Canada produces?
18. Does Canada have the ability to produce and market additional classes of wheat?
19. Which countries are Canada's major wheat customers?
20. Which countries are potential new customers for Canadian wheat?
21. What are the market opportunities for Canadian Western Hard Red Winter Wheat?
22. Are there market opportunities for other classes of winter wheat that could be produced in western Canada?
23. What can farmers do to maximize their market returns from winter wheat?
24. Are there opportunities for western Canadian farmers to add value to their winter wheat?
The World Wheat Market
World Wheat Production
World Wheat Consumption
World Wheat Imports
World Wheat Exports
Canadian Production
Canadian Wheat Exports
Market Classes of Common Wheat
Wheat prices
Market Opportunities for Canada Western Hard Red Winter Wheat
Protein Concentration
New Market Opportunities for Western Canadian Winter Wheat
Uniformity
Value-Added Winter Wheat (Nature's Choice)
The world wheat market is enormous. Annual global wheat consumption is in excess of 550 million tonnes (20 billion bushels). Farmers of the world produce almost 20 times as much wheat as is produced in Canada to satisfy this growing appetite.
Approximately two-thirds of the wheat produced in the world is used for human food and about one-sixth is used for livestock feed. Industrial uses, seed requirements, and post-harvest losses account for the remaining withdrawals from the world wheat granaries.
Wheat is the staple food of millions of people. It is also an important part of the daily diet of many millions more. Only rice challenges wheat for the title of most important food grain in the world.
Wheat is the dominant grain of world commerce. It is easily transported and stored and it is used to produce a large variety of foods that include many kinds and types of breads, cakes, noodles, crackers, breakfast foods, biscuits, cookies, and confectionary items.
Figure 1. World wheat production Figure 2. The major wheat producing countries for the period 1982 to 1991.
- Availability of substitutes, and
There have been major changes in the pattern of world wheat imports in the last fifty years. Western Europe shifted from a major wheat importer, which purchased over 50 percent of the world imports in 1949-50, to a major wheat exporter, which produced nearly 20 percent of the world wheat exports in 1988-89. In contrast, wheat imports by Japan increased during the 1950's and 60's making it one of the largest world markets by the mid-1970's. Developing countries also became a large market for wheat during this period.
Total world wheat production slowly increased during the 1980's (Figure 1). However, an even larger increase in consumption by producing countries resulted in a slight decline in world wheat imports during this period (Figure 8). Russia and China, countries that started to import wheat on a large scale in the early 1960's, accounted for more than 30 percent of the world wheat imports in the 1980's (Figure 9). Both regions have large populations; however, they also have a good potential for wheat production. A large crop allowed China to significantly reduce its imports in 1992-93. Recent economic problems have had a significant effect on Russia's ability to import wheat.
Recent import patterns suggest that we should expect future wheat markets to be much more diverse than those we have traditionally seen. Developing countries are expected to continue to provide major opportunities for wheat exports. Consumption often outpaces production as standards of living and populations increase in these countries. This creates a large demand for food products, especially those produced from wheat. World wheat imports could expand to an even greater extent if the recent General Agreement on Trade and Tariffs (GATT) were to provide a less restricted environment for the movement of wheat into developed countries, especially the EEC. Changes of this nature would produce a more diverse, more quality conscious world wheat market where exporters with responsive marketing strategies and the ability to deliver a range of wheat quality types have an advantage.
Figure 4. World wheat consumption
The 1983 production year corresponds to the 1983/84 crop delivery year, etc
Figure 5. World wheat reserves.
The 1982 production year corresponds to the 1982/83 crop delivery year, etc.
Figure 6. World wheat carryover stocks.
The 1982 production year corresponds to the 1982/83 crop delivery year, etc
Figure 7. World Wheat carryover stocks held by the major wheat exporting countries.
The 1982 production year corresponds to the 1982/83 crop delivery year, etc.
Figure 8. World wheat imports.
The 1972 production year corresponds to the 1972/73 crop delivery year, etc
Figure 9. The major wheat importing countries for the period 1982/83 to 1991/92.
WORLD WHEAT EXPORTS
Five major exporters, Argentina, Australia, Canada, EEC, and USA, normally account for over 90 percent of the world trade in wheat (Figure 10). These countries also reluctantly maintain a significant proportion of the world wheat reserves as annual carryover (Figure 6). Among the "big five", Australian and Canadian farmers are the most dependent upon the international marketplace for the sale of their wheat (Figure 11).
A marketplace without rules has allowed the EEC to freely dispose of its highly subsidized surplus wheat in the international wheat market. In turn, the USA has used the EEC action as an excuse to dump its surplus wheat onto the international market at "fire sale" prices. Although not entirely disinterested, the governments of the remaining exporting countries have proven to be completely impotent in responding to this trade brawl by the so-called champions of a free marketplace, the USA and EEC. This bar-room mentality has been a constant disruption to the normal function of the wheat marketplace and, as a result, has permitted the USA and EEC to have disproportionate influence on the development of world export patterns.
Figure 10. Exports of wheat by major exporting countries.
The 1963 crop year corresponds to the 1963/64 crop delivery year, etc.
Canada produces approximately 5 percent of the world's wheat (Figure 2). However, because it has a relatively small population to feed, Canada exports over 75 percent of its annual production (Figure 11) and accounts for 20 percent of the world's wheat exports (Figure 10). Canadian wheat production is concentrated on the western prairies where, as the dominant field crop, it is a major source of farm income (Figure 12) even when market prices are depressed.
The first sustained attempts to grow wheat in western Canada can be traced back to the Red River Valley of Manitoba in 1812. The first wheat exports from the Canadian prairies were made in 1876 and Canada soon developed a reputation as a producer of high quality wheat. Production rapidly increased as the prairies fell to the homesteaders' ploughs and new, better suited varieties became available. Wheat proved to be especially well adapted to the Canadian prairies and disposal of surpluses soon became one of the main limitations to production.
The rapid increase in world wheat production in the 1950's and 60's more than supplied world demand and created an unmanageable surplus of wheat, especially in Canada where the carryover (Figure 13) was 50 percent larger than the entire wheat crop harvested in 1969 (Figure 14). In an attempt to reduce this massive surplus, the Canadian government initiated an acreage reduction program, known as LIFT, that paid farmers to take land out of wheat production.
Figure 11. Percentage of annual wheat production exported by the principle wheat exporting countries. Figure 12. 1991/92 Saskatchewan farm income. Estimates exclude payments from government programs. Figure 13. Canadian wheat carryover stocks.
The 1968 production year corresponds to the 1968/69 crop delivery year, etc.
Figure 14. Wheat production in Canada. Figure 15.Western Canadian wheat seeded acreage. "Other" refers to wheat classes other than Canada Western Hard Red Spring wheat.
Operation LIFT was successful in reducing Canadian wheat stocks. Canadian wheat production decreased from over 18 million tonnes in 1969 to nine million tonnes in 1970 (Figure 14). Western Canadian farmers had seeded over 29 million acres to wheat in 1968 (Figure 15). The area seeded to wheat was reduced to nearly 10 million acres by 1970. The Canadian wheat carryover fell sharply between 1969 and 1972 (Figure 13), just ahead of major price increases that peaked in 1973-74 (Figure 3).
Increased prices and reduced carryover provided an immediate incentive for Canadian farmers to stampede back into wheat production. Wheat acreage immediately rebounded to nearly 18 million acres in 1971 (Figure 15). A steady growth in acreage continued until 1983 when the production area peaked at over 32 million acres. During the period between 1970 and 1983, wheat experienced by far the most rapid rate of growth of any crop in Canada. In spite of this rapid growth (Figure 15), a new attitude toward marketing maintained the average wheat carryover during this period at less than 50 percent of the 1969 surplus (Figure 13).
The Canadian wheat acreage reached a plateau at near 30 million acres between 1983 and 1993. Weather had a large influence on productivity during this period. A severe drought in 1988 had an especially large effect on both total wheat production (Figure 14) and carryover (Figure 13). A significant price increase in 1988 and 1989 (Figure 3) indicated that the wheat market had retained some sensitivity to supply.
Unstable wheat prices were a dominant characteristic of the period between 1971 and 1992 (Figure 3). Rapid price increases in the early 1970's fuelled an expansion in Canadian wheat acreage. In contrast, Canadian production capabilities were restrained by indiscriminate fire from the wheat trade war between the USA and EEC in the 1980's and 90's.
Canadian wheat farmers export over 75 percent of their production (Figure 11). Consequently, they are extremely dependent upon what happens in the world marketplace. World market instability placed wheat production and western Canadian agriculture under extreme stress in the 1980's and early 1990's. This period also saw a sustained effort by government and industry to diversify western Canadian agriculture away from wheat. Diversification was pressed so vigorously that wheat production became a neglected industry in Canada. Wheat research and development were severely curtailed and production capabilities were sustained at great social expense.
Western Canadian farmers began accumulating a surplus of wheat soon after the prairies were settled. Canada accounted for 35 percent of the world market and was the leading exporter of wheat by World War I. By the start of World War II, the Canadian share of the world wheat market had climbed to 40 percent. Canadian wheat trade continued to increase after World War II, especially during the period between 1968 and 1983 when exports increased by 5 percent per year (Figure 16). However, in spite of this rapid growth, Canada's share of the world wheat export market decreased to approximately 20 percent by 1983. Canadian wheat exports were very erratic between 1983 and 1992. General trends indicated that the climb in Canadian wheat exports had stalled at an average 19 million tonnes per year leaving Canada behind the USA as the world's second largest exporter of wheat.
Russia and China purchased nearly 50 percent of the wheat exported from the 1982 to 1991 Canadian crops (Figure 17). Japan, Brazil and the European Economic Community were also large customers of Canadian wheat, including durum. The remaining one-third of Canadian wheat exports went to over 100 different countries during this period.
There has been a change in the customer share of Canadian wheat exports in recent years. China and Russia significantly reduced their purchases while South Korea and Iran became Canada's second and fourth largest customers in 1992-93. The export of Canadian wheat to the USA has also gradually increased in the last few years.
Figure 16. Canadian wheat exports.
The 1968 production year corresponds
to the 1968/69 crop delivery year, etc.Figure 17. Canadian wheat exports by countries - 1982/83 to 1991/92.
Increased Canadian wheat exports into the USA indicates just how distorted the world wheat marketplace has become in recent years. The USA market has provided a particularly attractive short term option for Canadian wheat. However, the USA accounts for 40 percent of the world's wheat exports suggesting that there could be a considerable risk if Canadian farmers developed a long term dependence on the USA wheat market.
The export destinations for Canadian wheat are expected to continue to change as market opportunities develop in Asia, Latin America, and Africa. Control of the purchase of wheat is also expected to shift away from central buying agencies to the millers and bakers in importing countries. Greater end-user influence should make the wheat marketplace more quality conscious and provide greater opportunities for Canadian wheat.
MARKET CLASSES OF COMMON WHEAT (Triticum aestivum L.)
World Wheat Market Classes
There are a large number of classes of common wheat sold on the international market. The main market classification is based on kernel texture (hard or soft), bran color (red or white), and growth habit (spring or winter) resulting in eight main types of common wheat:
- Hard Red Spring,
- Soft Red Spring,
- Hard White Spring,
- Soft White Spring,
- Hard Red Winter,
- Soft Red Winter,
- Hard White Winter, and
- Soft White Winter.
Exporting countries usually subdivide the wheat types that they export into classes. For example, Canada Western Hard Red Spring, Canada Prairie Spring, and Canada Western Extra Strong Red Spring wheat are all hard red spring wheats. Each of these classes is then further subdivided into grades to ensure that the customer receives wheat of uniform end-use quality.
Milling characteristics and end-use quality are influenced by kernel texture. Consequently, classification of wheat according to kernel texture is of major concern in the marketplace.
White bran color is often preferred for the production of human foods that use high extraction flours. Bran remains as an admixture in high extraction flours and the consumer can confuse red bran with undesirable contaminants. Therefore, the miller can produce more flour from a tonne of white wheat without the risk of the flour being devalued due to bran discoloration. On the down side, there is a strong genetic linkage between red bran color and post-harvest seed dormancy. This means that the quality of white wheat usually deteriorates much more quickly than the quality of red wheat if harvest is delayed by wet weather.
Market classification of wheat on the basis of spring or winter growth habit appears to be a hold-over from the period when people believed the world was flat. Wheat is produced in a variety of environments throughout the world and its growth requirements must be synchronized with the growing season of a region for successful production. The growth stages of the plant can be brought into harmony with a given environment by varying seeding date and modifying photoperiod (day length) and vernalization (low temperature) responses. Photoperiod and vernalization requirements both have the effect of delaying the wheat plants' transition from the vegetative to the reproductive stages (see Chapter 10). These mechanisms serve mainly to prevent the plants from entering the extremely cold-sensitive reproductive growth stages until after the risk of low temperature damage has passed. Lengthening the vegetative period also allows the plant to produce more tillers and increase its yield potential.
When it can be successfully overwintered, winter wheat usually outyields spring wheat. However, at similar levels of available soil nitrogen, higher yield usually means lower protein concentration and protein concentration is a major concern in the world marketplace.
Except for an indirect effect due to the negative relationship between grain yield and protein concentration, there is little evidence to suggest that growth habit has a meaningful influence on grain quality. Certainly, a vernalization requirement should not be expected to have any greater influence on grain quality than a photoperiod requirement. Consequently, there does not appear to be a good reason for storing spring and winter wheats with similar quality characteristics in separate bins, especially if protein segregation is a grading factor.
Growth habit has not been a market factor in at least one export class of wheat. Soft white spring wheat is often overseeded into soft white winter wheat fields that have sustained winter damage in the USA Pacific Northwest. The spring and winter wheats are harvested together and sold as soft white wheat. Concern has been expressed with this procedure because lower yielding spring wheats often have higher protein concentration, which is a degrading factor for soft white wheat. Once again, the solution to this market dilemma is to deal with the quality concern through protein segregation, not separation into spring and winter wheat classes.
Is winter wheat actually spring wheat in disguise? Vernalization is simply a requirement for a period of growth under cool temperatures before the genetic block to the initiation of flowering is released. Properly managed winter wheat will have its vernalization requirements met before spring wheat is seeded in the spring. Many so-called spring wheats show some vernalization response. Does this mean that in the early spring unplanted spring wheat with a short vernalization requirement is actually a winter wheat while the vernalized winter wheat plant growing in the field is actually a spring wheat?
Overwintering wheat seedlings in a frozen Saskatchewan field has about as much influence on subsequent grain quality as storing the seed in a granary and planting it the following spring. Growth and development of a wheat plant practically ceases when soil temperatures drop below freezing. Even the vernalization process requires growth at temperatures above freezing to proceed effectively. Consequently, one would expect that if growth habit has any influence on grain quality it would be most evident in regions where warm winter temperatures permit the wheat to actively grow throughout the winter. However, for some strange reason, the wheat marketplace often identifies fall seeded wheat produced in regions with mild winters as spring wheat.
The Australian's have some of the most creative marketing people in the world. They plant their wheat in the fall, which by most definitions would make it a winter wheat. Many Australian wheat cultivars have a short vernalization requirement, which makes them winter wheats in the physiological sense. However, when Australian wheat reaches the market it magically becomes a spring wheat. It is clear that the Australians have not been mislead by the winter wheat disguise. Growth habit is not a wheat quality factor.
Western Canadian Wheat Market Classes
Canada Western Hard Red Spring (CWRS) Wheat
Hard red spring wheat has been the cornerstone of the wheat industry in western Canada. CWRS wheat is world renowned for its excellent milling quality, high flour water absorption, and superior blending characteristics. For years CWRS was practically the only class of common wheat grown on the Canadian prairies. In spite of efforts to develop other classes, CWRS wheat continued to account for nearly 95 percent of the common wheat acreage during the last decade (Figure 15).
Utility Wheat (Canada Western Extra Strong Red Spring Wheat)
Market potential for a utility wheat class has been under assessment since the early 1970's (Figure 18). However, these efforts lacked focus and the utility class experienced severe growing pains. Some of the developmental problems stemmed from the fact that the utility class was often used as a resting place for high yielding varieties that did not satisfy CWRS quality standards.
Attempts to market utility wheat as a Fair Average Quality (FAQ) type met with limited success in the early 1970's. In fact, one of the more cynical potential customers implied that the letters "FAQ" more appropriately stood for "F___ All Quality".
The variety Glenlea, which was registered for production in Canada in 1972, was test-marketed for several years to determine the market potential for high carrying capacity bread wheats. Because of its unique quality characteristics, Glenlea was segregated from other utility types until the 1985-86 crop year when it disappeared as a separate entity. However, cultivars with Glenlea quality characteristics have recently found new life with development of the frozen dough, blending wheat, and variety bread markets. In 1993-94, twenty-one years after the release of Glenlea, Canadian farmers were given another market option when the Canada Western Extra Strong Spring Wheat Class was created.
Canada Prairie Spring (CPS) Wheat
The roots of the CPS wheat class can be traced back to high yielding, low protein spring wheat varieties that originally found a home in the Utility Wheat class. A negative relationship is invariably observed between yield and protein concentration when varieties with different yield potentials are grown in the same field with the same level of available soil nitrogen. Consequently, under the Canadian system of quality evaluation, cultivars with high yield potential have been automatically disqualified from the CWRS wheat class.
The cultivar HY320, which entered the final western Canadian evaluation trials in 1974, was one of the first high yielding cultivars to be test marketed. In 1984 it was concluded that the kernel texture of HY320 was too soft for potential target markets. More recent high yielding varieties that have been considered in this class have a harder kernel texture than HY320. Two new classes, CPS red wheat (Figure 19) and CPS white wheat (Figure 20), have recently been created to accommodate high yielding varieties with red and white kernel color. The quality characteristics of the CPS wheats place them in competition with Hard Red Winter Wheat in the marketplace.
Canada Western Soft White Spring (CWSWS) Wheat
Soft white spring wheat is primarily an irrigation crop that is grown on a limited acreage in western Canada (Figure 21). It is a low protein wheat that is used in the production of cake mixes, cookies, and certain noodles.
Canada Western Hard Red Winter(CWHRW) Wheat
Over 60 percent of the wheat traded in the world each year is winter wheat. However, the severity of Canadian winters has slowed the development of winter wheat production in western Canada (Figure 22). In fact, the opinion has been expressed that production limitations make winter wheat a greater nuisance than a value to the western Canadian wheat industry.
The first winter wheat varieties available for production in western Canada had milling and baking characteristics that were considered inferior to those of hard red spring wheat. Winalta, which was released for commercial production in 1961, had excellent milling and baking characteristics. However, the superior quality of Winalta was not rewarded in the marketplace and farmers shifted their production to newer, lower quality varieties that were higher yielding and more winter hardy.
Southern Alberta accounted for nearly 98 percent of the winter wheat produced in western Canada before 1975 (Figure 23). A small production base allowed most of the winter wheat to be disposed of on the domestic market and in foreign aid programs. The mid-1980's saw a rapid increase in winter wheat production outside of southern Alberta. Alberta's share of the winter wheat acreage fell from 92 percent in 1979 to 26 percent in 1985. However, following record production years of 1985 and 1986, winter wheat acreage decreased significantly in all prairie provinces, including Alberta (Figure 23).
Limitations imposed by the Canadian grain handling system in the 1970's often meant that farmers could not deliver their winter wheat until the end of the crop year, almost two years after their winter wheat had been seeded. Subsequent improvements in the Canadian grain handling system allowed for more timely deliveries and helped encourage winter wheat production. In the early 1980's, as production increased outside of southern Alberta (Figure 23), the Canadian Wheat Board took a more active interest in developing an international market for winter wheat. However, winter wheat was on the front line of the subsidy war between the USA and EEC. Export opportunities in this market environment have generally priced Canadian hard red winter wheat similar to 3 CW hard red spring wheat. Because of inconsistent supply, exports of CWHRW have often been handled as a delivery option on spring wheat contracts that have been more price than quality conscious.
Figure 18. Utility wheat seeded acreage Figure 19. Canada Prairie Spring (Red) wheat seeded acreage. Figure 20. Canada Prairie Spring (White) wheat seeded acreage. Figure 21. Canada Western Soft White Spring wheat seeded acreage. Figure 22. Canada Western Hard Red Winter wheat seeded acreage. Figure 23. Winter wheat production in Alberta, Saskatchewan, and Manitoba.
The price of #1 Hard Red Spring wheat was relatively stable from the end of World War II until 1971 (Figure 3). Large carryovers (Figure 13) produced a slight downward trend in prices and prompted the initiation of programs to reduce wheat acreage in the late 1960's. These programs successfully reduced surplus stocks and helped stimulate a major price increase in 1973. Wheat prices have been very unstable since 1973 (Figure 3).
Canada Western Hard Red Spring (CWRS) wheat commands a premium price in the world market. The prices of 2 and 3 CWRS wheat have closely followed those of 1 CWRS wheat (Figure 24) even though there have been large differences in yearly grade patterns. Protein guarantees are available on 1 and 2 CWRS wheat grades. As expected, the price premium for these guarantees is greatest when the supply of high protein wheat is limited. In the last 13 years, the average return on 1 CWRS 13.5 percent protein wheat has been $5.39 per tonne (15 cents per bushel) higher than 1 CWRS wheat without a protein guarantee (Table 1).
The rest of the common wheat classes produced in western Canada are normally priced lower than CWRS wheat (Table 1). The average prices for 1 CW Hard Red Winter, 1 CW Soft White Spring, 1 Canada Prairie Spring, and 1 CW Utility wheat have been within three percent of the price of 3 CWRS wheat. Consequently, cultivars in these classes must be higher yielding than CWRS wheat cultivars for farmers to realize similar gross returns (Table 2).
Table 1. Average total Canadian Wheat Board payments instore Thunder Bay or Vancouver.
One tonne = 36.74 bushels.
Production Years note 1978 to 1992 1980 to 1992 1985 to 1992 $/tonne $/bushel $/tonne $/bushel $/tonne $/bushelHard Red Spring Wheat No. 1 CW 13.5% protein N/A N/A 174.52 4.75 156.36 4.26 No. 1 Canada Western 170.37 4.64 169.13 4.60 150.53 4.10 No. 2 Canada Western 164.21 4.47 163.36 4.45 143.37 3.90 No. 3 Canada Western 155.50 4.23 154.09 4.19 134.44 3.66 Hard Red Winter Wheat No. 1 Canada Western 159.49 4.34 157.86 4.30 138.79 3.78 No. 2 Canada Western 157.31 4.28 155.70 4.24 136.52 3.72 No. 3 Canada Western 147.94 4.03 145.35 3.96 121.58 3.31 Soft White Spring Wheat No. 1 Canada Western 158.14 4.30 156.38 4.26 137.15 3.73 No. 2 Canada Western 156.48 4.26 154.62 4.21 134.90 3.67 No. 3 Canada Western 147.27 4.01 144.61 3.94 121.14 3.30 Canada Prairie Spring Wheat No. 1 Canada Prairie Spring N/A N/A N/A N/A 133.39 3.63 No. 2 Canada Prairie Spring N/A N/A N/A N/A 130.64 3.56 Utility (Canada Extra Strong) No. 1 Canada Western 156.09 4.25 154.81 4.21 138.40 3.77 No. 2 Canada Western 142.38 3.88 140.04 3.81 126.28 3.44 Feed Wheat Canada Western Feed N/A N/A 128.91 3.51 116.22 3.16
In a free market, one would expect significant year to year variation in the relative prices of different wheat classes if they are sold into different end-use markets. However, similar price patterns (Figures 25, 26, 27) suggests that there is considerable opportunity for substitution among the different classes of common wheat. The almost identical price patterns for Hard Red and Soft White wheat (Figure 28) is particularly surprising given that these classes represent extremes in end-use quality.
If the period between 1978 and 1992 provides any indication of future price spreads, Canada Western Hard Red Winter (CWHRW) wheat will require less than a 15 percent yield advantage over CWRS wheat to provide farmers with similar gross returns per acre (Table 2). The need for a yield advantage disappeared entirely in the 1992-93 crop year when the price of the top two CWHRW wheat grades (Figure 29) catapulted past those of the top two CWRS wheat grades (Figure 24). However, CWHRW wheat stocks were limited in 1992-93 and, unless more customers can be found who appreciate the quality of CWHRW wheat, it is expected that the advantage normally held by CWRS wheat will return as soon as winter wheat acreage is increased.
Figure 24. Price of Canada Western Hard Red Spring wheat. Figure 25. Price of 1 Canada Western Hard Red Winter (CWRW) and 3 Canada Western Hard Red Spring (CWRS) wheat. Figure 26. Price of 1 Canada Western Hard Red Winter (CWHRW) and Canada Prairie (CPS) wheat. Figure 27. Price of 1 Canada Western Hard Red Winter (CWHRW) and Utility wheat.
Table 2. Yield (%) required for other classes and grades of western Canadian wheat to provide the same gross return per acre as 1 CW Hard Red Spring (CWRS) wheat.
Yield Relative to 1 CWRS (%) Instore Vancouvernote1 Farm Gatenote2 Farm Gate Returnnote3 or Thunder Bay Return Less Crow Benefit Hard Red Spring Wheat No. 1 CW 13.5% protein 96 95 95 No. 1 Canada Western 100 100 100 No. 2 Canada Western 105 106 107 No. 3 Canada Western 112 115 118 Hard Red Winter Wheat No. 1 Canada Western 108 111 113 No. 2 Canada Western 110 113 115 No. 3 Canada Western 124 131 138 Soft White Spring Wheat No. 1 Canada Western 110 112 115 No. 2 Canada Western 112 115 117 No. 3 Canada Western 124 131 139 Canada Prairie Spring No. 1 Canada Prairie Spring 113 116 119 No. 2 Canada Prairie Spring 115 119 123 Utility (Canada Extra Strong) No. 1 Canada Western 109 111 113 No. 2 Canada Western 119 124 130 Feed Wheat Canada Western Feed 130 138 148
Note1: Assumes wheat prices equal to the average Thunder Bay or Vancouver prices for the 1985/86 to 1992/93 crop delivery years, i.e. 1 CWRS wheat = $150.53/tonne. See Table 1. Note2: Instore Thunder Bay or Vancouver price less freight and handling costs of $27.00/tonne (Farm gate return). Note3: Instore Thunder Bay or Vancouver price less freight and handling costs and Crow rate assistance, i.e. freight and handling costs total $45.00/tonne (Farm gate return less Crow Benefit). [Back to Table2]
A $2.27 per tonne (6 cents per bushel) price advantage for 1 over 2 CWHRW wheat (Table 1) suggests that there is basically no market difference between the top two winter wheat grades (Figure 29). In contrast, 3 CWHRW wheat has sold at near feed wheat prices for the last seven years (Figure 30). Essentially no difference between the price of the top two grades and a drop to feed wheat prices for 3 CWHRW wheat suggests that there is a need for grade restructuring in the Hard Red Winter wheat class.
Figure 28. Price of 1 Canada Western Hard Red Winter (CWHRW) and Soft White Spring (CWSWS) wheat. Figure 29. Price of Canada Western Hard Red Winter wheat.
Figure 30. Price of 3 Canada Western Hard Red Winter
(CWRW) and Feed wheat.
MARKET OPPORTUNITIES FOR CANADA WESTERN HARD RED WINTER WHEAT
Winter wheat varieties can be produced with quality characteristics that will satisfy the specifications of practically any common wheat market in the world. The world markets are familiar with winter wheat as more than 60 percent of the annual world wheat exports are classified as winter wheat. Consequently, there are numerous market opportunities that can be exploited provided adapted winter wheat varieties with the right quality characteristics are available and efficient production, marketing, and grain handling systems are in place. In recent years, it has also become painfully obvious that participation in some wheat markets also requires the backing of a generous government treasury.
Hard Red Winter Wheat is the only winter wheat class with cultivars registered for production in western Canada. Canada Western Hard Red Winter (CWHRW) wheat has excellent milling quality. It has cooking quality that is particularly suited to the production of French-style hearth breads, steamed bread, flat bread, tortillas, chapattis, pitas, oriental noodles, crackers, and pizza dough.
Hearth breads are a common speciality bread in most countries where bread is a regular part of peoples' diet. They are the standard breads consumed in Europe, South America, and Caribbean countries. Flat breads are both leavened and unleavened. They are the usual type of bread consumed in Iran, Mexico, the Middle East, North Africa, and the Indian sub-continent. Breads cooked in steam are popular in south-east Asia.
Oriental noodles are produced by sheeting and slicing dough made from common wheat flour while pasta noodles, which are usually made from durum semolina, are extruded. Oriental noodle products account for over 40 percent of the wheat consumed in many countries in the Far East. This is a large and growing market that provides numerous opportunities for the sale of CWHRW wheat.
Figure 31. Protein concentration of Norstar winter wheat grain samples (13.5% moisture) collected from farmers' fields in east-central Saskatchewan in the fall of 1992 and 1993.
Market analysts of the Canadian Grain Commission and Canadian Wheat Board have indicated that CWHRW wheat must average above 12 percent grain protein to compete effectively in these international markets. Traditionally, market objectives of this type have been achieved by restricting cultivar release to those lines that meet or exceed quality standards. However, in the last few years the quality targets for the Hard Red Winter wheat class have been moving faster than the speed of light and they have now completely disappeared from the plant breeders' sight. For example, the cultivar Norstar occupied almost all of the western Canadian winter wheat acreage in the 1992 and 1993 production years. Winter wheat samples from farmers fields in east-central Saskatchewan (Figure 31) indicate that the grain protein concentration of future cultivar releases would have to exceed that of Norstar by more than two percent to achieve the new quality goals for the Hard Red Winter Wheat class.
PROTEIN CONCENTRATION
Within each wheat market class, only cultivars with grain quality equal or superior to reference cultivars can be registered for production in Canada (see Chapter 24). The negative relationship that exists between grain yield and protein concentration (see Chapter 8) makes it next to impossible for Canadian plant breeders to achieve significant increases in grain yield while maintaining protein concentration at levels equal to those of lower yielding reference cultivars. Unless yield is sacrificed, an impossible situation develops for plant breeders when the marketplace demands cultivars with protein concentrations that are significantly higher than those of reference cultivars.
Nitrogen is an essential building block for protein. The amount of nitrogen the plant has access to for the production of protein is determined by the level of available soil nitrogen (see
Chapter 17 ). In the absence of a soil nitrogen gradient, two cultivars growing side-by-side have access to the same amount of available soil nitrogen. Consequently, the cultivars will have similar protein yields unless they have different abilities to extract nitrogen from the soil, translocate it to the grain, or use it in protein synthesis. Protein concentration is determined by the ratio of grain protein yield to total grain yield.(Equation 1)
GRAIN PROTEIN YIELD GRAIN PROTEIN CONCENTRATION (%) = ----------------------------- X 100 TOTAL GRAIN YIELD
Therefore, higher yielding cultivars will have lower grain protein concentration unless they have an increased ability to utilize available soil nitrogen for protein production.
Plant breeders can only manipulate the protein concentration of wheat cultivars with great difficulty and within narrow limits. The practical range of genetic variability for wheat protein concentration is approximately two percent when a correction is made for differences in grain yield. The closer a wheat class approaches the extremes of this range (high or low protein), the more difficult it is for plant breeders to improve grain yield and/or grain protein concentration.
A nitrogen fertilizer trial conducted at Saskatoon in 1993 provided a dramatic example of the corner the Canadian wheat industry has worked itself into in its efforts to deal with the negative relationship between grain yield and grain protein concentration. The trial included five winter wheat lines with opposite grain yield and protein concentration rankings (Figures 32 and 33), i.e., S375 had the highest grain yield and lowest grain protein concentration while Winalta had the lowest grain yield and highest grain protein concentration. However, while there were large differences in grain yields and grain protein concentrations, the grain protein yields of these lines were similar (Figure 34). (Note: The grain protein yield of Winalta was actually significantly lower than that of the other lines. But, in order to keep this discussion simple and to the point, we will be generous and assume Winalta was not an inferior protein producer.) If the numerator of the grain protein concentration equation (Equation 1) is essentially a constant, i.e., % protein = a constant for grain protein yield/total grain yield x 100, then the high protein concentration of lines like Winalta (Figure 33) is not due to genes for high grain protein production but genes for low grain yield (Figure 32). Does this mean that we must grow low yielding wheat cultivars to satisfy market requirements for high grain protein concentration?
Figure 32. Relationship between nitrogen fertilizer rate (lb N/acre) and grain yield of five winter wheat lines grown at Saskatoon, Sask., in 1992/93. Figure 33. Relationship between nitrogen fertilizer rate (lb N/acre) and grain protein concentration of five winter wheat lines grown at Saskatoon, Sask., in 1992/93 ( 8 % grain moisture).
Figure 34. Relationship between nitrogen fertilizer rate (lb N/acre) and grain protein yield of five winter wheat lines grown at Saskatoon, Sask., in 1992/93.
The 1993 Saskatoon fertilizer trial also demonstrated the influence of nitrogen fertilization on grain yield and grain protein concentration. Under the low residual soil nitrogen levels and favorable environmental conditions for growth experienced in 1993, the first few increments of nitrogen fertilizer produced a dramatic increase in grain yield (Figure 32) and a reduction in grain protein concentration (Figure 33). As the rate of increase in grain yield slowed, there was an approximately three percent recovery in grain protein concentration (Figure 33) that was entirely due to an increased rate of nitrogen fertilization. Obviously, we can grow high yielding cultivars and still meet the protein concentration requirements of the wheat marketplace. However, increased plant nitrogen requirements must be satisfied if both high grain yield and high grain protein concentration are to be achieved. This means that, if we wish to increase the yield potential of wheat cultivars without sacrificing protein concentration, the farmer must be made a full partner in the Canadian Wheat Board's efforts to ensure that the quality requirements of its customers are met.
If protein has value in the wheat marketplace, a premium must be paid to encourage farmers to fertilize for high protein concentration rather than attempting to maintain quality standards by forcing farmers to grow low yielding cultivars. A 1992 study in east-central Saskatchewan provided an excellent example of the influence farmers can have on grain protein concentration. Ten fields of Norstar winter wheat were located within a ten mile radius. Four fields managed according to recommended practices had average grain yield of 45 bu/acre and grain protein concentration of 11.5 percent. Six fields that had questionable nitrogen fertilization produced an average grain yield of 40 bu/acre and grain protein concentration of 8.6 percent. The three percent increase that the farmers were able to accomplish with nitrogen fertilization is only a dream for plant breeders, especially if they are also expected to increase cultivar yield potential.
A similar situation exists for spring wheat. A comparison of grain yields for the Canada Prairie Spring and CW Hard Red Spring wheat classes shows that plant breeders were able to quickly achieve a greater than 20 percent increase in grain yield once the protein concentration restrictions on cultivar release were lifted in spring wheat. If proper fertilizer management is used, there doesn't appear to be a good reason why present commercial quality standards can't be maintained while the high yield potential of the CPS wheat class is transferred to the CWRS wheat class. This would provide a $650 million opportunity for western Canadian farmers to add value to wheat before it leaves the farm gate. However, before we can capitalize on this opportunity farmers must assume a greater role in maintaining wheat quality standards, protein concentration must be recognized as a significant grading factor for all commercial wheat deliveries, and the real value of protein must be determined in the marketplace.
NEW MARKET OPPORTUNITIES FOR WESTERN CANADIAN WINTER WHEAT
Canada Western Hard Red Winter wheat is not the only class of winter wheat that could be produced in western Canada. If adapted cultivars were available and marketing programs were developed, there is the opportunity to produce winter wheat for the extra strong hard, soft red, soft white, and hard white wheat markets.
Soft red winter wheat introductions have been the major source of cold hardiness genes for western Canadian winter wheat breeding programs. Therefore, the usual effort required to improve cold hardiness is not a limitation to the development of cultivars for the soft red winter wheat quality class. However, due to the absence of a market, advanced soft red winter wheat selections that have performed well in regional field trials have been discarded from western Canadian winter wheat breeding programs.
The Canada Prairie Spring White wheat class is being developed to provide western Canadian farmers with access to the hard white wheat market. As mentioned earlier, a predisposition to sprouting when subjected to wet weather prior to harvest has been one of the weaknesses of white seeded cultivars. However, winter wheat is planted in the fall immediately after harvest and most winter wheat growers would consider a high level of seed dormancy a nuisance, especially if it required seed to be held over a year before planting. From the quality standpoint, this means that problems with sprouting need not be any greater with the commercial production of hard white winter than hard red winter wheat.
Figure 35. Grain protein concentration of number 2 Canada Western Hard Red Winter and Soft White Spring wheat composite grain samples (13.5% moisture) from the Canadian Grain Commission's annual harvest survey for the 1986 to 1992 production years.
Soft white winter wheat has been produced in western Canada. However, a lack of adapted cultivars has limited the opportunity to develop the commercial potential of this wheat class. Low grain protein concentration is a prerequisite for high quality soft white wheat. Judging from the grain protein concentration of composite samples analyzed by the Canadian Grain Commission in its annual harvest survey (Figure 35), winter wheat could offer a quality advantage over Canada Western Soft White Spring wheat. High grain protein concentration is a requirement for high quality Canada Western Hard Red Winter wheat. However, the grain protein concentration of 2 CW Hard Red Winter wheat was only significantly higher than that of 2 CW Soft White Spring wheat in two of seven years between 1986 and 1992 (Figure 35). S375 is a soft white winter wheat line that is higher yielding than the high yielding hard red winter wheat cultivar CDC Kestrel (Figure 33). With proper nitrogen fertilizer management, the grain protein concentration of commercially produced S375 should be much lower than that of Norstar (Figure 33), which was the dominant cultivar grown in western Canada during the years of the Canadian Grain Commission surveys (Figure 35). Based on these observations, soft white winter wheat would appear to have a quality advantage over soft white spring wheat produced in western Canada. In addition to the traditional soft white wheat markets, the high starch concentration and yield potential of soft white winter wheat lines could create new market opportunities for winter wheat, such as the production of industrial alcohol.
Markets for new or different products start small and grow when opportunities for expansion can be found. However, the competitiveness of the Canadian wheat marketing system is based on large volumes and bulk handling, which make it very difficult to establish and develop small niche markets that may have the potential to grow and prosper in the future. The Canadian marketing system also has created self-imposed artificial barriers that restrict its flexibility and ability to quickly exploit potential new market opportunities.
Adapted cultivars with the required quality characteristics must be available for commercial production before opportunities in the wheat marketplace can be exploited. The genetic control of the characters under selection influence the complexity of plant breeding programs. However, as a general rule, each additional gene that a plant breeder selects for has an exponential effect on the effort and cost associated with the program. Consequently, the chances of a plant breeder making progress rapidly decreases when the number of characters under selection is increased. The kernel characteristics employed to identify western Canadian wheat classes have no bearing on end-use quality (see Chapter 24); but, they do represent additional characters that must be selected for in wheat breeding programs. As a consequence, they increase the cost and greatly restrict the efficiency and productivity of Canadian wheat breeding programs.
The requirement for kernel distinguishability of different wheat classes also decreases the flexibility of wheat breeding programs and often results in lost opportunities for the exploitation of potentially valuable genetic stocks. For example, a high yielding rust resistant winter wheat line with quality characteristics identical to those of reference cultivars for the Canada Western Hard Red Spring wheat class could not be registered and grown in Canada if the line had kernel characteristics that were similar to those assigned to the Canada Western Hard Red Spring wheat class.
The Canadian Wheat Board introduced an expanded contract delivery program for wheat in 1993. This system was introduced to provide the Canadian Wheat Board with a better inventory of wheat supplies available each crop year and allow for more effective planning of deliveries and sales. The contract delivery program also provides an opportunity to eliminate the need for kernel distinguishability of different wheat classes.
Farmers declare the class and grade of wheat they wish to sell in each Canadian Wheat Board delivery contract they sign. The need for kernel distinguishability of different wheat classes could be eliminated if the wheat cultivar name was also declared when each delivery contract was signed. This simple change in the Canadian Wheat Board contracts would create a method that is similar to the Australian affidavit system for identification and segregation of cultivars into the proper wheat classes (see Chapter 24).
In 1985, the Canadian Wheat Board started to use grower declarations of cultivar names to segregate nonregistered USA semidwarf cultivars at the time of delivery to the elevator. The simplicity and effectiveness of grower declarations for the identification of quality types has been further demonstrated in the Canadian Wheat Board's 1994-95 contract program for Grandin spring wheat.
Canadian Wheat Board contracts provide for protein grading of No. 1 and 2 CW Hard Red Spring wheat. If cultivar name was declared on each contract and protein concentration was made a grade determinant in all wheat classes, it would then be possible for the Canadian Wheat Board to quickly identify and access any quality type available in the western Canadian wheat production and marketing system.
A move to protein grading for all wheat classes and an affidavit system for cultivar identification at the time of delivery would free plant breeders of the restrictions placed on programs by kernel distinguishability requirements and the largely environmentally controlled negative relationship between protein concentration and yield. The efficiency of wheat breeding programs would be greatly increased and high yielding cultivars could be registered for commercial production without fear of jeopardizing our present export market for high quality, high protein wheat. Canadian farmers rank among the most efficient wheat producers in the world and they farm in a region blessed with an environment that produces a high quality product. They should be given maximum freedom and the responsibility to decide which cultivars and management systems are best suited to their farm situations so that the Canadian Wheat Board and the farmer can respond effectively and rapidly to market opportunities and price changes.
How important is consistency of product in the wheat marketplace and who reaps the rewards for maintaining uniform quality?
The development of unique products and niche markets is given a high priority by most export companies concerned with sustaining or expanding market share. However, exactly the opposite philosophy appears to exist within the wheat industry. Low price, bulk handling and, above all, a uniform, consistent product is required to meet the demands of today's millers and bakers. For example, different quality characteristics were the reason why the high yielding USA spring wheat cultivar Grandin could not be registered for commercial production in Canada. Grandin has a longer dough-mixing time than registered Canada Western Hard Red Spring (CWRS) wheat cultivars. It was concluded that, if Grandin were registered for commercial production, this quality characteristic would dramatically reduce the uniformity of export shipments of CWRS wheat thereby creating serious marketing problems.
A skilled baker can make bread from flour produced from just about any type of wheat. However, modern bakers no longer require the skills of their forefathers. In fact, one must question whether skilled bakers are a necessary part of the modern high-output mega-bakeries where small changes in flour quality can cause a major disruption to the entire bread production line. In a modern high-output bakery, a baker is a person who can make bread from just about any type of wheat as long as the wheat quality is always exactly the same. Similarly, modern millers can consistently produce the required quality of flour for the modern bread making factory as long as they are supplied with wheat that does not vary in milling quality. Who then is responsible for maintaining the quality of today's loaf of bread? Is it the miller, the baker, the person that puts the bread in the bag, or the farmer? Clearly, the quality standards required by the modern bread industry are the entire responsibility of the farmer. The farmers reward for producing the wheat, maintaining quality standards, and delivering a uniform product to the miller and baker is about 5 cents for each one pound loaf of bread sold.
VALUE-ADDED WINTER WHEAT (NATURE'S CHOICE)In regions where moisture was not a major limiting factor, Intensive Crop Management (ICM) systems became the rage of the 1970's and early 1980's. Wheat yields in ICM systems were maximized through the production of high yielding cultivars that were responsive to ever increasing inputs of nonrenewable energy resources, pesticides, fertilizers, water, and government subsidies. The realization that these systems were neither economically nor environmentally sustainable produced the concept of Maximum Economic Yield (MEY) and the emergence of markets for organically produced crops. MEY systems emphasized economic factors and organic farming focused on the elimination of pesticides and inorganic fertilizers. However, neither MEY nor organic production systems are necessarily environmentally friendly.
Many farmers have interpreted societies increased concern with environmental issues as an unfounded fear for food safety. However, the most recent demands for increased accountability by the agricultural industry have focused more on the effects of land use on human well being and quality of life than on food safety. The design of agricultural production systems that a) prevent erosion, salinization, groundwater pollution, and soil degradation, b) reduce pesticide, fertilizer, and energy inputs, c) create opportunities for multiple land use, and d) minimize environmental impacts have been high on the new environmental agenda. In several countries that have had first hand experience with ICM systems, fertilizers are now looked upon not only as yield enhancers, but as potential pollutants and farmers who do not use them responsibly may be liable for prosecution.
Agreements like the Law of the Sea Convention, which deals with environmental issues related to the oceans and seas, and the Montreal Protocol on the reduction of chloroflurocarbon (CFC) emissions demonstrate that environmental concerns will be acted upon at the international level. New technologies continue to strengthen societies ability to monitor agricultural activities and their impact on the environment. Consequently, farmers must take steps to convince society that they are sensitive to environmental concerns or be faced with increasingly stringent regulations on environmental quality.
Future agricultural systems will have to be both environmentally and economically sustainable. Environmentally friendly agricultural systems will be adopted more quickly and with less resistance if concerns are dealt with by providing farmers with incentives rather than legislating regulations. Many countries already provide financial and other incentives to encourage farmers to adopt management systems that are more environmentally sustainable. Food marketing surveys indicate that consumers are concerned about environmental issues and are willing to reward farmers who use environmentally friendly production systems. The large number of "green" products that are advertized on radio and TV and in newspapers and fliers provide clear evidence that environmental friendliness is a market factor when consumers are provided with choices.
No-till winter cereal production systems are Nature's Choice as the most environmentally friendly cropping option available to western Canadian farmers.
1) Plant establishment in the fall and surface residues from the previous crop minimize the risk of wind and water erosion.
2) Seeding is the only tillage operation.
3) Snow trapping and early season growth provides for efficient crop moisture utilization and soil nutrient management.
4) Plant growth during most of the growing season provides an effective tool in the battle against soil salinization.
5) Vigorous plant growth in the early spring can be exploited to reduce the farmers dependence on herbicides for weed control.
6) Recommended management practices allow pesticide use to be eliminated during the ten month period prior to the harvest of winter cereals.
7) Fewer field operations and minimal use of pesticides translates into reduced consumption of nonrenewable energy resources.
8) The absence of tillage in the spring and the protection offered by standing stubble and the developing crop results in less disturbance to wildlife.
9) A more environmentally friendly production system expands the opportunity for multiple land use.
Conservation groups are actively promoting the production of no-till winter cereals. With this endorsement, products made from identity-preserved no-till winter wheat should command a premium in an environmentally conscious marketplace. The price of no-till winter wheat at the farm gate would double if a premium of 5 cents per loaf of bread were returned to the farmer. Consequently, a premium equivalent to a few pennies on each loaf of bread would provide an incentive that would quickly make Nature's Choice the farmer's choice.
REFERENCES
- Grains and Oilseeds. Handling, Marketing, Processing. Fourth Edition. 1993. Canadian International Grains Institute, Winnipeg, Manitoba, Canada.
- Annual Reports of The Canadian Wheat Board.
- Saskatchewan Agriculture and Food Statistical Fact Sheets.
- The Canadian Wheat Board Seeded Acreage Statistics.
- Grain Research Laboratory, Canadian Grain Commission, Quality of Western Canadian Wheat Harvest Surveys.
ACKNOWLEDGEMENTS
Information provided by the staff of the Canadian Wheat Board Department of Information and Library is gratefully acknowledged.
Figure 31. 
Figure 34. 
Figure 35. 
Crop Development Centre
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