68075 The Grain Chain Food Security and Managing Wheat Imports in Arab Countries The Grain Chain Food Security and Managing Wheat Imports in Arab Countries © 2012 The World Bank 1818 H Street, NW Washington, DC 20433 Rights and Permissions The material in this work is subject to copyright. Because The World Bank and FAO encourage dissemination of their knowledge, this work may be reproduced, in whole or in part, for noncom- mercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522- 2422; e-mail: pubrights@worldbank.org. 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Table of Contents Acknowledgements................................................................................................................................... vii Executive Summary................................................................................................................................... ix 1.  Why is a Well-Performing Wheat-Import Supply Chain Critical for Arab Countries?........ 1 Are high and volatile cereal prices likely to continue?....................................................................... 2 Why are Arab countries vulnerable to what is happening in world wheat markets?.................... 4 What are the major import risks Arab countries are facing?........................................................... 5 What is the objective of the wisc study and how will countries’ performance be measured?................................................................................................................................... 7 2. How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy?..................................................................................................................... 9 How do strategic reserves address price risks?.................................................................................. 9 How do strategic reserves address supply risks?..............................................................................11 Are Arab countries making effective use of strategic reserves?......................................................12 What key issues should be addressed in developing a policy for strategic wheat reserves?........15 3. How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries?................................................................................................21 How should WISC efficiency be measured?...................................................................................21 How do WISC logistics in Arab countries perform in terms of addressing supply risk?..........23 How do WISC logistics in Arab countries perform in terms of addressing price risk?.............26 How can improvements to the WISC help to address both supply and price risks?..................30 4. How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports?.............................................................................................................35 What observations can be made about procurement strategies in Arab countries?....................35 What issues are critical to an efficient tendering process?..............................................................39 How can strategic relationships help mitigate supply risk?............................................................40 How can hedging be used as a price risk management tool?..........................................................42 iv The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Appendix I: Methodology........................................................................................................................47 Appendix II: Reported, Calculated, and Assumed Data...................................................................51 References...................................................................................................................................................61 List of Figures Figure 1-1 Simulations suggest that greater uncertainty in wheat production may make prices more unpredictable............................................................................. 3 Figure 2-1  Wheat stocks are negatively correlated with wheat prices.........................................10 Figure 2-2 Simulations suggest that higher global stock levels may provide a buffer to supply shocks and thus mitigate price risks���������������������������������������������11 Figure 2-3  Many Arab countries are planning to increase storage capacity................................14 Figure 2-4  Storage costs vary from one to four dollars.................................................................15 Figure 3-1 The analysis covers the supply chain from the unloading port to bulk storage at the flour mill����������������������������������������������������������������������������������������22 Figure 3-2 Dwell time and vessel turnaround time are the two driving factors in a WISC’s transit time in Arab countries����������������������������������������������������������������23 Figure 3-3  Vessel turnaround times are composed of waiting and unloading times.................24 Figure 3-4 In 2009, most vessels waited less than two days in the harbor, yet there was significant variability������������������������������������������������������������������������������25 Figure 3-5 WISC costs added an average of US$40/mt to the final cost of importing wheat in Arab countries, compared with US$11/mt in the Netherlands and US$17/mt in South Korea��������������������������������������������������27 Figure 3-6 WISC costs in Arab countries in 2009 were up to four times that of the Netherlands���������������������������������������������������������������������������������������������������������28 Figure 3-7 Inland transport costs may account for up to 51 percent of total WISC costs�������������������������������������������������������������������������������������������������������29 Figure 4-1  Arab countries can follow different approaches to wheat procurement...................36 Figure 4-2 The top five exporters of wheat to Arab countries were Russia, the United States, Canada, Ukraine, and France�������������������������������������������������������37 Figure 4-3 Jordan and Lebanon imported nearly all their wheat from the Black Sea region������������������������������������������������������������������������������������������������������38 List of Tables Table 2-1 China, the United States, and India hold more than 50 percent of the world’s wheat reserves (Market Year 2010)�������������������������������������������������������13 Table 3-1  Recommendations based on the corridor examined in each country������������������������33 Table 4-1 Arab countries have existing FTAs with some but not all the major wheat exporters���������������������������������������������������������������������������������������������������������������41 Table of Contents v List of Boxes Box 2–1  Ethiopia case study............................................................................................................18 Box 4–1  Regional cooperation ........................................................................................................42 Box 4–2  Mexico case study..............................................................................................................45 Acknowledgements T his study was a joint undertaking by the The authors would also like to thank Donald World Bank and the Investment Centre Larson, John Roberts, Christopher Marques, Division of the Food and Agriculture Joseph Goldberg, Marc Sadler, Sergiy Zorya, Organization of the United Nations (FAO). Julie Dana, Reynaldo Bench, Steve Jesse (Gold- The core team included Sean Michaels, Mi- man Sachs), and Sameer Meralli (Alchemy chelle Battat, Dana Erekat, Arnold de Hartog, Capital Advisors) for their substantive input. and Julian Lampietti. The team benefited from valuable guidance by peer reviewers Jordan Schwartz, Jean Francois First and foremost, the authors would like to Arvis, Santiago Herrera, Karim Allaoui, and express their gratitude to the large number of Dmitry Prikhodko. Soamiely Andriamanan- representatives from the public and private sec- jara, Nene Mane, Bill Sutton, Philip van der tor in the participating Arab countries with Celen, and Jesse Biroscak all contributed sup- whom the team worked closely throughout port throughout the process. The team thanks the duration of the study. While not exhaus- Hadi Fathallah and Mariam Abu-Ali for their tive, this list includes: Mr. Mohamed Nass, Mr. research support. Management guidance was Mohamed El-Baz, Mr. Emad Al Tarawneh, Dr. provided by Hoonae Kim, Luis Constantino, Zeinab Nassar, Mr. Aziz Abdelali, Ms. Manal Laszlo Lovei, and Jonathan Walters. A special Al-Abduwani, Ms. Margarita Rios Santana, thank you to Hilary Gopnik for her editing Sheikh Hamad Bin Ali Bin Jassim Al Thani, work, and to Marie Francoise How Yew Kin, Mr. Abdallah Al Madani, Mr. Taoufik Saidi, Indra Raja, and Josephine Onwuemene for their and Mr. Tawfiq Saleh. Without the support, administrative support. In addition, the authors collaboration, and insight of these people this wish to thank their colleagues at the United study would not have been possible. The team Nations World Food Programme (WFP), who is especially grateful for the warm welcome shared useful data and offered insights to their they received during each mission and for the work on food supply chains in the region. permission to undertake field visits to the coun- tries’ ports, silos, and mills, which allowed the Funding for the study was generously provid- team to observe the wheat-import supply chains ed by the Multi Donor Trust Fund supported in action. by the State Secretariat for Economic Affairs viii The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries (SECO), Government of Switzerland and the East and North Africa (MENA) Region” sup- Ministry of Foreign Affairs, Government of ported by Italy’s Ministry of Foreign Affairs Netherlands; the Multi Donor Trust Fund and the European Commission; and the World “Addressing Climate Change in the Middle Bank Institute. Executive Summary A rab countries face a number of food international wheat market more vulnerable to security risks due to their high depen- supply disruptions. dence on wheat imports. This study explores ways in which countries can mitigate Arab countries are particularly vulnerable to these risks. The authors evaluate the wheat- increased volatility in international wheat mar- import supply chain (WISC) from the unload- kets since they rely heavily on wheat imports, ing port to bulk storage at the flour mill, before and short-term demand for wheat in the Arab the wheat is milled into flour. Existing litera- world is relatively inelastic. In total, Arab coun- ture treats isolated topics related to the supply tries import about 56 percent of the cereal calo- chain, such as strategic storage and the use of ries they consume, the largest share of which financial instruments. This study is unique in comes from wheat. Some countries import 100 that it takes a holistic view of the supply chain percent of their wheat consumption needs. by examining how strategic storage, logistics improvements, and procurement strategies can As net wheat importers, Arab countries are ex- all be used to improve food security. posed to both supply and price risks through the WISC.1 Many Arab countries are concerned The food price shocks of 2007–08 and 2010– that supply disruptions may threaten their na- 11 suggest that international wheat prices may tional security. Such disruptions may occur due be entering a period of increased price vola- to military conflict, port closures, and civil un- tility. The volatility and upward pressure on rest. Meanwhile, price risk is a concern due to wheat prices are probably due to a combina- the impact that high and volatile international tion of factors including population growth, in- prices may have on domestic food inflation. come growth, promotion of biofuels, high and volatile fuel prices, and depreciation of the US dollar. Climate change and low global stock- to-use ratios further contribute to increased Supply risk is the risk that food will not be avail- 1 price volatility. An increase in severe weather able, even if there are sufficient funds for purchase. Price risk is the risk that international wheat prices events can increase variability in agricultural will be prohibitively high, making purchase difficult, yields, while relatively low stock levels make the even though supply is available on world markets. x The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries While governments use safety nets to try to ab- with critical lead time to secure alternative sorb price risk at the national level, many Arab wheat supplies or supply routes during times countries still have a strong pass-through effect. of crisis. Reserves also offer psychological The poor are most vulnerable to high local food benefits that may prevent hoarding and pilfer- prices because they spend up to 65 percent of age. Moreover, historical data suggest a strong their income on food. In addition, poor WISC negative correlation between changes in wheat logistics can result in supply-chain bottlenecks stocks and changes in wheat prices. Not only and product loss, both of which reduce supply- could increasing strategic wheat reserves reduce chain efficiency and increase the cost of import- domestic price volatility and the frequency of ing wheat. domestic price shocks, but it could also impact the global wheat market and in turn mitigate This study considers three critical aspects to international price risks. Three factors must be the WISC and proposes several strategies Arab considered in establishing guidelines for man- countries may consider to mitigate import risks: aging the reserves: the threshold domestic price that triggers the drawdown of wheat reserves, 1. Strategic storage (Chapter 2): Maintain stra- the target reserve level, and the rate of reserves tegic wheat reserves to weather times of crisis replenishment. Of course, the benefits of stra- and food supply disruptions and to contrib- tegic wheat reserves must be measured against ute to domestic and international price stabi- the cost of maintaining them. lization effects. 2. Logistics (Chapter 3): Promote investments Efficient and reliable logistics support a well- throughout the supply chain that create performing WISC, improving food security smooth logistics, improve security, provide and ensuring delivery of supplies in a timely a reliable supply of wheat, reduce the base and cost-effective manner. All segments of cost of importing wheat, and reduce product the WISC are interconnected and efficiency losses. throughout the supply chain is critical. Bottle- 3. Procurement (Chapter 4): Develop a pro- necks in one segment or node can have reper- curement strategy that leverages strategic cussions all along the supply chain, increasing partnerships while maintaining a diversified both transit times and the cost of importing portfolio of suppliers and mitigates import wheat. Evidence suggests that average WISC risks through the use of hedging strategies. transit time in Arab countries is 78 days, cost- ing around US$40 per metric ton. For compar- Currently, overall storage capacity in the re- ison, in the Netherlands, average transit time is gion averages the equivalent of six months of 18 days and costs US$11 per metric ton, while consumption, and estimated ending stocks in South Korea average transit time is 47 days average four and one-half months. However, and costs US$17 per metric ton. There are, many Arab countries are planning to increase however, significant differences in performance their strategic wheat reserves as a policy to of the supply chains throughout the region. improve food security. This can provide them Some countries may have bottlenecks at the Executive Summary xi port while others have inefficient inland trans- can keep base importing costs low and ensure portation systems. Each Arab country should timely delivery of supplies, but do not provide identify the specific WISC segments that they a supply buffer during price shocks. Finally, would like to target for efficiency improve- without an effective procurement and hedging ments to reduce the time it takes to import strategy, countries are constrained in terms of wheat, the base cost of importing wheat, and mitigating their exposure to price volatility. product loss, which can be as high as 5 percent A comprehensive approach that incorporates in some countries. strategic reserves, supply-chain logistics, and procurement strategies is critical to reducing Using various procurement methods and tools import risks and will have the greatest impact that enhance a country’s risk management strat- on improving food security. egy can also improve food security. Whether Arab countries take a more conservative or a Each Arab country faces constraints and risks riskier approach in their tendering process, that are common throughout the region as well each country can develop strategic partnerships as its own unique vulnerabilities, which depend with grain traders and key grain exporting on a host of factors including geography, poli- countries. These relationships would help re- tics, resource endowments, fiscal balances, and duce counterparty risk, which if actualized and tolerance for risk. To address both regional and unmitigated could lead to a temporary supply country-specific import risks, Arab countries disruption. Cooperation among neighboring can use targeted investments and policy reform Arab countries may also ease the risk of sup- to improve efficiency throughout the WISC, ply disruptions. In addition, risk management concentrating on strategic storage, logistics, tools, such as physical and financial hedging and procurement. Cross-border cooperation instruments, could be employed to reduce ex- could also be leveraged to implement regional posure to price volatility and shocks. A success- solutions. Improvements to the WISC may ful hedging strategy would be over a long-term generate significant spillover benefits for sectors horizon, using a mix of the various instruments ranging from barley (Arab countries import 57 available, and could help governments better percent of the world’s traded barley) and other predict their future fiscal liabilities. bulk cargo such as coal, iron ore, and fertilizer, to non-consumables that are imported through There is no silver bullet to mitigate wheat-im- the same ports and transported on the same port risks. Strategic reserves would not be ef- roads. Food security is a challenge all Arab fective if logistics systems fail to reliably deliver countries face, and it is critical that country the wheat from storage to the flour mills or end- governments, the donor community and the consumer. At the same time, smooth logistics private sector coordinate efforts closely. 1 Why is a Well-Performing Wheat-Import Supply Chain Critical for Arab Countries? S ince mid-2010, high international agri- There are different paths Arab countries can cultural commodity prices have raised take to achieve food security. In terms of wheat, concerns about a repeat of the 2007–08 Arab countries can work toward food security food-price crisis. Globally, the 2010–11 food- by increasing levels of self-sufficiency, improving price shock has already resulted in an estimated agricultural self-reliance, reducing the agricul- 44 million more people in poverty, with 68 mil- ture sector’s climate change-induced production lion net food consumers falling below the pov- variance, and by optimizing their wheat-import erty line, and 24 million net producers being supply chain (WISC), or some combination of able to escape poverty due to higher food prices these options. This study does not suggest which (World Bank 2011a). Arab countries are par- approach countries should pursue, but rather fo- ticularly concerned because they are highly de- cuses on how improvements to WISCs in Arab pendent on international commodity markets countries can improve food security. The study for cereals, especially wheat.2 explores import risks Arab countries are facing— including supply disruptions, food price inflation, While the recent uprisings in Arab countries and product losses—and identifies opportunities cannot be attributed directly to rising agricul- for infrastructure investment and policy reform. tural commodity prices, the price shock is of- The key messages of this chapter are: ten perceived as a contributing factor of unrest in select countries and remains a significant MM Internationally traded cereals may be en- concern for the entire region. Moreover, it ap- tering a period of sustained price volatil- pears that many of the underlying factors be- ity due to more frequent weather-induced hind high and volatile prices are here to stay. Structural factors, such as population and in- come growth and biofuel demand, may prevent Arab countries include all members of the League 2 real prices from sliding back to the historic of Arab States (LAS): Algeria, Bahrain, Comoros, lows witnessed a decade ago, while low stock- Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestine, Qa- to-use ratios amplify price due to small transi- tar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, tory changes in supply. United Arab Emirates (UAE), and Yemen. 2 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries supply shocks, low stock-to-use ratios, and wheat markets. Severe weather events increase trade policy responses. the variability of agricultural yields, and the MM Given their high dependence on cereal im- number of reported droughts, floods, and ex- ports, particularly wheat, Arab countries treme temperatures appears to be on the rise are vulnerable to high and volatile interna- (World Bank 2011a; CRED 2011).5 In 2010, tional prices. for example, flooding in Australia, Pakistan, MM Supply disruptions can threaten national and West Africa, as well as the heat waves in security, suggesting that supply chains Russia and the United States contributed to a must be efficient and reliable. reduction in global cereal production. A simu- MM Investments in wheat-import supply chains lation of the potential impact of climate change are critical to reducing Arab countries ex- on wheat prices in Arab countries (Larson et al. posure to import price and supply risks. 2011) suggests that a fourfold increase in pro- duction variance would result in higher average prices as well as more price spikes (Figure 1-1).6 Are high and volatile cereal prices likely to continue? 3 See for example: FAO 2009; Wright 2009, 2011; Two price shocks in international commodity European Commission 2009; Heady and Fan 2008; FAO et al. 2011; World Bank 2011a. markets in the last four years have spurred much 4 Policies that promote the production of biofuels discussion on the drivers of cereal prices and the such as ethanol and biodiesel shift land away from production of food and pasture (FAO 2008), thereby impact these drivers have on price volatility.3 Ac- reducing supply of land dedicated to food produc- cording to the United Nations’ Food and Agri- tion. High and volatile prices of petroleum, a primary culture Organization’s (FAO) monthly Cereals ingredient of fuel and fertilizer, are passed on to the production and transport of cereals. The deprecia- Price Index, prices peaked in April 2008 with tion of the US dollar against most hard currencies the index reaching 274. Cereal prices then fell increases demand for cereals because these com- precipitously at the end of 2008, and the index modities become cheaper in real terms since they are priced in dollars. Financial speculation may also con- hit 151 in June 2010 before spiking again to 265 tribute to higher and more volatile prices as investors in April 2011 (FAO 2011b). Multiple factors shift to real assets, including commodities, during contribute to higher and more volatile cereal periods of uncertainty. However, it’s important to consider the possibility that speculation may be more prices, and many of these factors are correlat- a result of price volatility than a cause (World Bank ed with each other. Promoting the production 2011a). For further details on other factors contrib- uting to higher and more volatile cereal prices, see of biofuels, high and volatile petroleum prices, World Bank 2009 and World Bank 2011a. the relative depreciation of the US dollar, and 5 The apparent increase in extreme weather events increased commodity speculation have all con- may be due to the fact that reporting of such events has likely increased, in addition to an increase in the tributed to rising production costs and increas- actual number of occurrences. ing volatility in international cereal markets.4 6 In the model, the realized price is based on con- sumption, trade, and storage decisions, given the realized production level. Arab countries included Climate change may contribute to more fre- in the model are: Algeria, Bahrain, Egypt, Iraq, Jor- quent weather-induced supply shocks in global dan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Why is a Well-Performing Wheat-Import Supply Chain Critical for Arab Countries? 3 Figure 1-1  n  Simulations suggest that greater uncertainty in wheat production may make prices more unpredictable Low variance of production High variance of production 120 120 100 100 Frequency of occurrences Frequency of occurrences 80 80 60 60 40 40 20 20 0 0 100 200 300 400 500 100 200 300 400 500 Next period price in Arab countries Next period price in Arab countries (US$ per mt) (US$ per mt) Source: Larson et al. 2011. Note: These results are meant to illustrate the relationship between production variance and price and do not predict actual wheat prices in Arab countries. The results from the model simulation are for 2,000 iterations. The low variance of production scenario is based on a variance of 0.015 while the high vari- ance of production scenario is based on a variance of 0.060. This variability will be exacerbated by the ex- international market instability, exporters may pansion of agriculture into marginal lands in impose export restrictions to ensure sufficient response to increased demand for food from domestic supply and to stem any domestic price rising population and incomes (Wiebe 2003).7 increases. The use of such trade measures can Arab countries will be doubly hit by climate contribute to a rapid escalation of global market change: first, their domestic production will suffer, and second, global supplies, which they rely on for imports, will also be affected. Oman, Saudi Arabia, Sudan, Syria, Tunisia, UAE, and Yemen. For further explanation of the model, Low global stock-to-use ratios—and policy re- see Chapter 2. 7 Population growth will contribute to increased de- sponses in the form of export restrictions by ma- mand for cereals for food, while rising incomes will jor cereal exporters—further exacerbate market contribute to increased demand for cereals for feed. 8 Thin international cereal markets may cause rela- instability. Cereal prices are more likely to spike tively small shifts in supply or demand to lead to when global stock-to-use ratios are low (Wright large shifts in prices. Less than 20 percent of world 2009). When low stock levels are combined wheat production is exported; the rest is consumed with more frequent weather-induced supply domestically (USDA 2011a). The thinner the mar- ket, the sharper the fluctuation in international shocks, the international cereal market will be prices and the higher the likelihood of future price more vulnerable to disruptions.8 In the event of shocks. 4 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries prices. For example, Vietnam and India, two of vulnerable to international market volatility.11 the world’s largest rice exporters, restricted rice Based on 2011 projected fiscal balances and exports in March 2008, contributing to a price 2010 wheat-import and consumption data, shock in the international rice market. More Libya, Jordan, Yemen, Djibouti, Lebanon, Iraq, recently, the 2010 Russian export ban not only Egypt, Algeria, and Tunisia are most vulner- put upward pressure on prices, but it also led to able to a sustained food-price shock. The Gulf short-term contract defaults and supply disrup- Cooperation Council (GCC) countries have tions in Arab countries that relied on Russian both very high import dependence and fiscal imports. surpluses, but if oil revenues fall their ability to cushion price shocks would be reduced. Syria and Morocco have strained fiscal balances, but Why are Arab countries vulnerable to what their import dependence is lower due to higher is happening in world wheat markets? levels of domestic wheat production. Arab countries are highly dependent on im- Countries can pursue different paths to food ported cereal, particularly wheat, and their de- security.12 Self-sufficiency is sometimes con- pendence is expected to grow. Arab countries sidered the first best policy to addressing food are the largest net importers of cereal calories in price volatility, but this approach may be costly the world, importing roughly 56 percent of the cereal calories they consume. Wheat accounts for the largest share of cereal consumption and 9 Among Arab countries, Tunisians eat the most wheat (in terms of share of total caloric consump- is a key part of the regional diet.9 Demand for tion), getting 48 percent of their total calories from wheat in the Arab world is relatively inelastic, wheat; Kuwaitis eat the least wheat but still get 23 percent of their total calories from wheat (data resulting in little substitution even when prices based on USDA 2011a, FAO 2011a). are high. In 2010, Arab countries imported 30 10 Since 2005, the population growth rate of Arab percent of the world’s traded wheat. Arab coun- countries has averaged 2.1 percent compared to a world rate of 1.2 percent, and the average income tries’ reliance on wheat imports is expected to growth rate of Arab countries is 3.0 percent, out- grow due to structural factors, such as popula- pacing the global average of 1.1 percent (World tion and income growth, which are increasing Bank 2011d). 11 A country’s macroeconomic vulnerability to wheat faster in Arab countries than elsewhere.10 Given price shocks (assuming price risk is absorbed as the limited resources of water and arable land a fiscal liability) depends on two key factors: (1) in Arab countries, the ratio of food imports to wheat-import dependence provides an indication of the level of exposure to international market risks total exports in Arab countries is above the cur- that countries face, and (2) fiscal balance provides an rent international average, and projections of indication of a government’s ability to mitigate the effects of a price shock. However, it should be noted the region’s food balance indicate that wheat that fiscal surpluses do not guarantee a country’s imports will increase by almost 75 percent over food security. Fiscal positions can shift dramatically the next 30 years (IFPRI 2010). Within the from year to year, especially if a country’s economy is dependent on commodity prices such as oil and gas. Arab world, countries with high wheat-import 12 See for example the framework discussed in World dependence and large fiscal deficits are most Bank 2009. Why is a Well-Performing Wheat-Import Supply Chain Critical for Arab Countries? 5 (Magnan et al. 2011). First, there is a high op- be prohibitively high, making purchase diffi- portunity cost to using the limited land and cult, even though supply is available on world water resources for the production of a low- markets. Another risk is that food will not be value crop such as wheat. Moreover, if a coun- available, even if there are sufficient funds for try expands its domestic wheat production into purchase. The price and supply of a good are marginal areas, it becomes more susceptible to economically related, connecting these two sets production shortfalls, ultimately driving the of risks. However, these two sets of risk threat- country to seek imports from the internation- en two separate aspects of food security: avail- al market to fill the gap. Arab countries may ability (supply) and accessibility (price). There- consider alternative combinations of policies fore, for the purposes of this study, these two to increase food security, including pursuing concepts will be treated as separate, using the a strategy of agricultural self-reliance, where terms “price risk” and “supply risk.” agricultural export revenues can cover food- import costs (Magnan et al. 2011); reducing In terms of supply risk, many Arab countries the agriculture sector’s vulnerability to climate are concerned that their national security would change-induced production variance; and im- be threatened if import supply disruptions lead proving import supply chains. to insufficient wheat supplies. The likelihood of such disruptions is higher and the consequenc- This study focuses on one policy: improving es are likely to be more severe for countries that wheat-import supply chains (WISC). A well- are heavily dependent on imports. Disruptions performing WISC is critical because even if could occur for a number of reasons such as civ- Arab countries pursue other food-security poli- il unrest, military conflict,13 and port closures.14 cies, their exposure to import risks is projected For instance, the crisis in Libya in the spring of to increase. A well-performing WISC can help 2011 made it difficult for the National Supply mitigate these risks by improving supply-chain Corporation (NASCO) to resupply national logistics, including making more effective use of strategic storage and financial instruments. This will help ensure reliable and consistent ac- 13 Unrest in Egypt, Libya, Syria, and Yemen during cess to less expensive imports, reduce both the the Arab Spring led to supply disruptions at un- loading ports and contributed to reported food fiscal and economic cost of importing, and re- shortages in these countries. duce domestic price volatility. 14 Arab countries with few import entry points may face higher supply risk than countries with multiple import entry points. Several Arab countries rely on a single unloading port for their wheat trade. For What are the major import risks example, Jordan relies on the Port of Aqaba and Lebanon relies primarily on the Port of Beirut. Arab countries are facing? Operations in such countries go smoothly, as long as the facilities at the port are designed to handle As net wheat importers, Arab countries are the current throughput. However, in the event of a disruption at the port, or if a surge cannot be han- exposed to a number of food-security risks. dled by existing facilities, severe bottlenecks or even One risk is that international wheat prices will acute supply shortages may occur. 6 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries food stocks, and access to food was curtailed and targeting the poor.18 Surging international for much of the population, particularly for wheat prices can place significant upward pres- the most vulnerable such as those displaced sure on fiscal budgets, depending on the level of by the conflict (World Bank 2011b). In May domestic consumption subsidies. 2011, estimates by the United Nations’ World Food Programme (WFP) suggested that food supplies could have run out within six to eight weeks unless plans were put in place to avoid a 15 The extent to which rising wheat prices push more crisis (OCHA 2011). people below the poverty line depends on the level of domestic consumption subsidies and other coun- try-specific factors, including infrastructure quality In terms of price risk, rising international prices and exchange rates(World Bank 2011c). and increased volatility appear to have a signifi- 16 In contrast to in-kind transfers, cash transfers may cant impact on inflation. In most Arab coun- impose less fiscal burden on the government bud- get. However, in-kind transfers are more politically tries, food-price inflation outpaces overall infla- popular given that they directly address the social tion (World Bank 2011c). The poor are likely concern of food security. 17 From 2000 to 2011 the strongest pass-through ef- to be hardest hit because they typically spend fects of an increase in international food prices were anywhere from 35 to 65 percent of their income observed in West Bank and Gaza, Iraq, Djibouti, on food (World Bank 2009). Moreover, given Egypt, and the UAE, each with a pass-through co- efficient above 0.4. The pass-through coefficient is that there is a relatively high concentration of smaller but still sizable, varying between 0.2 and households living near the poverty line, rising 0.4, for Morocco, Jordan, Syria, Yemen, and the wheat prices, and therefore the cost of wheat- other GCC countries. This indicates a high degree of vulnerability of households to international food based staples, may contribute to an increase price increases in virtually all Arab countries. For in the overall incidence, depth, and severity of a more in-depth assessment of food-price inflation in Arab countries and the pass-through of inter- poverty levels in Arab countries.15 To mitigate national food prices into domestic food prices, see the effect of food inflation, particularly for the World Bank 2011c. 18 Consumption subsidies that are not well targeted poor, Arab governments use safety nets, which result in unnecessarily high public liabilities for a could be in the form of food consumption sub- number of reasons. First, subsidizing wheat, flour, sidies or direct (cash and/or in-kind) transfers.16 and bread in the domestic market contributes to Understanding how safety nets, particularly greater demand within a country as well as in- creased smuggling across borders into countries consumption subsidies, impact both WISC where the domestic price is higher (Gupta et al. costs and domestic food prices is crucial to 2000). In turn, this contributes to higher domes- helping Arab governments better manage their tic consumption levels and thereby more imports. Second, the subsidies are often universal or poorly fiscal liabilities. Consumption subsidies are targeted. This can lead to errors of inclusion and/ intended to insulate the population from the or exclusion, where the government subsidizes parts of the population that may not need the assistance pass-through of international prices,17 by trans- while sometimes inadvertently excluding the most ferring this cost to government. Governments’ vulnerable people from the safety net program. fiscal liabilities vary by country; some Arab Third, “quasi-fiscal” subsidies, such as those for the cost of storage and transport, contribute to govern- governments are more successful than others ments’ fiscal liabilities and may stifle the efficiency in reducing universal consumption subsidies gains of a competitive sector. Why is a Well-Performing Wheat-Import Supply Chain Critical for Arab Countries? 7 High WISC logistics costs further increase the level of imports, thereby reducing exposure to base cost of importing wheat, and despite the use price volatility and reducing import bills. Fur- of safety nets, may also contribute to increased ther discussion on product losses and how Arab volatility of local wheat prices. First, WISC lo- countries can reduce them is also provided in gistics are a perennial fixed-cost component of Chapter 3. imported wheat. Improving wheat-import sup- ply chains can reduce the base cost of importing wheat and in turn, alleviate pressure on fiscal What is the objective of the WISC and/or household budgets. Second, WISC lo- study and how will countries’ gistics impact local wheat-price volatility, which performance be measured? is determined by both international price vola- tility and the reliability of the WISC. As dis- The objective of the study is to assess Arab cussed above, many Arab governments try to countries’ WISC performance, identify possi- minimize domestic wheat-price volatility by ab- ble bottlenecks, and provide recommendations sorbing international price shocks through con- to remove them. The study examines the ex- sumption subsidies. However, while improving tent to which government and/or private sector WISC logistics will not reduce the frequency or stakeholders can control costs and improve the likelihood of international price shocks, an un- reliability of efficiently moving wheat through reliable WISC may cause domestic price shocks the supply chain. The study includes 10 Arab in the event that supply-chain disruptions lead countries: Bahrain, Egypt, Jordan, Lebanon, to localized supply shortages. Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and Yemen. Arab countries’ price and supply Product losses throughout the supply chain risks can increase significantly if supply chains create an additional cost. Inefficient WISCs fail to perform, particularly during food-price increase the likelihood of spillage and spoil- shocks or periods of social unrest. To address age.19 Wheat losses in Arab countries range these challenges, the study takes a holistic view anywhere from less than 1 to over 5 percent of of the WISC, examining ways in which coun- supply per year. This figure does not include tries can make better use of strategic storage losses due to pilferage or cross-border smug- (Chapter 2), reduce WISC logistics costs and gling. The latter tends to occur most frequently transit times (Chapter 3), and make better when international prices are high; smugglers use of procurement and hedging instruments transport wheat from countries with wheat (Chapter 4). or flour subsidies to countries where the price is more aligned with the higher international price in order to seek profits on the black mar- ket. Due to the problem of product losses, Arab Spillage refers to wheat that is lost in the WISC due 19 countries end up importing more wheat than is to grains lost during handling and transport as well as the inability to unload every last grain of wheat. needed for consumption. Therefore, stemming Spoilage refers to wheat that is no longer of a con- wheat losses could help reduce the required sumable quality. 8 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries The WISC study has a narrow focus. This study logistics performance. The Netherlands’ role only focuses on those WISC segments that are in the analysis is to serve as a reference of ideal within the borders of the country being as- WISC performance rather than as a compara- sessed. In terms of logistics, the analysis begins tor country. However, the structure of the with the ship’s arrival at the port of the receiv- Netherlands’ WISC is different from that in ing country and examines the handling of wheat many Arab countries. South Korea was there- in bulk up to storage at the flour mill. While fore selected as an Asian benchmark because, procurement is considered, the study does not like Arab countries, it is highly dependent on evaluate wheat production, transport to loading wheat imports,21 and its WISC is somewhat port in the exporting country, or ocean shipping comparable in size and structure to that of transit times and costs. Furthermore, the study some Arab countries. does not consider the downstream segments of the supply chain after bulk storage at the flour The study provides a high-level strategic frame- mill, including the milling, transport, storage, work for Arab countries to optimize their and handling of wheat flour by bakeries and re- WISC. In order to make informed recom- tailers in the importing country. These down- mendations to improve WISC performance, stream segments tend to be subsidized at dif- the team focused on strategic options that are ferent levels depending on the country, making feasible for all Arab countries. Due to each them more difficult to measure accurately and country’s unique fiscal, geographical, and/or to compare reliably across Arab countries. The political constraints more specific operational disadvantage to this exclusion is that the study recommendations are summarized in Table 3-1 does not consider other potential opportuni- and are included in country-specific presenta- ties for Arab countries to reduce downstream tions delivered directly to participating Arab WISC costs and transit times of wheat flour. It countries. is possible that substantial cost and transit-time savings may be achieved in these segments, and further analysis may be considered in a subse- quent study. 20 The Netherlands is the world’s third largest import- er of wheat by volume, although roughly three quar- ters of the Netherlands’ wheat imports come from To assess performance, WISCs are compared within the European Union (USDA 2011, Eurostat against one another and against those of the 2011). The Netherlands ranks fourth in the World Bank’s 2010 Logistics Performance Index. Netherlands and South Korea.20 The Nether- 21 South Korea’s wheat-import dependency ratio (net lands was included because it is both a major imports divided by consumption) is 98 percent wheat-importing country and has outstanding (USDA 2011). 2 How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy? T here are two conceptual types of storage against structural, long-term price increases, for wheat: operational and strategic.22 they effectively serve as an insurance policy with Operational storage regulates the flow costs and benefits that must be carefully consid- of incoming and outgoing wheat in the supply ered. The key messages of this chapter are: chain to create smooth logistics; it is discussed further in Chapter 3. This chapter focuses on MM Strategic reserves may reduce volatility in strategic storage, which aims to mitigate both domestic and international wheat prices, import supply and price risks. Strategic reserves as well as the frequency of price shocks. can provide wheat that is ready for immediate MM Strategic reserves located in an importing consumption in emergency situations, provid- country mitigate supply risks by providing ing the government critical lead time to secure wheat supplies in times of crisis. alternative wheat supplies. In addition, evidence MM Many Arab countries are planning to in- suggests that higher levels of wheat stocks can crease existing storage capacity to increase help smooth the volatility of international wheat wheat reserves and help insulate them- prices and buffer against some price shocks. selves from future import risks. While operational storage is driven by logistics, MM A strategic reserve policy must be carefully strategic storage is driven by public policy. designed and properly managed to be suc- cessful. Strategic storage is an ancient tradition in the region, and many countries currently have in place some form of strategic wheat-reserve pol- How do strategic reserves address icy. However, with heightened concerns about price risks? food security following the 2007–08 food crisis Historical data (Figure 2-1) suggest there is a and another food-price shock in 2010–11, Arab strong negative correlation between changes in countries are revisiting their strategies. In fact, many Arab countries are considering expand- ing their strategic reserves to be able to hold six 22 While this study treats operational and strategic storage as two separate ideas, in practice, they are months’ to one year’s worth of wheat stocks. frequently combined in one facility. See Chapter 3 Although wheat reserves offer no protection for further explanation. 10 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Figure 2-1  n  Wheat stocks are negatively correlated with wheat prices 120 100 80 60 Percent change 40 20 0 –20 –40 –60 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 % Change in end of year world wheat stocks % Change in average annual world price of wheat Source: Authors, based on USDA 2011a, USDA 2011c, BLS 2011. Note: Correlation of world wheat stocks and prices is –0.8. World price of wheat was adjusted using the US Consumer Price. Index (CPI). wheat stocks and changes in world wheat prices. preventing high prices and more effective in elim- This supports the notion that, holding consump- inating low prices (Wright and Williams 1982). tion constant, world wheat prices spike when An applied numerical version of this same model global stocks-to-use ratios are low (Wright and tailors the parameters for Arab countries as a Cafiero 2010). What is the explanation for this bloc and applies a distribution of supply shocks relationship? Perhaps it is the psychological ef- (Larson et al. 2011). The simulation suggests that fect: in the event of an unexpected wheat supply increasing uncertainty regarding production may shortage, if global stocks are known to be plenti- make prices more unpredictable. Storage may be ful, there is less likely to be a run on wheat pur- one way to smooth price volatility. chases, which would otherwise drive prices up. Low carryover inventories can result in more vola- Some models suggest that maintaining larger tile prices and a greater likelihood of price spikes. wheat stocks could reduce international price When production output is more variable and volatility and the frequency of price shocks. The starting inventory levels are high, a harvest short- increased volatility in wheat production of the fall can be handled by drawing down stocks to past few years, which is projected to continue, prevent prices from rising significantly. However, has been reflected in the increased volatility of when starting inventories are low, the same har- international wheat prices. A conceptual model vest shortfall may result in a much greater price for inter-temporal commodity storage concluded increase. Model simulation demonstrates that not that storage of commodities was less effective in only does strategic storage reduce the volatility of How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy? 11  imulations suggest that higher global stock levels may provide a buffer to supply Figure 2-2  n  S shocks and thus mitigate price risks 320 Next period price in Arab countries 300 280 260 (US$ per mt) 240 220 200 180 160 140 0 20 40 60 80 100 120 140 160 Current global stocks (million mt) Expected price Realized price Source: Larson et al. 2011. Note: These results are meant to illustrate the relationship between global stock levels and the expected price of wheat in Arab countries and do not predict actual wheat prices. domestic prices, but that storage is more effective stocks to mitigate region-specific supply risks in reducing volatility when stock levels are higher can also have an impact on the global wheat mar- (Figure 2-2) (Larson et al. 2011). For example, ket and in turn mitigate international price risks. in the late 1960s major wheat exporters began to reduce stocks, and rising global demand coupled with production shortfalls in 1972, among other How do strategic reserves address factors, resulted in a major wheat price shock (Pe- supply risks? ters et al. 2009).23 For a given set of supply shocks simulated by the model, the domestic price distri- Strategic reserves of physical wheat mitigate bution will lean toward higher prices when inven- supply risk by providing critical lead time to tories are low, and vice versa. secure alternative wheat supplies or supply Strategic reserves in any country can have a positive effect on international prices. Increas- An alternative approach to protect vulnerable con- 23 ing stocks in any country, whether the country of sumers from domestic price risk is a safety net pro- origin or the importer, contributes to increasing gram such as a cash transfer. While this policy may be less costly than maintaining strategic reserves global stock-to-use ratios. Thus, even if storage in (Larson et al. 2011), it does not protect consumers an importing country is more costly, maintaining from possible wheat supply shortages. 12 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries routes during times of crisis. In the event that in anticipation of leaner times and may reduce supplies run short, strategic reserves can pro- future market disruptions.25 vide a short-term bridge while the government considers some longer-term options (Murphy 2009).24 Wheat accounts for a large share of the Are Arab countries making effective use of diet in Arab countries and short-term demand strategic reserves? is relatively inelastic. Constant demand coupled with a variable short-term supply may result in a Despite being the largest wheat-importing re- supply gap, particularly during crisis situations gion, in 2010 Arab countries held only 10 per- (Murphy 2009). If the domestic wheat supply is cent of the world’s wheat stocks. Egypt is the not sufficient to feed the population, crises such only Arab country among the top-ten wheat- as sudden infrastructure blockages that pre- stock holding countries (Table 2-1). The ma- vent imports from entering the country, spikes jority of global wheat stocks are held in wheat- in international wheat prices to levels that the producing countries such as China, the United government had not prepared for, and natural States, and India,26 which may indicate that disasters or civil war can cause food shortages it is more cost effective to hold stocks close to and hunger. Strategic wheat reserves provide a production. In China and India, public sector supply of wheat that is ready for immediate con- stocks play a significant role, and thus changes sumption in emergency situations such as these. to reserve policies in those countries may have implications for global wheat markets, and Strategic reserves also allow wheat buyers com- thereby for Arab countries. mercial leverage in the international market, and maintaining wheat reserves offers psychological As food security concerns have grown, many benefits that may prevent hoarding and pilferage Arab governments have revisited the idea of in times of crisis. Some wheat suppliers may see strategic reserves and are planning to increase an opportunity to charge higher prices for wheat their level of wheat stocks. Overall storage ca- when the need is immediate since demand is pacity in the region is on average six months of relatively inelastic. By offering short-term alter- consumption, and estimated ending stocks are natives for wheat supply, strategic reserves can help Arab countries buffer against price goug- ing. Without reserves, volatility in wheat mar- 24 Reserves offer only a temporary solution to supply shortages and therefore importers will eventually kets can also encourage hoarding and pilferage, need to purchase wheat again from the international which ultimately reduces the available supply market, possibly at a time when prices are still high. 25 This assumes that the policy is effective in releasing and drives up prices, hurting poor consumers wheat from the strategic reserve when prices are high. and distorting market signals (Murphy 2009). 26 China, the United States, and India account for By reassuring markets that supply is sufficient nearly 40 percent of global wheat production and and thereby calming possible fears of a supply merely 3 percent of global wheat imports. 27 Ending stocks for a given year are calculated by tak- shortage, known strategic wheat reserves can ing domestic production plus net imports, minus reduce the inclination to hoard or steal wheat consumption. How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy? 13  hina, the United States, and India hold more than 50 percent of the world’s wheat Table 2-1  n  C reserves (Market Year 2010) MY 2010 Ending Wheat % of Global Ending MY 2010 Wheat % of Global Wheat Country Stocks (‘000 mt) Wheat Stocks Imports (‘000 mt) Imports China 60,091 31% 927 0.7% United States 23,427 12% 2,638 2.0% India 15,360 8% 300 0.2% Russia 13,546 7% 100 0.1% European Union 11,766 6% 4,500 3.5% Canada 5,896 3% 400 0.3% Egypt 5,596 3% 10,400 8.1% Iran 4,936 3% 506 0.4% Australia 4,157 2% 100 0.1 % Ukraine 3,452 2% 50 0.0% Source: USDA 2011a. four and one-half months.27 Syria has the larg- wheat.29 If a country that imports 3 million met- est existing storage capacity in terms of volume, ric tons per year adds three months of strategic while Syria and Saudi Arabia both have exist- storage over the course of one year, this country ing storage capacities that exceed ten months of would increase its annual imports from 3 million consumption.28 Nevertheless, Syria and Saudi to 3.75 million metric tons. Supposing that the Arabia—as well as many other Arab coun- tries—plan to increase their strategic wheat- storage capacity (Figure 2-3) to accommodate 28 Estimates of storage capacity in terms of months of wheat reserves that will last one year, or up to consumption assume that all silo storage capacity is two years in some cases. Increasing stock levels dedicated to wheat and that silos are kept one hun- by any amount helps mitigate supply risk. dred percent full. While these assumptions are not realistic, given that countries also store other grains such as barley, the assumptions are used to give an Maintaining strategic stocks comes at a cost. idea of the maximum possible level of public stocks. These estimates also do not account for private stor- Each country must decide how much they are age for which comprehensive information is diffi- willing to spend in exchange for the physical, cult to obtain. 29 This figure is based on reported storage costs. As financial, and psychological security that comes there may be indirect subsidies that help lower the with strategic wheat reserves. On average, stor- cost of storage, this figure is likely to underestimate age in Arab countries costs US$2.15 per metric the full economic cost of increasing storage by three ton per month, which means that increasing stor- months. Moreover, the figure is an average for the region (weighted by volume of imports) and varies age by three months would increase the overall from country to country depending on the level of cost of the reserve by US$6.44 per metric ton of domestic subsidies. 14 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Figure 2-3  n  Many Arab countries are planning to increase storage capacity 20 Storage capacity (months of consumption) 17.0 16.6 16 13.8 13.0 12.9 12 9.7 8 6.9 6.4 6.1 4 3.6 2.6 2.1 0 Oman Bahrain Syria Qatar Saudi Jordan Algeria Tunisia Morocco Yemen Lebanon Egypt Arabia Existing storage capacity Planned storage capacity Source: Authors, USDA 2010b, USDA 2011a, USDA 2011b, Carey 2011, MuscatDaily 2011, La Tribune Online 2010, World Grain 2011. Note: These figures assume all storage capacity is dedicated to wheat and silos are kept 100% full. Qatar and Bahrain do not have concrete plans to increase storage capacity, however they have discussed increasing their strategic stocks and the authors assume for now that they will therefore double existing storage capacity. This estimate may be a lower bound, as demand is expected to grow. Egypt’s goal is to add an additional 4.5 million metric tons of storage, yet only 1.5 million metric tons of capacity are currently planned to be built. If all 4.5 million metric tons of storage were included in the chart, Egypt’s existing and planned storage capacity would be equivalent to roughly 3.9 months of consumption. average Cost and Freight (CFR) price in 2009 with increasing strategic reserves when they de- was US$210 per metric ton,30 this would increase cide what level of stocks should be held. the import bill that year by around US$158 million, plus an additional US$24 million to However, storage costs may be underestimates store this wheat, resulting in additional costs of in some cases as many Arab countries subsidize US$182 million. But if the average CFR price in 2010 rose to US$280 per metric ton, adding 30 Incoterms Cost and Freight (CFR) is specified in these storage costs in 2009 would still be less ex- contracts where the delivery of goods to a named port of destination/discharge is at the seller’s ex- pensive than the US$210 million it would cost to pense. The buyer is responsible for the cargo insur- import three months worth of wheat consump- ance and other costs and risks. The term CFR was tion in 2010. Thus, for a country that imports formerly written as C&F. 31 This calculation assumes that the storage capacity to and consumes approximately 3 million metric increase reserves already exists and an upfront invest- tons of wheat per year, adding three months of ment is not required. The break-even point in this scenario is US$242. In other words, if prices fall in storage could save the country over US$28 mil- single year or increase but to a level less than US$242, lion in a year of a price shock similar to the one costs of maintaining reserves may be greater than from 2009 to 2010.31 Countries may also want to that year’s savings. In other words, savings accrued in future years thanks to the strategic reserves depend consider the additional costs, such as fumigation, on fluctuations in international wheat prices and the cost of capital, and transportation associated amount of reserves that are drawn down. How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy? 15 Figure 2-4  n  Storage costs vary from one to four dollars Tunisia 3.47 Qatar 3.37 Lebanon 2.40 Netherlands 2.09 United States 2.02 Saudi Arabia 1.93 Morocco 1.84 Egypt 1.78 Jordan 1.69 South Korea 1.28 0 1 2 3 4 2009 storage cost (US$ per mt per month) Benchmark Source: Authors. Note: Data are for 2009. Bahrain, Oman, and Yemen were not included in the chart because the storage-cost data was insufficient. the cost of storing wheat, putting further pres- international storage cost and adjusting for Jor- sure on fiscal budgets. The relative size of the dan’s average dwell time, the cost of the quasi- subsidy in Arab countries can be estimated by fiscal subsidy to Jordan could be estimated at comparing their storage costs with the cost of around US$1.3 million per year. This money storage in the Netherlands, South Korea, and could be used instead for infrastructure invest- the United States. In all three benchmark coun- ments that would provide long-term benefits. tries, the private sector manages the WISC in markets characterized by high competition. Assuming the long-term marginal cost of stor- What key issues should be addressed in age is approximately US$2 per metric ton per developing a policy for strategic wheat month,32 in 2009, four Arab countries fell be- reserves? low this international rate, suggesting either lower land, labor or capital costs or the presence While strategic reserves can help mitigate both of direct or indirect subsidies (Figure 2-4). That supply and price risks, there are significant costs same year, three Arab countries had storage costs above the benchmark suggesting poten- 32 Although the average storage cost for the Neth- tial for efficiency gains. For example, by mul- erlands, South Korea, and the United States is US$1.79 per metric ton per month, the long term tiplying Jordan’s annual wheat consumption by marginal cost is conservatively assumed to be US$2 the difference between its storage cost and the per metric ton per month. 16 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries associated with implementing this policy. If ex- of import dependency by examining current isting storage capacity is not sufficient to hold and projected wheat consumption and domestic the desired level of reserves, investments can be production, keeping in mind that consumption made to expand capacity by building new storage patterns during food shortages can be lower facilities. When additional storage capacity is lo- than normal (Murphy 2009). Second, each cated inland, the increase in throughput volumes country must assess its relative vulnerability to during build up and replenishment of reserves supply disruptions and price shocks, and how places additional burden on transport infra- long those disruptions may last.35 Conducting structure and may require upgrading transport a strengths-weaknesses-opportunities-threats and handling systems. Even if countries choose (SWOT) analysis of the WISC as well as an to build up their reserves gradually, they must be evaluation of past supply disruptions and any able to finance the increase in the import bill.33 corrective measures taken will help highlight Countries also face the extra cost of storing and potential vulnerabilities to future supply dis- maintaining the reserve, including increased fu- ruptions. Lastly, the size of a strategic wheat migation and rotation costs, costs for training reserve is dependent on a country’s own toler- staff in how to manage the reserve, and higher ance for risk. More risk-averse countries may be cost of capital. These costs are offset by any re- willing to spend more money to maintain larger lease of stocks which may be sold at a pre-deter- reserves. Ultimately, however, the size of the re- mined price.34 While investing in reserves can be serve comes down to a tradeoff between insur- beneficial, every extra metric ton of wheat stored ance against risk and the cost of that insurance. costs money that could be spent on other issues such as education and healthcare. Strategic reserves may be considered the sup- ply of last resort and therefore should be lo- There is no optimal level of strategic wheat re- cated within the borders of the country who serves; the preferred size of the reserve depends owns the reserves. Some people suggest that, in on a country’s level of import dependency, terms of cost, strategic reserves should be held vulnerability to supply disruptions and price shocks, and risk tolerance. A 1987 study at- tempted to develop a guideline for the size of 33 Assuming the first-in-first-out (FIFO) principle, once strategic reserves are built up to the desired strategic reserves and suggested that the size of level, the country can go back to importing the reserves should assume “at least 95 percent of volume needed for consumption, until reserves are the food-insecure population need to be pro- drawn down and must be replenished. 34 Any strategic reserve policy will need to define a tected by providing a ration of 400 grams of maximum domestic price, above which the policy cereal per capita per day for a period of four is triggered to draw down reserves. This threshold price should be pre-determined. months, which is considered to be the necessary 35 Supply disruptions can take many different forms lead time to import and distribute the food to including logistical bottlenecks that delay delivery beneficiaries” (Rashid and Lemma 2011). To of supplies, accidents such as a dust explosion at a silo, and emergency situations in which there is a determine optimal levels of strategic wheat re- shortage of existing supplies within a country and serves, a country must first consider its degree new wheat imports are inaccessible. How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy? 17 in the country of production (exporting coun- at the point of entry will eliminate the need try) (Larson et al. 2011). Assuming the cost of to overdesign inland transport and handling storage is the same, and ignoring the cost of systems, which would otherwise have to be capital, storing wheat in the country of produc- equipped to handle a surge in volume any time tion saves the importer the cost of transporta- reserves are built up. However, there should tion if they choose not to draw down the stocks be contingency plans in place to distribute the and import the wheat for consumption. How- wheat from the reserve to vulnerable popula- ever, if an import-dependent country is facing tions inland—both urban and rural—in the a supply shortage due to port closures or trade event that reserves are needed at a time when restrictions imposed by major wheat-exporting a country’s inland transport network has been countries, reserves in another country will be of disrupted (e.g., due to natural disaster or civil no use. Locating reserves within the importing unrest). country may be more costly, but this will keep the wheat where it is needed. Strategic wheat reserves require sound man- agement in order to mitigate import supply The optimal location for the strategic reserve is and price risks effectively. Mismanagement of at the point of entry into the country, connected strategic reserves may outweigh the benefits of to—or integrated with—existing handling and maintaining wheat stocks, ultimately weaken- storage facilities. In this way, management and ing a country’s food security (Murphy 2009). operation of both existing and new silos can To ensure a well managed reserve, each country be in the hands of a single organization, creat- must establish a set of guiding principles re- ing economies of scale. For example, as Saudi garding when to draw down stocks and when to Arabia transitions from a policy of wheat self- replenish, assuming the first-in-first-out (FIFO) sufficiency to importing wheat and maintaining principle. These guidelines must be clear and strategic reserves, it has carefully examined the must be designed with the objective of mitigat- location of existing silos. The country realized ing supply and price risks, and the purchasing that although it had sufficient storage capacity, and selling of the wheat reserves must be done the storage facilities were located in sub-opti- in a competitive and transparent market. In ad- mal locations. Saudi Arabia’s Grain Silos and dition, to ensure that wheat is accessible when Flour Mills Organization will be adding a to- needed it is important to make sure that all tal of 360,000 metric tons of storage capacity stakeholders are well informed about the guide- at three different ports—King Abdullah Eco- lines and that staff located both at the site of the nomic City, Yanbu, and Dhiba—which will al- reserves and in back offices are properly trained. low them to import large quantities and to hold Lastly, the management of wheat reserves must stocks (Lyddon 2011). Storage facilities at the be adequately financed (Murphy 2009). point of entry will store strategic reserves and serve as operational silos to help regulate the Three factors must be considered in establish- flow of wheat to downstream WISC segments. ing the guidelines for the reserves: the threshold Keeping the strategic reserves in these facilities domestic price that will trigger the drawdown 18 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries of wheat reserves, the target reserve level, and profit and thus have less incentive to maintain the rate of reserves replenishment. A recent socially optimal levels of stocks (Murphy 2009, analysis argues (Larson et al. 2011) that select- Wright and Williams 1982). The government ing a higher threshold domestic price turns the would need to regulate the private sector’s reserve into more of a safety net to be used in management of the reserves to ensure the tar- emergency situations rather than as a tool for get stock levels are maintained and that people price stabilization; with a high threshold price, do not go hungry in times of crisis. Within the strategic reserves may not have much of an im- public sector there are options for who could pact on domestic price volatility as long as prices manage the reserve, such as an entity report- remain below the threshold. The larger the tar- ing to the appropriate government ministry. In geted size of the reserve, the more costly it will be Ethiopia, for example, an autonomous entity is to maintain, but the more food-security coverage tasked with managing and operating the coun- the reserve will provide. Lastly, a more aggressive try’s grain reserve (see Box 2–1). Although this rate of building up and replenishing the reserves organizational structure worked in Ethiopia, it is more likely to smooth domestic price volatility, may be difficult to maintain a truly indepen- as there is less chance of there being insufficient dent agency that manages the reserves, since reserves. However, replenishing reserves increas- food security is such a sensitive political and es demand from international markets, which social issue. Moreover, it may not always be best may aggravate international price volatility. practice to separate management of the reserve from procurement and distribution. For some Since strategic wheat reserves are intended to countries, this separation might create market be a safety net, governments are responsible for distortions leading to two types of wheat: one setting public policy about how they will oper- for commercial purposes and one for emergen- ate. Many argue that the private sector can man- cy stocks. This may lead to unintended conse- age wheat stocks most efficiently, while others quences that would render the strategic reserve suggest that private grain traders are driven by less effective. Box 2–1  n  Ethiopia case study The Emergency Food Security Reserve Administration (EFSRA) is an autonomous entity tasked with managing and operating the country’s grain reserve. Unlike entities that manage strategic grain reserves in other countries, EFSRA is not in charge of buying, selling, transporting, and distributing grain but rather “serves as the custodian of the stock” (Rashid and Lemma 2011). It has clearly defined draw-down guidelines. The general manager of EFSRA can release up to 25,000 metric tons of grain to any recognized relief agency. Beyond 25,000 metric tons, EFSRA must get approval from a committee comprising the general manager of EFSRA and representatives from the Ethiopian Grain Trading Enterprise (EGTE), the World Food Programme (WFP), and NGOs engaged in emergency operations. This committee can approve the release of 5,000 to 25,000 metric tons of grain up to a total of 100,000 metric tons. If, however, stock levels have dropped below 25 percent of the target stock level, any deci- sion to release stocks must be approved by the EFSRA board which includes members from Ministry of Finance and Economic Development, Ministry of Agriculture, and Ministry of Trade. Board meetings may be called in emergency situations to allow for swift action (Rashid and Lemma 2011). How Can Strategic Reserves Be an Integral Part of a Country’s Food Security Strategy? 19 The appropriate management structure of the public-private-partnerships (PPPs) for manage- reserve is specific to each country and should ment. The government could pay private opera- be designed to minimize costs, ensure food tors to manage logistics and storage operations safety, and reduce distortive impacts of stock for strategic stocks or could play a more limited policies on grain markets (Rashid and Lemma role, getting involved only during severe price 2011). Once the strategic reserve policy is es- and supply shocks. tablished, there may be opportunities to create 3 How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? A rab countries are dependent on wheat MM Minimizing dwell time related to opera- imports, and a WISC with reliable tional storage could reduce transit times and efficient logistics is necessary to and WISC costs. ensure critical wheat supplies. Price and sup- MM Investing in multi-grain storage facilities, ply risks can increase significantly if supply grab unloaders, and other multi-purpose chains fail to perform. This chapter assesses solutions could enhance throughput and WISC performance in 10 Arab countries,36 promote savings. identifies possible bottlenecks, and provides recommendations to help manage exposure to import supply and price risks. All seg- How should WISC efficiency be measured? ments of the WISC are interconnected, and bottlenecks in one segment or node can have A well-performing WISC should ensure de- repercussions all along the supply chain. This livery of supplies in a timely and cost-effective chapter examines ways in which countries can manner. Regardless of the amount of wheat a reduce WISC logistics costs (measured in country imports, the timeliness of its WISC is US$/mt) and transit times (measured in days) one key measure of efficiency. Bottlenecks in the to ensure a reliable and efficient WISC. The supply chain may cause excessive transit times key messages are: from port to consumer, which can lead to more spoilage and to delays in the delivery of supplies MM Improving overall WISC logistics could to people in need.37 A second measure of WISC reduce base costs and product loss, and efficiency, cost effectiveness, affects a country’s could increase supply-chain reliability. MM Reducing vessel turnaround time and re- 36 Bahrain, Egypt, Jordan, Lebanon, Morocco, Oman, moving other bottlenecks at the port could Qatar, Saudi Arabia, Tunisia, and Yemen. WISC data was collected from public and private sector significantly reduce overall logistics costs. representatives in each country. See Appendix for MM Improving the quality of roads and ex- methodology description. 37 In the event that a supply chain bottleneck results in panding transportation networks could re- a disruption in the delivery of wheat, there may be duce WISC transit times and costs while alternative, albeit more costly, options. Some inef- promoting inter-regional connectivity. ficiencies in the chain can be circumvented, for ex- 22 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries  he analysis covers the supply chain from the unloading port to bulk storage at the Figure 3-1  n  T flour mill Transport to Storage at Transport to Bulk Storage Unloading Port Inland Silo Inland Silo Flour Mill at Flour Mill Source: Authors. exposure to price risks. The cost of wheat en- All segments are interconnected and efficiency tering the WISC is the CFR price, while the throughout the supply chain is critical. For exam- cost of wheat when it arrives at the flour mill is ple, one cause of vessel waiting times may be slow the CFR price plus WISC logistics costs. These vessel discharging/unloading rates: vessel dis- costs should be minimized, yet inefficiencies charging rates depend on the effective capacity of such as long vessel turnaround times or assets the vessel unloading system, the effective capacity that remain idle while waiting for delivery of of the conveying system to the silo, and the space wheat (e.g., trucks waiting or mills not oper- available in the silo, which itself depends on out- ating at full capacity) result in increased costs. take capacity by trucks. If there is a low outtake ca- Transit time and cost are inextricably linked, pacity at the silo, the whole system can get backed and thus an efficient and reliable WISC will up, causing costly vessel waiting time at the port. help mitigate both supply and price risks. Conversely, if a port becomes congested by an im- port surge, long vessel turnaround times (waiting In this analysis, performance is assessed at each time in the harbor plus discharge time) might pre- segment of the WISC from the unloading port vent a smooth flow of wheat to flour mills. Here, to bulk storage at the flour mill (Figure 3-1). an upstream bottleneck may cause insufficient Inefficiencies at any single point in the supply supply of flour and bread downstream in the sup- chain can delay the delivery of food and increase ply chain. For a country’s WISC to be robust, the its cost. For example, Egypt has a road network entire chain must be free of bottlenecks to ensure with limited connectivity in some parts of the a constant flow of wheat to the flour mills.38 country, and the quality of the roads, particu- larly those to Upper Egypt, is poor. This con- tributes to longer transit times and an increased ample if there is a bottleneck at the designated grain need for truck maintenance, contributing to terminal the vessel can unload at a different berth by grab and unload directly onto trucks. higher WISC costs. In Tunisia, limited stor- 38 Ideally the mill or group of mills in the WISC age capacity appears to cause bottlenecks at the should be connected to multiple entry points (or port as vessels cannot unload the wheat imme- WISCs) so that in case the main WISC becomes inoperative there is a backup WISC available. This diately due to full silos, causing longer vessel backup WISC may be within the same country, or waiting times and increasing logistics costs. it may be regional. How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? 23 How do WISC logistics in Arab countries  well time and vessel turnaround Figure 3-2  n  D perform in terms of addressing supply risk? time are the two driving factors in a WISC’s transit time in Arab countries Based on the selected corridors for each partic- ipating Arab country, the average WISC tran- sit time in 2009 was 78 days.39 WISC transit 87% 12% time can be broken down into three compo- (67.7 days) (9.5 days) nents (Figure 3-2): vessel turnaround time (12 percent), inland transit time (1 percent), and dwell time (87 percent). Dwell time of wheat, including both operational and strategic stor- age, is the major driver of overall transit time,40 1% reflecting throughput volumes and logistics as (0.7 days) well as policy decisions.41 The second driver of transit time is vessel turnaround time. Al- though transport networks in many Arab Vessel turnaround time Inland transit time countries are frequently inefficient, inland Dwell time transportation does not appear to be a main Source: Authors. bottleneck in terms of the overall transit time Note: Transit times are weighted averages per metric ton for the ten par- for an average metric ton of wheat. For com- ticipating Arab countries based on data from 2009. Inland transit time may be zero for countries whose WISC is consolidated at the port (i.e., flour parison’s sake, WISC transit time is approxi- mill is at the port) and all transport of wheat is by conveyors. mately 18 days in the Netherlands and about 47 days in South Korea. Wheat vessels arriving at ports in Arab coun- tries had an average turnaround time of 9.5 39 For each country the authors considered the cor- ridor with the largest throughput volumes. See Ap- days. Vessel turnaround time comprises both pendix for methodology description. waiting time in the harbor and discharge time 40 Dwell time was combined for all points of storage at the berth. While discharge time is a function throughout the chain. This could include storage of wheat at the port, inland, or at the flour mill. of unloading capacity and the cargo volume, 41 For further discussion on strategic storage see waiting time is largely independent of vessel Chapter 2. 42 The waiting time includes any time required for cus- size and could be minimized.42 On average, ves- toms procedures, inspections and analysis, as well as sels arriving at ports in Arab countries in 2009 any delays due to limited berthing space, priority for waited about three days before they began dis- other vessels (container, cruise, export), inadequate handling capacity, silos being full, poor scheduling, charging wheat.43 Among Arab countries there or inclement weather. was quite a range of waiting times and, depend- 43 This figure is based on the mean waiting time for ing on the country, vessels waited an average of the ten selected corridors. If vessel wait times are weighted based on volume of imports for each less than one day to more than seven days, sig- country, average waiting time in Arab countries is nificantly impacting overall vessel turnaround nearly 5.7 days. 24 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Figure 3-3  n  Vessel turnaround times are composed of waiting and unloading times 14 13 Vessel waiting and unloading times 12 11 (indexed to the Netherlands) 10 10 8 8 6 5 5 5 4 4 3 3 2 2 1 0 Saudi Arabia Tunisia Egypt Yemen Jordan Morocco South Korea Qatar Bahrain Oman Lebanon Netherlands Waiting time Unloading time Benchmark country Source: Authors. Note: Data are for 2009. Turnaround time in the Netherlands is indexed to 1. Waiting and unloading times for other countries represent performance rela- tive to the Netherlands. times (Figure 3-3). The waiting times in Arab Inland transportation time is dependent on a countries can be compared to waiting times number of factors including the number of seg- of less than one day in the Netherlands and ments in the WISC, the geography of the coun- nearly six days in South Korea. Times also var- try, the quality of the inland transportation in- ied from vessel to vessel within a single coun- frastructure, and transportation regulations. try; while the majority of vessels in 2009 spent While the networks could comprise different less than two days waiting in the harbor, there modes of transportation including road, rail, were a number of ships that waited significantly and waterways, the majority of wheat in Arab longer, suggesting unpredictable waiting times countries is transported by truck. This analysis (Figure 3-4). Unpredictable waiting times raise considers only a single corridor for each coun- costs for shippers, and they may also impede try and therefore may not fully reflect the state the timely delivery of wheat to people in need. of inland transportation in each country. For a While the source of these bottlenecks can vary single metric ton of wheat, inland transit time from country to country, reducing waiting time in Arab countries can vary from less than one in the harbor for some countries could help re- hour, in countries whose WISC is fully con- duce tender prices and quickly deliver supplies solidated at the port (requiring no inland trans- during emergencies. portation), up to a day and a half in countries How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? 25  n 2009, most vessels waited less than two days in the harbor, yet there was Figure 3-4  n  I significant variability 0.10 0.09 0.08 0.07 Probability 0.06 0.05 0.04 0.03 0.02 0.01 0.00 0 5 10 15 20 25 30 Waiting time in harbor (days) Source: Authors. Note: Waiting time in harbor was only available for Bahrain, Morocco, Saudi Arabia, Tunisia and Yemen. Waiting time in harbor was rounded to the nearest tenth of a day. Probability is based on sample of 263 vessels. that must transport the wheat first to a silo near be difficult. Operational storage is meant to the port, then to an inland silo, and then to the prevent excessive turnaround times of vessels flour mill. This range in transit times is rela- and trucks and can be minimized so that the tively small, amounting to a difference of only wheat is only stored for long enough to ensure a one day. Even significant improvements, in per- smooth inflow and outflow. At the port, wheat centage terms, for countries with relatively long imports arrive in batches on vessels, while flour transit times such as Jordan, may result in only mills operate more or less at a constant rate. marginal reductions in supply risk. Average dwell time in Arab countries is 68 44 Dwell time is the amount of time an average metric days, reflecting both operational and strategic ton of wheat stays in storage. storage.44 This chapter focuses on logistics, the 45 Operational storage is a “necessary evil” to create primary driver for operational storage, which smooth logistics in normal situations, where pre- dictable issues are present at the transfer points is needed to smooth the flow of incoming and including: incidental and temporary interruptions outgoing wheat in the supply chain.45 However, in supply, change of transport mode, variations in since operational and strategic storage are often arrival times of transport units, and local constraints (physical, operational, natural, etc.). combined in practice,46 analyzing the efficiency 46 Strategic storage is driven by public policy. For more of operational storage based on dwell times can on strategic storage see Chapter 2. 26 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Thus, operational storage at the port allows for country’s total WISC costs, accounted for about unloading the vessel as quickly as possible (in- 20 percent of total WISC costs in Arab coun- flow), while releasing wheat at a constant rate tries. Generally speaking, the shorter the WISC, from the silo (outflow) into the downstream seg- the greater the share cost of vessel turnaround ments of the chain. Efficient use of operational time will be of total WISC costs. For example, storage will help reduce bottlenecks throughout cost of vessel turnaround time accounts for 37 the chain and will thereby reduce supply risks. How do WISC logistics in Arab countries 47 While this analysis is based on reported costs, hid- den costs, in the form of a “quasi-fiscal” subsidy, perform in terms of addressing price risk? must also be accounted for. Just as the domestic consumer price of wheat might not reflect the full In 2009, reported WISC costs in Arab coun- economic cost of importing wheat due to govern- ment safety nets in the form of subsidized bread, tries added an average of US$40 per metric flour, or wheat, the WISC costs discussed in this ton to the final cost of imported wheat deliv- chapter might not be an accurate reflection of the full economic cost of logistics. Many Arab coun- ered to the flour mill,47 which is equivalent to tries subsidize the cost of fuel, which effectively 17 percent of the average CFR price.48 Due to lowers reported WISC costs, including transpor- the quasi-fiscal subsidies that are imbedded in tation costs and the operation costs of equipment and storage facilities. In 2009, total fuel subsidies reported WISC costs, these figures represent a in the Middle East and North Africa were US$150 lower bound of the full economic cost. WISC billion (Economist 2011). Some countries, such as costs are broken down into four main categories Lebanon, Jordan, and Tunisia have implemented re- forms, but other countries such as Saudi Arabia and (Figure 3-5): port logistics (29 percent), stor- Egypt have significant fuel subsidies. Transporta- age (12 percent), transportation to inland silos tion and electricity costs are likely to be understated for GCC countries (Bahrain, Oman, Qatar, and and mills (22 percent), and WISC management Saudi Arabia) as well as some other oil producing (36 percent).49 WISC management includes countries (Egypt and Yemen). 48 WISC costs includes the cost of vessel turnaround such costs as product loss, cost of capital, and time and thus the figure of US$40 per metric ton overhead, which on average total about US$14 is not an additional 17 percent on top of the CFR per metric ton. Given the different WISC struc- price, which internalizes the cost of anticipated ves- tures throughout the region, total WISC costs sel turnaround time. Rather, the figure of 17 percent is provided to give the reader a sense of the size of range from US$19 per metric ton to US$47 WISC costs relative to the average price paid for a per metric ton (Figure 3-6). This is in compari- metric ton of wheat. 49 WISC management includes loading port costs, son to approximately US$11 per metric ton for bank costs, insurance for the WISC, commissions, the Netherlands and US$17 per metric ton for security costs, cost of working capital, overhead & South Korea. administration costs, risk & profit margins, and product loss. WISC management is not directly ad- dressed in this chapter as the focus is primarily on Of total WISC costs, 29 percent were incurred logistics. 50 Port logistics costs include vessel wait time in har- at the port,50 65 percent of which were driven by bor, inspection/sampling/analysis, agent fees, fumi- vessel turnaround time. This means that vessel gation prior to discharge, unloading/handling at the turnaround time, one of the largest drivers of a berth, and transport to port silo (if applicable). How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? 27  ISC costs added an average of US$40/mt to the final cost of importing wheat in Arab Figure 3-5  n  W countries, compared with US$11/mt in the Netherlands and US$17/mt in South Korea Arab Countries Netherlands South Korea 36% 40% 31% ($14) ($4) ($5) 10% ($2) 11% ($1) 22% 29% 50% 12% ($12) ($6) ($9) 59% ($5) ($10) Port logistics Storage Transport to inland silos & mills WISC management Source: Authors. Note: WISC costs are weighted averages for the ten participating Arab countries, based on data collected for 2009. Percentages may not add to 100 percent due to rounding. The cost of capital (US$/mt) was estimated assuming an annual interest rate of 4 percent. Product losses were conservatively estimated based on 0.25 percent loss for each storage segment and 0.1 percent loss for each trucking segment. For Egypt product losses were assumed to be 5 percent. percent of total WISC costs in Qatar, which has the WISC. On average, inland transportation a short WISC that is consolidated at the port. accounts for about 22 percent of WISC costs, but this figure ranges widely across countries. While transport costs represent a small share For example, these costs could account for up of total WISC costs for most Arab countries, to 51 percent of total WISC costs in countries inland transportation makes up a significant such as Egypt, Jordan, and Yemen (Figure 3-7), share of total WISC costs in some of the larger adding an additional US$10 to US$18 to the countries. Inland transport costs are driven by cost of importing one metric ton of wheat. The a number of factors including geographic size, quality of transport infrastructure, truck-wait- ing times, level of fuel subsidies,51 the number 51 Among the 10 Arab countries participating in the of stakeholders throughout the WISC, and WISC study 4 countries (Bahrain, Egypt, Saudi the relative power of those stakeholders at each Arabia, and Yemen) subsidize diesel to a point that segment of the WISC. But the primary driver the retail price is below the price of crude oil on the world market, while another 3 countries ( Jordan, of a country’s cost of inland transportation as Lebanon, and Oman) have retail diesel prices that a share of total WISC costs is the structure of are below US retail prices (GTZ 2009). 28 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Figure 3-6  n  WISC Costs in Arab Countries in 2009 Were Up to Four Times that of the Netherlands 5 (indexed to the Netherlands) 4 Total WISC cost 3 Benchmark countries 2 1 0 Egypt Jordan Yemen Qatar Tunisia Saudi Arabia Lebanon Morocco Bahrain Oman South Korea Netherlands Port logistics Storage Transport to inland silos & mills WISC management Source: Authors. Note: Data are for 2009. Total WISC Cost in the Netherlands is indexed to 1. Total WISC costs for other countries represent performance relative to the Netherlands and each segment is estimated based on its share of the total cost for each country. higher transportation costs in these countries incurred in order to bring flour from the mill to are partly due to geography, which clearly can- population centers and to rural areas. not be changed, but they may be exacerbated by inadequate infrastructure such as poor road The cost of storage is a significant driver of total conditions. Countries that have flour mills lo- WISC costs,52 accounting for 12 percent of to- cated at or near the port, or have minimal trans- tal WISC costs in Arab countries. These costs port segments, will have lower overall transport are largely dependent on dwell time and can add costs both in absolute terms and as a share of up to an additional 2 percent of the CFR price total WISC costs. This is more common in to total wheat costs. While this study advocates smaller countries such as Bahrain and Qatar, the reduction of costs in other WISC segments, but some larger countries, such as Oman, also when it comes to storage it is critical that coun- have consolidated WISCs. Although in the tries consider the tradeoff between minimizing context of this analysis, which only considers costs before the wheat is milled, a consolidated WISC may result in lower inland transpor- 52 The cost of storage accounts for both operational tation costs; one must still take into account and strategic storage, and includes handling, fumi- downstream transportation costs that could be gation, and the storage itself. How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? 29 Figure 3-7  n  Inland transport costs may account for up to 51 percent of total WISC costs 60 51% 50 Percent of WISC costs 42% 40 30 21% 20 12% 10% 10 6% 7% 2% 0% 0% 0% 0% 0 Bahrain Qatar Netherlands South Korea Oman Saudi Arabia Tunisia Lebanon Morocco Egypt Jordan Yemen Source: Authors. Note: Data are for 2009. operational storage costs and financing the cost in some countries. This is equivalent, at cur- of maintaining strategic reserves.53 Dwell times rent wheat prices, to over US$480 million an- associated with operational storage, to regulate nually for imported wheat to Arab countries.55 inflows and outflows of wheat, can be mini- Product loss can occur for a number of reasons: mized to reduce costs. Thus, while the unit cost poor grain handling systems, outdated storage of storage should be minimized, the total cost facilities, inadequate transportation networks, of storage should be weighed against possible unnecessarily long dwell times, and insufficient financial and non-financial benefits associated quality control systems and procedures can with a country’s strategic reserve policy. all result in substantial spillage and spoilage. Product loss could also be due to pilferage and Product loss due to inefficient WISC logistics is a significant contributing factor to WISC 53 For further discussion on the costs and benefits of management costs. Reported estimates of strategic reserves see Chapter 2. 54 Product losses are estimated based on the difference product loss suggest that there is wide variation between the amount of wheat unloaded from the across Arab countries, ranging from 0.5 per- vessel and the amount of wheat delivered to flour cent to 5 percent of imported wheat.54 Based on mills. 55 Average price of wheat in July 2011 is US$264/ communications with public and private sector metric ton (USDA 2011c). It is possible that these representatives from Arab countries, product figures are underreported and that product losses losses in 2009 were up to US$15 per metric ton may be even higher than 5 percent. 30 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries smuggling, which tend to be more likely when individual ports to help mitigate supply risks international wheat prices are high.56 While and to ease pressures on wheat prices. governments may be able to reduce pilferage and smuggling rates through regulation and The benchmarking analysis also indicates that policy decisions, product loss could be mini- consolidating WISC at the port might help re- mized with an efficient WISC. duce costs for small countries. Countries that have longer WISCs tend to have increased total WISC costs, while countries with a greater share How can improvements to the WISC help to of their WISC costs at the port tend to have address both supply and price risks? lower average costs per metric ton. This is be- cause close proximity between facilities enables Bottlenecks at the port are a significant source countries to make use of more cost-effective of increased costs, and countries should explore handling and transport solutions, and because various opportunities for future cost and time product loss is minimized due to a reduction in savings. Port logistics are driven by a number of handling of the wheat and in total transit times.58 factors including port capacity, customs and in- While a consolidated WISC may be sensible spection procedures, and vessel unloading rates. in small countries such as Bahrain and Qatar, For example, a port that has not been designed larger countries are faced with a tradeoff if they to handle larger vessels will be forced to import wheat on smaller vessels, and thus will not be able to take advantage of the lower unit costs 56 Wheat subsidies reportedly encourage smuggling of large vessels. The largest contribution to to- across borders, from subsidizing countries to nearby tal port logistics costs is vessel waiting times;57 non-subsidizing countries. 57 Reducing vessel waiting time, rather than total if vessel waiting times could be reduced to one turnaround time, was selected as an example in day, the 10 Arab countries studied in this anal- which Arab countries could improve port logistics ysis could save over US$60 million per year or because waiting time is not necessarily dependent on vessel size. Whereas the unloading time directly US$2.94 per metric ton. Arab countries could depends on the volume of cargo to be unloaded reduce waiting times by expanding port han- and the unloading capacity, waiting time can be dling and storage capacities, adding more berths independent of vessel size and can be determined by customs and inspection procedures, berth occu- that can handle grains, changing priority rules, pancy rates, and priority rules, among other factors. dredging the harbor to allow for larger vessels, This example assumes that long waiting times are harmonizing phytosanitary procedures with due to poor logistics and that a waiting time of one day is achievable. The example is meant to be illus- the exporting countries, and reducing bureau- trative. Each port should assess in greater detail the cracy in customs procedures. The variability cause of long turnaround times and the investments required to improve port logistics. in waiting times discussed above also suggests 58 A further advantage of WISC consolidation at the a need for more effective scheduling of vessels. port might be that wheat bran, a by-product of the It will be important for Arab countries to un- wheat milling process, can be sold to nearby feed mills or to overseas markets. In some cases, this may dertake further analysis of the specific causes reduce truck movements between the port and the of, and potential solutions to, bottlenecks at more distant hinterland. How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? 31 consider consolidating their WISC at or near costs. Any silo that connects two segments of the port of entry. Although there are efficiency the import chain must regulate incoming and gains to be captured in a consolidated WISC, a outgoing flows of wheat. Regulating flows de- geographically large country such as Jordan or pends on having the right equipment to take in Egypt may have higher transportation costs to wheat without causing bottlenecks upstream deliver wheat-based products downstream. (e.g., at the berth) or downstream (e.g., dis- charging to trucks). In addition, operational Improving national road and rail systems can grain silos must maintain appropriate occupan- reduce WISC transit times and costs while pro- cy rates to ease bottlenecks; full silos cause bot- moting inter-regional connectivity. This study tlenecks and empty silos increase storage costs finds that inland transport can represent a sig- unnecessarily. Analysis must be conducted for nificant share of total WISC costs. If these coun- each storage location to determine what the ap- tries were to reduce their transportation costs propriate storage capacity should be. by 20 percent by improving the quality of exist- ing roads and building new ones, each country As countries make investments throughout the could save up to an average of US$12 million WISC, they may want to consider investing in annually. These cost savings could be generated multi-purpose solutions to enhance throughput in a number of ways including reduced transit and promote economies of scale. Using multi- times and a decrease in spillage losses. Some purpose solutions could allow for horizontal countries may benefit from strengthening com- spillovers to other sectors. A one-time invest- petition in the trucking sector. Others might ment to improve logistics infrastructure will want to assess if they are making the most of not only reduce WISC costs, but will also ben- their inland transportation networks. Currently, efit other industries using the same transport most Arab countries rely on roadways to trans- corridors, storage facilities, and equipment. For port wheat, while railways and waterways are example, a multi-user transport network would used less frequently. Investing in and expanding entail having infrastructure for inland trans- wheat transportation to railways and waterways portation (trucks, railcars, and vessels) that may create spillover benefits throughout the can be used to move multiple commodities, not transport network, including freeing up capac- just wheat, through the same corridors. Simi- ity on roadways for additional transport needs. larly, storage facilities can hold several types of Egypt, for example, hardly uses the Nile for the grains, although these may be marginally more bulk of its wheat transportation, but with suf- expensive to manage. Lastly, whereas in some ficient throughput levels, river transport may Arab countries pneumatic unloaders are used offer a lower cost and more reliable method of for wheat, ports could be equipped with multi- transporting wheat from the ports along the purpose unloading equipment such as modern, Mediterranean to Upper Egypt. high capacity, dust-free unloaders that can un- load multiple types of cargo including grains, Increasing efficient management of operational coal, iron ore, and fertilizer. As Arab countries’ grain silos may reduce transit times and WISC dependence on imported wheat is expected to 32 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries grow, expansion of WISC infrastructure may Regardless of which sector controls the WISC, allow for increased economies of scale both in each Arab country will want to identify the terms of cost per unit and of total throughput WISC segments in which they can achieve the volume. Combining imports with domestic greatest improvements for the lowest invest- production within the supply chain to increase ment costs. While this study provides an initial throughput volumes might further help in- assessment across different Arab countries, our crease economies of scale. team has conducted an in-depth WISC analy- sis for each of the ten participating countries. While WISC efficiency is measured by transit Conducting a more comprehensive and detailed time and cost, it is also important to under- analysis will allow each country to identify spe- stand the role of the private and public sectors cific bottlenecks in each corridor within its bor- throughout the supply chain.59 Private sector ders. Not only does the type of bottleneck vary participation differs from country to country: from country to country, but they vary from for example, in Yemen the private sector controls corridor to corridor within the same country. In the entire WISC, while in Egypt the govern- some situations, a bottleneck can be eliminated ment is heavily involved throughout the supply by various alternative solutions: dredging a har- chain. In other Arab countries the public sec- bor to increase water depths and constructing tor is responsible for procurement and storage, new storage facilities can be significantly more while it is the private sector that transports and costly than purchasing new unloading equip- mills the wheat. Contrary to what one might ment with increased capacities and streamlin- expect, there is no clear evidence that either ing customs procedures. Country-specific rec- public or private management of the WISC is ommendations, based on the analysis for each more efficient in terms of transit time and cost. selected corridor, can be found in Table 3-1. Moreover, while food security is a government Ongoing country-specific analyses will help concern, both sectors can play important roles Arab countries identify the investments that in ensuring reliable access to food supplies. offer the greatest returns. Whether the WISC is managed by the public sector, private sector, or both, sound manage- 59 While the government is involved throughout the ment and efficient service delivery throughout WISC in Egypt, the private sector is also active, im- the supply chain should be a top priority. porting wheat in parallel. How Can WISC Logistics Reduce the Cost and Improve the Reliability of Food Supply in Arab Countries? 33 Table 3-1  n  Recommendations based on the corridor examined in each country Country Recommendations Bahrain • Expand storage capacity for reserves and milling capacity • Explore alternative storage locations Egypt • Explore alternative options (location & capacity) for strategic reserves • Reduce product loss by improving handling of wheat during transport • Optimize use of different inland transport systems Jordan • Evaluate optimal locations for storage facilities • Explore alternative import routes from other Mediterranean ports Lebanon • Explore further how improvements to inland transport systems may enable an increase in throughput capacity • Evaluate the capacity of the milling industry and development of re-export markets • Assess viability of developing Beirut silo as a transshipment hub for the Eastern Mediterranean region Morocco • Consider eliminating seasonal import tariffs to help ease port congestion • Determine the role of the private sector regarding strategic wheat reserves Oman • Optimize the integration of new storage facilities in current and future port operations as well as in the supply chain • Investigate the possible expansion of logistics systems to develop Oman as a regional agri-bulk transshipment hub for the Gulf region • Evaluate milling industry capacity and explore opportunities for re-export Qatar • Expand storage capacity for reserves • Investigate the development of Qatar as a regional agri-bulk transshipment hub for the Gulf region • Evaluate optimal location for milling operations Saudi Arabia • Optimize “spacing” of ship arrivals to reduce vessel turnaround times • Conduct cost-benefit analysis to evaluate the tradeoffs between expanding storage capacity at ports and integrating inland storage facilities in the import supply chain • Upgrade existing grain unloading systems in the ports to state-of-the-art equipment with high unloading capacity Tunisia • Increase storage capacity at ports • Align unloading rates specified in procurement contracts with actual unloading rates based on existing equipment Yemen • Optimize inland wheat transport by expanding road networks and upgrading handling and transportation equipment • Conduct a study evaluating the impact of household wheat and/or flour reserves and how to optimize a national strategic reserve policy Source: Authors. 4 How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports? O ne of the most critical aspects of import quality standards can allow suppliers to of- risk management is a country’s wheat fer lower CFR wheat prices. procurement strategy. Each country MM Purchasing wheat from reliable grain trad- will have its own approach to procurement, ers may reduce risks of non-fulfillment of choosing to pursue a combination of a number supply contracts.61 of different methods and tools that are outlined MM In some cases, facilitating regional coopera- in this chapter. tion and importing wheat from  neighbor- ing countries may also reduce supply risks. A country must monitor and analyze, on an on- MM Effective use of physical hedging contracts going basis, the fundamentals of domestic and and financial derivatives may help protect global wheat markets to understand and quanti- against price shocks.  fy price and supply risks. While most Arab coun- tries are already doing this to varying degrees, it is increasingly important that countries refine their What observations can be made about analyses and review their procurement strategies. procurement strategies in Arab countries? Given the recent increases in international price volatility and the projected variability, due to cli- Countries assume different amounts of risk mate change, of future harvests, Arab countries through their wheat tendering process, which should have a robust procurement approach, tai- may have an impact on the price paid for wheat lored to mitigate each country’s specific wheat- imports. One approach is to issue tenders in a import risks. In particular, countries that grow some of their own wheat will need to improve their forecasting capabilities so as to have a bet- 60 According to USDA data, Arab countries that ter understanding of what their wheat-import produced more than 10 percent of the wheat they needs will be in the short- and long-term.60 The consumed in 2010 include Algeria, Egypt, Iraq, key messages of this chapter are: Lebanon, Morocco, Saudi Arabia, Sudan, Syria, and Tunisia. 61 Reliable grain traders are companies with access to MM Issuing tenders  that allow flexibility in diverse sources of grain. Often, reliable suppliers country of origin while maintaining desired have a global network and can obtain grains from various locations depending on availability. 36 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Figure 4-1  n  Arab countries can follow different approaches to wheat procurement Pros Cons • Regular inflow of wheat Approach 1: • Price risk is spread across all tenders • Less flexibility to take advantage of Predictable & • Allows some flexibility to postpone lower wheat prices Regular Tenders tenders in case of extreme price shock • Requires long term foresight • Opportunity to save money by regarding wheat import needs Approach 2: • If stocks are low, may be forced to issuing tenders during low prices Larger Volumes & • May benefit from economies of issue tender during high prices Fewer Tenders • Infrastructure needs to be able to scale handle larger throughput volumes • Lower risk of over-or under- • If domestic needs are correlated with Approach 3: estimated wheat import needs for global shortages, countries may be Tenders “As countries that produce rainfed wheat less protected from price and supply Needed” • Lower investment cost for planning shocks and infrastructure Source: Authors. predictable fashion in order to keep a regular flow take a riskier approach, importing large volumes of wheat coming into the country (Figure 4-1). of wheat through a limited number of tenders. This is a conservative strategy in that it spreads While countries could save a lot by issuing a price risk across all tenders. In the event of a tender during times of low wheat prices, there is severe price shock, the country may choose to always a tradeoff if the tender is issued during a postpone a wheat tender, in the hopes of riding price shock. Good planning is required to deter- out the price increase. However, if existing wheat mine far enough in advance how much imported supplies inside the country’s borders are dwin- dling, the country may issue a tender even during a price shock.62 For example, when wheat prices 62 The approaches outlined here, assume no financial are relatively stable, Jordan issues tenders rough- hedging strategy in place to manage price risk. If, however, the country is using an overlying finan- ly every two months for wheat in increments cial hedging strategy, the country can operate more of 50,000; 100,000; or 150,000 metric tons. freely in the physical wheat market with the knowl- Bahrain also seems to have a predictable tender edge that the price risk is insured by their risk man- agement program. The use of hedging instruments process, tendering about 30,000 metric tons of for risk management is explored in the last section wheat every three to six months. Other countries of this chapter. How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports? 37 wheat will be needed, which may be challenging,  he top five exporters of wheat to Figure 4-2  n  T in particular for Arab countries that rely par- Arab countries were Russia, the tially on their own rainfed production of wheat. United States, Canada, Ukraine, and France To issue tenders effectively over the long-term, countries rely on forecasts for consumption and stock levels, but Arab countries that also pro- duce some rainfed wheat domestically, such as Other Algeria, Morocco, Tunisia, Iraq, and Syria, will 19% Russia need improved forecasting methods for their 33% domestic wheat harvests. Additionally, countries that take this long-term approach should have France 10% the appropriate infrastructure to import and store large volumes of wheat and the appropri- Ukraine ate policies for releasing and disseminating the 12% USA wheat from storage. Lastly, some countries may Canada 14% not have a specific strategy in place for wheat 13% procurement, and instead issue tenders on an “as needed” basis. In Egypt and Tunisia, for ex- ample, the frequency of tenders and the volume Source: Authors. requested is much less predictable. Note: Represents percent of regional wheat imports in 2009. Other coun- tries that exported wheat to Arab countries included Australia, Belgium, Finland, Germany, Greece, Italy, Latvia, Lithuania, Poland, South Africa, Sweden, Turkey, and the United Kingdom. Price is only one factor in determining the coun- try of origin for wheat imports. The Arab coun- tries participating in this study imported wheat from nearly 20 different countries in 2009. De- relative to what it paid Free on Board (FOB) spite a large number of supplier countries, near- for soft wheat imports from France in 2009,63 ly 45 percent of total imports to Arab countries Tunisia paid on average 8 percent less for soft came from the Black Sea region. The top five wheat imports from Russia and 21 percent exporters of wheat to Arab countries were Rus- less for imports from Ukraine. Third, for some sia, the United States, Canada, Ukraine, and countries the quality of wheat is paramount: France (Figure 4-2). Three main factors are at Saudi Arabia prefers to import high qual- play for countries in choosing their sources of ity wheat with 12.5 percent protein content,64 wheat. First, it depends on the type of wheat that is being imported. In Morocco and Tuni- sia, couscous made from durum wheat is a large Incoterms Free on Board (FOB) is specified in con- 63 part of the diet, and they are likely to import tracts where the buyer is responsible for the goods wheat from North America and Western Eu- once the goods have crossed the ship’s rail at the named port of shipment. The buyer is then respon- rope, where durum wheat is primarily grown. sible for the cargo shipment, insurance, and other Second, it depends on price. For example, costs and risks. 38 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Figure 4-3  n  Jordan and Lebanon imported nearly all their wheat from the Black Sea region Benchmark countries 100% 80% 60% 40% 20% 0% Bahrain Egypt Jordan Lebanon Morocco Oman Qatar Saudi Arabia Tunisia Yemen Netherlands South Korea Percent of wheat imports EU-27 Black Sea Americas Australia Other Source: Authors, USDA 2010a. Note: Data are for 2009. which is produced in Western Europe, North wheat harvest throughout the Black Sea region. America, and Australia, rather than lower pro- With contracts cancelled, many Arab countries tein content wheat from the Black Sea region. who had relied on imports from the Black Sea found themselves scrambling to get wheat from In addition, Arab countries varied in terms of alternative locations. Some Arab countries had the level of diversification of the origins of their to pay more for their wheat imports partly due wheat imports. Some countries in this study, to the shift from less expensive wheat from the particularly those importing less than 300,000 Black Sea region to more expensive wheat from metric tons in 2009, imported from only two Western Europe, the Americas, and Australia. to four countries, whereas Egypt spread its 10.3 Although there is no clear evidence that having a million metric tons of imports across eight dif- more diversified portfolio of wheat sources helps ferent countries. Other countries such as Jordan, mitigate price risks, it does prevent a country imported nearly 100 percent of their wheat from being too reliant on one source of wheat. from Russia and Ukraine (Figure 4-3). This proved problematic during the summer of 2010 Many other Arab countries will import wheat with 64 when Russia imposed an export ban on wheat 11.5 percent protein content, or will mix different due to the fires and droughts that plagued the wheat products of varying protein content. How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports? 39 What issues are critical to an efficient be met by the winning bidder. Wheat tenders tendering process? usually specify quality standards regarding pro- tein content, moisture content, and impurities, Access to better information regarding domes- among others, but some countries also specify tic and international wheat market fundamen- in the tender that the wheat must come from tals is critical to identifying and quantifying particular countries. The inclusion of these exposures to risk. In general, the first step in measures limits the flexibility of grain suppliers proper risk management is to understand the to obtain wheat at the lowest available price. In existing risks. Robust analysis of domestic mid-June 2011, Egypt issued a tender for deliv- wheat production, domestic wheat consump- ery of wheat from the United States, Canada, tion needs, international wheat production, Australia, France, Germany, Britain, and Ar- and forecasts of wheat prices helps countries gentina (Reuters 2011), but Russia and other better understand and quantify their risk countries from the Black Sea region were not exposure. However, since the international listed.66 This omission may have been caused wheat market is volatile and small changes in by problems that Egypt had with the quality global supply or demand can have significant of Russian wheat in the past,67 but by specify- price implications, it is important that Arab ing quality standards in the tender, these issues countries further improve upon their moni- could have been addressed without restrictions toring of wheat markets. As such, participa- on countries of origin. tion in the Agricultural Market Information System (AMIS) will allow Arab countries Ensuring that tender documents are aligned access to better information regarding wheat with international standards may allow sup- markets and forecasts at the international and pliers to offer lower CFR wheat prices. The national levels.65 Established in 2011, the goal CFR price frequently includes the expected of AMIS is to increase agriculture information transparency by aggregating data for produc- tion, consumption, and stocks of agricultural 65 AMIS was established at the meeting of G20 Ag- markets. By improving the quality, reliability, riculture Ministers in June 2011. Information on accuracy, timeliness, and comparability of this maize, rice, and soybeans will also be available, while additional commodities will be added to AMIS in data, AMIS can help limit food price volatility the future. (Ministerial Declaration 2011), which in turn 66 While Russia’s wheat export ban was still in effect at the time of the tender, Russia had announced it can help Arab countries better identify their would lift the ban as of July 1, 2011. Therefore, the- exposures to wheat-import risks. oretically, Russia could have been a potential source of wheat imports for this tender. 67 In May 2009, well before Russia imposed its Tenders can be written to ensure desired qual- wheat export ban, Egypt had problems with Rus- ity standards, while allowing flexibility in get- sian wheat imports. For some shipments, Egypt ting wheat from the least expensive source. Arab had to quarantine the wheat originating from Russia due to health concerns. Problems included countries control the quality of wheat import- dead bugs and other impurities above the allowed ed by stipulating specific standards that must limit. 40 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries vessel turnaround time, which includes esti- How can strategic relationships help mates for inspections and unloading. There mitigate supply risk? are two actions that could be taken to reduce inflated CFR wheat prices. First, national Developing formal or informal partnerships phytosanitary requirements may be aligned with reliable grain traders can help reduce with international standards developed by or- counterparty risk.69 Grain traders serve as the ganizations such as the Codex Alimentarius middleman between producers and consumers. Commission. Harmonizing these safety stan- Wheat buyers are concerned with counterparty dards for human, animal, and plant life will risk, which may be lower with reputable grain allow importing countries to rely more on the traders. First, more reliable grain traders have documentation provided by exporters, and global networks with assets located across most potentially reduce time required for inspec- continents. Second, as a global player, more tions and analysis. Second, tenders frequently well-established grain traders have existing re- stipulate expected vessel loading and unload- lationships with wheat producers in most of ing rates, and these should reflect existing the producing countries. This allows them to capacities. In some cases, the rates specified source wheat from numerous locations. Third, in the tenders are not aligned with either in- established grain traders have the financial ternational standards or with existing port stability that other companies may lack. All capacities. Some Arab countries often set the grain traders are exposed to the possibility of contractual unloading rate to be slower than default on behalf of wheat producers, but the is logistically feasible given the destination more reputable traders are better equipped to port’s infrastructure and equipment. This absorb such conflicts without passing it on to may be done to build in buffer time in case the wheat buyer. It is in the interest of Arab there is a logistics glitch during unloading. It countries to procure wheat from reliable and fi- could also be done to help the importer ap- nancially solvent grain traders to manage their pear efficient by unloading within the terms risk and survive major industry shocks. While of the contract, or even earlier than expected. having open tenders (any grain trader can sub- By doing so, the importer can avoid potential mit a bid) encourages competition among grain demurrage costs and may additionally earn traders, keeping price margins low, import- despatch, which is only 50 percent of demur- ers may consider developing closer relation- rage rates.68 Including slower loading and un- ships with some of the more well-established loading rates in the contract, and therefore re- quiring use of the charter vessel for more days than may be necessary, may come at the cost 68 Demurrage costs are incurred when loading or of a higher CFR price, in order to cover the unloading the charter vessel takes longer than is additional vessel cost. Stipulating loading and contractually allowed. Despatch may be received if unloading rates that accurately reflect port ca- the vessel is loaded or unloaded in less time than is stipulated in the contract. pacities may result in a lower CFR price and 69 Counterparty risk is the risk that the supplier de- efficiency gains. faults and fails to deliver the wheat. How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports? 41 Table 4-1  n  Arab Countries Have existing FTAs with some but not all the major wheat exporters Major Wheat Exporters Arab Countries with FTAs United States(a) Bahrain, Jordan, Morocco, Oman France & Germany (b) Algeria, Egypt, Jordan, Lebanon, Morocco, Syria, Tunisia Canada Jordan(c) Source: WTO 2011. Note: (a) Other Arab countries, including Egypt, have Trade & Investment Framework Agreements with the United States; (b) The FTA is with the European Union, which includes major wheat exporters such as France and Germany; (c) The FTA between Jordan and Canada is yet to be put into effect. traders. Such business relationships are mutu- have FTAs with the European Union, which ally beneficial: grain traders have less incentive includes France and other important wheat ex- to increase price margins and cancel contracts porters (Table 4-1). Jordan has signed a FTA with large customers, while the importers are with Canada, but it has yet to be put into ef- more likely to select reliable grain traders when fect. Meanwhile, Russia and Ukraine were two receiving tender bids. Moreover, there may be of the largest wheat exporters to Arab countries opportunities for more formal collaboration in 2009, and yet there are currently no existing between Arab governments and grain traders trade agreements between Arab countries and via public-private-partnerships (PPPs). Private these two key wheat exporters. While a FTA grain traders may provide the public sector with Russia might not have insulated Arab with information on regional and international countries from Russia’s universal wheat ex- wheat market conditions, while governments port ban in August 2010, FTAs can offer ben- could offer the traders greater insight on local efits to both consumers and businesses in Arab market conditions. PPPs can also be developed countries across numerous sectors, including with domestic companies: in one example in the wheat industry. Increasing diplomatic and 2010, Saudi Arabia’s National Shipping Com- economic ties between Arab countries and key pany partnered with the Arabian Agricultural grain exporters can have secondary benefits for Services Company (ARASCO) to form Bahri food security. Dry Bulk, which will import and transport dry bulk cargo (NSCSA 2011). In addition to cultivating relationships with large wheat-exporting countries, strengthen- Developing formal trade relationships with ing WISC cooperation among neighboring key grain-exporting countries could further fa- countries may also ease supply risk. Currently, cilitate importing wheat from reliable sources. Arab countries each import wheat through Bahrain, Jordan, Morocco, and Oman each their own national ports. Given the importance have free trade agreements (FTAs) with the of food security and the view that importing United States, while Algeria, Egypt, Jordan, wheat is an issue of national security, it is un- Lebanon, Morocco, Syria, and Tunisia each derstandable that each country wants to have 42 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries autonomous control over its wheat imports. In BOX 4–1  n  Regional cooperation some instances, however, there may be gains to be had by working with neighboring countries Currently, Jordan is importing nearly all its wheat through Aqaba port. As the country considers expanding storage to import wheat to the region. For example, a capacity to increase its strategic reserves Jordan might country such as Jordan, with only one port in consider expanding storage capacity at the Jordan Silos the south, may be able to reduce supply-chain and Supply General Company (JSSGC) silo in Irbid. With additional capacity in the northern part of the country, Jor- congestion by importing some wheat through dan could import part of its annual wheat requirements nearby Mediterranean ports and then trucking via Tartous, Tripoli, Beirut, or Haifa and then transport it it to silos and mills in the northern part of the to Irbid by truck (Figure). This could help eliminate con- gestion and create smooth logistics during import surges country (see Box 4–1). by reducing the likelihood of bottlenecks, such as the unnecessary queuing of vessels and trucks at Aqaba and Arab countries may consider alternative regional throughout the chain from Aqaba to inland silos. This op- tion would require developing relationships with Syria, cooperation solutions. First, transshipment from Lebanon, and/or Israel, and renting/contracting handling large vessels at deep-water ports into smaller ves- and storage capacity at the selected Mediterranean ports. sels serving shallow-water ports in the region is common practice. Using a hub-and-spoke mod- Jordan could also import wheat via nearby Mediterranean ports el, such as that used in the Netherlands, would allow large volumes of wheat to be shipped to a single deep water port in the region, and then the wheat could be transported to multiple destina- tions throughout the Arab world. Second, Arab countries can take advantage of the idea of par- cel service. Specifically, smaller countries such as Qatar and Bahrain may be able to benefit from importing wheat on shared vessels, and also car- rying cargo for neighboring countries. How can hedging be used as a price risk management tool? The application of physical hedging can mitigate price risk, while addressing the need for physical wheat supplies. There are two primary instru- Source: Authors. ments that Arab countries can use for a physical hedge. The first instrument, a forward contract, is an agreement to purchase a specific volume of the commodity on a specified date in the 70 The price is pre-determined often at a fixed level or future, whereby the price is pre-determined.70 using an average price formula. How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports? 43 These types of forward contracts enable the the contract, the importer will also be able to purchaser to lock in a price, effectively transfer- plan ahead to make sure that the supply chain ring the price risk to the seller. The purchaser is able to accommodate that level of throughput bears the risk that prices may decline below the volume. pre-determined price at the time the contract is exercised. The second instrument is a physi- Commodity derivatives may also be used to cal call option, which is effectively a right, but mitigate wheat-import price risks. Tradition- not an obligation, to purchase a commodity at ally, there are two types of derivatives that are a specified maximum price level (strike price). commonly used in agricultural commodity The purchaser pays a premium for this right. markets: futures and options.72 A futures con- This effectively is a type of insurance and the tract, like a forward contract, is an agreement maximum price cap allows the purchaser to between a purchaser and a seller to receive or benefit from lower prices.71 In both cases, the deliver a product on a pre-determined date at a purchaser can better insulate themselves from negotiated price. However, futures contracts are wheat price volatility and, in doing so, actively typically traded on an exchange and have stan- manages their fiscal exposure or liability. dardized delivery periods, contract sizes, and qualities. Purchasing wheat futures contracts While physical hedges are currently used in can help smooth price volatility. However, for wheat contracts, importing countries could importers who are concerned with insulating benefit from issuing similar contracts for wheat themselves from adverse price shocks, futures imports over a longer time horizon. In the Arab contracts may not be the ideal instrument. For world, on average, wheat is delivered within example, if the government purchases a futures three months after the initial tender is issued. contract but the price of wheat falls, the gov- While there are some cases in which wheat is ernment will then bear the legal responsibility scheduled to be delivered six months or even a to fulfill that contract and pay the difference in year after the tender is issued, this occurs less the price movement to the market counterparty frequently. Given the availability of physical (FAO et al. 2011). Conversely, a call option is a hedges, Arab countries could potentially use contract that gives an investor the right to buy a longer-term contracts in order to lock in the wheat futures contract at a specific price (strike volume and price of wheat imports up to 18 to 24 months in advance of delivery of the wheat. 71 If the price of the commodity increases beyond the In this way, the price of the commodity can be strike price, the option is “in the money” and the fixed well in advance of the delivery and the purchaser will exercise the option enabling him/her expenditure can be more closely aligned with to capture the commodity at the price as opposed to the higher market price. Conversely, if the price budget management. Long-term supply con- of the commodity is lower than the strike price, the tracts may also mitigate counterparty risk, as option will not be exercised and the purchaser can suppliers will have more of an interest in ensur- close out the option by selling it or letting it expire. 72 This study focuses on traditional financial derivatives, ing delivery (Sadler and Magnan 2011). Since yet some Arab countries may wish to explore other the quantity and delivery dates are specified in hedging instruments that are Sharia compliant. 44 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries price) within a certain time period. Call op- reporting to the government. Although agricul- tions act as a form of insurance to protect the tural commodity derivatives are not frequently buyer of the contract from price shocks by al- used in the Arab world to mitigate import price lowing them to take advantage of any increase risk, other governments have successfully pro- in market wheat prices by exercising the option. moted the use of financial derivatives as risk When a call option contract is purchased, the management tools (see Box 4–2). buyer pays a premium for the option to pur- chase wheat at a pre-determined price. If mar- Financial commodity hedging instruments ket prices are below this price, the buyer is not present challenges such as basis risk, whereas obligated to buy wheat through the exchange physical hedges have different challenges such and can take advantage of lower market prices. as counterparty risk. Basis risk is the risk that However, if market prices exceed the maximum the futures index used to price the contract price, the buyer can choose to settle the con- may move by a different amount or in a differ- tract either financially or physically (FAO et al. ent direction than the physical market. Essen- 2011). In the former case, the buyer can sell the tially, this is a risk associated with uncertain call option and use the cash payout (difference movements between the futures price and the between market price and call strike price) to physical spot price, and the possibility that offset the purchase of physical wheat at market movements may not correlate exactly with one prices. In the latter case, the buyer can exercise another. Since different wheat products are the call option by paying the pre-determined traded on different exchanges, governments price, and then sell the corresponding futures that choose to use financial derivatives to hedge contract at the higher market price, resulting in price risk must be aware of how basis risk can a profit that can be used to offset against the vary across the international exchanges.74 Fur- higher physical price of wheat. thermore, the exchanges cover only the cost of the wheat and not the price of transport or de- While trading derivatives can be an effective livery, which may potentially increase the basis risk management strategy, careful thought risk. Physical hedges, on the other hand, are should be given to who is responsible for exe- cuting the trading decisions. If the public sector wishes to include risk management within the 73 US Hard Red Winter wheat is traded on Kansas mandate of a government institution, the scope Board of Trade, European Milling wheat is traded on MATIF, and a mix of US wheat products—in- and limitations for hedging instruments must cluding Soft Red Winter, Hard Red Winter, Dark be clearly defined, and the incentive structure Northern Spring, and Northern Spring Wheat— for the practitioners must be aligned with the are traded on Chicago Mercantile Exchange. 74 Basis risk largely comprises freight and transport governance objectives of the designated agency. costs, currency exchange rates, and other logisti- Alternatively, the government could partner cal costs, which can vary depending on the region. with a private institution, designating an exter- Given the different locations of the exchanges, par- ticularly in relation to Arab countries, variations in nal company to manage the daily operations of freight and logistics costs will impact the basis risk the hedging strategy with protocols in place for on each exchange differently. How Can Procurement Strategies and Hedging Instruments be Used to Manage Wheat Imports? 45 BOX 4–2  n  Mexico case study While the private sector frequently uses financial derivatives to hedge agricultural commodity price risk, these risk management tools are still not commonly used by the public sector. Nevertheless, some governments have used financial derivatives to suc- cessfully hedge producer and consumer price risk for agricultural commodities, particularly corn. Since 1994, the Mexican government has encouraged the adoption of risk management instruments for a number of products including corn, wheat, soy, sorghum, coffee, cotton, and livestock. In particular, the hedging facility, which is under the mandate of Apoyos y servicios a la comercialización agropecuaria (ASERCA), offers subsidies between 50 and 100 percent to hedge exposure to international price movements. The program was initially intended to protect Mexico’s corn producers from sharp drops in international prices. In practice, producers would purchase put options on the Chicago Board of Trade (CBOT) to guarantee a price floor. The program has been quite successful and has expanded both in terms of coverage of corn production and in terms of help- ing corn consumers mitigate the risk of price increases. From the consumers’ perspective, food inflation was a serious concern in 2007, leading to massive protests known as the “Tortilla Riots.” More recently, as international agricultural commodity prices sharply increased in 2010, the government was faced with the possibility of managing a 50 percent increase in the price of torti- llas, a staple food for Mexicans (Blas 2010, Llana 2010). In an effort to protect against such an event, the government announced in December 2010 that, on behalf of tortilla makers, it purchased call options on the CBOT to cover 4.2 million metric tons of corn (Blas 2010). As such, the government was able to guarantee prices would not exceed a certain level, and thereby safeguard against the potential socio-economic ramifications of an adverse price increase, while also guaranteeing a share of corn supplies. not subject to basis risk as prices are negotiated not account for possible domestic crop failures, directly between buyer and seller of the physi- which may result in an insufficient supply of cal wheat. These contracts, however, do carry wheat. Theoretically, in the event of a domestic counterparty risk which is not a concern for crop failure, the country would have to purchase exchange-traded commodity derivatives. wheat on the physical market at the spot price, and thereby expose itself to additional price A successful hedging strategy will be over the risk. Alternatively, overestimating wheat-import long-term and will include a mix of the vari- volume for a long-term forward contract could ous hedging instruments described above. Arab result in surplus imports, increased strain on countries face a number of identifiable wheat- storage facilities, and the misalignment between import risks and no single tool can be a stand- the volume of wheat purchased and consumed. alone solution. If, for example, a country were While commodity risk management can be to decide to manage its import risks by only complex, a lack of any risk management strategy using long-term forward contracts for all of its may be an even riskier approach. A mix of hedg- wheat-import needs, it would need to be able to ing tools, including managing risk for a basket accurately forecast well in advance the quantity of commodities, can provide each country with of wheat that will be consumed, the capacity of greater flexibility to adapt its long-term risk storage infrastructure, and the capability of the management strategy, particularly as new risks supply chain to accommodate the throughput. arise. Each country can customize an appropri- While reasonable estimates can be made, if fore- ate combination of methods and tools to man- casts are made far enough in advance, they might age the specific risks it faces. Appendix I: Methodology T his study, and in particular the discus- two performance indicators: cost (US$/metric sion on WISC logistics in Chapter 3, is ton) and time (days/metric ton). The study ex- based on a benchmarking analysis that amines WISC efficiency in the following sup- assesses WISC performance for ten Arab ply-chain segments in each country:75 countries (Bahrain, Egypt, Jordan, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tuni- 1. Unloading port sia, and Yemen). In addition to these ten coun- Cost: cost of vessel turnaround time;76 inspec- tries, WISC data was collected for two com- tion, sampling and analysis; agent fees; fumi- parator countries (the Netherlands and South gation prior to vessel discharge; handling at Korea). berth; transport to port silo; handling at port silo; storage and fumigation at port silo The analysis is based on a “corridor approach,” Time: vessel waiting time; vessel unloading in which WISC performance was assessed for time; travel time to port silo; dwell time at a single corridor in each country. The WISC port silo structure can vary from country to country, 2. Transport to inland silo and from corridor to corridor within a single Cost: transport to silo country. The analysis for each country is based Time: travel time to silo; waiting time on the WISC corridor with the largest volume throughput from unloading port to bulk stor- age at the flour mill (see table with corridor de- 75 Each country’s WISC is unique, so in some coun- tries the structure of the chain may not resemble scriptions below). While the performance of a this sequence (e.g., some countries do not have in- single corridor may not always reflect the entire land silos and store all wheat, including strategic wheat-import supply chain in a given country, reserves, at the port silo). 76 The cost of vessel turnaround time assumed the use selecting a single corridor allows for easier com- of time-charter vessels. An average 2009 daily charter parison across countries. rate was calculated using weekly time-charter data for handymax, panamax, and capesize vessels. For each country, an average vessel size was estimated based on For each selected corridor, efficiency is mea- the data and the corresponding average daily charter sured at every WISC segment and node, using rate was multiplied by the estimated turnaround time. 48 The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries 3. Storage at inland silo administrative costs); estimated profit mar- Cost: grain handling at silo; storage; fumigation gin; and the cost of capital Time: dwell time at silo Time: not applicable 4. Transport to flour mill Cost: transport to flour mill In addition to the WISC segments and nodes Time: travel time to flour mill; waiting time outlined above, procurement of wheat and stra- 5. Bulk storage at flour mill tegic reserve policies were also evaluated. For Cost: grain handling at bulk storage at flour procurement, this analysis examined the tender mill; storage; fumigation process including the contracted CFR (Cost Time: dwell time at bulk storage at flour mill and Freight) price, origins of the wheat, trade 6. WISC management barriers (import tariffs, export bans, etc.). For Cost: product loss; loading port costs; over- strategic reserves, the analysis considered exist- head costs (including documents, bank costs, ing and planned storage capacity, consumption insurance, commissions, security, and other patterns, and target reserve levels. Selected WISC Corridors (All wheat in bulk, unless otherwise specified) Bahrain Unloading at Mina Salman port  Transport to port silo  Storage at the silo Storage at the silo is the end of the WISC in Bahrain since the silo is connected to the flour mill by conveyor and hence the silo serves as bulk storage at the flour mill. Egypt Unloading at Alexandria/Dekheila port  Transport to port silo  Storage at port silo  Transport to flour mills in Cairo region  Bulk storage at flour mill in Cairo region Jordan Unloading at Aqaba port  Storage at port silo  Transport to inland silo in Juweidah  Storage at inland silo  Transport to flour mill in Juweidah  Bulk storage at flour mill Transport to port silo is excluded as it is done by conveyor. Lebanon Unloading at Beirut port  Storage at port silo Transport to flour mill in Beirut region  Bulk storage at flour mill in Beirut region Transport to port silo is excluded as it is done by conveyor. Morocco Unloading at Casablanca port  Storage at port silo  Transport to flour mill in Casablanca region  Bulk storage at flour mill in Casablanca region Transport to port silo is excluded as it is done by conveyor. (continued on next page) Appendix I: Methodology 49 Selected WISC Corridors (All wheat in bulk, unless otherwise specified) (continued) Oman Unloading at Mina Qabous port  Storage at port silo  Transport to flour mill at the port Transport to port silo is excluded as it is done by conveyor. Transport to the flour mill is the end of the WISC in Oman since the port silo also serves as storage for the mill. Qatar Unloading at Doha port  Storage at port silo Transport to port silo is excluded as it is done by conveyor. Storage at the silo is the end of the WISC in Qatar since the silo is connected to the flour mill by conveyor and hence the silo serves as bulk storage at the flour mill. Saudi Arabia Unloading at Jeddah port  Transport to port silo  Storage at port silo  Transport to flour mill in Jeddah  Bulk storage at flour mill in Jeddah Tunisia Unloading at Radès port  Storage at port silo  Transport to flour mill in Tunis province  Bulk storage at flour mill in Tunis province Transport to port silo is excluded as it is done by conveyor. Yemen Unloading at Saleef port  Transport to silo nearby the port  Storage (and bagging) at silo  Transport of bagged wheat to warehouse storage in Sana’a The WISC in Yemen is significantly different from that in other countries. Warehouse storage in Sana’a was assumed to be similar to bulk storage at the flour mill. _______________________________________________________________________________________ Netherlands Unloading at Rotterdam port  Bulk storage at flour mill at port Wheat is unloaded directly to the flour mill at the port. South Korea Unloading at Incheon port  Storage at port silo  Bulk storage at flour mill at the port Transport to port silo and to flour mill is excluded as it is done by conveyor. Appendix II: Reported, Calculated, and Assumed Data 52 COSTS Bahrain Egypt Jordan Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel turnaround time X X X Inspection, sampling & analysis X X X Agent X X X Fumigation prior to vessel X X X discharge Handling at berth X X X Transport to port silo X X X Storage at Port Handling at port silo X X X Silo Storage at port silo X X X Fumigation at port silo X X X Transport Transport to inland silo n/a n/a X Storage at Inland Handling at inland silo X Silo Storage at inland silo n/a n/a X Fumigation X The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Transport Transport to flour mill n/a X X Bulk Storage at Handling at bulk storage X X Mill Bulk storage n/a X X Fumigation X X WISC Product loss X X X Management Loading port costs X X X Cost of working capital X X X Overhead & administration X X X Risk & profit margin X X X (continued on next page) COSTS (continued) Lebanon Morocco Oman Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel turnaround time X X X Inspection, sampling & analysis X X X Agent X X X Fumigation prior to vessel X X X discharge Handling at berth X X X Transport to port silo X X X Storage at Port Handling at port silo X X X Silo Storage at port silo X X X Fumigation at port silo X X X Transport Transport to inland silo n/a n/a n/a Storage at Inland Handling at inland silo Silo Storage at inland silo n/a n/a n/a Fumigation Transport Transport to flour mill X X X Bulk Storage at Handling at bulk storage X X Mill Bulk storage X X n/a Fumigation X X WISC Product loss X X X Management Loading port costs X X X Cost of working capital X X X Overhead & administration X X X Risk & profit margin X X X Appendix II: Reported, Calculated, and Assumed Data (continued on next page) 53 54 COSTS (continued) Qatar Saudi Arabia Tunisia Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel turnaround time X X X Inspection, sampling & analysis X X X Agent X X X Fumigation prior to vessel X X X discharge Handling at berth X X X Transport to port silo X X X Storage at Port Handling at port silo X X X Silo Storage at port silo X X X Fumigation at port silo X X X Transport Transport to inland silo n/a n/a n/a Storage at Inland Handling at inland silo Silo Storage at inland silo n/a n/a n/a Fumigation The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries Transport Transport to flour mill X X X Bulk Storage at Handling at bulk storage X X Mill Bulk storage n/a X X Fumigation X X WISC Product loss X X X Management Loading port costs X X X Cost of working capital X X X Overhead & administration X X X Risk & profit margin X X X (continued on next page) COSTS (continued) Yemen Netherlands South Korea Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel turnaround time X X X Inspection, sampling & analysis X X X Agent X X X Fumigation prior to vessel X X X discharge Handling at berth X X X Transport to port silo n/a n/a X Storage at Port Handling at port silo X Silo Storage at port silo n/a n/a X Fumigation at port silo X Transport Transport to inland silo X n/a n/a Storage at Inland Handling at inland silo X Silo Storage at inland silo X n/a n/a Fumigation X Transport Transport to flour mill X X X Bulk Storage at Handling at bulk storage X X Mill Bulk storage n/a X X Fumigation X X WISC Product loss X X X Management Loading port costs X X X Cost of working capital X X X Overhead & administration X X X Risk & profit margin X X X Appendix II: Reported, Calculated, and Assumed Data 55 56 COSTS TIME TRANSIT Bahrain Egypt Jordan Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel time in port up to start of X X X discharge Vessel discharge to port silo or X X X truck/railcar Travel time to port silo X X X Storage at Port Dwell time at port silo X X X Silo Transport to Travel time X Inland Silo n/a n/a Waiting time X Storage at Inland Dwell time at inland silo n/a n/a X Silo Transport to Mill Travel time X X n/a Waiting time X X Bulk Storage at Dwell time at flourmill bulk n/a X X Mill storage The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries (continued on next page) COSTS TRANSIT TIME (continued) Lebanon Morocco Oman Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel time in port up to start of X X X discharge Vessel discharge to port silo or X X X truck/railcar Travel time to port silo X X X Storage at Port Dwell time at port silo X X X Silo Transport to Travel time Inland Silo n/a n/a n/a Waiting time Storage at Inland Dwell time at inland silo n/a n/a n/a Silo Transport to Mill Travel time X X X Waiting time X X X Bulk Storage at Dwell time at flourmill bulk X X n/a Mill storage (continued on next page) Appendix II: Reported, Calculated, and Assumed Data 57 58 TRANSIT COSTS TIME (continued) Qatar Saudi Arabia Tunisia Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel time in port up to start of X X X discharge Vessel discharge to port silo or X X X truck/railcar Travel time to port silo X X X Storage at Port Dwell time at port silo X X X Silo Transport to Travel time Inland Silo n/a n/a n/a Waiting time Storage at Inland Dwell time at inland silo n/a n/a n/a Silo Transport to Mill Travel time X X X Waiting time X X X Bulk Storage at Dwell time at flourmill bulk n/a X X Mill storage The Grain Chain – Food Security and Managing Wheat Imports in Arab Countries (continued on next page) TRANSIT TIME COSTS (continued) Yemen Netherlands South Korea Calculated Est. using Calculated Est. using Calculated Est. using WISC Segment Description Reported from data assumptions Reported from data assumptions Reported from data assumptions Port Vessel time in port up to start of X X X discharge Vessel discharge to port silo or X X X truck/railcar Travel time to port silo n/a n/a X Storage at Port Dwell time at port silo n/a n/a X Silo Transport to Travel time X Inland Silo n/a n/a Waiting time X Storage at Inland Dwell time at inland silo X n/a n/a Silo Transport to Mill Travel time X X 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