“Build it and they will come” is a familiar phrase from the well-known Iowa movie “Field Of Dreams.” It's also the backdrop to why a group of Midwest farmers, hoping to develop more robust trade relations, traveled to the Black Sea region of Hungary and Turkey. The goal: To build relationships and educate buyers on the value, reliability and consistency of U.S. soybeans and soybean products.
When it comes to securing sales of soybean meal and oil in the future, it's all about building trade relationships now, says Grant Kimberly, director of market development for the Iowa Soybean Association (ISA).
“In many regions of the world, personal relationships are critical in developing long-term business,” Kimberley says. “On this mission it was important for farmers from the U.S. and abroad to cooperate and learn from each other. We hope that process will help build a stronger livestock market there for U.S. soybean meal.”
ISA, along with help from AGP Ag Processing, sponsored the trip with farmers from Iowa, Minnesota, South Dakota and Nebraska.
“We think there's lots of opportunity in that region to increase exports of U.S. soybean meal into their market,” says Kirk Leeds, chief executive officer of ISA.
Peter Mishek of Mishek Inc. couldn't agree more. A former AGP representative, he believes that because of environmental regulations and costs in Western Europe, livestock production will move east where there's large-scale grain production.
“Hungary, for example, is a lot like Iowa and Illinois and they grow a lot of corn,” he says. “As time goes by, livestock production is going to shift to the big grain-producing areas. We hope to form relationships so instead of producing their own vegetable protein, they'll import it from our soy processing in the Midwest. There's an enormous amount of demand out there to feed and fuel people.”
Roughly the size of Indiana, Hungary is landlocked and has 10 million people and 12 million arable crop acres where farmers plant wheat, corn and sunflowers. It has 3.7 million hogs; 20 years ago that was 8 million head. Now Germany, Poland and the Netherlands are the big hog producers in the European Union (EU). They also raise 38 million poultry and 1.57 million turkeys.
Hungary held its first free elections in 1990 and formally joined the EU in 2004. It's suffering now from a downturn in the world economy, and unemployment is expected to hit 10% next year.
But don't dismiss Hungary's potential to produce. The EU has a large-scale development program underway and from 2007 to 2013 they'll distribute 5 billion euros to support ag, according to Endre Szollosi from the EU Ministry of Ag and Rural Development. “Half of that is to modernize ag production. In addition, we want the Ministry to launch an irrigation project funded by the EU. So far, only 2.5% of arable land can be irrigated.”
Szollosi says currently farmers can get 15-year loans with a 7-8% interest rate, plus no payments the first two years.
Gyula Berki from Bicserd, Hungary, has taken advantage of those EU funds by upgrading his dairy operation. He built a new 40-stall carousel milking parlor and free stalls for his 700 cows. “I got 40% co-funding for the barns and 65% for the technology,” he says. The entire improvements ran about $1.5 million. By 2012 he hopes to be at 1,200 cows, which is what the parlor is designed to accommodate.
Berki is a big farmer by U.S. and Hungarian standards. He raises hogs and grows 3,000 acres of corn — half for grain and half for silage — and 2,000 acres of rape, sunflower and peas. He gets 165-bu./acre corn yields. Countrywide, yields only average 99 bu./acre. He also feeds imported soybean meal, despite Hungary's anti-biotech stance. “Non-GMO soya is 30-40% more expensive and consumers will buy what's cheaper,” he says.
MIHALY NYILAS from Somberek, Hungary, says, “If we don't get to use GMOs we won't be able to compete. But we don't have a choice, the Green Party is strong here.”
Along with shareholders, Nyilas runs a co-op farm, formerly a typical Russian state farm. They have 5,500 acres, mostly planted to forages for his 380-cow dairy. He also operates an 820-head sow herd and finishes 14,500 hogs a year. He grows corn, soybeans, wheat and rape and feeds as much of it as he can back to livestock. However, he also buys 50 tons of soybean meal a month. Still, he says, “our greatest profits come from crops, not livestock.”
IVAN MORAVCIK sees livestock expansion opportunities in his area of Slovakia (north of Hungary), too. Currently, his joint stock company runs two 350-cow dairies, but he's struggling during the down economy. “We're losing .17 euro per liter of milk right now,” he says.
Moravcik also finishes 200 steers a year and raises 1,750 acres of corn and 750 acres of corn silage, plus a variety of smaller crops such as apples, asparagus, wheat, barley, sunflowers and rapeseed. He even grows 300 acres of seed corn for KWS, a German seed company.
“We can only store 12,000 tons of grain and we've applied to the EU to build new grain bins to hold 20,000 tons,” he says.
U.S. companies like Smithfield Foods also have seen livestock growth potential in the eastern European area. For example, they've invested $600 million in Romania since late 2004 to primarily raise hogs. Currently, they have 50,000 sows.
“WE HOPE TO DEVELOP a contract program with local farmers to grow animals for market,” says Michael Hawn, director of human resources for international operations at Smithfield Foods.
“We will help farmers find financing to get 8,000-head finishing units, including helping them obtain subsidies from the EU,” he says. Right now they have three new setups and each has received 1 million euros in subsidies.
Eventually, he says they'll expand into Hungary, but first must be clear of swine fever. “Then we could start contracting with farmers there,” he adds. “Our long-term goal is to feed Europe pork from Romania.”
Farther east into Turkey, the trade mission discovered even more reasons why this Black Sea region holds trade promise for U.S. soybeans.
“The government in Turkey is eager to make trade happen and there's enormous potential here economically for the U.S.,” says Ralph Gifford, ag counselor for the U.S. Embassy in Ankara.
Turkey, slightly larger than Texas with 40 million hectares (100 million acres) of ag land, has 72 million people and is the 10th largest market for U.S. ag exports overall, reaching a record $1.5 billion in 2007. It ranks 11th as a U.S. soybean market.
Barley and wheat are their two largest crops, and dairy (top 15 worldwide and growing fast) and poultry (top 14 worldwide) production are their two biggest livestock sectors.
But what's strategically important for agriculture in Turkey is the 19-mile-long waterway called the Bosphorus, the strait that forms the boundary between the European side of Turkey and the Asian side. It's the world's narrowest strait used for international navigation connecting the Black Sea with the Sea of Marmara, which eventually connects to the Aegean and then Mediterranean seas.
According to Gifford, it takes a ship two to three days to go from Istanbul to the port at Odessa in Ukraine. On average, 48,000 vessels a year, or 132 a day, use the strait to ports in Bulgaria, Romania, Russia and Georgia.
THE BLACK SEA region and developing eastern European countries abound with opportunity for U.S. ag exports, especially if the livestock industry continues to grow in those areas. Laying the groundwork for expanding trade with this area could provide big benefits down the road.
“Those countries' issues aren't all that different from ours,” says Brian Kemp, a farmer from Sibley, IA, and part of the trade mission. “Granted, their financial crisis is a hurdle. But they're upgrading and incorporating new technology into their livestock enterprises. If they're successful in improving and expanding their livestock industry, we'll be more successful in exporting more of our products to the area.”