Washington Insider-- Wednesday

Food Costs Away From Home

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

Vietnam Growing Importer of Soybean Meal

The people of Vietnam are eating so much more pork these days that the country has become one of the world’s biggest importers of the soybean meal it needs to feed an ever-expanding herd of pigs, a recent Bloomberg news item stated.

With local farmers unable to grow enough animal feed, imports of meal next year will be twice what they were in 2012, USDA data show. While China consumes more pork by far than any other country, the amount eaten per person will soon be eclipsed by Vietnam, OECD data show. Per-capita use in Vietnam will reach 33.9 kilograms (75 pounds) by 2023, up from 29.9 kilograms now and more than the estimated 33.3 kilograms expected in China by then.

More meat on the menu is a byproduct of economic growth in Vietnam. Per-capita gross domestic product jumped 42% over the past five years to $2,173.65 and is forecast to increase 43% to $3,105.41 in 2021, according to the International Monetary Fund.

The country has to buy about 70% of feed ingredients from overseas. Corn imports last year surged 59% to a record 7.55 million metric tons, while domestic production rose 1.5% to 5.28 million tons, according to Vietnam’s agriculture ministry. Purchases of soybean meal will reach an all-time high of 5.2 million tons in 2017, up from 2.28 million in 2012, USDA data show.

With more mills being built, Vietnam will import more whole soybeans for processing. Purchases will reach a record 1.75 million tons next year, according to USDA. That has helped make Vietnam the 11th-largest buyer of farm products from the U.S., the world’s top agricultural exporter. Cargill opened an $8.5 million plant in May that was its 11th in Vietnam and will complete construction of a $30 million mill in the second half of 2017.

WTO to Discuss Doha Agenda, Uruguay Offers to Host Ministerial

Uruguay offered to host the World Trade Organization's (WTO) 11th ministerial conference (MC11), just two weeks after Argentina said it is interested in hosting the WTO's biennial event, with discussions about the future of the Doha Development Agenda (DDA) expected to highlight meeting.

Members will discuss their goals for the 2017 conference and consider Uruguay and Argentina's offers to host the ministerial conference at the WTO's July 27 general council meeting in Geneva.

It's not certain what members will seek to advance at the 2017 ministerial meeting due to major disagreement about whether and how WTO should address the remaining issues of the DDA.

Over the past few months, WTO trade officials have shown interest in advancing new issues, such as a trade agreement related to international electronic commerce rules.

Multiple WTO members also are interested in advancing a trade agreement to curb government subsidies for illegal fishing operations or other subsidies that contribute to global overfishing.

Despite the interest in addressing these new issues, several WTO members believe that no agreements can be struck at MC11 unless it includes an accord to reduce or at least institute a standstill provision on trade-distorting subsidies for farm goods.

Members also are seeking a permanent solution to the debate over public stockholding programs for food security purposes before the end of next year.

Members may also hold a mini-ministerial conference in Oslo, Norway this fall to review a range of issues facing the multilateral trading system, Geneva trade officials told Bloomberg BNA.

Washington Insider: Food Costs Away From Home

McDonald's Corp is saying that the U.S. restaurant industry will raise prices far more than supermarkets this year, a move which Reuters says is "sending a chill" through the restaurant sector that is grappling with a host of issues such as higher worker wages.

The Dow Jones U.S. Restaurants & Bars Index in the wake of McDonald's reporting disappointing earnings bell 2.2%.

The forecast from the world's largest fast food restaurant actually somewhat masks one of their major issues, which include state and local minimum wage increases. Some of those hikes, according to Reuters, will more than double the prevailing wage to $15 per hour.

Restaurant food inflation is outpacing the increases at supermarkets and the gap is widening, McDonald's Chief Financial Officer Kevin Ozan said on a conference call with analysts.

Bernstein analyst Sara Senatore said restaurant companies, which are grappling with profit-squeezing minimum wage increases, use more labor than grocery stores and have the extra burden of trying to convince franchisees to hold back on price increases aimed at offsetting higher labor costs. "Food prices are coming down, but labor is not. That's doubly bad for restaurants," Senatore said. "It's hard to convince everybody to operate in lock step."

When franchisees raise prices, she said, "it just makes their prices look even higher relative to grocery stores."

But is McDonald's forecast all that surprising? Not really. USDA has been forecasting that food at home prices would be rising less than food away from home prices in 2016, a forecast that has been out there for several months.

And USDA's latest forecast now says that food at home prices will be up just 0.25% to 1.25%. That is a major shift since the 20-year average is 2.5% and prices at grocery stores rose 1.2% in 2015 compared to 2014.

The food away from home, or restaurant forecast is for a rise of 2.5% to 3.5%. And the cost rise is forecast go moderate to 2% to 3% at restaurants in 2017.

The overall food price rise in 2017 is forecast at 1.5% to 2.5%, for a midpoint of 2%. That compares to an historical increase of 2.6%. The share that U.S. consumers pay for their food relative to their incomes remains one of the lowest around the globe. But the situation with restaurant prices has been one that has remained above the level of increases seen for grocery store prices. So while the forecast from McDonald's is not necessarily shocking, farmers do not get the "blame" this time around and those labor costs will remain a key component of the restaurant price situation for years to come, the Washington Insider believes.

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