The Philippines is currently the world’s third largest wheat importer, with demand for wheat flour and milling wheat nearly doubling in the last decade. Its expanding population, coupled with increasing per capita income, has contributed to a surge in consumption of wheat-based products, mainly bread and noodles.
The Philippines milling industry purchases nearly all of its milling wheat from the United States for its quality and consistency. While the Philippines imports the vast majority of its milling wheat in the form of wheat grain, it also imports flour (largely from Turkey), which competes directly with the domestic milling industry and indirectly with U.S. wheat.
Economic incentives created by Turkey’s Inward Processing Regime have enabled it to become one of the largest exporters of flour globally. In 2011/12, Turkish flour nearly doubled its exports to the Philippines, threatening not only the local milling industry but also U.S. wheat shipments. The surge in Turkish flour imports contributed to reduced U.S. wheat purchases in 2012/13 when shipments fell by nearly 20 percent.
Imports of the competitively priced flour continued to grow until 2014/15 when the Philippines Tariff Commission placed anti-dumping duties on Turkish flour for 5 years, resulting in reduced Turkish flour imports year over year. In fact, Philippine imports of milling wheat, mainly supplied by the United States, saw substantial growth as consumption surged through the years.
In 2019, with the expiration of antidumping duties looming, the industry began filing a petition for an extension. In June 2020, the Philippines Tariff Commission agreed to review the request for a 5-year extension, with duties to remain in force pending the outcome of the review. Today, the Philippines is the second largest market for U.S. wheat. Without the extension, Turkish flour would likely re-enter the market and compete against the domestic milling industry, creating challenges for U.S. wheat exports once again.
Growing Opportunity for U.S. Wheat Exports to Brazil this Summer
Brazil’s recently opened and expanded tariff-rate quota (TRQ) coupled with a seasonal slowdown in Argentine shipments over the next few months will provide an opportunity for U.S. wheat exports to capture some of that market.
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In late 2019, Brazil opened its 750,000-ton duty-free TRQ for all non-Mercosur suppliers, which eliminated the 10 percent import duty within the quota. Non-Mercosur suppliers, such as the United States, are now in a more competitive position with Argentina.
However, with abundant Argentine supplies resulting in record-large shipments during its peak months, December through March1, there was little opportunity for U.S. wheat to capitalize on the TRQ availability. It is typical for Argentine shipments to slow in April based on tightening wheat supplies and competition with corn and soy for export capacity. In its peak export months, Argentina exports to a variety of markets, but primarily focuses on shipping to Brazil in the slower months.
Now that Argentina’s supplies have tightened and its prices are less competitive, Brazil is turning to outside sources and recently announced that an additional 450,000 tons will be permitted for duty-free import this year as domestic prices rise amid a weakening real. With the TRQ allocation now at a total of 1.2 million tons, U.S. wheat exports to Brazil are in a favorable position.
While Canada and Russia will likely compete within the TRQ, the United States is expected be the greatest beneficiary based on a combination of competitive pricing, freight advantages, and historical relationships with buyers.2 As of week 5 of the new June/May marketing year, U.S. total commitments to Brazil are already the largest in 4 years.
All of this year’s U.S. commitments to Brazil are HRW, which is likely to continue as the predominant class exported to this market in the coming months.