Strategies for the Safe Supply Structure of Domestic Wheat in Taiwan

Strategies for the Safe Supply Structure of Domestic Wheat in Taiwan

Published: 2024.11.20
Accepted: 2024.11.15
7
Researcher
Agricultural Policy Research Center, Agricultural Technology Research Institute, Taipei, Taiwan

ABSTRACT

The global agricultural sector is facing multiple challenges, making it crucial for countries worldwide to ensure long-term stability in the food supply structure. Wheat is the second most consumed staple food in Taiwan, after rice. This article analyzes various stages of Taiwan's wheat industry, examining industry driving factors including relevant policies, breeding, cultivation, land use, environmental pressures, processing, and marketing. It also provides recommendations for improving risk management and adjusting industry structures to strengthen wheat supply security. These suggestions also aim to facilitate flexible adjustments in industry operations, develop a resilient food production and distribution system, and reinforce decision support for food policy.

Keywords: Wheat, Food supply structure, Food supply security, Agricultural policy, Grain imports, Wheat specifications, import substitution

INTRODUCTION

In recent years, the COVID-19 pandemic, regional political instability, and climate change have disrupted the global economy and food supply chains. These issues have restricted the international flow of agricultural products, caused shortages, and highlighted food security concerns as food prices soar. Energy, raw materials for fertilizers, and food are indispensable to the agricultural economy. Most of these materials are concentrated in specific global regions, but the demand is widespread. Unequal trade distribution makes the food supply structure vulnerable. The conclusions of the UN Food Systems Summit in 2023 emphasized the need to establish a more resilient, equitable, and sustainable agricultural ecosystem (Shulla and Leal-Filho, 2023). Agricultural transformation is essential to address climate change, resolve hunger and nutritional disparities, reduce economic volatility, and ensure environmental sustainability.

In Taiwan's dietary culture, rice and wheat are the most important staple food sources. Rice, as a traditional staple, has long held a central position in Taiwanese cuisine. However, with the diversification of dietary structure and the influence of Western eating habits, the proportion of wheat products on the dining table has been increasing annually. In Taiwan, wheat consumption is second only to rice. According to statistics from the Ministry of Agriculture (MOA), the per capita wheat consumption in Taiwan in 2022 was 38.13 kilograms. Taiwan's wheat imports were approximately 1.3 million metric tons, while domestic production was about 5,700 metric tons, meaning that 99% of Taiwan's wheat supply needs to be imported. In terms of usage, people also use different gluten specifications to produce various items such as noodles, steamed buns, bread, and pastries.

To increase the self-sufficiency rates of wheat, soybeans, and feed corn and to convert some paddy fields to upland crops, the government of Taiwan is supporting farmers through incentives and processing measures. This strategy aims to reduce the demand for water resources by encouraging the cultivation of upland crops in coastal or water-scarce areas. However, Taiwan's domestic wheat production in 2022 was only about 5,700 metric tons. Factors such as small-scale wheat cultivation, unclear varieties and usage specifications, unstable supply quality, and insufficient promotion of food and agricultural education are obstacles that hinder farmers and the wheat processing industry from maintaining their operations. Although stakeholders are interested in and willing to continue participating in the wheat industry, these issues significantly impede the growth and stability of the domestic wheat industry.

To respond to volatility in the international food market and alleviate pressure on food self-sufficiency, this article compares Japan's strategic promotion measures and reviews factors influencing various stages of Taiwan's wheat industry, including policies, breeding, cultivation, processing, and marketing. It also analyzes industry supply and demand, industry structure, domestic wheat production, and marketing adaptation strategies, offering recommendations to improve Taiwan's domestic wheat supply structure.

DOMESTIC WHEAT SUPPLY AND DEMAND STRUCTURE IN TAIWAN

According to data from the MOA's food balance sheet, in 2022, the per capita pure food supply, calculated in terms of calories, was 87.42 kilograms of cereals per person per year. This included 42.98 kilograms of rice and 38.13 kilograms of wheat. Over the past decade, the supply trends for these two grains have gradually converged. For Taiwan, wheat, soybeans, and feed corn are major imported grains that significantly impact food processing and animal feed. Supply and demand, natural disasters, political situations, and economic policies influence global food market prices, leading to fluctuations in domestic market prices and supply volumes of imported grains. As shown in Figures 1 and 2 from public finance and trade statistics (Ministry of Finance, 2024), there was no significant fluctuation in wheat import volumes from 2014 to 2023. However, the import value in 2022 was the highest from 2014 to 2023. Due to the drought in North America during the summer of 2021, as well as the impacts of COVID-19 and the Russia-Ukraine war, global food prices and shipping costs have increased. As a result, wheat prices in 2022 reached their highest level in a decade. In 2022, the unit import value was US$460 per ton, nearly double the US$240 per ton in 2016. To summarize, the key factors that primarily affect the supply of wheat imports are as follows:

  1. Policy and regulations: Changes in trade wars, tariffs, quota systems, and exchange rate fluctuations can affect the price and supply stability of imported grains.
  2. Natural disasters and climate change: Natural disasters like typhoons, floods, and droughts can impact the harvests in major grain-producing areas, affecting the global food supply, such as in the United States and Australia.
  3. International instability: Wars, conflicts, sanctions, and other international instabilities can have an impact on grain trade routes and supply chains. Political unrest in exporting countries can also have an impact on food production and export capacity.
  4. Transportation and logistics: Variations in transportation costs, port congestion, shortages of transportation tools, and other logistical issues in sea and land transport can affect grain imports.
  5. Unexpected events: Pandemics and strikes can disrupt logistics and transportation, affecting grain supplies.
  6. Changes in food safety regulations: Changes in food safety regulations can lead to more extended quarantine and inspection times for imports, impacting the grain supply.
  7. Energy and resource costs: Fluctuations in the cost of agricultural production resources like fertilizers, pesticides, and energy can affect agricultural production and logistics costs, thereby influencing the cost of grain imports (OECD, 2024).

Therefore, to ensure food security, countries usually adopt measures such as diversifying supply sources, establishing strategic reserves, and enhancing local production capacity to mitigate the risks affecting grain imports.

Taiwan's wheat self-sufficiency rate is less than 1%. The wheat planting area in Taiwan, excluding Kinmen County, has remained between 300 and 400 hectares over the years. However, the total planting area, including Kinmen County, is approximately 2,000 to 3,100 hectares annually. Kinmen is the largest production area for domestic wheat in Taiwan. For example, in 2022, it accounted for 82.2% of the total national planting area and 88.5% of the total harvest volume (MOA’s statistics query), primarily for alcohol-brewing purposes. (Figures 3 and 4)

Comparing the characteristics of domestically produced and imported wheat, Taiwan's wheat planting areas are located at a lower latitude with a hot climate and a short growing season. The suitable wheat varieties are mainly those with medium to low gluten content, such as Taichung Selection No. 2, Taichung No. 35, and Taichung No. 36. Bakers and steamers specifically use the milled flour to make noodles, biscuits, cakes, and Taiwanese bread.

Domestic wheat flour is praised for its freshness and superior aroma compared to imported wheat, and it does not require additional food additives, making it attractive to certain consumer groups. However, severe bird damage during the wheat maturation period significantly impacts yield. Additionally, the wheat harvest coincides with the rainy season, leading to sprouting on the ears of wheat, which can affect the quality of the subsequent milling process. Consequently, the government has not yet set an annual wheat production target. Processing wheat is more challenging than processing soybeans and corn, requiring specific processing standards and higher levels of technical expertise. Increasing the production of miscellaneous grains to enhance food security and self-sufficiency faces significant challenges.

MEASURES TO PROMOTE WHEAT PRODUCTION IN JAPAN

After the war, Japan experienced three food crises, necessitating the development of food security strategies to address the issues. The government's measures to mitigate the negative impact of potential future food emergencies focus on self-sufficiency and ensuring a stable food supply. High domestic demand exists for grains like wheat and soybeans. However, production is susceptible to weather conditions, resulting in unstable supply quality. International grain purchases are susceptible to market volatility. Therefore, Japan integrates crop cultivation in response to market changes and introduces farming technologies and machinery to expand production. Strengthening the construction of domestic production bases helps establish a stable supply system.

In 2020, the government of Japan approved the Basic Plan for Food, Agriculture, and Rural Areas regulations, setting a production target of 1.08 million tons for wheat by 2030 (Reiwa 12). The government is also implementing supportive measures to boost the productivity of strategic crops like wheat, soybeans, and feed rice.

  1. Expanding the production of strategic crops:
  1. Support initiatives aimed at planting strategic crops: The government provides support to producers, testing and research institutions, and promotes productivity-enhancing technologies. The introduction of production technologies, such as drainage measures and weed control for wheat and soybeans, is crucial. Low-cost production technologies and crop rotation systems are being developed.
  2. Support for seed production and supply systems: Address each stakeholder's challenges through cooperative alliances. Spread cultivation techniques from variety developers to seedling farms. Share demand information for each use and variety with consumers, as well as establish a stable seed production and supply system. Encourage the development of the seed production and supply system by backing the implementation of shared machinery, which is essential to bolster the supply of fresh seeds.
  3. Strengthen measures for sustainable production: Respond to local governments' policy demands and support addressing industry priority issues.
  4. Promote domestic production of wheat and soybeans:
  5. Increase wheat productivity and yield through methods such as crop rotation, the introduction of agricultural technologies, and machinery.
  6. Construct grain storage centers to store domestic wheat for a period of time to stabilize the supply.
  7. Innovate wheat sales models, develop new products, and introduce processing equipment and facilities.
  8. Support for transition periods in the sustainable food industry.
  9. Provide subsidies for stabilizing food supply: The key to stabilizing food supply is large-scale production, balancing production costs and yields.
  10. Direct payments for crops: Quality determines the amount of the wheat subside. For example, grade 1A can receive US$42 per 60 kg, while grade 2D receives only US$30. Hard wheat for bread and Chinese noodles can receive an additional US$17 per 60 kg.
  11. Income reduction mitigation measures for rice and crops: Farmers participating in these measures must first pay into a public reserve fund. When annual sales income from rice, wheat, soybeans, etc., is lower than the past average (standard income amount), 90% of the difference is subsidized.
  12. Direct payments for paddy field activation: Farmers receive strategic crop subsidies for planting wheat, soybeans, feed crops, silage rice, feed rice, processing rice, and rice flour in paddy fields. Support is provided for farmers transitioning paddy to other crops, with prefectural governments offering subsidies based on increased planting area compared to the previous year, and the central government providing additional support at the same subsidy level. The maximum payment is US$323 per hectare.

Additionally, the government controls the sale prices of imported wheat as an emergency measure, which utilizes a state trade system to import foreign wheat uniformly (大塚将史, 2022). The goal is to satisfy the need for a certain quantity or quality of wheat that the domestic crop is unable to supply. Each year, the operational model involves revising the purchase prices of foreign wheat in April and October. After the government uniformly purchases the wheat, import handling fees, government management fees, and costs for promoting domestic wheat production are added, and then the wheat is sold to businesses at a markup. Domestic wheat in Japan is traded through private enterprise distribution and consumed mainly in the form of bread and noodles, thus allocated through processing.

STABILIZE THE DOMESTIC WHEAT SUPPLY STRUCTURE IN TAIWAN

The first challenge to steadily developing domestic wheat production in Taiwan is the lack of suitable varieties. Currently, very few researchers are working on grain-related studies at the agricultural research and extension station in Taiwan, and the breeding materials for wheat research are pretty challenging to obtain. Compared to cultivating rice or other crops, wheat farming is more susceptible to environmental factors, leading to unstable incomes for wheat farmers. The downstream flour production line cannot expand because the wheat planting area is small, and the yield per unit area is low. Farmers view wheat cultivation as an additional source of income, but they are reluctant to devote more time and effort to it. In terms of ensuring food security, merely encouraging domestic cultivation does not solve the problem. Even if large areas of grain crops were cultivated domestically, it would only slightly improve the food self-sufficiency rate. Therefore, to efficiently ensure food security, international cooperation in research and the construction of storage, transportation, and port facilities is essential. To stabilize the domestic wheat supply and demand structure, we can refer to the government's countermeasures of Japan and consider the following adjustment strategies based on our country's current situation.

  1. Diversify supply sources: Establish trade relationships with multiple countries to diversify import sources and reduce dependence on a single country.
  2. Enhance local production: Cooperation in wheat variety development and technology exchange in Europe, Australia, and other places. Increase support for local wheat cultivation by providing technical and financial assistance to improve the yield and quality of local wheat. Encourage the use of local, environment-adapted wheat varieties to boost planting efficiency.
  3. Strengthen reserve management: Through international cooperation, establish and manage strategic wheat reserves to respond to market fluctuations and unforeseen events. When import disruptions occur, effective reserve management guarantees a stable supply.
  4. Promote technological innovation: Introduce agricultural technologies and varietal suitability to increase efficiency in wheat planting, harvesting, and processing. Encourage the application of smart agriculture and sustainable agricultural technologies to reduce environmental pressure.
  5. Improve market competitiveness: Enhance marketing and branding of wheat products to increase the market competitiveness of domestically produced wheat. Clarifying Taiwan's wheat production targets based on consumer demand will help define the use of domestically produced wheat.
  6. Establish strategic alliances: Establishing strategic alliances for wheat helps to aggregate industrial resources, coordinate the needs of farmers and industry, and connect the upstream and downstream of the industrial chain. It also provides producers with reliable seed sources and technical assistance for planting, enabling businesses to obtain a stable supply.

CONCLUSION

To enhance food supply stability, it is essential to adopt a market-oriented approach that expands food diversity and meets consumer demands. Drawing on Japan's strategy, this involves balancing domestic production with structural changes in the food supply, coordinating with international supply adjustments, and promoting domestic agricultural technology innovation.

Due to its specific standards and higher technological requirements, wheat processing presents more challenges than soybean and corn processing. While Taiwan's government offers incentive measures, their efficacy remains unproven. It is crucial to establish the domestic positioning of locally produced wheat and set short-, medium-, and long-term production goals, implementing these through public-private partnerships.

The government can explore measures to support the industry environment, such as reducing business taxes or introducing carbon credit concepts. These initiatives could increase processors' willingness to use domestic wheat and other grains. Adopting a wheat industry strategic alliance model can coordinate the needs and resources of farmers and processors, as demonstrated by Japan's approach to addressing seed supply issues.

Strengthening the supply structure of domestic wheat upstream and downstream links the industry chain more effectively. It is important to consider not only food security, sustainability, and the maintenance of agricultural land but also domestic grain production. Finally, Taiwan's government should evaluate and establish appropriate storage facilities to diversify import sources.

REFERENCES

Food, Agriculture and Rural Affairs Basic Law. Ministry of Agriculture, Forestry and Fisheries. retrieved from https://www.maff.go.jp/j/basiclaw/index.html

OECD. 2024 OECD-FAO Agricultural Outlook 2024-2033. chrome-extension://efaidnbmnnni-bpcajpcglclefindmkaj/https://www.agri-outlook.org/documents/AgriOutlook24_%20ExecSum_ ZH_FINAL-DRAFT-REV.pdf

Public finance and trade statistics. retrieved from https://www.mof.gov.tw/htmlList/18

Shulla, K., & Leal-Filho, W. (2023). Achieving the UN Agenda 2030: Overall actions for the successful implementation of the Sustainable Development Goals before and after the 2030 deadline. European Union Parliament.

Ministry of Agriculture's Food balance sheet. (2022) retrieved from  https://data.gov.tw/dataset/96330

Ministry of Agriculture’s statistics query: https://agrstat.moa.gov.tw/sdweb/public/maintenance/Announce.aspx

大塚将史. (2022). 輸入小麦の政府売渡価格の緊急措置について. 輸入食糧協議会報, (780), 22-24.

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