Barley Purchase Plants Seeds of Trouble

Mike Nicoletti is finding out just how troublesome it can be to go against the grain in the grain business.

His $3-million purchase of a shipload of feed barley from Finland, which is expected to steam in to the Port of Stockton later this week, has sparked a trade skirmish between the United States and the European Union--and has made Nicoletti a target of outrage from U.S. barley growers.

Unbeknownst to Nicoletti, whose Penny-Newman Grain Co. made the purchase April 3, the barley was subsidized by the Finnish government--to the tune of $50 to $60 a ton, depending on who’s giving the estimate.

That has riled U.S. barley growers in the Midwest and Northwest, who contend that subsidized imports could set a dangerous precedent and wreck the $1-billion home-turf market for domestic farmers. Until now, U.S. customers have bought U.S. barley almost exclusively.

The looming delivery of subsidized grain prompted U.S. threats Monday to impose duties on imported grain in retaliation.

Barley growers have vowed to gather Thursday and Friday in Washington to protest what they view as U.S. inaction against predatory European trade practices. There is also talk of picketing at the Stockton dock, in the hope of preventing Nicoletti from having the barley unloaded.

Negotiations underway in Geneva at World Trade Organization talks could mute the brouhaha, a source close to the situation said Monday. A settlement with the National Barley Growers Assn. that would allow Penny-Newman to unload the cargo might be announced as early as today.

That a small, 34,000-ton barley purchase by a regional grain-trading outfit could create such a stir testifies to the high stakes and strong emotions surrounding the push toward a global agricultural economy.

U.S. farmers and ranchers have long complained that past trade agreements have not stopped some foreign governments from subsidizing agricultural exports to markets where the United States competes. To face a similar situation on U.S. soil is doubly peeving for growers.

Throughout the flap, U.S. barley growers have taken to task U.S. Agriculture Secretary Dan Glickman, accusing him of failing to fight hard enough for U.S. farmers. In a formal complaint letter, Glickman asked EU Farm Commissioner Franz Fischler to remove the United States from the list of eligible destinations for subsidized exports. But Fischler declined, noting that U.S. barley prices were higher than world market prices and that the United States thus would have had to deal with the threat of imports at some point.

Glickman, in Geneva this week for WTO ministerial talks aimed at establishing a freer flow of goods worldwide, threatened in a radio address Monday to retaliate by imposing duties on subsidized European grains.

The dispute has stirred up the already volatile--but usually low-profile--world of grain trading, in which pennies a bushel can mean the difference between profit and loss, given the high volumes of commodities involved. And it has complicated life for Nicoletti, who says all he wanted to do was get a good deal for his California dairy farmer customers.

“We were naive as hell,” he said. “We didn’t know what we stumbled into.”

Trouble sprouted early last month when a broker alerted Nicoletti to the Finnish barley. Nicoletti, whose firm has dabbled in imports of cotton seed from Australia, viewed the purchase as a chance to get a reliable batch of grain at a time when Union Pacific rail disruptions have hampered shipments from within the continental United States. Meanwhile, supplies of barley and other grains throughout the world have piled up as financial turmoil limited purchases in Asia, creating bargains.

California, the nation’s largest dairy state, needs 12.5 million tons of feed grain annually, 80% of which must be imported.

U.S. growers annually produce 360 million bushels of barley; half is used for feed, 40% for brewing beer and other beverages, and 10% for food products. The Finnish cargo represents 1.4 million bushels.

According to Herb Karst, a Sunburst, Mont., grower who presides over the National Barley Growers Assn., the Penny-Newman purchase sent barley prices plummeting, raising domestic growers’ hackles. (Prices have since bounced back.)

Karst said he appreciates Penny-Newman’s plight. “Obviously, Penny-Newman stands to be at a financial disadvantage” if it can’t unload the grain, he said. “At the same time, our producers are at a financial disadvantage if the shipment is received.”

Kelly Olson, administrator of the Idaho Barley Commission in Boise, noted that any savings for dairy farmers could be short-lived if they drive domestic barley producers out of business. “While it [imported barley] might look attractive to California dairy farmers, subsidized imports discourage U.S. barley producers,” she said.

Nicoletti’s travails have generated a good bit of sympathy in California, where growers pride themselves on a certain savvy about the global economy.

“My family both farms and dairies, so we can see both sides of it,” said Tony Olivera of Lemoore in Kings County, who grows barley, wheat, corn, cotton and alfalfa. “We think more globally than farmers in pockets of the Midwest”--a notion that Corn Belt farmers would undoubtedly dispute.

“As a dairyman, I understand,” Olivera said, “but as a farmer, I don’t want subsidized grain being brought in.”

On the whole, however, after weighing all the information, Olivera decided that Nicoletti “went out and hustled” to find a way to help his customers and made a legal purchase. “Fair is fair,” he said.

“I would expect Mike to make as much money as he can,” agreed David te Velde, owner of a Hanford dairy. “That’s called capitalism.”

Nicoletti portrays himself as a David fighting Goliaths--from bigger grain-trading firms to grower groups. He said he looked into selling the cargo on the open market but would have taken a loss of about $620,000.

“I’m here competing with Cargill, Archer-Daniels-Midland and Conagra,” he said. “Our company has been evolving, looking for creative ways to source feedstock.” Without swearing off future buys from Europe, he added, “From now on we’ll ask, ‘What are the political ramifications?’ ”