76 



Quality management is a merchandizing function that is the 

 focus of today's hearing. When the grain industry manages quality, 

 it does so within a given set of constraints. The first constraint is 

 what comes to the elevator from the farm. What goes out of the ele- 

 vator can never be better than what, on average, comes into the 

 elevator. 



The final constraint is meeting the quality specifications of the 

 buyer, whether it be a processor or export customer. The industry 

 was caught off guard by vomitoxin this year because of the unusual 

 occurrence of the toxin and its widespread nature in northern 

 wheat areas. Vomitoxin, as you know, is not a carcinogen like 

 aflatoxin is, but the wheat is primarily a human versus an animal 

 food. As a result of the human food concern, the FDA and end user 

 specifications are critical to setting values in the marketing chain. 



As wheat harvest began in the north, grain purchasers were 

 caught in a quandary for several reasons. First, the most recent 

 FDA pronouncement on vomitoxin was over a decade old. As a re- 

 sult, FDA indicated it was going to review the 1982 guidelines. 

 Until that review was completed, no one really knew what the 

 rules were going to be, and as you all know, harvest does not wait 

 for agency reviews. 



The second quandary for a grain merchant was, if you were pur- 

 chasing grain under the assumption that the old FDA rules were 

 going to stand, you still did not know which field testing method 

 was going to suffice and the repeatability of the available tests did 

 not satisfy some users. I think that was described by one of the 

 wheat farmers at his local elevator and the experience they had. 



All of us were having similar experiences. Premiums and dis- 

 counts based on quality are not a subjective exercise in the grain 

 marketing business. Positioned between producers and end users, 

 local grain elevators must post their bids based on the bids from 

 end users. As long as some end user was willing to post a bid for 

 vomitoxin-contaminated wheat, it gave a basis for the local grain 

 elevator to post a bid to the farmer. 



Some have accused the grain industry of gouging farmers who 

 wanted to sell vomitoxin-contaminated grain. In a business marked 

 by sharp competition, such an accusation has no basis in reality. 

 North Dakota is a good example. In 1991, there were 300 firms op- 

 erating at over 500 locations. The largest firm has only 30 loca- 

 tions. A grain buyer with a discount over the prevailing market 

 level will not be able to buy the wheat. The point is that the way 

 you make money in the elevator business is to elevate wheat, and 

 if you are gouging, you are not going to be able to buy wheat and 

 you are not going to be able to make money. A small amount of 

 money on a large volume of product. 



While there have been discounts for vomitoxin-contaminated 

 wheat, especially when no one knew what was going to happen 

 early on — in fact, some of us wanted to close our doors but decided 

 not to — the market is also paying historically high premiums for 

 wheat with low amounts of vomitoxin. And I would just like to 

 have you quickly refer to page 11, because I think it tells quite an 

 amazing story here. Page 11 is a chart of the milling quality pre- 

 miums for Duluth Spring Wheat. 



Mr. Johnson. Bear with us here for 1 second. 



