Wheat

Production

World wheat output is projected to rise by roughly 1.3 percent per annum during the projection period, to 679 million tonnes by 2010. This would represent an increase of about 12 million tonnes, or 15 percent, from the base period. Wheat output is projected to grow at a faster pace during the projection period than in the 1990s, supported by a strong take-off in the transition countries and faster growth among the major wheat producing countries of Latin America and the Caribbean.

Most transitional economies are projected to experience faster output growth. The sharp contraction in consumption experienced in the 1990s was the main factor underlying the reduction in their output in that period. Given their improved economic prospects, a rebound in demand in those countries will encourage more investment in farming, which will in turn result in expansions in planting area as well as yields. The Russian Federation and Ukraine are likely to be on the forefront of this development.

In Latin America and the Caribbean, the largest expansion is projected for Brazil, mainly in response to fast growing domestic demand. Wheat production in Mexico is also projected to reverse the downward trend of the 1990s, with durum wheat the main beneficiary because it attains better yields and is more resistant to disease. Higher planted area coupled with some increase in yields would also lead to a rise in wheat production in Argentina. The recent devaluation of Argentinian peso and, most importantly, its fixing at parity to the US dollar, has increased the profitability of wheat exports, and this development could give rise to increased plantings and higher yields in the coming years.

For the developing countries as a group, wheat production is projected to rise by only 1.2 percent per annum or nearly half as fast as in the 1990s. The slowest growth is projected for Africa and Asia. Among the main factors contributing to this deceleration is sagging growth in yield improvement, owing mostly to water scarcity problems coupled with the more limited possibilities to bring new land into production. In Africa, harvested area is projected to contract in most wheat growing countries, except in Egypt, Ethiopia and Tanzania where plantings are projected to expand, albeit slightly and at a slower pace than in the 1990s. In Asia, most countries are likely to register an increase in their production but the growth would be more subdued than in the 1990s, especially in India and Bangladesh, mainly due to reduced plantings. In China, the gradual shift away from quantity to quality grains would also limit growth in planted areas.

Among the developed countries, in the United States the continuation of domestic support policies, including the increase in marketing loan benefits in low price years, would give rise to higher yields and plantings, leading to a steady growth in production. Wheat production in the EU (15) would also increase, supported by small advancement in yields and some rise as well in plantings. However, the addition of ten new European Member States (from May 2004) and any possible reform of the Common Agriculture Policy (CAP) could significantly alter the current projection results. In particular, the adoption of the CAP and the gradual harmonization of the policies by the new members could bring fundamental changes to the wheat balance of the enlarged EU in the coming years, given the importance of such large wheat producers as Poland and Hungary among them.

Consumption

Total wheat utilization is also estimated to rise by around 1.3 percent annually during the projection period, mostly due to growth in developing countries, and an expected increase in demand in the transition economies, reversing their downward trend in the 1990s.

Among the main utilization categories, the direct food consumption of wheat is projected to expand by 1.2 percent per year to 483 million tonnes by 2010. Direct food consumption continues to represent the largest share of total wheat utilization and that mainly in the developing countries. Rising population and income as well as continued urbanization are among the main factors for a steady increase in food consumption of wheat in the developing countries. Among the various economic groupings, the most pronounced rise in terms of per capita food consumption of wheat is projected for the food unsecured countries.

The other major use of wheat is for animal feed, which is projected to rise by 1.6 percent per annum, thus a relatively strong growth in contrast to a contraction observed in the 1990s. Wheat used for animal feeds is usually of lower quality. A leading factor for the projected increase in feed wheat requirements during the projection period would be the more favourable demand prospects from livestock sectors in many countries, especially transitional economies and those with faster economic growth. In addition, a continuing resistance to genetically modified (GM) maize (for feed) in a number of important markets could also lend support to stronger demand for feed wheat as a substitute.

Trade

Global wheat trade is projected to expand significantly during the outlook period after slow growth during the 1990s. Rising by nearly 2 percent per year, world trade in wheat and wheat flour (in grain equivalent) would reach the all-time high of 129 million tonnes. Nearly all of this expansion would be attributed to higher import demand among the developing countries, especially China, where imports by 2010 are projected at only 3 million tonnes; hence, well below the Tariff Rate Quotas (TRQ) amount of 9.6 million tonnes (from 2004). At the current projected level, the global import share of the developing countries would rise from 77 percent in the late 1990s to 83 percent in 2010. This expansion would be mostly on account of a continuing rapid increase in import demand in Asia and Africa, capturing 43 percent and 23 percent respectively of the global share.

On the export side, the developed countries’ market share is expected to reach 71 percent by 2010, slightly lower than in the base period. The transitional economies are projected to increase their exports because of considerably larger surpluses, turning them into important players in the global wheat market. By contrast, the overall share of the traditional major exporters is projected to decline slightly. Australia, Canada and the United States could find their market share fall, even though this would not necessarily imply a decline in the absolute level of their exports. Wheat shipments by Argentina and the EU (15) are projected to increase, leading to some increase in their market share. Kazakhstan, the Russian Federation and Ukraine are set to rank among the leading wheat exporters. Wheat exports by the Russian Federation and Ukraine already surged in 2002/03 to levels well above the projections for 2010. However, given the uncertain nature of year-on-year developments in exportable supplies of these countries, it is extremely difficult at this point to predict the eventual outcome by 2010 with any precision.

Stocks and prices

World wheat stocks continue to contract during the projected period because many countries are likely to maintain and/or continue to reverse policies which led to large stock accumulations in the 1990s. Most of the decline in world stocks would be in China, while inventories among major exporters are also projected to contract. However, higher projected stocks in several transitional economies are seen to make up most of the decline among major exporters. The net effect would be a smaller stock-to-inventory ratio by 2010 (24 percent), compared to the base period (41 percent).

The tighter supply situation would, therefore, put pressure on international prices that could return the real wheat price from recent low levels to the long-term trend by 2010. The market for higher quality wheat points to a more balanced situation, leading to steady or even firmer prices.

Issues and uncertainties

In China, the projections point to a 1.2 percent annual production expansion through 2010. At this rate, domestic supplies are projected to cover most of requirements to the extent that imports would be relatively marginal and well below the TRQ amount. However, sweeping changes in the supply and demand structure across China and, in particular, deliberate policies to downsize wheat inventories in recent years, raises important questions about China’s position in world markets by 2010. It may be unrealistic to assume a long continuation of large-scale depletion of stocks, but should production fail to keep up with consumption, as has been the case in recent years, China will need to enter the world market as a more significant importer than is currently projected. This eventuality could give rise to much higher world trade and boost international wheat prices as well. The impact on the latter, however, will also be conditioned on the eventual size of export availabilities, yet another uncertain factor.

In particular, significant uncertainties exist regarding the size of exportable supplies among non-traditional wheat exporters, especially those belonging to the transition economies, with the Russian Federation and Ukraine at the forefront. Between 1999 and 2002, these countries emerged as the world’s leading wheat exporters, supported by consecutive years of good harvests. Notwithstanding this development, the potential for these countries to sustain high production levels and exports is still very difficult to predict. This is evidenced by sharp year-to-year fluctuations in production in recent years.

The medium-term prospects for the global wheat market will also be influenced by policies. The recently agreed reform of the EU Common Agricultural Policy (CAP), to take effect from 2005, may have some limited consequences for world wheat markets by 2010. The reformed CAP aims at severing the link between subsidies and production, mainly through the introduction of single farm payments and the eventual decoupling of direct payments to production. However, with the primary aspects of the support measures to wheat producers mostly intact, the most important driving force is probably not to be found in the CAP reform as such, but in the EU enlargement.

The EU enlargement could have ramifications for the international wheat market given the importance of such large wheat producers among the new members, namely Poland and Hungary. The gradual adoption of the CAP would lead to more stable income and higher domestic prices, which could in turn stimulate wheat production among the new members and pave the way for larger exportable wheat surpluses for the EU (25). The ability to export the surpluses, however, could be compromised if the Euro continues to remain strong following the EU expansion.

Table 2.4. Wheat: production projections