FAO/GIEWS - Food Outlook No.4, September1998

TRADE ^1/

World trade in cereals in 1998/99 is currently forecast at 199 million tonnes, down 8 million tonnes, or 4 percent, from the previous year and 2 million tonnes lower than reported in June. Most of the anticipated contraction in world imports would be in wheat and rice mainly because of reduced import demand in a number of low-income food-deficit countries where domestic production is estimated to increase in 1998. By contrast, coarse grain imports are forecast to increase slightly.

Two important developments that took place in recent months are expected to weigh on the short-term outlook for cereal trade, i.e. the decline in petroleum prices and the financial turmoil facing several countries. For several oil-exporting, grain-importing countries, the sharp drop in oil export earnings could lead to smaller grain purchases. The continuing financial turmoil in Asia and more recently in the Russian Federation could also force some of the countries affected to curtail their foreign cereal purchases despite smaller domestic output in some cases and despite the slide in international cereal prices expressed in US dollars in recent months. As a result, commercial imports by some of these countries may fall short of covering their deficit. At the same time, larger supplies in major exporting countries may facilitate a substantial increase in the food aid component of total cereal trade. Against this background and taking into account the recent decision by the United States to donate an additional 2.5 million tonnes of wheat to countries in need, food aid shipments in 1998/99 are tentatively forecast to rebound from the previous year’s estimated 5.5 million tonnes to about 8 million tonnes.

The forecast for world imports of wheat and wheat flour (in wheat equivalent) in 1998/99 (July/June) has been raised slightly from the previous report, by 500 000 tonnes, to 90.5 million tonnes, which would be some 5.5 million tonnes below the revised estimate for imports in 1997/98. Apart from the factors mentioned above, this year’s good crops in a number of countries, following favourable weather conditions, is another reason for this reduction. Overall, wheat imports by the developing countries are now forecast to fall by some 5 million tonnes to 73 million tonnes. Also, somewhat smaller imports are anticipated among the developed countries, particularly in the EC.

The sharpest decline is expected in Asia, where total imports may amount to just 42 million tonnes, down more than 4 million tonnes from the previous year and the lowest volume in almost a decade. In Pakistan, a bumper 1998 crop could esult in at least 3 million tonnes lower imports compared to last year. Also in India, large domestic supplies could lead to a decline of about 500 000 tonnes in imports, while wheat purchases by the Islamic Republic of Iran could plunge for the second consecutive year, dropping by some 700 000 tonnes, largely due to above-average domestic crops and, to some extent, the decline in its earnings from oil revenues. Among the Asian countries in financial difficulty, the forecast for imports by Indonesia has been lowered by 400 000 tonnes to 3.8 million tonnes, against 4.2 million tonnes in the previous season. The current forecast includes the recently announced 500 000 tonnes food aid donation by the United States.

OVERVIEW OF WORLD CEREAL IMPORTS – FORECAST FOR 1998/99

SOURCE: FAO
1/ Highly tentative

The rise in domestic prices, partly resulting from reductions in flour subsidies and the gradual liberalization of the domestic wheat market, is the main reason for the likely reduction in commercial purchases by Indonesia. By contrast, imports by the Republic of Korea, Malaysia and the Philippines could remain largely the same as last year because the drop in international wheat prices and the abundance of low quality wheat is expected to maintain its competitive edge vis-à-vis imports of coarse grains for feed.

In Africa, wheat imports are expected to decline by about 1.5 million tonnes to 22 million tonnes. All of this decrease would be on account of reduced requirements in several countries in North Africa due to larger domestic production, particularly in Morocco and Tunisia. However, most countries in Latin America and the Caribbean are likely to import as much as last year, while Brazil, the region’s largest wheat importer, is forecast to import over 6 million tonnes, some 500 000 tonnes more than in the previous year. The decline in international prices could encourage larger purchases by Brazil given the continuing strong growth in domestic consumption. In Europe, the forecast 1 million tonnes decline in wheat imports would almost entirely reflect smaller purchases by the EC following this year’s bumper output and larger availabilities of high quality wheat in the Community. In the CIS, despite this year’s drastic decline in wheat production, especially in the Russian Federation, imports are expected to rise only by 200 000 tonnes to about 2.7 million tonnes. However, this forecast remains extremely tentative because of uncertainties associated with the impact of the current financial turmoil on the countries’ ability to import.

Turning to exports, the forecast decline in this year’s trade will weigh heavily on shipments from the major exporting countries, with additional export availabilities from a number of other countries, such as Hungary, Turkey and Syria, also adding to competition for markets. Aggregate wheat exports from the 5 major exporters in 1998/99 (July/June) are forecast to reach 83 million tonnes, against 87 million tonnes in the previous season. The decline would be mostly due to expected reductions in sales from Argentina, Australia and Canada while those from the EC and the United States are forecast to rise. Exports from the Russian Federation and Ukraine to outside the CIS countries are also forecast to fall substantially, mainly as a result of lower domestic output, while foreign sales by Romania are expected to be reduced as production is anticipated to fall below the previous year’s bumper level.

World trade in coarse grains in 1998/99 (July/June) is now forecast at 88.5 million tonnes, some 2.5 million tonnes less than earlier anticipated, but 1 million tonnes above the previous year’s estimated imports. This month’s downward revisions mainly concern several countries in Asia. Trade is expected to remain close to the previous year’s volume for almost all types of coarse grains except for maize and barley, which are likely to increase slightly to 64 million tonnes and 14 million tonnes, respectively, mainly as a result of higher demand from some countries in Latin America. The small rise in total coarse grain imports by the developing countries, to 58 million tonnes, would account for nearly all of the increase in global coarse grain purchases, while those by the developed countries are forecast to remain close to the previous year’s volume.

In Asia, imports are expected to remain unchanged at 53 million tonnes following this month’s downward adjustments to forecasts for imports by China, Japan and the Islamic Republic of Iran. For Japan, downward adjustments from the earlier prediction are based on the expected slowdown in demand from the feed sector. In Africa, imports by most countries in North Africa are likely to decline because of good crops. However, larger imports are forecast for a number of countries in the southern region, particularly in Lesotho, South Africa, Zambia and Zimbabwe, due to reduced maize crops. In Central America, the likely decline in sorghum crops in Mexico is expected to result in slightly higher imports while in South America the drop in maize production in Brazil and Venezuela is expected to lead to larger purchases by both countries compared to the previous season. Among countries in Europe, the increase of about 500 000 tonnes in aggregate imports would be mainly on account of larger barley purchases by the Czech Republic and larger maize imports by Poland, mainly resulting from poorer crop prospects. Currently the forecast for imports into the CIS points to the same low level as in the previous season, despite a significant reduction in output expected.

The anticipated modest rise in world trade of coarse grains is expected to be entirely met by the five major exporters as their combined production is forecast to increase for the fourth consecutive year, resulting in ample exportable supplies. Among other exporters, Hungary and Romania would also have large export surpluses this season, while China, which exported an estimated 7 million tonnes of maize in the previous season and ranked the world's third largest exporter after the United States and Argentina, may reduce its sales to 3 million tonnes, mainly because of smaller carryovers from the previous season.

The forecast for global rice trade in 1998 has been adjusted upwards from the last report by 1.7 million tonnes to a record 23.8 million tonnes, which is 4.8 million tonnes more than the estimated 1997 volume and about 3 million tonnes above the previous record in 1995. The upward revision is mainly a result of large imports and/or import commitments to date by several of the major importing countries whose domestic output was severely reduced by adverse weather related to El Niño. The current flood situation in several of the Asian countries is another factor behind the upward revision.

The forecast of Indonesia’s rice imports has been increased by 1.5 million tonnes from the previous report to a record 5 million tonnes, following a bigger fall in the 1998 paddy production than originally anticipated. During the first 6 months of the year, Indonesia is estimated to have imported in excess of 3.2 million tonnes of rice, over three times the total imports estimated for the whole of 1997. Taiwan Province of China is reported to have joined Japan in offering a rice loan of 200 000 tonnes to Indonesia with an option of either paying back in cash or through a barter deal. There are reports that Indonesia and Viet Nam are currently engaged in negotiations for barter deals or deferred payment arrangements for about 400 000 tonnes of rice. The forecast of rice imports by the Philippines has also been adjusted upward by 350 000 tonnes, to 1.55 million tonnes based on contracted volumes to date. However, the final import figure will largely depend on whether the country will be affected by La Niña-related floods which have been predicted for the last quarter of the year. The forecast for Bangladesh has been raised by 500 000 tonnes from the previous report to 1 million tonnes based on shipments to date. Large quantities of rice were imported during the first four months of the year when domestic supplies were tight and prices had risen, a result of lower output from the 1997 Aman crop. In addition, devastating and widespread floods are threatening the current crop. By contrast, the forecast for the Islamic Republic of Iran has been reduced by half from the previous report to 600 000 tonnes due to good production prospects and a slower pace of imports. Also for China (Mainland), the forecast for 1998 imports has been lowered by 100 000 tonnes to 300 000 tonnes based on imports to date and the anticipation that any shotfall this year will be met from stocks. In Brazil, the Government has taken steps to facilitate increased rice imports by lowering the tariffs on brown and milled rice originating from non-MERCOSUR countries from the 1998 rate of 21 percent to 13 percent and 15 percent, respectively. Rice imports in 1998 are forecast to increase by 46 percent from the adjusted 1997 level to 1.2 million tonnes. A higher share of Brazil’s 1998 rice import requirements will come from non-MERCOSUR sources, including the United States, Thailand and Viet Nam, since Argentina and Uruguay, its traditional suppliers, also experienced production declines.

On the export side, the forecast for rice shipments out of Thailand for 1998 has been raised by 400 000 tonnes from previous estimates to 6 million tonnes due to consistently high demand on the international market and a good output from the second-season crop. Exports during the first half of 1998 are estimated at over 3 million tonnes, compared to about 2.3 million tonnes during the same period in 1997. In Viet Nam, rice exports were temporarily suspended in mid-April to ensure domestic food security in the midst of a drought that had affected much of the country. The Government lifted the freeze on new export sales effective July 1, 1998 but reintroduced an export tax of 1 percent on certain grades of rice. However, in mid-August, the Government announced a new temporary ban on fresh commercial export sales again citing food security concerns as the reason behind the decision. Nevertheless, expected export figures have been increased by 200 000 tonnes from the previous forecast to the Government target of 4 million tonnes based on shipments to date. During the first half of the year, Viet Nam shipped close to 3 million tonnes, compared to less than 2 million tonnes during the same period in 1997. The export quota for the period July to September was fixed at 600 000 tonnes. The decision about export volumes for the remainder of the year will be made in September after reviewing the yields from the summer-autumn crop. The forecast for India's exports in 1998 has been increased by 200 000 tonnes from the previous forecast to 2.4 million tonnes based on an upward revision to its 1997 paddy output. China’s (Mainland) 1998 projected rice exports have also been revised upwards by 700 000 tonnes from the previous report to 2.4 million tonnes based on exports to date and an upward revision to its 1997 production. During the first half of 1998, China’s shipments amounted to over 1.2 million tonnes compared to 940 000 tonnes during the whole of 1997. Anticipated exports from the Taiwan Province of China have been increased by 150 000 tonnes from earlier expectations to 250 000 tonnes. The bumper harvest in Tanzania is expected to result in exports of about 100 000 tonnes to its neighbours, particularly Uganda and Kenya.

For 1999, global rice trade is provisionally forecast to decline from the 1998 projected record by about 10-15 percent as production in 1998 in many of the major importing countries is expected to recover from the lower weather-reduced levels in 1997. Increased production, and therefore lower imports, may materialize particularly in Indonesia, the Philippines and Brazil, three of the leading importers thus far in 1998.