FAO/GIEWS - Food Outlook No.5 - November 1999 p. 7

UTILIZATION

• Demand for feed grains remained sluggish in 1998/99
• Several factors contributed to recent changes in feed grain utilization in selected Asian countries:
• Global cereal utilization could expand in 1999/2000 but demand for feed will remain weak

Demand for feed grains remained sluggish in 1998/99

Total cereal utilization in 1998/99 increased only slightly above that of the previous season to 1 866 million tonnes. At this level, total cereal utilization would be slightly below its long-term trend, after being above trend for the previous two seasons. The volume of cereals used for food consumption rose by about 2 percent, while global feed usage was down slightly from the previous season. All of the increase in total utilization is estimated to have occurred in the developing countries.

Overall, the growth in world food consumption slightly exceeded the rise in population, resulting in a small increase in per caput food consumption of cereals in 1998/99. The increase is estimated to have occurred primarily among the developing countries and the republics of the CIS, in particular the Russian Federation where less expensive grain products, such as bread, were substituted for more expensive and, in many cases, imported foods, the prices of which rose due to the devaluation of the Rouble. Above average 1998 crops in many parts of Africa and bumper crops in some Asian countries, especially in China, India and Pakistan, contributed to the rise in food consumption of cereals among the developing countries.

PER CAPUT FOOD CONSUMPTION OF CEREALS

Despite a continuing decline in grain prices during the 1998/99 season, which normally would stimulate demand, world feed utilization of cereals is estimated to have declined moderately. Total cereal feed use in 1998/99 stood at 656 million tonnes, roughly 1 percent below the previous year's level. The slow growth in feed use is partly attributed to the slowing down of the economies in Asia, which hampered consumer spending on livestock products and, thus, reduced feed demand (see box on page 21). In addition, aggregate feed use in the developed countries also declined, mostly on account of a continuing contraction in the livestock sectors among the emerging economies of eastern Europe and the CIS. In the Russian Federation, the use of grain for feed was cut sharply due to the country's slow economic growth and the sharp fall in domestic grain production in 1998. By contrast, in the EC ample grain supplies and low domestic prices tended to boost feed use of grains in several countries to reach a record level for the Community as a whole in 1998/99. Total grain feed use in the United States remained virtually unchanged from the previous season, as higher maize and wheat feeding offset smaller feed use of other grains.

WORLD CEREAL UTILIZATION BY USE

Total cereal feed use in the developing countries in 1998/99 was largely unchanged from the previous year due to weaker demand for feed in countries hardest hit by the financial crisis, such as Indonesia, the Republic of Korea and Malaysia. In China, which had experienced strong gains in feed use recently, there was a recovery in 1998/99, caused in part by above-average domestic supplies. Elsewhere, the feed use of grains fell in Brazil primarily as a result of a smaller maize harvest in 1998.

Other uses of cereals, comprising post harvest losses, seeds and industrial uses, have declined since the peak in 1997/98, in spite of a steady growth in industrial uses of cereals in some major grain producing countries.

Several factors contributed to recent changes in feed grain utilization in selected Asian countries:

Developments in the global cereals market during the past two seasons have been influenced, in part, by the events in the financial crisis facing many Asian countries beginning in mid-1997. The main consequences of the financial crisis were devaluation of local currencies, rising inflation, higher interest rates and, eventually, slower economic growth, which were especially felt strongly in Indonesia, the Republic of Korea, Malaysia, the Philippines and Thailand. Of particular interest for the cereals market in those countries was the impact of these changes on coarse grains demand, originating from reduced demand for livestock products which are relatively sensitive to price and income changes. Coarse grains represent 80-85 percent of all cereals fed in the five Asian countries.

Lower, or even in some cases negative, income growth and higher prices as a result of currency devaluation contributed to the decline in feed use of coarse grains in the five countries. After rising for several years prior to the 1995/96 grain price spike, the aggregate use of coarse grains for feed trended downward from a 1995/96 high of 20.6 million tonnes to a low of 17.6 million tonnes in 1998/99. There is some evidence to suggest that another factor may have also contributed to reduced coarse grain feed demand during this period, especially in the Republic of Korea, which is the largest user and importer of grains among the five countries. This was the change observed in the relative prices of wheat and coarse grains. Based on average annual US Gulf Port fob prices, the international price of wheat relative to maize fell by 7 percent between 1996/97 and 1998/99 ^1/, affecting the mix of grains used for feed in the Republic of Korea; compared to 1995/96, average wheat feed usage rose by some 900 000 tonnes in the 1996/97-1998/99 period, while coarse grain feed use declined by 1.6 million tonnes.

There were, however, other factors that may have mitigated, to some extent, the negative impacts on coarse grain utilization resulting from the financial crisis in these countries. In Indonesia, for example, the Government applied an exchange rate for the import of maize and other feed ingredients in early 1998 that was lower than the free market rate in order to ease the financial burden on the livestock industry. This action, along with special loans to the poultry sector, helped to maintain imports at levels that may have been lower without government intervention. Thailand's maize imports were also maintained and increased substantially in 1997/98 because of the strong demand for poultry exports which gained a price advantage from the devaluation of the Baht. In the Republic of Korea, import tariffs were eliminated on maize and wheat used for feed beginning in July 1998. In the Philippines, the tariff on wheat used for feed was lowered in 1998 in accordance with a tariff reduction scheme initiated in 1996. Finally, some of the major grain exporting developed countries increased their offers of export credits during the 1997/98 season to encourage purchases of both food and feed grains.

Global cereal utilization could expand in 1999/2000 but demand for feed will remain weak

World cereal utilization is forecast to increase by 1 percent in 1999/2000 to 1 876 million tonnes, exceeding global production for the first time in four years. Overall, food consumption of cereals is expected to keep pace with population growth while the total volume of cereals destined for animal feed is expected to decline for the second consecutive year. All of the forecast increase in total cereal utilization is anticipated in the developing countries, mostly for food, while total utilization in the developed countries continues to decline due to weak feed demand.
The bulk of the decrease in feed use of cereals in 1999/2000 is anticipated in the developed countries, mainly due to a further contraction in demand for livestock products in the Russian Federation. For the ninth consecutive year the livestock sector is anticipated to contract, caused in part by the inclusion of bovine meat in the food aid package to the Russian Federation, leading to reduced use of grain for feed. Among the other major grain producers, feed use in Canada is expected to be unchanged from last season due to stable livestock numbers. Unlike last season, feed use in the EC could drop below the revised 1998/99 record level, in part because of cheaper alternative non-grain feeds. As for the United States, the largest user of feed grains in the world, the current official forecast points to slightly larger feed use of grains compared to last year as livestock numbers are anticipated to stabilize but grains fed per animal unit could increase compared to 1998/99.

With the resumption of economic growth in several Asian countries, aggregate feed use among the developing countries is forecast to grow by at least 1 percent, resulting in the first significant expansion since the beginning of the financial crisis in some south east Asian countries over two years ago. In the five Asian countries discussed previously, grains used in livestock feed are likely to increase slightly this year due to lower prices and a modest recovery in their livestock sectors.