FAO/GIEWS - Food Outlook No.3 - June 2001 p. 6

Trade^1/

• The latest forecast puts world cereal imports slightly below the previous season's volume
• World cereal trade to contract again in 2001/02
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1/ World trade in wheat and coarse grains is based on estimated imports delivered through 30 June of the July/June trade year. Some late-season purchases may be included in the next season if deliveries occur after 30 June. In general, exports and imports are calculated based on estimated shipments and deliveries during the July/June trade season and thus they may not be equal for any given year due to time lags between shipments and deliveries. Trade in rice is reported on a calendar year basis for the first year shown.

The latest forecast puts world cereal imports slightly below the previous season's volume

Following this month's upward adjustments to wheat imports and equally important downward adjustments to coarse grains, the forecast for world trade in cereals in 2000/01 remains unchanged from the April report, at 233 million tonnes. As the 2000/01 season for wheat and coarse grains draws to a close and trade numbers become firmer, it appears that world cereal trade this season is headed for a small decline, mostly on account of lower world trade in wheat. This would be in contrast to the rapid increase registered in the previous season, a short-lived expansion that was mainly brought about by large imports by the Russian Federation.

At the current forecast levels, total cereal imports by the developing countries in 2000/01 are expected to approach the previous season's volume of around 170 million tonnes. Based on this forecast, the overall cereal import bill of the developing countries in 2000/01 is currently estimated at US$22.4 billion, which is about US$1.2 billion, or 5 percent, above the previous year's value. This increase has been brought about mainly by the rise in wheat prices in 2000/01. For the Low-Income Food-Deficit Countries (LIFDCs), as a group, cereal imports in 2000/01 are forecast at 72 million tonnes, down 2 million tonnes from the previous season. Despite this decline in the volume of imports, the total cereal import bill of the LIFDCs is expected to increase by at least US$300 million, or 3 percent, to US$9.4 billion, again due largely to higher wheat prices.

The forecast for global trade in wheat and wheat flour (in grain equivalent) in 2000/01 (July/June) has been lowered by 1.5 million tonnes since the previous report to 105.5 million tonnes. At this level, world wheat imports would be some 4 million tonnes less than in the previous season. This month's reduction reflects a further cut in the forecasts for imports by several countries, including China, the Russian Federation and Yemen. Except in Africa, wheat imports by other regions are generally expected to fall below the previous season's levels. In Asia, China, Bangladesh, India and Pakistan are the countries contributing to that decline. While in Europe, the Russian Federation is the main contributor. In the Latin America and Caribbean, the largest decline is expected in Mexico. Even in Africa, where aggregate wheat imports are forecast to rise by over 1 million tonnes, total imports by countries in sub-Saharan Africa are expected to decline significantly. Most of the expected increase in shipments into Africa is on account of higher import demand in several drought-stricken countries of the north, most notably Algeria and Morocco. Imports by Egypt are also forecast to increase, even though production rose in 2000, mostly due to rising demand for high quality wheat.

Changes in Cereal Import Bill of LIFDCs by Region and Commodity

On the export side, the presence of significant exportable supplies from non-traditional exporters such as in India and Pakistan, both usually large net wheat importing countries, is a new feature of this season. By contrast, a number of wheat exporting countries in Europe, outside the EC, had smaller supplies because of reduced domestic production. Among major exporters, Argentina and the United States have raised their sales considerably this season, helped by large exportable supplies and strong demand, especially from several countries in South America and Far East Asia. By contrast, shipments from Canada are expected to decline slightly while exports from Australia are also forecast to be smaller, following the drop in its production in 2000. Wheat sales from the EC are also expected to be down from the previous season. Tighter supplies of higher quality wheat in the Community slowed the pace of sales during the first half of the season, but by December 2000, the Commission resumed granting export refunds, which helped accelerate exports.

The forecast for global trade in coarse grains in 2000/01 (July/June) has been raised by nearly 2 million tonnes since April, to 105.5 million tonnes. This month's upward revision reflects higher import estimates mostly for the Syrian Arab Republic, Saudi Arabia and Colombia. Coincidentally, at the current forecast volume, world trade in coarse grains and wheat would be identical. The expansion in world imports of coarse grains has been higher than that for wheat, especially since the mid-1990s; the former increasing by almost 10 million tonnes, or 11 percent, since 1995/96, while the latter by only 6 million tonnes, or 8 percent, over the same period. The main factor driving up trade in coarse grains has been a more rapid growth in feed usage, which has proven particularly favourable to maize, while the fast rising demand for malt has also given rise to a surge in barley imports. By contrast, the world demand for the other major coarse grains, including sorghum, millet, oats and rye, has changed little in recent years.

On a regional basis, imports into most regions are likely to increase. In Asia, after two consecutive years of extremely low production in the Syrian Arab Republic, coarse grain imports are seen to rise again this season, led by larger barley imports, a major export commodity for this country until recently. Favourable maize prices have already resulted in larger purchases by the Republic of Korea so far in the season. In Africa, the drought in several countries in the northern region boosted their import requirements, especially for barley. Weather was also the main factor in Kenya, where a drop in maize production may give rise to higher imports this season. In most parts of South and Central America, import demand for feed grains continued to grow at a fast pace, although Brazil, the region's largest producer of coarse grains, is expected to cut its imports because of large carryover stocks and Mexico is seen to cut its purchases of maize and sorghum. In North America, reduced maize output in 2000 is behind exceptionally high imports by Canada. In Europe, much higher purchases by Poland and Romania, due to poor domestic crops last year, more than offset the decline in imports by the Russian Federation.

On the export front, the 2000/01 season may be remembered as the year of uncertainty as far as the prospects for major exporters are concerned. Few expected that China continued exporting maize into 2001, not to mention at near record levels, after a 23 million tonnes dip in production to 105 million tonnes in 2000. China continued to sell maize throughout the season, as the main preoccupation of the authorities proved to be its bulging stocks. Another feature associated with this season has been the rejection of GMO contaminated grains by some importers. This development, which initially affected mostly maize sales from the United States because of concerns in a few important Asian markets, soon gave rise to much stronger demand for grains from GMO-free origins. Later in the season, the spread of animal diseases, in particular FMD, made certain importing countries wary of grain purchases from countries affected by the disease. Overall, however, higher maize exports from China are seen to largely compensate for the lack of coarse grains sales from a number of countries in Europe, where drought reduced exportable supplies. Coarse grain exports from major suppliers, especially from Argentina and the United States, are expected to rise, with the exception of the EC, where they are likely to decline because of smaller barley sales.

World cereal trade to contract again in 2001/02

As the current 2000/01 season for wheat and coarse grains is drawing to a close, attention is being focused on prospects for 2001/02. Based on FAO's preliminary 2001 production forecasts, the first indications for the direction and size of cereal trade in 2000/01 points to a reduction of some 4 million tonnes, or 2 percent, to roughly 229 million tonnes. This contraction would mostly reflect lower trade volume for wheat and coarse grains during 2001/02, which could more than offset the increase that is tentatively forecast for global rice trade in 2002^1/ .

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1/ It should be noted that the marketing season for rice is calendar, hence, for next year, it will begin in January 2002. For wheat and coarse grains, the next trade season begins soon, in July 2001, and ends in June 2002.

Based on the preliminary trade indications for 2001/02, total cereal imports by the developing countries are seen to decline slightly, to 169 million tonnes. Assuming a modest rise in average cereal prices also in 2001/02, but no significant change in the volume of food aid, the cereal import bill of the developing countries could increase marginally, to US$23 billion. For the LIFDCs, cereal imports are forecast to increase by 1.5 million tonnes, to 74 million tonnes. This increase would be mostly on account of larger expected imports by several countries in Asia. The expected rise in the volume of imports coupled with higher prices would raise the cereal import bill of the LIFDCs, as a group, for the second consecutive year, to roughly US$10 billion, up US$500 million, or 5 percent, from 2000/01.

Global wheat trade in 2001/02 is expected to decline for the second consecutive year, this time by 1 million tonnes, to 104.5 million tonnes. The reduction would be mostly in Europe and South America, given improved production prospects, especially in Brazil, Ukraine and several countries in Easter Europe. By contrast, total wheat imports by countries in Asia could rise significantly next season as China is expected to double its purchases, Pakistan could return as an importer later in the year and the prolonged drought in many countries in the region could force some of them to increase their imports during 2001/02. Also in Central America, import demand for wheat remains strong and in many countries, such as Honduras and Mexico, is likely to increase. Imports into Africa are expected to remain largely unchanged from the current season. Several countries in the north will still need to resort to above-average wheat imports again next season because of production shortfalls. In the sub-Sahara, total wheat imports are expected to decline slightly but imports by the subregion's largest importers, Nigeria, Sudan and Kenya, are likely to be unchanged from this season, as demand for wheat in these countries remains strong, due to urbanization and the growing preference for wheat bread.

On the export side, a mixed prospect emerges. Among the five major wheat exporters, Argentina, Australia and Canada are likely to expand their markets next season, because of large supplies. By contrast, a sharp drop in exports is currently anticipated for the United States, given the expected decline in its production, while shipments from the EC could also contract for the third year in a row, as a result of tighter supply. Among other exporters, Turkey may also export less wheat as production is expected to remain below average, while the Syrian Arab Republic is likely to remain absent from the export market for the third consecutive year because of severe supply shortage in recent years. By contrast, the Government of India has announced an even higher wheat export target for next season, but much will depend on world prices and the extent to which India would continue to export wheat at lower than its own domestic prices. In Europe, Hungary and the Ukraine are likely to return strongly to the wheat export market, following much better domestic production prospects.

Making trade forecasts for coarse grains for next season is subject to even more uncertainties at this time of the year as key harvests in the northern hemisphere producing countries are still months away and final results will depend on weather developments, especially during the critical summer period. Nevertheless, world trade in coarse grains in 2001/02 is expected to decline after a strong rebound this season. Among the various regions, only in Asia imports are expected to increase slightly and that mostly because of continuing strong demand for feed grains in the Far East. In Africa, current expectations are for better barley and maize outputs, which could result in a decline in imports. Imports are also forecast to fall sharply in South America, mostly in Brazil because of a record crop just harvested, and in North America, where maize production in Canada is set to recover after last year's sharp decline. In Europe too, imports would be less, mostly because of a likely increase in domestic production in several countries.

In the export market, early prospects for next season point to a reduction in maize sales from the United States but higher exports of barley from Canada, given the current production outlook for maize and barley in those countries. However, shipments from other major exporters are likely to remain unchanged from this season. On the other hand, maize exports from China are forecast to continue, although current forecasts put next year's shipments below the latest estimates for this season. In addition, Hungary, Romania and the Ukraine are forecast increase their exports next season while Brazil could also join the export market as a large supplier of maize. In Africa, however, total exports are set to drop sharply as Zimbabwe would remain out of the market for the third consecutive year, while exports from the Republic of South Africa could drop significantly because of smaller domestic output.

World rice trade is currently forecast at 22.3 million tonnes, unchanged from the last report and down fractionally from 2000, reflecting generally good crops in the past season in traditional importing countries.

Although global imports are not forecast to change much from last year, at the regional level, a contraction in shipments into Asia is currently foreseen, most of which should be compensated by increased deliveries to African countries. Anticipated rice shipments to Indonesia, one of the world's leading importers of rice, still remain down by 40 percent from the previous year, with little prospects for an immediate recovery. Indonesia's state trading agency has announced that owing to large existing stocks, no official imports of rice will be made. In addition, purchases by the private sector continue to be constrained by a weakened local currency together with ample supplies of competitively priced domestic rice. Similarly in Bangladesh, import demand remains flat, since the country has basically succeeded in achieving rice self-sufficiency. Moreover, prospects have further deteriorated following two successive 5 percent increases in import duties in March and April, with tariffs now standing at 15 percent. Japan has completed the expansion of its rice market access, as agreed under the Uruguay Round on Agriculture. Given the large rice surpluses the country is facing, only imports under the preferential access quota are anticipated. Consequently shipments to the country are expected to stabilize at around 700 000 tonnes in 2001. While the Philippines strives to attain self-sufficiency in rice, growing domestic needs suggest that in 2001, the country might import 750 000 tonnes of rice, 50 000 tonnes more than previously anticipated, and 8 percent above last year. China's rice purchases, mainly fragrant rice varieties, are also expected to surge to 300 000 tonnes in 2001, almost 100 000 tonnes more than last reported. Saudi Arabia is forecast to import 825 000 tonnes of rice in 2001, some 30 000 tonnes above the revised 2000 figure. Forecast shipments to the other major importers in the region are unchanged from last report, at 1.2 million tonnes for the Islamic Republic of Iran and for Iraq and at 700 000 tonnes for Malaysia. Forecast imports by the Democratic Peoples Republic of Korea also remain at 550 000 tonnes following the recent failure to reach an agreement on a 500 000 tonnes deal with Thailand.

The flow of rice into Africa is now estimated at 6.2 million tonnes, up 200 000 tonnes from the revised 2000 estimate and almost 400 000 tonnes more than previously anticipated. For instance, imports by South Africa are forecast to increase by 75 000 tonnes from a revised 525 000 tonnes estimate in 2000. In Nigeria, the recent increase in tariffs has resulted in an effective duty rate of around 85 percent. However, this does not appear to have dampened demand for external rice, especially parboiled rice that forms the bulk of the country's imports. Current forecasts put these at 1 million tonnes in 2001, slightly above the revised 2000 level, but 200 000 tonnes more than last reported. Anticipated rice imports by Cameroon and Senegal have also been increased by a combined 80 000 tonnes from the last report, while they have been put at 90 000 tonnes for Niger, almost 25 000 tonnes above 2000.

Overview of World Cereal Imports - Forecast for 2001/02

Source: FAO
1/ Highly tentative.

In the other regions, imports are forecast either to contract or to remain static in 2001. For instance, purchases by Brazil are anticipated to fall by some 100 000 tonnes from the level achieved in 2000, following a 200 000 tonnes downward revision of the current year forecast. The adjustment reflects the expectation of a release of supplies from Government stocks, which could discourage imports. On the other hand, following reductions to the 2001 forecasts of 50 000 tonnes in the Russian Federation and 115 000 tonnes in the EC, both are expected to import about the same level of rice as last year. While the Commission has temporarily shelved a reform proposal of the EC rice policy regime, which may have important implications for imports, in March of this year, the EC Council adopted the "Everything But Arms" proposal. This initiative will ultimately grant free access to the EC rice market by 2009 to 48 least developed countries, including a few large rice producers, such as Bangladesh and Cambodia. In the interim period up to full liberalization, limited duty-free rice quotas will be allocated to these countries, with the initial level set at 2 517 tonnes (husked-rice equivalent) in 2001/02, growing 15 percent annually to 6 696 tonnes in 2008/09. In addition, from 2006 to 2009, tariffs on imported rice will be progressively phased out.

Against a background of limited market openings and ample supplies available for export, competition among the major exporting countries has intensified. Forecast exports for Thailand in 2001 have been adjusted upward by 300 000 tonnes to 6.5 million tonnes, the same performance as in the previous year. Similarly, Viet Nam's rice exports have been raised by 500 000 tonnes, to 3.9 million tonnes. Policy initiatives, such as the recent removal of export quotas, suggest that the country might significantly improve on the 2000's poor export performance. By contrast, based on shipments to date, prospects for China's exports have been lowered by a further 500 000 tonnes from the last report to 2.6 million tonnes, the lowest level since 1997. Deliveries by Japan, which consist mainly of food aid, have also been revised downward by 200 000 tonnes from previous expectations. As a result, exports by the country are forecast at 500 000 tonnes, matching the revised figure for 2000. Since the last report, India has authorized the sale of 3 million tonnes of rice from Government stocks for export. Recently, the authorities have announced that sales from these quantities will be subject to a minimum price of Rs 6 000 (US$128) for parboiled rice and Rs 5 650 (US$120) for other non-basmati rice. Pending more information on the specifications and quality of the rice and the conditions for delivery, it is difficult to gauge whether this measure will improve India's export prospects. As a result, anticipated shipments by the country in 2001 stand at 1.3 million tonnes, unchanged from last report, but 120 000 tonnes less than the revised figure for 2000. Outside of Asia, major revisions have been made for Brazil, which is expected to export over 150 000 tonnes from Government stocks in 2001. With ample supplies in the South American region, forecast sales by Argentina have been reduced by 50 000 tonnes to a record low of 200 000 tonnes. For other major exporting countries, shipments by Egypt are forecast at 500 000 tonnes, up 50 000 tonnes from the last report, while exports from the United states still remain down 100 000 tonnes from the previous year at 2.7 million tonnes.