FAO/GIEWS - Food Outlook No.4 - October 2001 p. 7

World cereal trade to remain unchanged from the previous season

Trade^1/

World cereal trade to remain unchanged from the previous season

World cereal trade in 2001/02 is forecast to remain unchanged at previous season's level of around 230 million tonnes, though the forecast has been raised by 1 million tonnes since the previous report in June. The small increase from last report reflects higher expectations for rice and coarse grain imports. Compared to their previous seasons, trade in wheat and rice are expected to increase slightly but the likely reduction in coarse grain imports would keep world cereal trade volume unchanged.

At the current forecast level, total cereal imports by the developing countries in 2001/02 point to an increase of around 3 million tonnes, most of which would be on account of larger wheat imports. Based on the current

expectations of a small rise in overall cereal prices in 2001/02 and no significant variation in the volume of food aid from last year, the cereal import bill of the developing countries could increase by nearly US$1 billion to US$23 billion. In the LIFDCs, cereal imports are forecast to increase by 2 million tonnes, to 73 million tonnes. This increase would be mostly on account of larger imports by China, which would more than offset the decline in imports by LIFDCs in North Africa. Elevated import volume coupled with higher prices would result in the cereal import bill of the LIFDCs, as a group, to rise for the second consecutive year, reaching US$9.7 billion, up US$700 million, or 7 percent, from 2000/01.

World trade in wheat and wheat flour (in wheat equivalent) in 2001/02 (July/June) is currently put at 104 million tonnes, up 1 million tonnes from the reduced imports in 2000/01. However, at 82 million tonnes, wheat imports by the developing countries would be 2.6 million tonnes higher than last year and also exceed the previous record in 1999/2000. The estimated value of this year's imports by the developing countries would approach US$12 billion, some US$600 million more than in the previous season. Total wheat imports by the LIFDCs are expected to reach 40 million tonnes, up 2 million tonnes from the previous year but slightly below the average of the past 5 years. At this level, the wheat import bill of the LIFDCs could reach US$5.5 billion, some US$400 million more than in the previous season.

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.

Changes in Cereal Import Bill of LIFDCs by Region and Commodity

The increase in this year's wheat trade is mostly driven by higher demand in Asia. China would account for most of the increase. Imports by China (Mainland) are forecast to rise from less than 400 000 tonnes in 2000/01 to 2 million tonnes in 2001/02. Although this increase represents a significant year-to-year jump, given the sharp decline in production for two consecutive years, imports would have been expected to rise even more drastically, had it not been for the continuing offtake from stocks. Imports by the Islamic Republic of Iran could also increase this year, following three years of devastating drought. Turkey is expected to become a net wheat importer this season for the first time since 1998/99, also because of a much smaller crop. By contrast, in Africa, the overall wheat imports are likely to decline as several countries harvested larger crops this season. Imports by most countries in northern Africa, however, are forecast to remain close to last year's high volume as drought continued to affect several countries.

Wheat imports into Europe are put at 7.6 million tonnes, down 3 million tonnes from the previous year and 1 million tonnes lower than was reported in June. The decline from last year would be mostly due to a strong production recovery in several countries in the CIS and in eastern Europe, especially in Poland, Bulgaria, Romania and Ukraine, Total imports into Latin America and the Caribbean are expected to rise slightly above the previous year, to 18.7 million tonnes. Most of this increase would reflect larger expected purchases by Brazil because of strong demand from the domestic milling sector.

Turning to this year's export prospects, among the five major exporters, only Argentina and the United States

are forecast to export more this season. A record crop in Argentina and large stocks in the United States are among the main reasons. By contrast, relatively low production levels in Australia, Canada and the EC could result in much smaller exports from those origins. Among other exporters, sales from Turkey are likely to drop sharply because of tighter domestic supplies. However, Romania is forecast to return to the export market after almost two years absence because of a sharp recovery in production. Among the CIS countries, Ukraine is forecast to sharply increase its exports because of improved production. Similarly, India is likely to export more wheat this year although exports could fall short of the Government target of 5 million tonnes.

Global coarse grain imports in 2001/02 (July/June) is forecast at 103 million tonnes, up 1 million tonnes from the previous report, though almost 2 million tonnes lower than in the previous season. Trade in barley is forecast to decline to just less than 18 million tonnes and sorghum imports could also decline marginally, to 8 million tonnes. However, maize imports are forecast to rise to 73 million tonnes. Overall, total coarse grain imports by the developing countries are put at 69 million tonnes, similar to previous season. In value terms, this would be around US$7.5 billion, also unchanged from 2000/01 as coarse grain prices are anticipated to remain at last year's levels. For the LIFDCs, this year's import volume could decline slightly to 22 million tonnes; because of the reduction, their import bill would decline to US$2 billion.

Coarse grain imports into Africa are expected to decline to 13.5 million tonnes in 2001/02, down 700 000 tonnes from the previous year. The decline would be mostly on account of smaller purchases by countries in North Africa, especially by Egypt and Morocco. However, imports by countries in sub-Saharan region are forecast to increase, mostly due to larger requirements in several countries in southern Africa, especially Zambia and Zimbabwe.

In Asia, total coarse grain imports could exceed last year's volume by 1 million tonnes and approach 58 million tonnes. Most countries in Asia are forecast to increase their imports this season as demand from animal feed sectors continue to remain strong in major markets.

By contrast, in Europe, total imports are likely to decline by 2 million tonnes, to around 7 million tonnes, following a strong recovery in domestic production in several countries in Eastern Europe as well as in the CIS. Poland and Romania would account for most of the decline. In Central America, due to continuing strong demand, imports by Mexico are expected to increase even though domestic maize and sorghum production is also expected to rise. In South America, this year's record maize crop in Brazil would mean the country would export instead of import. In 2000/01, Brazil imported over 1 million tonnes of maize and sorghum.

On the export side, overall sales from the United States, the world's largest maize exporter could still rise above the previous season despite the expected decline in world trade. Shipments from the EC are forecast to decline for the third consecutive year mostly due to lower sales of barley. In addition, maize exports from China are likely to be halved to about 5 million tonnes compared to nearly 10 million tonnes last year while the Republic of South Africa is also likely to have less export availability this season. However, large exports by Brazil and Hungary are also likely to make up for some of the reductions in sales from other exporting countries.

The world rice market continues to be dominated by the weakness of global import demand. With many countries having completed or about to complete the harvesting of their main season crop and the resulting arrival of fresh supplies onto the market, the prospect for a turnaround in the short term appears unlikely, unless external factors interfere with the market fundamentals. A very different situation, however, may emerge as of next year, with market conditions expected to tighten.

FAO's latest forecast puts world trade in rice in 2001 (calendar year basis) at 22.4 million tonnes (in milled equivalent), very close to the earlier estimate and unchanged from the volume in 2000. Developing countries should account for the bulk of the imports, with 18.8 million tonnes, marginally below the level in 2000. The decline in international prices this year, however, should lower the value of their imports from US$3.1 billion in 2000 to US$3.0 billion in 2001. The volume of rice shipments to the LIFDCs is expected to remain of the order of 10.9 million tonnes, unchanged from last year, but lower prices should cut their import bill from US$1.8 billion in 2000 to US$1.7 billion in 2001.

As the assessment of the size and quality of the crops gathered this season becomes firmer and information on actual rice shipments is made available, some revisions in the expected volume of rice trade this year have been effected for a number of countries.

In Asia, forecast imports by the Philippines have been raised by 100 000 tonnes to 850 000 tonnes, 22 percent more than in 2000. Domestic prices during the lean months in August and September were reported to be unusually low. Such a weakness has been associated to a surge in illegal inflows of rice to the country, which have induced the National Food Authority (NFA), the organization responsible for rice domestic distribution and imports, to propose a set of measures to tighten the control over inter-island rice movements. Indonesia's import agency BULOG negotiated a 500 000 tonnes import deal with Viet Nam, in August 2001for delivery next year. Forecast shipments into the country have accordingly been kept at 1.2 million tonnes in 2001, as earlier envisaged, but 800 000 tonnes less than in 2000. However, the possibility of an upward revision still remains. By contrast, imports by the Islamic Republic of Iran have been lowered by 200 000 tonnes to 1 million tonnes this year, compared with 1.1 million tonnes in 2000, with much uncertainty still surrounding this estimate, especially because of a surge in shipping costs in the Persian Gulf.

Overall, expectations for rice imports into Africa point to a record of 6.5 million tonnes, half a million tonnes more than in 2000 and 300 000 tonnes above the earlier forecast. At that level, the region, which is providing a major stimulus to the international rice market in an otherwise depressed environment, would account for nearly 30 percent of global trade in rice. Among the largest importers in the region, expected shipments to the Côte d'Ivoire have been subject to an upward revision, as major exporters, especially China, reported high deliveries to the country so far this year. Likewise, the outlook for Senegal has been raised from 580 000 to 650 000 tonnes, close to the record achieved in 1999. In the first eight months of the year, the country's imports had already reached 428 000 tonnes, or 52 percent more than in the corresponding period in 2000. By contrast, purchases envisaged by Nigeria remain at 1 million tonnes, unchanged from 2000.

In Latin America and the Caribbean, the outlook for rice imports has changed little. In Central America, the crop shortfall is not expected to trigger a surge in imports until next year. Thus, the forecasts for Cuba and Mexico remain of the order of 440 000 tonnes, unchanged from last year in the former country but somewhat higher in the latter. Official estimates in Peru also point to an increase from last year. By contrast, shipments into Brazil, the major rice market in the region, are anticipated to fall, since high stocks and a good 2001 crop, the second best on record, have considerably trimmed the country's import requirements.

With regard to rice exports, although little changed on an aggregate basis, several adjustments from the previous outlook have been made on individual countries' expected volume of exports.

In Asia, shipments from China (mainland), originally put at 2.5 million tonnes, have been cut to 1.9 million tonnes, 1 million less than last year, in view of the anticipated crop shortfall and the price strength witnessed since the beginning of the year. Indeed, although the country holds large rice inventories, the bulk is kept by farmers for food security reasons, rather than for market sale. Export performance up until August also pointed to a sharp contraction of 44 percent compared with the same period in 2000.

Rice shipments from Viet Nam have also been subject to a downward revision to 3.8 million tonnes from the original 4 million tonnes targeted by the Government, in view of the disappointing outcome of the summer/autumn crop. At that level, sales to foreign markets would still exceed those recorded last year by some 400 000 tonnes. To some extent, this positive performance reflects government relaxation of controls over rice exports and the granting of favourable credit conditions to importers, an example of which was a recent 100 000 tonnes deal for sale to Indonesia, the payment of which would be deferred to 720 days.

Export forecasts for Thailand, India, Myanmar and Argentina have all been raised from the previous outlook. In Thailand, strong import demand, in particular from western Africa has boosted the country's shipments by 5 percent during the first nine months compared with the same period in 2000. Based on this early performance, the country might strike a new trade record of 6.8 million tonnes, although this would imply that large shipments are made during the last quarter, as was the case last year.

Very competitive prices have also bolstered shipments from Myanmar, which have been raised to 350 000 tonnes this year, up from an earlier 200 000 tonnes, and the highest level since 1996.

By contrast, prices in India still appear too high to give a significant boost to exports. However, following the relaxation of the minimum quantity purchase requirement and the lowering of prices on rice sales from Government stores, some transactions, especially for parboiled rice, have been made for shipment to Africa in recent months. Expectations of a bumper crop have added pressure on the Government to facilitate exports. The forecast for India's exports this year has accordingly been raised by 200 000 tonnes, to 1.5 million tonnes, about the same level as last year.

Prospects for sales from Pakistan are uncertain. Exports during the first semester totaled nearly 1.6 million tonnes, compared with 1.1 million tonnes in same period in 2000. Nonetheless, FAO forecast for 2001 remains at 1.9 million tonnes, somewhat less than in 2000, because of a belated harvest and the anticipated contraction in production this season. Moreover, a reported rise in transportation insurance premiums in the area, could erode the freight comparative advantage Pakistan holds on exports to the Near East and Africa.

Shipments from Egypt are anticipated to rise to 450 000 tonnes, up from 350 000 tonnes in 2000, but unchanged from the previous forecast. The year-to-year increase reflects the depreciation of the local currency and the granting, from July to September, of export subsidies by the Government of some US$20 per tonne for medium rice and US$45 per tonne for long rice.

Overview of World Cereal Imports - Forecast for 2001/02

Source: FAO 1/ Highly tentative.

The forecast for the United States' exports remains at 2 650 000 tonnes, 100 000 tonnes below the level achieved last year, reflecting relatively high domestic prices and fierce competition in Latin America and the Caribbean. Shipments from Argentina and Uruguay are also anticipated to decline compared with 2000, in the light of the poor demand from Brazil, despite efforts by the two countries to find alternative outlets in Africa and the Near East. By contrast, Government sales from public stocks, should lift exports from Brazil, usually a major importer, to some 150 000 tonnes.

On balance, the outlook for the 2002 season is for a tighter market situation and some increase in the volume of world trade. However, this outlook is still subject to a high degree of uncertainty. Firstly, there are some fears of a recurrence of El Niño and of its potentially negative impact on production in a number of countries. Second, the accession of China and of the Chinese Province of Taiwan to WTO is likely to influence the rice economy next year. Finally, a worsening in the general political and economic environment would also have important implications for commodity markets.

Import requirements in 2002 are expected to rise for a number of countries, which harvested poor harvests during the current season, including Indonesia and a number of states in Central America. Two successive years of production shortfalls may also induce China (mainland) to step up its rice purchases. In addition, under its WTO commitments, the country has agreed to open a 2.6 million tonnes preferential import quota for rice, half of which should be handled by the private sector. Although shipments to the country are unlikely to reach such a high volume, the coincidence of reduced domestic supplies and of the country's new WTO membership may result in increased imports next year. Similarly, rice purchases by the Chinese Province of Taiwan, which have so far been subject to an import ban, are expected to rise substantially in view of the commitments taken to allow the entry of some 147 000 tonnes under the minimum access quota. By contrast, under the current prospects of a satisfactory 2001 season, a number of countries might cut their imports, including Bangladesh and the Philippines. Similarly, the good crops harvested this season in Africa might slow down the growth of imports into the region, especially if a strengthening in world prices is witnessed. Overall, developing countries are forecast to import 19.3 million tonnes in 2002, some 600 000 tonnes more than in the current year. The rise in the volume of imports combined with an expected strengthening in prices could accordingly push the value of this trade up by 13 percent to US$3.4 billion in 2002. A similar situation is expected to arise for the LIFDCs, whose imports next year might rise by 4 percent while their import bill could soar by 14 percent.

Under the current production prospects, major exporters are anticipated to benefit from the expected surge in import demand, with the exception of Pakistan which might run short of supplies. A firming of prices could also boost India's exports. Very good crops in Bangladesh might encourage the country to look for some high-price markets, such as the EC, to try and sell high quality rice.