Food Outlook No.3 - July 2002 p.6

Trade^1/

Imports by the developing countries could rise sharply

World cereal trade in 2002/03 is forecast to reach 235 million tonnes, down 1 million tonnes from the estimate of imports in 2001/02. Most of this anticipated decline would result from smaller wheat and rice imports, while trade in coarse grains is expected to increase slightly. The decline in world cereal trade is expected to result mostly from a large fall in imports by the developed countries, down 7.6 million tonnes to only 57 million tonnes. By contrast, total imports by the developing countries are seen to expand, reaching a new high of about 178 million tonnes, up nearly 7 million tonnes, or 4 percent, from the previous season. While the anticipated decline in cereal purchases by Canada and the EC would account for most of the reduction in total imports by the developed countries, higher demand by several developing countries in Far East Asia and southern Africa would account for the bulk of the anticipated expansion in cereal imports by the developing countries.

World trade in wheat and wheat flour (in wheat equivalent) in 2002/03 (July/June) is currently estimated at 104.5 million tonnes, down nearly 1 million tonnes from 2001/02, but up slightly from the previous report. In Asia, total wheat imports are forecast to rise above 50 million tonnes, up more than 2 million tonnes from the previous season. The largest increase is anticipated in China (Mainland), where imports are forecast to rise to 3.5 million tonnes, up nearly 2 million tonnes from 2001/02 and the highest level since 1996/97, due to an anticipated sharp fall in wheat production. Given the continuing abundance of feed wheat in international markets, especially at competitive prices compared to maize, feed wheat purchases by the Republic of Korea are likely to increase for the second consecutive year. By contrast, wheat imports by the Islamic Republic of Iran are forecast to decline by about 1 million tonnes, reflecting a partial recovery in domestic production following the end of a 3-year drought. Imports by another large Asian importer, Indonesia, are forecast to remain unchanged from the previous season, at 4 million tonnes. Millers in Indonesia are reported to have increased their purchases of relatively cheaper wheat from India and China in order to maintain competitiveness against low-priced wheat flour imports. In addition, in late June, the Government imposed a 20 percent “anti-dumping” duty on wheat flour in an attempt to limit imports, mostly from Australia, the EC and the United Arab Emirates.

In Africa, total wheat imports are forecast to remain similar to the previous season’s estimated volume of around 25 million tonnes. In North Africa, good crop prospects in Algeria and Morocco could result in a small decline in their imports in 2002/03. However, imports by Egypt, Africa’s largest wheat importer, could increase, despite an expected increase in production, in order to maintain adequate stock levels after a large drawdown in the previous season. Total imports by countries in sub-Saharan Africa are forecast at nearly 8 million tonnes, similar to last year. Imports by Nigeria, the subregion’s largest importer are forecast to remain at last year’s volume of 1.7 million tonnes. Wheat imports by Kenya could rise slightly since the Government has set a duty rate of 60 percent on wheat flour imports in a move to curb imports of cheap flour, mostly from Egypt.

Total wheat imports into Latin America and the Caribbean are also seen to remain at the previous season’s level. In Mexico, a decline in production and continuing strong demand could increase imports above last year. In Brazil, imports are likely to remain at last year’s level of 6.5 million tonnes amid uncertainties regarding trade difficulties with Argentina, Brazil’s main supplier of wheat. In Europe, aggregate wheat imports are seen to retreat to a more normal level. After a sudden surge in imports last year, purchases by the EC are expected to be halved to around 4 million tonnes, mainly in anticipation of a record wheat crop and higher tariffs on grains from non-traditional sources (i.e. mostly eastern and central European countries). Recently, the European Commission sharply raised the tariffs on medium quality wheat from €7.82 to €13.29 per tonne; and it also revised up the tariff on low quality wheat from €20.23 per tonne to €23.12 per tonne.

Turning to prospects for wheat exports in the new marketing season, large sales from a number of non-traditional exporting countries are likely to continue also in 2002/03. India is likely to increase its shipments for the fourth consecutive year to 5 million tonnes, although the Government’s target is even higher. To strengthen bilateral cooperation with Sri Lanka, India announced in June that it would provide 300 000 tonnes of wheat to Sri Lanka along with a line of credit for US$100 million. While export availabilities in Hungary, Ukraine and the Russian Federation are likely to be lower than in 2001/02, they are still ample and certainly sufficient to play an important role in global markets also during this season. Following a recent agreement between the EC and Hungary, up to 600 000 tonnes of Hungarian wheat (as well as 450 000 tonnes of maize) could be sold to the Community free of duty, starting in July 2002 until 2004 when Hungary is expected to join the Community. Among the major five wheat exporters, sales by the EC are forecast to rise after a sudden plunge in 2001/02, but with the rise in the Euro against the US dollar, the anticipated recovery in shipments will also depend on world prices and the level and timing of EC export subsidies. In the previous marketing season, the EC granted export licences with positive refunds for free-market wheat (as well as barley) only towards the end of the season in May 2002. Among other exporters, smaller harvests are expected in Australia and the United States, which could result in lower exports from those countries. Slightly smaller sales are also expected from Canada and Argentina.

Overview of World Cereal Imports

Global trade in coarse grains in 2002/03 (July/June) is forecast at 106.5 million tonnes, up 700 000 tonnes from the previous season, but still 2 million tonnes below the estimated record in 2000/01. Imports by the developed countries are forecast to reach 33 million tonnes, nearly 4 million tonnes below the previous year’s estimated volume and one of the lowest in more than two decades. Total imports by the developing countries are forecast to approach 74 million tonnes, up more than 4 million tonnes from the previous season. Among the individual coarse grains, world trade in maize is likely to expand the fastest in 2002/03 and reach a record volume of 77 million tonnes, up 2 million tonnes from the previous season, mainly because of much higher demand in southern Africa. World trade in barley is forecast at 17 million tonnes, down 1.5 million tonnes from the previous season, mostly due to expected smaller purchases by the EC. As for sorghum, imports are likely to remain close to the previous year’s estimated volume of around 8 million tonnes. World trade in other coarse grains, including oats, rye and millet, is also expected to remain mostly unchanged from the previous season.

Total coarse grain imports by countries in Africa in 2002/03 are currently put at over 16 million tonnes, up 3 million tonnes from the previous season. While overall imports by North African countries could remain similar to the previous season, import requirements in several southern African countries are much higher due to the extremely tight food supply situation arising largely from sharply reduced harvests. With supplies of white maize, the main staple in the subregion, being inadequate to meet this year’s minimum food requirements, sizeable maize imports are expected to be shipped on commercial as well as concessional terms to the affected countries.

Also in Asia, total coarse grain imports in 2002/03 could be bigger than in the previous season. Maize imports by Malaysia, Thailand and the Republic of Korea are expected to increase, mostly in response to growing domestic feed demand. In Thailand, a smaller maize crop forecast for 2002 and an expected decline in cassava production, an alternative feed source, could result in an increase of 300 000 tonnes in maize imports this season. However, a partial recovery in production in the Islamic Republic of Iran and a slight reduction in domestic feed demand in Japan could result in smaller coarse grain imports by the two countries. In Latin America and the Caribbean, imports by most countries are expected to remain at last year’s levels. However, in Europe, aggregate coarse grain imports in 2002/03 are forecast to drop by more than 1 million tonnes, mostly in anticipation of a decline in purchases by the EC because of larger domestic supplies. Other non-EC European countries, such as Poland, are forecast to import more feed grains this season, mostly because of lower production and strong domestic feed demand. In North America, imports are also likely to return to more normal levels because maize imports by Canada are forecast to fall sharply as a result of an anticipated strong recovery in domestic feed grain supplies.

Regarding coarse grain exports, global supplies are adequate to meet the expected small increase in world demand in 2002/03. Among non-traditional exporters, shipments from a number of central and eastern European countries are forecast to be smaller this season, mainly as a result of weather-reduced crops. Maize exports from China are forecast to remain close to the previous season’s estimated volume of some 5 million tonnes. Among the major exporters, Canada, the EC and the United States are forecast to increase their exports this season because of improved supplies. The largest increase is expected in the United States, where total coarse grain exports are forecast to surge to the highest level since 1995/96. By contrast, shipments from Argentina are likely to fall sharply mainly due to a decline in domestic production. Coarse grain exports from Australia are likely to remain close to the previous season’s volume.

Global rice trade in 2002 is now forecast at 24.8 million tonnes, some 400 000 tonnes below previous expectations, but still 1 million tonnes higher than in 2001. The downward revision mainly reflects changes in the expected imports by countries in Asia, China (Mainland) in particular.

China’s (Mainland) forecast imports in 2002 have been cut by half to 500 000 tonnes. So far, there has been no sign that the country will enter the market to purchase large volumes, despite its TRQ under the WTO agreement to allow up to 4 million tonnes of rice at the preferential 1 percent import duty. According to official statistics, the country imported 270 000 tonnes of rice in 2001.

In Indonesia, concern over the impact of a possible El Niño event developing this year has led officials to set import requirements for 2002 at 3 million tonnes, twice the volume imported in 2001. Faced with foreign exchange constraints, the country is mostly engaging in counter trade deals for rice deliveries. In addition, the country has increased import protection on all commodities and food, but no details at this stage have been released on the size of the increase in the rice tariff, which stood at about 30 percent prior to the change.

In Bangladesh, in a bid to suppress upward pressure on domestic prices, duties on rice imports have been reduced by 10 percent to 33 percent. However, the official forecast for imports in 2002 remains at 200 000 tonnes, almost 50 percent lower than in 2001.

By contrast, the Philippines has authorized additional rice imports of 250 000 tonnes, a move that is seen as a safeguard against a possible production shortfall should the country suffer adverse weather later this year. Expected imports for the whole year stand at 700 000 tonnes, down from 850 000 tonnes in 2001.

Prospects for rice imports by African countries have been revised downward from the last report by 100 000 tonnes, after reductions in expected deliveries to Ghana, Cameroon and the Comoros.

Elsewhere, historically low export prices from the United States have prompted concerns among Brazil’s rice producers of an import surge in 2002, despite a relatively weak domestic currency. As a result, a proposal to nearly double the MERCOSUR external tariff on rice to 20-24 percent has been presented. Similarly, Mexico has recently imposed anti-dumping tariffs on rice of United States origin, resulting in a rise from the NAFTA bound rate of 2 percent to 10 percent. In addition, the EC has formally notified the WTO about its proposal to raise customs duties on rice from the United States by 100 percent, in the context of the steel dispute.

With regard to exports, much of the downward revision in global trade reflects expectations of reduced shipments from Viet Nam, where the Government has since lowered its current sale target by an overall 800 000 tonnes to 3 million tonnes. If realized, this volume would be some 500 000 tonnes smaller than in 2001, reflecting intense price competition and shorter supplies. Similarly, in Pakistan, a sharp decline in non-Basmati rice sales has depressed export prospects by 100 000 tonnes to 1.4 million tonnes, substantially below the revised volume of 2.3 million tonnes shipped in 2001. Exports from China (Mainland) are now foreseen at 1.5 million tonnes, down from the previous forecast of 2 million tonnes and 350 000 tonnes less than in 2001, as several successive years of falling output appear to have constrained export supplies. By contrast, Thailand’s 2002 exports are forecast at a record 7.6 million tonnes, in spite of relatively high domestic prices resulting from the Government intervention scheme.

India’s rice shipments are expected to surge in 2002. The forecast now stands at 4.2 million tonnes, an increase of 700 000 tonnes from the last report and 2.5 million tonnes above the previous year, owing to relatively low sales prices of rice for export made available from public (FCI) stocks. However, port congestion and freight problems are causing some delays to shipments. Several new policy developments concerning the sale of FCI stocks in the country have emerged since the last report. Firstly, the FCI has raised the price it sells to exporters at by Rs 150 (US$3), effective from 1 August. Secondly, the FCI is set to revisit the issue of the compatibility of its grain subsidization policy with WTO rules. Further measures to stimulate exports, including counter-trade deals and food aid, are currently being reviewed.

Other revisions to export forecasts include Myanmar where ample rice supplies have led to a rise in shipments to a ten-year high of 800 000 tonnes, despite an increase in official export prices. The forecast of subsidized rice sales from the Chinese Province of Taiwan (contracted before its accession to the WTO) has been increased to 90 000 tonnes. Prospects for the United Sates have also been lifted, as the sharp fall in domestic prices has enhanced exporters’ competitiveness. However, the current forecast of 2.8 million tonnes does not consider the effects of countervailing actions by major trading partners in response to the raising of steel tariffs and claims of dumping of low-priced rice by the country. In Argentina, a climate of economic instability suggest that exports for 2002 are unlikely to surpass a seven-year low of 300 000 tonnes.

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. 2/ The next marketing season for rice will start in January 2001.