Food Outlook No.4 - October 2002 p.6

Trade¹

Mixed outlook for cereal trade this season

The forecast for world cereal trade in 2002/03 has been lowered to 236 million tonnes, slightly up from the previous forecast in July. At the current forecast level, world trade in cereals in 2002/03 would be some 4 million tonnes below the previous season, which was a record. Among the individual cereals, however, world trade in wheat is expected to contract sharply this season while coarse grain trade is expected to rise (mostly maize and sorghum). Rice trade in 2003 is also seen higher than in 2002.

Wheat trade to contract sharply in 2002/03

The forecast for global trade in wheat² in 2002/03 has been lowered by 3 million tonnes since the previous report, to 101.5 million tonnes. This points to a sharp contraction of roughly 6 million tonnes in world trade from the previous season. The forecast has been lowered mainly due to reduced import demand among a few countries in Asia and the EU.

Total wheat imports in Asia in 2002/03 are forecast at 46 million tonnes, down 1.5 million tonnes from the previous season. The forecast for imports by China (mainland) has been reduced by 2.3 million tonnes from the previous report. Despite a drop in production for the third consecutive year, domestic supplies in China remain ample and imports are unlikely to surpass the previous season’s level of around 1.2 million tonnes, which would be well below the 8.47 million tonnes WTO Tariff Rate Quota (TRQ). The forecast for wheat imports by the Islamic Republic of Iran has been cut by 1 million tonnes to 4.5 million tonnes. Based on recent official reports, a bumper domestic crop is expected in 2002 and this could greatly reduce the country’s dependence on wheat imports, which in recent years surged to above-normal levels because of successive droughts. Imports by Indonesia, another large wheat importer in Asia, are put at 4 million tonnes, down 200 000 tonnes from the previous year in view of the Government’s recent imposition of a 5 percent import duty to curb imports of wheat flour into the country. While good harvests in Bangladesh and Syria could result in lower imports by those countries, this year’s purchases by the Philippines are forecast to rise, by 200 000 tonnes, mostly due to larger imports of feed wheat.

Wheat imports by countries in Africa are expected to remain at last year’s level of around 24.5 million tonnes. Imports by most countries would match the previous season’s levels. In North Africa, small reductions are likely in Morocco and Egypt in view of bigger domestic crops, while wheat purchases by Algeria and Tunisia are forecast to increase because of sharply lower production this year. Imports by Libya will likely rise because of strong and growing demand for processed wheat products. In the sub-Saharan region, total imports would remain at last year’s level of 8 million tonnes, as likely increases in imports by mainly Kenya, Ethiopia and Eritrea would offset smaller imports by Mauritania, Tanzania and Zimbabwe. Wheat imports by most countries in Latin America and the Caribbean are expected to remain unchanged from the previous season. Brazil is seen to cut its wheat imports slightly this season as production is expected to stay above-average, despite recent adverse weather affecting crops in the main wheat growing state of Paraná. Imports by Mexico and Peru could increase slightly in response to growing demand for processed wheat.

In Europe, following an unexpected surge in wheat imports by the EU in 2001/02, wheat purchases in 2002/03 are likely to be reduced in view of a sharp upturn in production. In the previous season, a surge in imports of Black Sea origin (mostly from the Russian Federation and Ukraine) turned the EU into the world’s largest wheat importer, but with a strong recovery in production in 2002, domestic supplies are more plentiful and imports are likely to be cut this season to 6 million tonnes. Nevertheless, because of the removal of tariffs on feed quality wheat imports, imports from the Black Sea region still remain an attractive option.

Turning to exports, this year’s global market share of the 5 major wheat exporters is likely to plunge to 70 percent, compared to roughly 85 percent in earlier years. The decline is mainly associated with the expected sharp reduction in exports from Canada and Australia (by 5 million tonnes and 6 million tonnes, respectively) because of lower domestic production (see also the price section). Slightly reduced sales are also anticipated from the United States and Argentina. However, a likely jump in shipments from the EU (by about 5 million tonnes) would make the EU a more prominent exporter this season. The anticipated drop in total wheat exports from the major exporters leaves an unusually large portion of this year’s global market share to the non-traditional exporters; most notably India (5.5 million tonnes), Ukraine (5 million tonnes), Kazakhstan (4.9 million tonnes), the Russian Federation (4.6 million tonnes), as well as several smaller exporters such as China, Bulgaria, Hungary, Pakistan, Syria and Turkey.

Trade in course grains up slightly in 2002/03

Since the last report, the forecast for world trade in coarse grains in 2002/03 has been raised by 1.5 million tonnes, to 108 million tonnes. This month’s upward adjustment mostly reflects higher expected imports by Canada and larger food aid shipments to a number of countries in southern Africa. This increase would more than offset downward revisions to the forecasts for imports by Brazil as well as several importing countries in Asia and Europe. At the current forecast level, world trade in coarse grains would be some 1.5 million tonnes higher than the previous year’s reduced volume. The anticipated small expansion would be driven largely by higher maize shipments (up 3 million tonnes). Trade in sorghum is seen to rise slightly but barley purchases are expected to decline due to sharp production shortfalls in Australia and Canada. Trade in other coarse grains would also remain mostly below the previous season’s levels.

Aggregate coarse grain imports by countries in Africa are now put at record 17.3 million tonnes, up 2.7 million tonnes from 2001/02 and 1 million tonnes more than was reported in July. The increase from last year would be mostly on account of much larger requirements in sub-Sahara Africa, while imports by most countries in North Africa are likely to remain unchanged from the previous year. In southern Africa, serious food shortages persist in several countries, especially in Malawi, Lesotho, Swaziland, Zambia and Zimbabwe, following two consecutive poor harvests. In terms of imports, the most significant rises are expected in Zambia and Zimbabwe, where a large portion of this season’s expected imports would be in the form of food aid. Much bigger imports are also expected in eastern Africa, most notably in countries that are confronted with serious supply difficulties as a result of the drought, such as Kenya, Ethiopia and Eritrea.

Total imports of coarse grains by countries in Asia are put at 56 million tonnes, down 1.0 million tonnes from the previous year and 2 million tonnes smaller than was expected earlier. The decline since the last report reflects downward adjustments to the forecasts for maize imports by the Republic of Korea, Malaysia and Syria. With the exception of Saudi Arabia, which is likely to increase its barley purchases this season, most other countries in Asia are expected to lower their coarse grains imports slightly this season, because of large global supplies of feed quality wheat and improved domestic crop prospects in several countries.

Overview of World Cereal Imports

Source: FAO. 1/ Highly tentative.

In Europe, total imports are likely to reach 6.5 million tonnes, a relatively sharp decline mostly on account of smaller import needs in the EU. Total imports by the EU are forecast to return to an about normal level of around 3 million tonnes this season, despite the anticipated decline in overall coarse grain production, mainly in rye, which is in surplus. At the same time, large carry-in stocks of coarse grains from the previous season, coupled with ample supplies of feed quality wheat, could restrain demand for imports of coarse grains from outside the EU.

As for major developments in other regions, the severe drought in Canada devastated barley crops in western parts of the country, giving rise to an unexpected surge in import demand for feed grains. As a result, Canada is expected to import a record volume of maize from the United States this season. Higher imports of maize and sorghum are forecast for Mexico, as production is likely to decrease slightly while domestic feed demand continues to grow. Maize imports by Brazil are also likely to increase this year, as production prospects remain unfavourable. However, Brazil would manage to remain an important net maize exporter for the third consecutive season.

Given the expected increase in this year’s world import demand combined with smaller supplies from the United States, the world’s largest maize exporter, the global supply and demand balance of coarse grains begins to appear much tighter than in the previous season. However, since the largest portion of total demand for coarse grains comes from the animal feed sector, the abundance of feed quality wheat supplies from non-traditional exporters will continue to weaken demand for coarse grains in some markets, especially in Asia. At the same time, large exportable supplies of maize in China, Brazil and Hungary coupled with higher supplies of barley in the EU, the Russian Federation, and Ukraine, would make up for lower coarse grain export availabilities in Argentina, Australia and Canada.

Rice trade in 2002

The international market for rice in 2002 has gathered momentum since the last report, as fears of impending crop shortfalls, particularly in Asia, have intensified. FAO’s latest trade forecast has been raised by almost 1 million tonnes to 25.7 million tonnes (calendar year, in milled equivalent), 1.7 million tonnes more than in 2001. If realized, this would be the second time that world rice trade surpasses 25 million tonnes.

As the assessment of the size and quality of the main paddy crops harvested this season becomes more concrete and information on actual rice shipments is made available, some revisions to the expected volume of rice trade this year have been made for a number of countries. Beginning with Asia, forecast imports by the Philippines have been raised by 500 000 tonnes to 1.2 million tonnes, 20 percent more than in 2001, following the deterioration of paddy output prospects in the country. Similarly, the forecast for shipments to Indonesia has been raised by 200 000 tonnes to 3.2 million tonnes, more than twice the level imported in 2001. Domestic prices in the country have been reported to be rising, putting pressure on the country’s import agency, BULOG, to purchase more from the international market place. Another proposal to raise the tariff on imported rice, this time from 430 to 750 Rupiah per kg (US$ 48 to 84 per tonne) has recently been put forward by agricultural officials. In the course of the year, several such proposals have been made, with little success since the Government has remained concerned about the inflationary impact that an increased tariff would have on the domestic market.

The Republic of Korea has decided to resume its aid shipments of rice to the People’s Democratic Republic of Korea, which it suspended following the naval conflict between the two countries in July. Accordingly, anticipated rice imports by the latter have been raised to 700 000 tonnes, almost 100 000 tonnes higher than in the previous year. The forecast for Sri Lanka’s rice imports in 2002 remains sharply up from last year at 140 000 tonnes, in response to a deterioration of the country’s current harvest prospects.

By contrast, China (mainland) is now anticipated to import 270 000 tonnes, down from 500 000 tonnes forecast in the last report, and virtually the same as the amount imported in 2001. This level would be 7.5 percent of its TRQ under the WTO agreement. To date, the pace of rice shipments into the country has mirrored that of last year. The bulk is likely to comprise high quality fragrant rice, since domestic prices of other rice appear too low to justify imports. Moreover, a series of paddy auctions recently carried out by the Government have depressed prices further, precluding large international purchases.

As for other major rice importing countries in the region, Japan is still expected to import 650 000 tonnes of rice in 2002, necessary to fulfill its preferential access quota commitment and deliveries to Malaysia are expected to reach over 600 000 tonnes, similar to the amount imported in 2001. Regarding Near East countries, which account for roughly one-fifth of world rice trade, imports by the Islamic Republic of Iran are forecast at 1.2 million tonnes, 20 percent up from above 2001, while deliveries to Iraq and Saudi Arabia, are expected to remain unchanged from the previous year at 1.2 million tonnes and 825 000 tonnes, respectively.

Expectations for rice deliveries to Africa, the world’s second largest rice-importing region behind Asia, have been lifted by 300 000 tonnes since the last report. The region now looks set to import 6.7 million tonnes in 2002, 6 percent lower than the record of last year. The increase would be mostly on account of additional purchases of parboiled rice by Nigeria. Despite conflict in Côte d’Ivoire, the second largest rice importer in the region, deliveries to the country are still forecast to be of the order of 900 000 tonnes.

For other regions, little or no change to previous expectations is envisaged. In Latin America and the Caribbean, predicted crop shortfalls in some countries are not expected to induce higher rice imports until next year, while estimated rice imports to Europe and North America remain virtually unchanged from 2001.

With regard to rice exports in 2002, competition for international market shares has intensified, with India forecast to make further inroads at the expense of traditional large exporters. Thailand’s active policy to support domestic prices is reportedly forestalling the closure of new sale contracts and rice shipments for the first seven months of the calendar year are estimated to be around 3.9 million tonnes, compared to 3.7 million tonnes in the previous year. Accordingly, the country’s export forecast for 2002 has been lowered by 500 000 tonnes to 7.1 million tonnes. Low international rice price quotations remain a concern for the Government, which has recently called on the major rice exporting countries in the region to adopt a common strategy to sustain export prices.

China’s (mainland) sales throughout July point to a sharp fall in exports, with shipments over this period down 28 percent compared with the same period in 2001. Such a contraction reflects to a large extent increased competition from cheaper exporters for China’s traditional markets in Africa. Exports by the country are now forecast to reach 1.3 million tonnes, 500 000 tonnes less than in the previous year.

By contrast, India’s rice deliveries are expected to rise sharply in 2002. The forecast now stands at 5 million tonnes, an increase of 800 000 tonnes from the last report and 3.1 million tonnes above the 2001 level. The recent deterioration in production prospects for the current season is not expected to induce a major shift in the country’s export policy, as rice stocks held by the Food Corporation of India (FCI) are still very large. However, a few changes have been announced that might erode somewhat the price advantage of India’s higher quality rice on international markets. This concerns the obligation for traders to export a volume equivalent to at least 98 percent of the quantity they purchased at particularly low prices from FCI stocks. Such a requirement would force those traders who processed the rice with the purpose of reducing the percentage of brokens, to make up for the removed grains by purchasing the differential on the open market, at higher prices. With regard to the country’s exports of basmati, which comprise an estimated 15 percent of its total rice shipments, the Government has raised the advised minimum prices by US$ 25-30 per tonne, in response to claims that some earlier traded basmati failed to meet quality requirements. Basmati that is contracted below the newly announced prices would be subject to compulsory inspection by the authorities.

Myanmar appears to have firmly re-established itself as a major international supplier of rice, with exports forecast to reach a record of 1 million tonnes, up 200 000 tonnes from the last report. The recovery in export performance is notable since in 2000 the country officially exported only 140 000 tonnes.

In the United Sates, the USDA has increased its forecast for 2002 rice shipments by 300 000 tonnes to 3.1 million tonnes, 22 percent higher than the volume exported last year, as historically low export prices are sustaining the country’s sales. Cambodia might export 100 000 tonnes in 2002, 40 000 tonnes higher than in the previous year, but the forecast hinges on favourable weather conditions during the rest of the current rice crop. According to official sources, rice deliveries by Uruguay in 2002 would reach 570 000 tonnes, up 25 percent from the previous estimate, which would still fall short of last year’s 700 000 tonnes outcome.

As for other major exporters, forecast shipments are unchanged from the last report, with Pakistan and Australia anticipated to record a strong contraction, while Argentina is expected to maintain exports and Egypt to raise them substantially compared with last year.

Rice trade in 2003

The forecast for trade in 2003 is extremely tentative since the volume of international transactions next year will depend chiefly on the outcome of the 2002 main paddy crops in Asia – the world’s largest trading region – many of which have yet to be harvested and are now subject to weather related uncertainties. However, based on early indications of export availabilities and import demand, global rice trade might expand by 400 000 tonnes from the 2002 level to 26.1 million tonnes in 2003.

On the import side, China (mainland) may import 600 000 tonnes of rice in 2003, twice as much as in the previous year. Based on current expectations, domestic consumption is likely to outpace production again in 2003 and, given that stocks in the past three years have been depleted by some 30 million tonnes, the pressure to reduce the size of inventories will be less. This could facilitate at least a partial filling of the country’s preferential import quotas. Thus, prospects for trade next season will mainly depend on the political choice on whether the Government should continue the release of stocks or allow the entry of overseas rice under preferential terms.

Moderate increases in import demand are forecast for a number of countries that suffered, or are anticipated to suffer, relatively poor harvests during the current season, including several countries in Latin America (particularly Colombia and Venezuela) and some countries in Africa (notably Senegal and Mali). By contrast, owing to brighter crop prospects, Afghanistan’s rice imports in 2003 are forecast to fall to 60 000 tonnes, compared to an expected level of 270 000 tonnes in 2002.

As for exports, India may ship 4.5 million tonnes of rice in 2003, a smaller volume than anticipated for 2002, but still large compared to its past export performance. However, this forecast is highly dependent on the final outcome of the current crop, which has been affected by adverse weather, and on the maintenance of the FCI’s supportive export policies.

Large increases in rice exports are also foreseen in Myanmar, Vietnam, Thailand and, to a lesser extent, Uruguay. By contrast shipments from China (mainland) and Australia, are predicted to fall, while those from Pakistan and Egypt are anticipated to remain close to the level in 2002.

1.  World trade (exports) in wheat and coarse grains is based on a July/June marketing season, while trade in rice is based on January/December (calendar).

2.  Including wheat flour in grain equivalent.