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3.2.2 Prospects for the cereal sector

The preceding discussion has highlighted the main forces that shaped the past. What changes can we expect in the future?

Aggregate demand. As already anticipated, the fundamental forces that made for slowdown in the growth of demand in the past - slower population growth everywhere and the achievement of mid-high levels of per capita consumption in some countries - will continue to operate in the future and contribute to further deceleration in the growth of demand.

Are there any factors that will attenuate or reverse this trend? No major stimulus in this direction is likely to come from the countries and population groups with consumption needs that have still not been met. The overall economic growth outlook and its pattern (see Chapter 2) suggest there will be inadequate growth of incomes, and poverty will persist. However, the downward pressure on world demand exerted by more transient forces (systemic change in the transition economies and the high policy prices of the EU) has already been largely exhausted and will not be there in the future.8 Indeed, the recovery in demand in these two country groups, already evident in the EU after the early 1990s, as well as eventually in the countries of East Asia, will likely more than compensate for the effects of the more fundamental sources of slowdown. The result will be that, for a time, the growth rate of world demand for cereals could be higher than in the recent past. This shows up in the projections (Table 3.3), where the growth rate of world demand for 1997/99-2015 is 1.4 percent p.a., compared with 1.0 percent p.a. in the preceding ten years.

In the longer term, however, the more fundamental sources of slowdown will predominate and the growth rate of world demand will be lower for the second part of the projection period 2015-30, to 1.2 percent p.a. Tables 3.3 and 3.4 present this information for the standard regions, while memo item 1 in Table 3.3 unfolds these projections in terms of the groups used in the preceding section to analyse deceleration in the historical period. The further slowdown in China's population growth (from 1.3 percent p.a. in the preceding 20 years to 0.7 percent p.a. in the period to 2015 and on to 0.3 percent p.a. in 2015-30), the levelling-off and eventual small decline in its per capita food consumption of rice as well as the growth of production and consumption of meat at rates well below the spectacular ones of the past (see Section 3.3) all contribute to further deceleration in its aggregate cereal demand. Given China's large weight, the effects are felt in terms of lower growth rates in the aggregates for the world and the developing countries. In conclusion, the role China played in slowing world demand for cereals after about the mid-1980s (Figure 3.3) will probably continue to operate, and so will the deceleration in world demand and trade that in the past was associated with the end of expansion in the oil-exporting countries.

Unless there is another event that will cause effects similar to those of the oil boom (spurt in the demand and imports of a significant number of countries with low levels in per capita food consumption of cereals and livestock products), we cannot expect reversals of the trend towards long-term deceleration in global demand.

Will any such event occur? It would be foolhardy to make predictions. The failure (of ourselves and others) to foresee the collapse of production, demand and trade in the transition economies is instructive. However, we can attempt to see what is implied by some available projections.

Concerning the issue of future commodity booms, or rather significant upward trends in world commodity prices, the following quotation from the World Bank (2000a) is telling:«On balance, we do not see compelling reasons why real commodity prices should rise during the early part of the twenty-first century, while we see reasons why they should continue to decline. Thus, commodity prices are expected to decline relative to manufactures as has been the case for the past century». More recent projections from the Bank to 2015 (World Bank, 2001c, Tables A2.12-14) confirm the view that no significant upwards movements of commodity prices are expected, although this does not exclude the possibility of short-lived cyclical price spikes nor the recovery for some commodities (such as coffee and rubber, see Section 3.6 below) from the very low prices of early 2002.

This leaves the other source of significant spurts in demand and trade that occurred in the past: rapid sustained economic growth (e.g. of the Asian-tiger type) in countries of the above-mentioned typology (low initial levels in per capita food consumption of cereals and livestock products). On this, the latest World Bank view presented in Chapter 2 (Figure 2.3) of what the future could hold in terms of economic growth and poverty reductions for the period to 2015 does not permit great optimism. Of the two regions with significant poverty only South Asia may be making progress while little progress is foreseen for sub-Saharan Africa. South Asia could indeed be a source of spurts in cereal demand if it were to behave like typical developing countries in other regions, i.e. undergoing considerable shifts in diets towards meat. However, the prospect that India will not shift in any significant way to meat consumption in the foreseeable future (see Section 3.3) militates against this prospect.

The decline in world per capita production and consumption of cereals that occurred in the decade following the mid-1980s was interpreted by some as foreshadowing an impending world food crisis (e.g. Brown, 1996). However, this trend will probably be reversed, and the reversal has already started. World per capita consumption (all uses) peaked at 334 kg in the mid-1980s (three-year averages) and has since declined to the current 317 kg (three-year average 1997/99).9 The reasons why this happened were explained above. They certainly do not suggest that the world had run into constraints on the production side and had to live with durable declines in per capita output. In the projections, the declining trend is reversed and world per capita consumption rises again and reaches 332 kg in 2015 and 344 kg in 2030 (Table 3.3, Figure 3.4).10 This reversal reflects, inter alia, the end of declines and some recovery in the per capita consumption of the transition economies.

Demand composition: categories of use. The projected evolution of future demand by commodity (wheat, rice and coarse grains) is given in Table 3.3 (aggregate demand, memo item 2), Figure 3.4 (per capita demand), and by category of use in Figure 3.9. At the world level aggregate consumption of all cereals should increase by 2030 by nearly one billion tonnes from the 1.86 billion tonnes of 1997/99 (Table 3.3). Of this increment, about a half will be for feed, and 42 percent for food, with the balance going to other uses (seed, industrial non-food11 and waste). Feed use will revert to being the most dynamic element driving the world cereal economy, in the sense that it will account for an ever-growing share in aggregate demand for cereals. It had lost this role in the last decade following the above-mentioned factors that affected feed use in two major consuming regions, the transition economies and the EU. Feed use had contributed only 14 percent of the total increase in world cereal demand between the mid-1980s and 1997/99, down from the 37 percent it had contributed the decade before.

Figure 3.9
Aggregate consumption of cereals, by category of use

The turnaround of these two regions to growing feed use of cereals (already in full swing in the EU) or, in any case, the cessation of declines in the transition economies, tends to exaggerate the role of feed demand as a driving force in the long-term evolution of the structural relationships of the world cereal economy. With the rather drastic slowdown in the growth of the livestock sector (see Section 3.3), one would have expected that the role of feed demand as a driving force would be less strong than is indicated by the projected world totals in which the increase in feed use accounts for 51 percent of the increment in total cereal demand. As noted, it accounted for only 14 percent in the period from the mid-1980s to 1997/99. For the world without the transition economies and the EU, the jump in the shares is much less pronounced, which is far more representative of the long-term evolution of structural relationships than the global magnitudes would suggest. Such evolution increasingly depends on what happens in the developing countries. In these countries, feed accounted for 21 percent of the increment in total demand in the decade starting in the mid-1970s. It accounted for 29 percent in the period from the mid-1980s to 1997/99. In the projections, the share grows further to 45 percent of the increase in their total projected demand (see Section 3.3 for further discussion).

Commodity composition. The per capita consumption of rice will tend to level off in the first part of the projection period and decline somewhat in the second part. In the first subperiod the major factor is the slowdown in China and several other countries in East Asia, while per capita consumption in South Asia continues to increase. Slow declines will probably occur in South Asia after 2015. Here reference is made to the earlier discussion on food demand for all commodities and the related implications for total calories and nutrition: by 2030, East Asia will have moved close to 3 200 calories and South Asia to 2 900 (Chapter 2, Table 2.1). These levels suggest that per capita consumption of rice will not be as high as at present. The end result of these possible developments, together with the deceleration in population growth, is that the aggregate demand for rice will grow at a much slower rate than in the past, from 1.6 percent p.a. in the 1990s and 2.6 percent in the 1980s to 1.2 percent p.a. in the period to 2015 and on to 0.8 percent p.a. after 2015. Therefore, the pressure to increase production will also ease. With the slowdown in the growth of yields in recent years, maintaining growth even at much lower rates will be no mean task and may require no less effort (research, irrigation, policy, etc.) than in the past (see discussion in Chapter 4).

Wheat consumption per capita (all uses) will continue to increase in the developing countries as well as in the transition economies and the industrial countries, following the cessation of the factors that depressed demand in these two latter groups. In the developing countries, the increases in the consumption of wheat will be partly substituting for rice. The developing countries will continue to increase their dependence on imports. Their net imports would grow from 40 million tonnes in the mid-1970s and 72 million tonnes in 1997/99, to 120 million tonnes in 2015 and 160 million tonnes in 2030 (these numbers exclude Argentina and Uruguay that will be growing net exporters).

To appreciate why we project these rather significant increases in net imports of wheat, the relevant data and projections are plotted in Figure 3.10 in more disaggregated form. In the first place, in the regions that are not major producers themselves in relation to their consumption (roughly, sub-Saharan Africa, East Asia other than China, Latin America other than Argentina, Uruguay and Paraguay), consumption growth will be accompanied by increases in net imports, as in the past. For example, in these regions a consumption increase of 23 million tonnes between 1997/99 and 2015 will be accompanied by an increase in net imports of 21 million tonnes. In the preceding period (1984/86-1997/99) the comparable figures were 12 million tonnes increase in consumption and 14 million tonnes increase in net imports. Therefore, there is nothing new here. In contrast, what is new is that developments in the rest of the developing countries may diverge from past experience. As noted, production increases and declines in net imports and occasional generation of net exports in some of the major wheat-consuming countries (China, India, some countries in the Near East/North Africa region) masked the growing dependence of consumption growth in the developing countries on imported wheat. This factor will be much less important in the future. Some of the countries that had this role will probably turn around to be net importers again (e.g. India, Saudi Arabia and the Syrian Arab Republic) or larger net importers (e.g. China, Pakistan and Bangladesh) in the future.

Figure 3.10
Wheat production and net imports

World consumption of coarse grains should grow faster that of the other cereals (Table 3.3 and Figure 3.4), following the growth of the livestock sector. The shift of world consumption of coarse grains to the developing countries will continue and their share in world total use will rise from 47 percent at present (and 34 percent in the mid-1980s) to 54 percent in 2015 and 59 percent in 2030. Much of the increase (72 percent) in coarse grains use in developing countries will be for feed, a continuing trend in all regions except sub-Saharan Africa, where food use will continue to predominate. In sub-Saharan Africa, coarse grains will continue to constitute the mainstay of cereal food consumption. If sub-Saharan Africa's production growth rates of the past (3.3 percent p.a. in the past 20 years, 2.8 percent p.a. in the last ten) could be maintained, as is feasible in our evaluation (we project a growth rate of 2.8 percent p.a. to 2015), and given lower population growth, the region could raise per capita food consumption of coarse grains by some 11 kg, to 101 kg by 2030 (Figure 3.11). This may not be impressive and certainly falls short of what is needed for food security, but we must recall that there was no increase in the last 20 years.

Figure 3.11
Sub-Saharan Africa, cereal food per capita

Production, imports and exports. World trade in cereals tended to slow down after the mid-1980s. Here we examine net imports and exports of the different country groups.

Our projections anticipate a revival of the net cereal imports of the developing countries and of the exports of the main cereal exporters. FAO's medium-term projections to 2010 (FAO, 2001b) had already anticipated this revival and had net cereals imports of the developing countries growing to 150 million tonnes in 2010. Our own projections to 2010 made in the early 1990s from base year 1988/90 indicated 162 million tonnes in 2010 (Alexandratos, 1995, p. 145). This projection to 2010 remains largely valid in the current work - we now have 190 million tonnes in 2015 and 265 million tonnes in 2030.

The commodity structure (wheat, coarse grains and rice) of the net trade balances is shown in Table 3.5. Net imports of the developing countries are projected to increase by 162 million tonnes between 1997/99 and 2030, roughly 80 million tonnes each of wheat and coarse grains, while they should increase their net rice exports by some 2 million tonnes (Table 3.5). The latest International Food Policy Research Institute (IFPRI) projections to 2020 paint a somewhat less buoyant outlook for the net imports of the developing countries: they project them at 202 million tonnes for the year 2020 (Rosegrant et al., 2001, Table D.10) compared to our 190 million tonnes in 2015 and 265 million tonnes in 2030.

Table 3.5 : Net trade balances of wheat, coarse grains and rice

 

1974/76

1984/86

1997/99

2015

2030

Million tonnes

Developing countries

All cereals

-38.8

-66.4

-102.5

-190

-265

    Wheat

-37.9

-48.8

-61.8

-104

-141

    Coarse grains

-0.2

-17.6

-43.2

-89

-128

    Rice (milled)

-0.7

0.0

2.5

3

5

 

Industrial countries

All cereals

55.1

105.9

110.7

187

247

    Wheat

41.4

70.8

66.0

104

133

    Coarse grains

12.1

33.7

43.4

83

115

    Rice (milled)

1.6

1.4

1.4

0

-1

 

Transition countries

All cereals

-15.7

-37.3

0.9

10

25

    Wheat

-4.8

-20.2

-0.3

4

12

    Coarse grains

-10.4

-16.5

2.1

8

15

    Rice (milled)

-0.5

-0.6

-0.9

-1

-1

Memo item.

Developing excl. net exporters1

All cereals

-51.4

-91.5

-134.6

-238

-330

    Wheat

-39.5

-55.6

-70.9

-118

-157

    Coarse grains

-10.1

-31.3

-54.6

-107

-154

    Rice (milled)

-1.8

-4.5

-9.2

-13

-19

1 Developing net exporters: those with net cereal exports over 1 million tonnes in 1997/99 (Argentina, Thailand and Viet Nam). India and China, although they met this criterion, are not included in the net exporter category as they are only occasional net exporters.

The quantities of cereals that will need to be traded in the future are certainly large, but the rates of change in the net trade position of the developing countries are not really revolutionary; a 158 percent increase over 32 years is somewhat less than the increase that occurred in a period of 23 years from the mid-1970s to 1997/99. However, these quantities may appear large in the light of the factors discussed above that made for deceleration in the world cereal trade in recent years. How reliable are these projections? We cannot tell in any scientific way, but a comparison of our earlier projections of the cereal deficits of the developing countries to 2000 (made in the mid-1980s from base year 1982/84), and to 2010 (referred to above) with actual outcomes is encouraging. As Figure 3.7 shows, the mid-1980s projection indicated 112 million net imports of the developing countries for 2000 (Alexandratos, 1988, p.106). The actual outcome is 111 million tonnes (three-year average 1999/2001, see Figure 3.7).

To appreciate why this«revival» in the growth of imports may come about, reference is made to the preceding discussion of the factors underlying the growth in the wheat imports of the developing countries in the projections. In practice, explaining the growth of import requirements means explaining the factors that will cause the growth rates of demand and production (given in Table 3.4) to diverge from each other in the different countries and regions, given that net trade balances are by definition the difference between demand and production. The main arguments affecting demand were amply discussed above, while the (mainly agronomic) factors in projecting production are examined in Chapter 4. A brief discussion of trends, or breaks in trends, in production will help to explain why deficits of the developing countries could continue to grow despite ever-decelerating demand.

Two examples illustrate what is involved: wheat in South Asia and wheat and coarse grains in the region Near East/North Africa.

South Asia now produces 89 million tonnes of wheat, consumes 89 million tonnes and has net imports of 7 million tonnes (the difference going to increase stocks in 1997/99), down from net imports of 10 million tonnes in the mid-1970s. For 2015, demand (all uses) is projected to be 138 million tonnes (going from 69 kg to 82 kg in per capita terms). The growth rate of 2.6 percent p.a. is lower than the 3.3 percent p.a. of the preceding two decades (1979-99). So why should imports be increasing? The reason is that production is unlikely to keep the high growth rates of the past. Much of the wheat is now irrigated and the boost given in the past from expansion of wheat into irrigated areas and the spread of new varieties is becoming much weaker (Mohanty, Alexandratos and Bruinsma, 1998). In addition there are problems in maintaining the productivity of irrigated land, particularly in Pakistan. The growth rate of wheat production in the region has been on the decline: it was 3.2 percent p.a. in the latest ten years (1989-99), down from 4.0 percent in the preceding decade and 5.1 percent in the one before. We project an average production growth rate of 2.0 percent p.a. up to 2015, and 1.9 percent p.a. in 2015-2030. These growth rates are slower than those of demand, hence the growing import requirements even to meet a demand growth much below that of the past. The land-yield combinations underlying these production projections are shown in Table 3.6.

Table 3.6: South Asia, land-yield combinations of wheat production

 

Rainfed land

Irrigated land

Total

Area
'000 ha

Yield
tonnes/ha

Production
'000 tonnes

Area
'000 ha

Yield
tonnes/ha

Production
'000 tonnes

Area
'000 ha

Yield
tonnes/ha

Production
'000 tonnes

1974/76

     

25459

1.31

33398

     

1984/86

     

32129

1.85

59529

     

1997/99

7450

1.21

9013

28889

2.78

80357

36339

2.46

89370

2015

7437

1.38

10270

32763

3.52

115210

40200

3.12

125480

2030

7416

1.56

11540

36434

4.22

153890

43850

3.77

165430

Note: Land refers to harvested area and therefore includes area expansion under wheat from increased double cropping.

IFPRI projects a turnaround of South Asia to a growing net importer of cereals at higher levels than we project in Table 3.4. In contrast, the latest ten-year projections by the United States Department of Agriculture (USDA) consider that India would continue to be a small net exporter of wheat until the year 2011 (USDA, 2002).12 The Food and Agricultural Policy Research Institute (FAPRI) 2002 projections for the same year have India as a small net importer (one million tonnes), but the underlying consumption projections are very low (an increase in per capita consumption of only 1 kg in ten years) while production growth is also well below past trends. The small growth in consumption (and hence of import requirements) may be an underestimate, given India's projected relatively high growth of incomes and the prospect that increased food demand will not be diverted to meat in the foreseeable future (see section on livestock below).

Similar considerations apply to wheat and coarse grains in the Near East/North Africa region and, of course, to other regions and crops. Net imports of wheat and coarse grains into Near East/North Africa are projected to grow from 45 million tonnes in 1997/99 to 80 million tonnes in 2015 and to 108 million tonnes in 2030. After a quantum jump in the 1970s up to the mid-1980s, imports stagnated up to the mid-1990s, before resuming rapid growth in the second half of the decade. The projected continuation in the recovery of import growth factors in, among other things, the assumption that the decline in the imports of Iraq will have been reversed by 2015. On the demand side, the region's population growth rate will remain relatively high for some time (1.9 percent p.a. to 2015). Some countries in the region are among the fastest growing in the world. The example of Yemen is instructive: the country had a population of 17 million in the base year 1997/99, but it is projected to be a really large country with 57 million in 2030. Its present consumption of cereals amounts to 180 kg/person (all uses) or some 3 million tonnes p.a. of which only 0.7 million tonnes comes from local production. No quantum jumps in production are foreseen. Therefore, even without increases in per capita consumption, aggregate demand will be over 10 million tonnes in 2030, more if we factor in some modest increase in per capita consumption. For the whole Near East/North Africa region, the aggregate demand is bound to grow at 2.0 percent p.a. (see Table 3.4), even with a modest increase in per capita consumption of cereals for all uses (under 10 percent over the whole projection period).

The projected growth in Near East/North Africa deficits reflects the prospect that production of wheat and coarse grains may not keep up even with this lower growth of demand. Production, which grew fairly fast in the past (3 percent p.a. in the 1970s and the 1980s) has shown no consistent trend since then; the average growth rate of the latest ten-year period (1991-2001) was -1.7 percent p.a. and production was 67 million tonnes in the latest three-year average 1999/2001, down from the 73 million tonnes at the beginning of the decade (average 1989/91). Among the major producers, Saudi Arabia's production of wheat and coarse grains declined by 46 percent, and that of North Africa (outside Egypt) by 30 percent. Among the major producers of the region, only Egypt and the Syrian Arab Republic had higher production in 1999/2001 than at the beginning of the decade. The evaluation of the possible land-yield combinations in the future (shown in Table 3.7), as well as the prospect that there will be no return to the heavy production subsidies some countries provided in the past, do not permit optimism concerning the possibility that growth of aggregate wheat and coarse grains production of the region could exceed 1.5 percent p.a. in the projection period. Hence the need for growing net imports to support the modest increase in per capita consumption.

Table 3.7: Near East/North Africa: areas and yields of wheat, maize and barley

 

Rainfed land

Irrigated land

Total

Area
'000 ha

Yield
tonnes/ha

Production
'000 tonnes

Area
'000 ha

Yield
tonnes/ha

Production
'000 tonnes

Area
'000 ha

Yield
tonnes/ha

Production
'000 tonnes

 

Wheat

 

1974/76

           

26668

1.20

31947

1984/86

           

25023

1.52

38090

1997/99

19201

1.28

25550

8008

3.15

24231

27210

1.83

49781

2015

18965

1.48

28080

8980

3.76

33720

27945

2.21

61800

2030

19065

1.65

31435

9935

4.31

42855

29000

2.56

74290

 

Maize

 

1974/76

           

2410

2.26

5450

1984/86

           

2205

3.01

6644

1997/99

655

2.30

1506

1563

5.65

8826

2218

4.66

10331

2015

604

2.45

1482

2005

6.15

12333

2610

5.29

13815

2030

552

2.69

1482

2673

7.15

19108

3225

6.39

20590

 

Barley

 

1974/76

           

9585

1.11

10675

1984/86

           

12585

1.20

15135

1997/99

9793

1.22

11906

1777

1.84

3266

11570

1.31

15172

2015

10728

1.49

15942

1885

2.28

4304

12610

1.61

20245

2030

11375

1.72

19577

1975

2.66

5243

13350

1.86

24820

As noted, the production projections that give rise to the import requirements presented here are derived from a fairly detailed analysis of the production prospects of individual developing countries commodity by commodity. The method is described in Appendix 2. It is the same approach we used in earlier studies. In 1992-93, we had projected total cereal production in the developing countries to grow from 847 million tonnes in 1988/90 to 1318 million tonnes in 2010 (Alexandratos, 1995, p. 145). The interpolation for 1998 on the trajectory 1988/90-2010 (separately for each of the main cereals, see Figure 3.12) is 1023 million tonnes. The actual outcome for the three-year average 1997/99 is 1 027 million tonnes (data as of February 2002).

Figure 3.12
Cereal production, all developing countries: comparison of actual outcomes average 1997/99
with projections to 2010 made in 1993 from base year 1988/901

Producing the export surplus. To explore how the growing import requirements may be matched by increases on the part of the exporters we need some rearrangement and more detailed setting out of the data and projections. This is attempted in Table 3.8. The following comments refer mainly to the contents of this table.

In the period from the mid-1970s to 1997/99, the net imports of the developing importers (developing countries not including the net exporters Argentina, Uruguay, Thailand and Viet Nam), plus those of the transition economies and the industrial importers (industrial countries minus the EU, North America and Australia) went from 89 million tonnes to 167 million tonnes, an increment of 78 million tonnes (subtotal 2 in Table 3.8). It was met by increases of the net trade balances of the following country groups which were traditional exporters or became such during that period: the EU 45 million tonnes (from net imports of 21 million tonnes to net exports of 24 million tonnes); North America 10 million tonnes; Australia 12 million tonnes; and combined Argentina, Uruguay, Thailand and Viet Nam 20 million tonnes.13

In the projections, the net import requirements of the developing importers and the industrial importers rise from 168 million tonnes in 1997/99 to 275 million tonnes in 2015 and to 368 million tonnes in 2030 (subtotal 1 in Table 3.8), an increase of 107 million tonnes to 2015 and another 93 million tonnes by 2030. These quantities must be generated as additional export surplus by the rest of the world. Where will they come from? The novel element in the projections is that part of the required increase may come from the transition economies, while the rest should come from the traditional exporters, developing and industrial.

The transition economies (not included in the net importing regions in the projections) could be net exporters of 10 million tonnes by 2015, a rather modest outcome given their resource potential which could put them in a position to produce even larger surpluses under the right policies. The reasons why this group of countries may eventually turn from the large net importer it was up to the late 1980s into a net exporter in the longer-term future are as follows: per capita consumption or - more correctly -domestic disappearance, will not revert to the very high pre-reform levels following the reduction of the high rates of food losses; the more efficient use of grain in animal feed; and the continued reliance, at least for the medium term, on imports of livestock products to cover part of domestic consumption. On the production side, land resources in several countries in this group are relatively plentiful and yields are well below those achieved in other countries with similar agro-ecological conditions (see Chapter 4 for comparisons with those obtainable under high-input technologies). The eventual integration of some Eastern European countries into the EU has the potential of contributing to this process, mainly in favour of coarse grains (USDA, 1999a).

These considerations suggest that the eventual recovery of production in the transition economies will result in export surpluses. We are rather conservative in our projections, as the production growth rate of cereals required to meet the growth of domestic demand and produce the 10 million tonnes net exports in 2015 is 1.0 percent p.a. This is modest, seeing that they start from the depressed levels to which production had fallen by the late 1990s. Other studies are much more optimistic about this potential. For example the latest IFPRI projections (Rosegrant et al., 2001, Figure 4.9) suggest over 25 million tonnes net exports from Eastern Europe and the countries of the former Soviet Union in 2020. The latest FAPRI (2002) projections foresee 15 million tonnes for the year 2011 (the sum of wheat, barley and maize) as does the most recent USDA study (USDA, 2002, Tables 36-40), while Dyson (1996) has much larger numbers.

The net exports of the developing exporters (Argentina, Uruguay, Thailand and Viet Nam) are projected to rise from 32 million tonnes to some 50 million tonnes by 2015. Thailand and Viet Nam are projected to remain net exporters of cereals because of rice, although they will be growing net importers of the other cereals, mainly wheat. It follows that the more«traditional» industrial country exporters (North America, the EU and Australia) would need to increase net exports by 80 million tonnes by 2015 and another 62 million tonnes by 2030, i.e. by amounts roughly comparable to the increase of 67 million tonnes they recorded in the period 1974/76-1997/99 (Row 8 in Table 3.8).

Table 3.8: World cereal trade: matching net balances of importers and exporters

 

Net imports (-) or exports (+)

Increment

1974/76

1997/99

2015

2030

1974/76-1997/99

1997/99-2015

2015-2030

Million tonnes

Million tonnes

1 Developing importers1

-51

-135

-238

-330

-83

-104

-91

2 Industrial importers

-22

-33

-37

-38

-12

-4

-2

3 Subtotal 1 (=1+2)

-73

-168

-275

-368

-95

-107

-93

4 Transition countries

-16

1

10

25

17

10

15

5 Subtotal 2 (=3+4)

-89

-167

-265

-343

-78

-98

-78

6 Argentina +Uruguay

13

32

49

65

20

17

16

+ Thailand +Viet Nam

             

7 World imbalance

1

9

8

8

9

-1

0

8 Balance for industrial exporters2
(=-5-6+7)

77

144

224

286

67

80

62

Memo item. Production of industrial exporters

 

Million tonnes

Percentage p.a.

Total

430

629

758

871

1.1

1.1

0.9

1 Developing countries excl. Argentina, Uruguay, Thailand and Viet Nam.
2 North America, Australia and EU15.

The question is often raised as to whether these countries have sufficient production potential to continue generating an ever-growing export surplus. Concern with adverse environmental impacts of intensive agriculture is among the reasons for this question. The answer depends, inter alia, on how much more these countries must produce over how many years. Production growth requirements are derived by adding the above increments in net exports to the increments in their own domestic demand, including demand for cereals to produce livestock products for export.14 The resulting projected production is shown in the lower part of Table 3.8. These countries are required to increase their collective production from the 629 million tonnes of 1997/99 to 758 million tonnes in 2015 and 871 million tonnes in 2030, an increment of 242 million tonnes over the entire period, of which about 80 million tonnes are wheat and the balance largely coarse grains. The annual growth rate is 1.1 percent p.a. in the period to 2015 and 0.9 percent p.a. in the subsequent 15 years, an average of 1.0 percent p.a. for the entire 32-year projection period. This is lower than the average growth rate of 1.6 percent p.a. of the past 32 years (1967-99), although the historical growth rate has fluctuated widely, mostly as a function of the ups and downs of export demand, associated policy changes and occasional weather shocks. The annual growth rates of any ten-year period in the past 35 years moved in the range from 3.4 percent (decade ending in 1982) to minus 0.1 percent (decade to mid-1990s), with the latest being 1.5 percent in 1989-99. The overall lesson of the historical experience seems to be that the production system responds flexibly to meet increases in demand within reasonable limits.

Of the three traditional industrial exporters, the EU faces the additional constraint that it can increase production for export only if it can export without subsidies. A key question is, therefore, whether market conditions will be such as to make possible unsubsidized exports. The relevant variables are the policy prices of the EU, the prices in world markets and the exchange rate €/US$. We have not gone into modelling explicitly these variables, but we project that the EU will be a growing net exporter of wheat and barley without subsidies. There seems to be a fair degree of consensus on this matter. The European Commission's latest projections to 2008 point in the same direction:«total cereal exports would stand substantially above the annual limit for subsidized exports set by the URAA limits (i.e. 25.4 million tonnes for total cereals) as durum wheat, some common wheat and barley/malt would be exported without subsidies» (European Commission, 2001, p. 37).15

Other studies agree in their findings that the EU will be a growing net exporter of cereals, at levels exceeding the limits for exports with subsidies16 as defined under the Uruguay Round Agreement on Agriculture (URAA). The 2002 USDA baseline projection to 2011 concludes that«due to the declines in intervention prices and the weak euro, projected domestic and world prices indicate that EU wheat and barley can be exported without subsidy throughout the baseline period» (USDA, 2002, p. 90).17 It projects net EU exports of wheat and coarse grains of some 35 million tonnes net for the year 2011 (USDA, 2002, Tables 36-40). The FAPRI projections have net exports of 29 million tonnes for the same year (FAPRI, 2002). Longer-term studies point in the same direction: the most recent IFPRI assessment is more conservative with a projection of about 30 million tonnes net EU exports in 2020 (Rosegrant et al., 2001, Table D.10).

When speaking of the need for the traditional industrial food exporters to increase their production for export further, the issue of the environmental effects of more intensification of their agricultures becomes relevant. For example, the EU study's net export outcomes are based on cereal yields rising at an annual rate of 1.3 percent to 2008. This is lower than the historical trend, but still raises the issue of the environmental risks associated with rising yields in the intensively farmed areas that produce much of the EU export surplus, e.g. France. Such risks are mainly related to the excessive use of fertilizer and other chemicals. The risk would be certainly increased if the pursuit of higher yields were to be accompanied by inappropriate use of fertilizer leading to increases in the nitrogen balance in the soil (difference between nitrogen inputs into the soil and uptake by crops). Empirical evidence suggests that this need not be so. OECD work on environmental indicators finds that the nitrogen balance in the EU declined from 69 kg/ha to 58 kg/ha of agricultural land between 1985/87 and 1995/97 (OECD, 2000a, Annex Table 1). Over the same period, the yield of wheat increased from 4.7 tonnes/ha to 5.5 tonnes/ha, and that of total cereals from 4.5 tonnes/ha to 5.2 tonnes/ha. Changes in the structure of incentives (e.g. reduced support prices), advances in technology (precision agriculture, etc.) and imposition of tighter management regimes concerning use of manure, probably explain much of this phenomenon.

Some environmental considerations.18 It is important that eventual environmental risks associated with the growth of production for export be viewed in a global context, and the associated trade-offs recognized. How do such risks compare with those faced by other countries that would also be raising their production? And how does enhanced production for export contribute to, or detract from, world food security by making world agriculture as a whole more sustainable (or less unsustainable)?

This issue can be addressed schematically with the aid of a simple classification of natural resource/ technology combinations used in grain production, on the one hand, and development levels, on the other. The former determines the extent to which the growth of production enhances the risk of adverse environmental impacts (e.g. soil erosion, salinization of irrigated areas, nitrate pollution of water bodies). The latter determines the value people place on resource conservation and on the environment, relative to the more conventional benefits from increased production, e.g. food security, farm incomes, export earnings, etc. This classification is as follows (from FAO, 1996d):

As noted (Table 3.3), in the 32-year period from 1997/99 to 2030, the world will need to increase annual production of cereals (including rice in milled form) by nearly another billion tonnes. This is roughly the amount by which world production increased in the preceding 32 years (1967-1999), a process which led to a better fed world but also brought with it the resource and environmental problems we are facing today.19 The preceding rough classification shows the very wide diversity of natural and socio-economic conditions and the associated threats to the resource base and the environment, under which humanity will have to extract the additional billion tonnes from the earth. Although sweeping generalizations must be avoided, it would appear that it will be extremely difficult to produce so much more than currently, without putting additional pressure on the environment.

It is conceivable that under the right policies (for incentives, institutions, technology development and adoption) this additional pressure could be minimized or even reversed for some time. However, here we are speaking of very substantial increases in production and, although these are to be achieved over a period of 32 years, it is difficult to visualize how enhanced pressures on the environmental resources can be avoided entirely. In addition, the stark fact has to be faced that, for the world as a whole, adoption of measures to minimize impact will be a slow process, and will perhaps remain for some time beyond the capability of those societies that most need to increase production. These are precisely the countries whose very survival is threatened by the deterioration of their agricultural resources, given the high dependence of their economies on agriculture (Schelling, 1992). It is the high-income countries, in principle those that least need to increase production for their own consumption and food security, that place a high value on minimizing the adverse environmental impacts of agriculture and that also have the means to take action (for the EU, see Brouwer and van Berkum, 1996). These considerations provide a framework for thinking about the role of traditional exporters as suppliers of growing export surpluses in a world that has to accept the trade-offs between more food and the environment and must seek ways to optimize them (see Chapter 12).


continued


8 An additional factor that made for slow growth of demand in recent years has been the abrupt reversal of the trend towards growing feed use of cereals in the countries of East Asia hit by the economic crisis of 1998.
9 Changes in production were much more pronounced (344 and 321 kg, respectively), and the effects on consumption were smoothed by changes in stocks.
10 Average per capita numbers for large aggregates comprising very dissimilar country situations (like the world per capita cereal consumption) have limited value as indicators of progress (or regress) and can be outright misleading. In practice, the world can get poorer on the average even though everyone is getting richer, simply because the share of the poor in the total grows over time. This can be illustrated as follows (example based on approximate relative magnitudes for the developing and the developed countries): in a population of four persons, one is rich, consuming 625 kg of grain, and three are poor, each consuming 225 kg. Total consumption is 1300 kg and the overall average is 325 kg. Thirty years later, the poor have increased to five persons (high population growth rate of the poor) but they have also increased consumption to 265 kg each. There is still only one rich person (zero population growth rate of the rich), who continues to consume 625 kg. Aggregate consumption is 1950 kg and the average of all six persons works out to 325 kg, the same as 30 years earlier. Therefore, real progress has been made even though the average did not increase. Obviously, progress could have been made even if the world average had actually declined. Thus, if the consumption of the poor had increased to only 250 kg (rather than to 265), world aggregate consumption would have risen to 1875 kg but the world average would have fallen to 312.5 kg (footnote reproduced from Alexandratos, 1999).
11 Uses of maize for the production of sweeteners and of barley for beer are included in food, not in industrial use. The latter includes use of maize for the production of fuel ethanol.
12 «The surpluses of mostly low-quality wheat are generally not exportable without subsidy, but low levels of exports to neighbouring South Asian and Middle Eastern countries are expected to continue» (USDA, 2002, p.103)
13 There is a large statistical discrepancy of 9 million tonnes in 1997/99 in the trade statistics.
14 The term«domestic demand» can be misleading if it gives the impression that the inhabitants of the country actually«consume», directly or indirectly, the amounts used domestically. This can be especially misleading when a significant proportion of the cereals consumed goes to produce livestock products for export. For example, Denmark is given in the statistics as having the highest per capita consumption of cereals (all uses) in the world, 1 450 kg. But the country exports net two-thirds of its meat production and over 50 percent of production of milk and dairy products. It is also a net exporter of beer, which uses barley as input.
15 Last-minute addition (June 2002): the Commission has just published the 2002 edition of its projections to 2009. It has the same projected exports of wheat and coarse grains as in the 2001 edition, i.e. exceeding the URAA limits, but adds:«These projections for cereal exports remain conditional upon an export policy that ensures the full use of the URAA limits» (European Commission, 2002, p.13). Somehow, this could imply the development of dual markets within the EU, if some exports will be with subsidies and others without. However, this need not be so if the non-subsidized cereals (e.g. durum wheat and malting barley) are different from the subsidized ones, e.g. feed barley and soft wheat.
16 The UR limits for EU exports with subsidies are, roughly, 25 million tonnes. These limits refer to gross exports, while imports will be about 5-7 million tonnes, including those under the UR commitments. It follows that any projection study showing net EU exports over 18-20 million tonnes must assume (implicitly or explicitly) that in the future the right combination of domestic and foreign prices and exchange rates will prevail.
17 In the USDA study:«The euro is assumed to strengthen slightly against the dollar in 2002 through 2004, and then to weaken somewhat through the remainder of the projections» (USDA, 2002, p. 89). The FAPRI assumptions are more optimistic about the euro: it reaches parity with the US dollar in 2006 and remains there until 2011.
18 This section draws heavily on Alexandratos and Bruinsma (1998).
19 There are those who hold that the choices made in the past to achieve the increases in production (in essence the pursuit of high yields), although far from perfect, have, on balance, contributed to prevent more serious environmental problems from emerging. The standard example is the amount of additional land that would have been deforested and converted to crops if the additional output had been produced with little growth in yields (Avery, 1997). Naturally, this counterfactual proposition is not always appropriate given the fact that land expansion could not have substituted for intensification in many parts of the world where there was no spare land. Perhaps the trade-off should be conceived between the«bads» of intensification and human suffering (e.g. higher mortality) from reduced food security.


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