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SPECIAL FEATURE: THE CEREALS SECTOR
OUTLOOK TO 2010 SEEN FROM MID-1996


PROJECTIONS TO 2010

The FAO Study World Agriculture: Towards 2010 [ "World Agriculture: Towards 2010, an FAO Study" (N. Alexandratos, ed.) co-published by J. Wiley and Sons, UK and FAO, Rome, 1995 (in French by Polytechnica, Paris, and in Spanish by Mundi-Prensa Libros, Madrid). This is a revised and expanded version of the FAO document C93/24 for the 27th session of the FAO Conference (November 1993). ] (WAT2010) undertaken in 1992/93 projected world production of cereals (rice included in milled equivalent) to reach 2 334 million tons in 2010 compared with 1 679 million tons in the base period (1988-90). This is a growth rate of 1.6 percent per annum, which is well below that of the preceding three decades (2.6 percent per annum in 1961-90) and only modestly above the revised 1.45 percent annual average growth rate of world population for 1990-2010 as foreseen by the UN. The Study foresaw further increases in the per caput consumption of cereals of the developing countries, even though growth of world production of cereals would decelerate. One of the main findings of the Study was that the consumption levels in many countries would remain totally inadequate for good nutrition and that widespread undernutrition would persist unless extraordinary measures were taken to ensure food for all. In fact, the conclusion of the Study that in 2010 there would still be 640 million persons suffering undernutrition was a major reason why FAO called for a World Food Summit at the level of Heads of States and government, now scheduled for 13-17 November 1996.


DEVELOPMENTS IN 1990-95

The first half of the 1990s, particularly the last two years, have been characterized by a generally close balance between supply and effective demand in world cereals markets with international prices rising sharply and stocks declining to their lowest levels in relation to consumption in over 20 years. Overall world production of cereals has grown much less in the first six years of the projection period to 1995 than could be expected from an assumption of a smooth expansion path between 1988/90 to 2010. World consumption of cereals , however, increased at a rate only slightly below that projected . This was possible only through a large drawdown of stocks. In addition, there has been some adjustment downwards in feed use in the developed countries, mainly the economies in transition [ Formerly known as Eastern Europe and the USSR.] and the United States. The Study emphasized that the early years of the projection period would be characterized by production declines occurring in the economies in transition. It also warned that structural surpluses would be lower or could even disappear and that publicly-held stocks could decrease as a result of policy reforms in the major exporting countries. These developments have happened in the first half of the 1990s and they coincided with weather-induced production declines mainly in the United States, the world’s largest cereals exporter. Relatively strong economic growth in, mainly, the developing countries of Asia have also contributed to the recent price surge in cereals.

While all these events have had some bearing on the current upheavals in world cereals markets, the production declines in the economies in transition have had a limited impact on global market developments because they were matched by more than commensurate declines in their consumption, and the collapse of their imports. Their net imports of cereals declined from an aggregate of over 35 million tons in the pre-reform period to just two million tons in the latest two-year average (July/June years 1994/95 and forecast 1995/96).

At the same time, aggregate cereal production of the developing countries has been tracking very closely the projection path of the Study (graph). In parallel, their net imports of cereals have also developed along the projection path of the Study: they are estimated to be 107 million tons in the two year average 1994/95-95/96 which is very close to the level resulting from interpolations between 90 million tons in 1988-90 to 162 million tons projected for 2010. As a result, the consumption projections of the developing countries as a whole have also corresponded very closely to those resulting from interpolations (1 060 million tons actual in 1994/95-1995/96 compared to the projected 1 063 million tons).

Production in developing countries during 1995/96 was relatively good and imports have held up, probably reflecting heavier than usual purchases earlier in the year when prices were significantly lower. However, food security in many of these countries has been adversely affected by the recent upheavals in world cereals markets. Per caput consumption of cereals fell in over half the LIFDCs in 1995/96 with significant falls (exceeding 3 percent) occurring in one fifth of these countries. The decreases are partly on account of lower imports; however, even where imports rose they were not always sufficient to prevent a fall in consumption. Also, these increased imports have come at higher prices and with a smaller component of food aid and other concessional exports. As a consequence, cereal import bills have risen much more than could have been expected: those of the LIFDCs rising by over U.S.$ 7 billion or 75 percent since the 1994/95 season (or marketing year) and by U.S.$ 3.4 billion over the year ending with June 1996.


RE-EVALUATING THE OUTLOOK FOR 2010

The extent to which the recent price surge may lead to any significant revisions of projections for 2010 depends on whether the factors behind these recent events represent transient or permanent changes in the world cereals economy. First, the production declines in the economies in transition are likely to be reversed and it is expected that these countries will eventually be on the projected path for 2010. However, as foreseen in the WAT2010 Study, part of the decline in the region’s apparent consumption (mostly in feed and waste) are likely to prove permanent. The combination of the transient (production) and permanent (utilization) could well lead to the emergence of the region as a net exporter, a possibility foreseen in the Study.

Second, there is some evidence for faster demand growth in some countries, particularly in Asia where income growth is now assessed at 6.9 percent a year in East Asia and 3.7 percent a year in South Asia (1996-2005) instead of 5.7 percent and 3.0 percent a year, respectively, assumed in WAT2010. This would most likely lead to higher consumption and imports for these countries. However, such higher imports may be largely offset by increased exports from the countries in transition.

Third, there is no hard evidence that weather-induced production shortfalls are likely to be more frequent in the future than in the past, nor that weather may affect the foreseen trend in production per se. Therefore, there is no compelling reason to assume that the projected world production around 2010 needs to be revised for this reason alone.

However, whatever the pattern of weather induced fluctuations in the future, their importance for world markets must be examined in conjunction with the decline in Government cereal stocks, and the overall drop in total carryover to their lowest level vis-à-vis consumption since the world food crisis in the early seventies. This is indeed a factor that may prove to be a structural change in the world cereals economy. There is at least a risk that for this reason the world cereals markets could become more volatile in the future despite the stabilizing effect of an increasingly liberalized trading system. The magnitude of this risk is a moot point at the moment but it is the subject, together with the required measures to safeguard world food security, of particular attention by FAO.


CONCLUSIONS

Unfortunately, the recent developments in the world cereal market provide no compelling reason for considering that the production levels of the world and the major regions identified here are likely to be significantly different from the Study’s pessimistic conclusions for world food security. The major factors responsible for the divergencies of recent outcomes from those implied by a smooth projection path are reversible [ Measured from the depressed levels of the latest 2-year average (1995 and forecast 1996) the growth rate of world production to 2010 would need to be 1.9 percent a year.] . But the risk of increased price volatility would perhaps prove to be a more permanent change in the system, which could call for appropriate policy responses. For the moment, the paramount food security problem in overall terms remains as identified in the Study: too sluggish a pace of improvement in raising per caput consumption in the developing countries as a whole, and outright stagnation or deterioration in several of the most needy ones.


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