The Baltic Freight Index (BFI) declined on 23 September below 1 000 for the
first time since early August 1987. The main cause of the weakness of rates
was the build-up in excess tonnage as new vessels entered service. These
additions to the world fleet were not offset by scrapping of older ships.
Prices in the demolition market are not sufficiently attractive to persuade
owners to ballast vessels to scrapping enterprises, which are located primarily
in Far East Asia. For several months older tonnage was able to compete by
accepting consistently lower rates, often under short-term time-charter
arrangements. Eventually, however, this practice proved uneconomic given
high maintenance and insurance costs for older ships.
Mid-October, however, brought a change in market sentiment. A pronounced
increase in tonnage demand to ship grain and fertilizers stimulated freight
rates at major loading areas, especially for Paramax and Handysize carriers.
More activity in coal and iron ore business for deliveries to destinations
in Far East Asia encouraged Capesize fixtures. Owners with vessels in prompt
positions were able to hold out for higher rates.
By 18 October the FBI had risen to 1 145, although it was uncertain how long the recovery would be sustained. Operational costs increased due to the upsurge in oil prices and thus bunkering costs at major ports. Some traders considered that this development could result in older vessels being laid up or scrapped. Nonetheless a situation of tonnage equilibrium could prove elusive, due to the large number of vessels on order.
Effects of 1995/96 Cereal Price Rise in Selected Developing Countries
This box reports the key findings of a recent FAO survey on cereal price
situation in over 30 food importing developing countries during 1995-96 when
world market prices increased sharply. The survey also reviewed policy responses
by governments to the price rise 1/.
During 1995-96 (March-May 1996 over July-September 1995), world wheat prices
rose 27 percent and maize prices by 47 percent while rice prices rose in
the second half of 1995 by 30 percent. The key findings of the special survey
were as follows.
First, cereal prices, measured in local currency terms and therefore the
actual prices faced by consumers, increased sharply, defined here as the
rise in prices by at least as much as in the world markets: in 10 of the
19 sample countries for wheat (with a simple average price increase of 65
percent); in four of the 19 sample countries for maize (average 60 percent);
and in only one of the 21 sample countries for rice. However, prices rose
less sharply than that but still considerably in many other countries. For
example, maize prices rose by at least half the increase in the world market
( i.e. by at least 24 percent) in 11 countries, with a simple average of
45 percent. Similarly, rice prices were found to have risen by at least 15
percent in seven countries - the Sudan, Zambia, Pakistan, Sri Lanka, Chile,
Ecuador, Jamaica and Venezuela, with a simple average of price changes for
the seven countries being 24 percent.
Second, in terms of the impact by region, price rises were most conspicuous
in countries of Latin America and much less in Africa. Thus, wheat prices
increased by at least 27 percent in four of the six sample countries of Latin
America, the simple average of price changes being 65 percent. In Asia, wheat
prices rose in eight of the nine sample countries, the increase being sharp
(i.e. by at least 27 percent) in five cases (Fiji, Islamic Republic of Iran,
Philippines, Sri Lanka and Turkey), with an average rise of 48 percent. Wheat
prices hardly increased in the other four countries: Bangladesh, Indonesia,
Pakistan and Syria. In Africa, the only country where wheat price increased
sharply was the Sudan while prices either fell or only increased marginally
in other three countries, namely Ethiopia, Morocco and Tunisia.
Third, the above changes were in local currency terms and, therefore, also
reflect the effect of currency depreciation over the review period. Measured
in U.S. dollar terms, domestic market prices were found to have increased
by roughly half of the increase in local currency terms. For example, the
simple average of price changes for wheat for the 10 countries where prices
rose considerably was 36 percent in US dollar terms compared to 65 percent
in local currency terms. In the case of maize prices, for a sample of 11
countries where prices rose substantially (e.g. by at least 24 percent),
the simple average of changes in these prices was 30 percent compared to
45 percent in local currency terms.
Fourth, the domestic supply situation played an important role in influencing
the extremes of price transmission. Good harvests in 1995/96 in a number
of countries were associated with smaller price increases. For example, cereal
harvests in 1995/96 were normal or above normal in most of the sub-Saharan
Africa countries covered by the survey.
Fifth, the estimated short-term price transmission elasticities (a measure
of the extent of the change in domestic prices for a given change in world
prices) were found to be highest for maize followed by wheat and they were
low for rice. Price transmissions were relatively strong in countries of
Latin America, compared with other regions.
And sixth, offsetting measures were widely taken by governments. The most
common measures were trade-related, particularly increased import quotas
and/or tariff reductions. In some cases, governments also raised consumer
subsidies to mitigate the effect of the price rise.