POSSIBLE CONSEQUENCES OF THE ASIAN FINANCIAL TURMOIL ON GLOBAL MARKETS OF BASIC FOODSTUFFS
Based on the information available as of January 1998, the Asian financial crisis is anticipated to have, on the whole, only relatively small consequences for global food markets, with some exceptions. However, it would have substantial effects on markets in the region itself. The impact of the crisis at the global level would be felt mainly through reduced import demand by the region, following the sharp contraction in incomes and domestic price rises due to currency depreciation, and less through increased exports, on account of the regionís increased competitiveness. The sections on cereals, meats and oilseed products go into greater detail on these commodities.
Among the various food commodities, imports of meat products into the region would be most affected by the crisis in view of their high price and income elasticities, with bovine meat topping the list. The consequences for the regional poultry and pig meat markets are more complex because of a higher degree of self-sufficiency and greater reliance on imported feeds of these two meat sectors. On the whole, the impact of the Asian crisis on the global meat markets is not expected to be strong, in part because of possibilities for exporters to divert sales to other regions.
The lower demand for feed from the livestock sector in the region will have some consequences for cereal and oilseed products. Thus, imports by the region of oilmeals and feedgrains are expected to be cut, while hardly any impact is expected on imports of wheat, vegetable oils and rice, in view of their lower response to changes in prices and incomes. For dairy products, the impact would be felt through reduced import demand for milk powder. Among other foods, the impact on the sugar market would be negligible as sugar demand in the region is generally insensitive to changes in prices and incomes.
As regards commodities exported from the region, increased competitiveness is not likely to lead to marked increases in exports in the case of tropical oils and cakes or in Thai sugar and cassava. This is largely due to lower export availabilities following the weather-related (El Niño) impact on production. In addition, the severe squeeze of farm credit and working capital is also expected to cut supplies, especially those for export. However, export prospects from Thailand have improved for rice and poultry, even though the impact on global markets should be relatively small.
In summary, the impact of the Asian crisis on global commodity markets is likely to be small over the short run. However, looking further ahead, several uncertainties associated with this outlook need to be noted. First, there is the question of how long it will take for recovery to occur in real incomes together with the related question of changes in exchange rates. Second, governments may respond to the crisis through trade policy measures, e.g. reduced tariffs, facilitating imports of foodstuffs or the raw materials used in local production, e.g. feedstuffs. Third, what steps are taken to ease the severe credit shortage will be important, especially for commodities that involve processing, e.g. meat and oilseeds.