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 region’s 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. |