FAO/GIEWS - Food Outlook No.1 - February 2001 p. 7

Carryover Stocks

The revision of stocks in China leads to much larger world inventories but does not alter the outlook for a sharp drawdown of stocks in 2001

Based on the revised figures for China, world cereal stocks by the close of the seasons ending in 2001 are now forecast to approach 640 million tonnes, down 52 million tonnes, or 7 percent from their opening levels and the smallest in four years. The expected drawdown this season reflects lower 2000 cereal production but higher anticipated utilization in 2000/01.

Since the previous report, the estimates of cereal carry-over stocks in China (Mainland) have been revised upward (see the box for more details). This revision resulted in a substantial increase in the estimates of China's inventories which, in turn, led to noticeably higher figures for global stocks than were reported previously. However, as shown in the table, neither the volume nor direction of annual variations in global stocks were changed significantly.

Annual Variation in Global Cereal Stocks: Before and After the Revisions in China^1/

1/ Difference between opening and closing stocks for each season.

In view of the revisions to the estimates of cereal stocks in China and, hence, to the world cereal stocks, the use and methodology underlying some of the main FAO global food security indicators, such as the global cereal stock-to-use ratio, are also being re-examined. The issues involved will be raised at the forthcoming session of the FAO's Committee on World Food Security (CFS) in May 2001. It must be stressed, however, that the validity of the analyses of market developments conducted in the past using these empirical indicators remains unaffected.

A Review of China's Historical Supply and Demand Balances for Cereals Leads to Higher Estimates for Stocks and Feed Use, but Lower per Caput Food Consumption1/ Availability of up-to-date and more accurate information on China's cereal sector has improved considerably in recent years, an important factor enabling a more coherent analysis of market developments, not only in China but also at the world level. In the past, among the main variables in China's cereal supply and demand balance, only production and trade figures were official, while data on cereal consumption and stocks were essentially FAO estimates. As regards the latter, information now available to FAO strongly suggests that a major revision of China's historical supply and demand balances is necessary to allow a more realistic assessment of the situation and outlook for cereals in China, and, hence, of international cereal market developments. In countries where official cereal stocks figures are not readily available, the differences in supply and utilization are often taken as a first approximation for the quantity carried over into the next crop season. The weakness of such an approach, as a proxy for revealing actual stock levels, becomes apparent when large anticipated draw-down of stocks, such as those taking place in China during the current marketing season, would have obliged FAO to reduce its estimate of total inventories to very low levels (less than 30 million tonnes in the case of China). If that level were realistic, one would have expected to observe the Government of China taking immediate action to replenish the granaries. Instead, the country is continuing to export large volumes of maize and rice, domestic wheat and maize prices in China have increased only slightly and rice prices have remained under downward pressure. These developments confirmed the validity of much higher estimates of cereal stock levels in China, available to the FAO Secretariat for some time, and called for a major review of China's historical supply and demand balances for cereals. The adjustments made take into account the officially reported (mostly for the past decade) domestic utilization estimates, including food consumption and feed use, and the annual variations in stocks (i.e. the difference between the season's opening and closing levels). As a result, the estimates for the per caput food consumption of cereals have been lowered, while the feed utilization and stocks figures have been adjusted upward. The upward revision of total carryover stocks in China reflects higher estimates than were previously supposed for both private and public stocks. The revised carryover stocks of cereals in China for the past 10 marketing years are shown in the Table below. As is noted in the more detailed analysis in the main text, neither the quantity nor the direction of annual variations in Chinese stocks (and global stocks) have changed significantly as a result of this upward shift of the level of stocks in China. 1/ The revisions were based on extensive discussions and exchanges with international as well national experts on China's cereal economy. The findings also draw from an ad hoc expert meeting which was held in FAO in December 2000. In the absence of any official estimates for the level of stocks in China, several published sources were consulted, including the national press, papers and articles by high ranking academics in China and abroad. Among the two most recent sources of information which provided valuable insight into the level of stocks in China are: OECD, Agriculture in China and OECD Countries: Past Policies and Future Challenges. Paris, 1999. Xing Zhigang, "Grain Reserves Sufficient", China Daily, 6 December, 2000, p.1.

The one-time adjustment made to the historical series of cereal stocks in China should not be perceived as either a reflection of or a cause for changes in the market fundamentals. Because of recent policy changes in China, which have been conditioned by the high costs associated with maintaining large stocks and by new economic and social priorities, it is important to have more accurate estimates of the level of stocks to better understand China's trade flows and their impact on international cereal markets. Given the magnitude of the likely decline in carryover cereal stocks during this season and new information, especially concerning the level of on-farm stocks, it was considered appropriate to revise the statistical data series on cereal stocks at this particular juncture to levels deemed to be more realistic.

World stocks of wheat for crop years ending in 2001 are now put at 239 million tonnes, some 17 million tonnes, or 7 percent, below the previous year's level. Lower carryovers are expected in all five major exporters, except for the EC where higher production and stagnate exports could result in some 2 million tonnes rise in this season's total ending stocks in the Community. Among the other major wheat exporting countries, wheat inventories in the United States are forecast to decline the most, by some 6 million tonnes. Elsewhere, wheat stocks in China are forecast to fall by 12 million tonnes to 121 million tonnes, mostly because of smaller domestic production. However, wheat inventories are forecast to increase significantly in Pakistan and India because of record production.

Total coarse grain inventories for crop years ending in 2001 are now at 246 million tonnes, down 27 million tonnes, or 10 percent, from the previous year. The decline mainly results from an expected sharp fall in stocks held in China, where a drastic decline in its maize production in 2000 combined with continued large export sales could bring down its total end-of-season inventories to 133 million tonnes, some 21 million tonnes, or 14 percent, below this season's opening levels. Total stocks in major exporting countries are likely to remain at last year's levels, or around 77 million tonnes, mostly as a result of an increase in stocks in the United States because of a record maize crop in 2000. Except in Canada, where maize stocks are also forecast to decline, other major exporters are likely to end the season with the same level of inventories as last year.

World Carryover Stocks of Cereals

Global rice inventories at the end of the seasons in 2001 are forecast at 154.5 million tonnes, almost 8 million tonnes below their opening level. Most of the year-to-year reduction is expected to be concentrated in China, following a sizeable cut in production in 2000, combined with expectations of a stable domestic utilization and large exports this year. Carry-over stocks are also expected to fall in other important exporting countries that harvested smaller crops in 2000, especially Pakistan, Vietnam and the United States. India is also likely to cut its inventories, although much would depend on its ability to boost exports. By contrast, carry-over stocks are anticipated to rise somewhat in Thailand, mainly due to an anticipated contraction in foreign sales. Among importing countries, lower purchases by Indonesia may result in smaller inventories by the end of the season.