Food Outlook No.5 - December 2002 p.6

Trade^1/

Smaller world cereal trade in 2002/03

World trade in cereals in 2002/03 is forecast at 236 million tonnes, unchanged from the previous report in October and 5 million tonnes below the previous year's record level. The anticipated contraction in global cereal trade this season results mainly from a decline in total wheat trade: trade in coarse grains is expected to increase slightly. In the rice market, the early prospects for international trade in 2003 are seen as somewhat similar to those in 2002.

Sharp contraction in world wheat trade in 2002/03

Global trade in wheat^2/ in 2002/03 is forecast to fall to 102.5 million tonnes, down 5 million tonnes from the previous season. Most of this season's anticipated decline would be on account of a sharp contraction in imports by the developed countries, although smaller imports are also anticipated by the developing countries.

Aggregate wheat imports by the developed countries in 2002/03 are currently forecast at nearly 24 million tonnes, around 3 million tonnes lower than in the previous season. The decline is mostly driven by the developments in the EU, a major wheat exporter. During the previous season, the EU became the world's largest wheat importer, with estimated imports of at least 10 million tonnes. During the current marketing season, the upturn in the EU production in 2002 has helped to reduce imports so far. However, because of continued strong demand for cheaper feed wheat from the Black Sea (mainly the Russian Federation and Ukraine), imports by the EU could still reach 7.5 million tonnes this season, which would still exceed normal levels. With import licences from the beginning of the season (though early November) close to 6 million tonnes, the final outcome for this season will be determined by the outcome of the European Commission's proposal to introduce wheat import quotas, starting from January 2003. Under this proposal, some 3 million tonnes of low-to-medium quality wheat could eventually enter the EU with a reduced duty of €12 per tonne, but anything above that quota would be subject to a prohibitive rate of €95 per tonne. The proposal still requires approval from the EU member states. In the meantime, the scheme has been discussed (and reportedly agreed upon) with Canada and the United States, the two WTO countries with largest stakes in the EU wheat market, while discussions with Ukraine and the Russian Federation (non-WTO members) are also underway.

Overview of World Cereal Imports

Source : FAO. 1/ Highly tentative.

Total wheat imports by the developing countries are forecast to decline by 1 million tonnes from the previous season, to 79 million tonnes. However, it is mostly in Asia that wheat imports are likely to decrease. Total wheat imports by Asian countries are forecast to reach 45 million tonnes in 2002/03, down 2.5 million tonnes from the previous season. Most of the decrease is accounted for by the Islamic Republic of Iran, where, following this year's bumper crop, imports are forecast to fall by 40 percent to 3.5 million tonnes. Good harvests in Bangladesh and Turkey could also result in lower imports by those countries, but imports by the Philippines are forecast to rise, mostly driven by strong demand for feed wheat.

Aggregate wheat imports by countries in Africa are put at nearly 26 million tonnes, up 1 million tonnes from 2001/02. Imports by several countries in northern Africa are now forecast to exceed last year's levels, largely reflecting a drop in production due to prolonged dry conditions, especially in Algeria and Tunisia. Total imports by countries in the sub-Saharan region are expected to remain unchanged from the previous season, at just over 8 million tonnes. While imports by Kenya, Ethiopia and Eritrea are likely to increase, several countries, including Mauritania, Tanzania and Zimbabwe are expected to reduce their wheat imports in 2002/03.

Total imports by countries in Latin America and the Caribbean are forecast to rise slightly this season, led mostly by larger purchases by Mexico and Brazil. In Mexico, strong demand for milling quality wheat would result in an increase in imports. Wheat purchases by Brazil are forecast to increase by 400 000 tonnes, to 6.6 million tonnes, as production is expected to decline slightly, though at this level, they would still be above-average. In most recent years, the country ranked as the world's largest wheat importer. The bulk of the imported wheat comes traditionally from Argentina, but financial problems in both countries have given rise to new trade arrangements with other suppliers. According to news reports from Brazil, the milling industry has recently agreed to import 500 000 tonnes of wheat from the Russian Federation in exchange for an equivalent value of Brazilian beef. The industry had already signed another letter of intent to purchase 500 000 metric tonnes of wheat from Ukraine, possibly in exchange for sugar.

Turning to exports, total wheat shipments from the five major wheat exporters this season are currently forecast at 69 million tonnes, representing a decline of roughly 13 percent, or 11 million tonnes, from the previous season. Part of this decrease could be explained by the forecast contraction of about 4 million tonnes in world import demand this season. More importantly, however, it is becoming increasingly evident that non-traditional exporting countries are emerging as important players in the world wheat market, competing with major exporters whose exportable supplies are forecast to shrink.

Among the major exporters, Australia and Canada are particularly low on exportable supplies this season given the sharp decline in their domestic production. In fact, recent reports suggest that both countries are set to import some wheat, most likely in small quantities, and of feed quality in view of the increase in domestic feed grain prices. By contrast, wheat exports from the EU could increase sharply over the previous season and reach 15 million tonnes. However, given the slow pace of export licences issued since the start of the marketing season, which amount to less than 5 million tonnes, much faster sales would have to be made in the remaining months of this season for this forecast to materialize. The main reason for slow export sales from the EU has been the large supplies of wheat in a number of non-traditional sources, especially the Russian Federation, Kazakhstan, Ukraine and India. In fact, substantial supplies of cheaper wheat from those origins could turn the EU market into the largest single destination for the second consecutive season. Overall, the combined exports from those four non-traditional exporters are expected to climb to over 22 million tonnes this season, up 4 million tonnes from the already high level registered in 2001/02. This compares to exports of some 26.5 million tonnes from the United States, still the world's largest single wheat exporter.

Coarse grains trade up slightly in 2002/03

World trade in coarse grains in 2002/03 is forecast to reach 107 million tonnes, up slightly from the previous season's reduced level. The small increase from 2001/02 would be driven mainly by slightly higher trade in sorghum, which is forecast to reach 7.5 million tonnes, while trade in most other major coarse grains is expected to remain unchanged from the previous season. In the maize market, this season's exports are likely to approach the previous year's record volume of around 78 million tonnes.

Total imports in Africa are expected to rise by 2.5 million tonnes from the previous season, to a new peak of over 17 million tonnes. In contrast to the situation in North Africa, where imports by most countries are seen to remain similar to 2001/02, in Sub-Saharan Africa, the serious food supply shortages triggered by production shortfalls and civil conflicts have given rise to even higher import requirements this season. The most significant increases in terms of volume are expected in Zimbabwe (up 1.7 million tonnes), Kenya (up 300 000 tonnes) and Zambia (up 255 000 tonnes).

In Asia , aggregate imports of coarse grains in 2002/03 are forecast at 55 million tonnes, down slightly from the previous season. Imports by most countries in Asia are forecast to remain at the same level as in the previous year despite a strong growth in feed demand. Large supplies of cheaper feed wheat in world markets have also given way to partial substitution for maize. Only a few countries are seen to cut imports sharply this season. Among them, imports by the Islamic Republic of Iran are anticipated to fall most significantly, by 500 000 tonnes, to the lowest volume since 1994/95 because of a recovery in domestic production.

In Europe , total imports are put at just over 6 million tonnes, which would be 1.6 million tonnes smaller than in the previous season, mainly because of lower expected purchases by the EU. Although 2002 production in the EU is estimated to have fallen below the previous year's level, most of the decrease would be in maize and rye, the latter a surplus grain. The estimated small decline in maize output this year would not necessarily result in higher imports given the large supplies of cheaper feed wheat on the market.

In North America , the drought in Canada is expected to give rise to much larger imports of maize and even barley, although in the case of the latter, the country is among the world's major exporters. In Central America , larger maize and sorghum purchases are forecast for Mexico, mostly because of the expanding domestic demand for feed grains and somewhat smaller production. In South America , imports by Brazil are forecast to increase this year, given the anticipated sharp decline in domestic maize production.

On the export side, coarse grain shipments from the world's largest exporter, the United States, are forecast to rise above the previous year. Higher exports from the United States come at the time when domestic supplies are seen to be well below the previous season as a result of a drop in production. But since the United States is a residual supplier to the world market, large shipments are possible from the draw down of stocks. Argentina could export less as a result of smaller output. Apart from the major exporters, the fact that China continues to export maize could help to stabilize the global market, considering that other net exporters such as Brazil, Hungary and the Republic of South Africa, all would have smaller exportable supplies. This season's maize shipments from China are forecast to approach 11 million tonnes, up 4 millions tonnes from the previous season. More barley exports are also expected from the EU this season, which could, to some extent, compensate for supply shortages in Australia. Improved barley supplies are also anticipated in Turkey and another year of good barley export prospects are also expected for the Russian Federation and Ukraine.

Record rice trade in 2002

As the end of the year approaches, there is growing evidence that the volume of international rice trade in 2002 will reach the second highest level on record. FAO's forecast for global rice trade in the current calendar year now stands at 26.4 million tonnes, 700 000 tonnes more than earlier anticipated and almost 10 percent above the revised estimate for 2001. The latest revision is mostly due to upward adjustments to import forecasts for several countries in Africa and also Indonesia, which more than offset a substantial cut to expected shipments to the Islamic Republic of Iran.

The anticipated flow of rice into Africa now stands at 7.3 million tonnes, slightly below the record level imported in 2001 but 600 000 tonnes more than foreseen in the last report. The revision reflects a 200 000 tonne increase in expected deliveries to Nigeria. These are now forecast to reach an all-time high of 1.7 million tonnes, 4 percent more than in 2001, reinforcing the country's position as the second largest rice importer this year. Forecasts for Senegal and South Africa have been raised 100 000 tonnes each, with both countries now expected to import 650 000 tonnes in the course of the year. Expected imports by Côte d'Ivoire are now forecast at 1 million tonnes, still someway short of the volume imported in 2001.

Indonesia remains the world's leading rice importer, with the anticipated volume in 2002 recently raised by almost 10 percent to 3.5 million tonnes, over 2 million tonnes more than the quantity transacted last year. The adjustment reflects the expectation of larger purchases by the state trading enterprise, Bulog, to bolster the country's reserve stocks. By contrast, imports by the Islamic Republic of Iran have been lowered by a third to 800 000 tonnes.

Other major changes to import figures in 2002 from the last Food Outlook include China (mainland), whose international purchases, which this year have only consisted of high quality indica and fragrant rice, have been cut to 200 000 tonnes. On account of stock replenishment, forecast imports by Bangladesh and Saudi Arabia, have each been raised by about 100 000 tonnes, to 300 000 tonnes and 900 000 tonnes, respectively. Rice deliveries to Cuba in 2002, mostly made under Government to Government contracts, have been increased to 550 000 tonnes, or 10 percent more than last year, following the poor 2001 paddy season. For all other major importers, forecast rice inflows are unchanged from the last Food Outlook.

Regarding rice exports in 2002, the forecast for India has been raised by 500 000 tonnes to 5.5 million tonnes. A tightening of regulations by the Food Corporation of India's (FCI) on rice sales for export triggered a surge of orders prior to its implementation date of 1st October. By that date, overall exports were estimated to already have reached 4.7 million tonnes. Since then, however, the pace of exports has slowed down considerably. In November, the FCI announced it would raise sale prices to exporters by Rupees 350 per tonne (US$7) for ordinary rice and by Rupees 600 per tonne (US$12) for parboiled rice, effective from 1st January 2003.

On the basis of the volume of rice shipped between January and October, China's (mainland) forecast exports have also been adjusted upward from the last report, by 400 000 tonnes to 1.7 million tonnes, slightly below the 2001 level. The revised export figure, however, would still imply a reduction of over 1 million tonnes from 2000, consistent with the substantial contraction in output that the country has experienced in the past two seasons.

A 200 000 tonnes upward adjustment has also been made to the forecast for Viet Nam's exports, now officially put at 3.2 million tonnes. However, this would still be 300 000 tonnes less than last year and the lowest level since 1996.

By contrast, rice deliveries by Myanmar in 2002 are now forecast at 700 000 tonnes, similar to the official estimates of exports in 2001, but down from the earlier forecast of 1 million tonnes. High inflation rates in the country are encouraging farmers to hold back on their product rather than selling it at fixed prices to the Government, which holds a monopoly on rice exports. As a result, the volume procured by the state agencies might not be sufficient to sustain a sizeable increase in shipments from last year.

Thailand's rice sales through to October, point to a sharp fall in 2002 performance, with shipments down 12 percent compared with the same period last year. Such a contraction reflects to a large extent increased price competition from India in traditional markets. Exports by the country are now forecast to reach 7 million tonnes, 100 000 tonnes less than last reported, and 500 000 tonnes below the record level of the previous year.

As for other major exporters, forecast deliveries are unchanged from the last report. Pakistan's exports were of the order of 1.2 million tonnes between January and October and are estimated to reach about 1.4 million tonnes by the end of the year some 900 000 tonnes less than in 2001. Reduced supplies and comparatively high quotations are behind the expected annual decline. Shipments from Australia, Argentina, and Uruguay continue to point to a contraction in 2002, while United Sates and Egypt might increase theirs substantially from 2001 level.

Rice trade in 2003 could remain close to 2002's high level

FAO's forecast for world rice trade in 2003 has been increased marginally since the last report to 26 million tonnes. The forecast is still highly tentative, since many of the countries that could influence the level of global rice trade in 2003 have yet to complete the harvest of their main paddy crops.

Very few changes on the import side are envisaged since the last report. The forecast of shipments to Africa has been revised up by 400 000 tonnes to 6.8 million tonnes, with Nigeria again expected to account for the bulk of the growth in regional trade. A promising production outlook this year in Bangladesh might lead to a one-third reduction in rice deliveries to that country in 2003. Similarly in Brazil, ample domestic supplies could bring about a 100 000 tonne fall in imports next year. By contrast, purchases by Saudi Arabia have been raised by 100 000 tonnes, unchanged from the current year.

Among other traditional importers, Indonesia is still forecast to import 3.2 million tonnes of rice next year, or 300 000 tonnes less than in 2002. The Government is reportedly considering an earlier proposal to raise border protection, which, if implemented, could result in a more substantial contraction.

The Philippines has announced some relaxation of the de facto state trading monopoly (the National Food Authority) as of next year. From January 2003, producer groups will be allowed to import high quality rice. Nevertheless, the country is still forecast to import 1.2 million tonnes of rice in 2003, similar to the 2002 estimate.

As for exports in 2003, some revisions have been made in the case of a few major international suppliers. For instance, an anticipated bumper crop in Viet Nam this year, could boost the country's exports to 3.9 million tonnes of rice in 2003, 500 000 tonnes more than previously reported. The forecast for China's (mainland) exports has been increased to 1.3 million tonnes, but an overall contraction of about 400 000 tonnes is still anticipated in 2003. A recovery in Pakistan's production this year, could lift its exports by around 100 000 tonnes to 1.5 million tonnes in 2003. A good crop outcome this season could also lead to the United States exporting about 3.2 million tonnes of rice next year, 100 000 tonnes more than originally expected.

By contrast, following the deterioration of Myanmar's production prospects, the forecast for the country's exports in 2003 has been cut to 700 000 tonnes, matching the less optimistic performance currently foreseen in 2002. On the basis of expected rice availabilities. The forecast for Egypt's exports in 2003 has been lowered to 750 000, which would be 100 000 tonnes less than expected this year.

For other major exporters, no changes to previous expectations have been made. India's export forecast remains at 4.5 million tonnes in 2003, or 1.0 million tonnes less than the expected performance in 2002. By contrast, sales by Thailand might rise to 7.5 million tonnes, matching the 2001 record level, while rice deliveries by Australia could fall to a twelve-year low of 400 000 tonnes, reflecting the widely expected production shortfall next year.

1.  World trade (exports) in wheat and coarse grains is based on a July/June season, while trade in rice is based on January/December (calendar).

2.  Including wheat flour in grain equivalent.