Trade^1/

Early prospects for cereal trade in 2003/04 point to a significant decline

FAO’s first forecast for global trade in cereals in 2003/04 stands at 231 million tonnes, representing a contraction of some 8 million tonnes, or 3.5 percent, from the previous year. It is expected that trade in nearly all major cereals will decrease in the new season with the most significant decline projected for wheat. Some of the expected decline in world trade will be reflected in smaller imports by developing countries, but the bulk of the decrease would be among the developed countries, with their purchases falling back to more normal levels after two years of above-average purchases. Total cereal imports by the Low Income Food Deficit Countries (LIFDC) are forecast to remain close to the estimated imports in 2002/03 of around 80 million tonnes.

Wheat trade to fall to a five-year low

Based on current indications, international wheat trade in 2003/04 could fall to a five-year low of just 100 million tonnes, with imports down 6 million tonnes from the reduced 2002/03 estimated level. There are at least two dominant factors for this decline. First, and by far the most important reason, is the anticipated sharp cut in imports by the EU in 2003/04. The imposition of an import quota system in 2003, intended to prevent supplies of cheap wheat mostly from Ukraine and the Russian Federation, is likely to curb EU imports by 6 million tonnes. Imports by the EU peaked to unprecedented levels in 2001/02 and again in 2002/03, turning an otherwise major net-wheat exporter to the world’s number one wheat importer. The second factor is the anticipated improvement in domestic supplies in several importing countries, particularly those which are large wheat producers. This is mainly the case for several North African countries as well as most countries in Asia, including Afghanistan, where a bumper crop is expected in 2003.

Overview of World Cereal Imports

Source: FAO. 1/ Highly tentative.

However, a number of countries are likely to increase their imports in 2003/04. Wheat purchases by China are forecast to increase by at least 1 million tonnes, as production is expected to decline sharply while demand for high quality wheat continues to expand. Imports by Iraq could also increase this season, although much will depend on this year’s harvest and recovery in its domestic transport and marketing systems. Wheat imports by Ethiopia are forecast to increase sharply, given the rising domestic deficit since the start of the 2002/03 marketing season.

Major wheat exporters to recapture markets

The anticipated contraction in world imports in 2003/04 would have normally hindered prospects for exports by the five traditional wheat exporters. Instead, shipments from a number of major exporting countries are forecast to demonstrate a strong rebound while much smaller surpluses are expected among several non-traditional exporting countries. Exports from the Russian Federation are forecast to be cut by almost 10 million tonnes, and shipments from Ukraine could decline by nearly 6 million tonnes. Smaller exports are also anticipated by India and Pakistan. Higher exports by traditional exporters are seen to make up for these declines, especially in view of a strong anticipated recovery in exportable supplies in Argentina, Australia and Canada. However, shipments from the United States and the EU could remain largely unchanged. With a strong Euro, the EU may face additional difficulties to increase sales unless export restitutions (subsidies) could be raised significantly.

Trade in coarse grains to decline in 2003/04

Preliminary indications suggest that global trade in coarse grains in 2003/04 marketing season could be some 1.5 million tonnes smaller than in 2002/03, at 105 million tonnes. Most of the decrease would be concentrated in developed countries, where total imports are forecast to reach a five-year low of around 33 million tonnes, down 3 million tonnes from 2002/03, mostly on account of smaller maize purchases by Canada. By contrast, aggregate coarse grain imports by developing countries are expected to increase marginally, mostly due to smaller supplies of low quality wheat in world markets, imported by some countries as a substitute for animal feed. Among the individual coarse grains, reduced maize and barley trade would account for most of the anticipated decline in world trade, but imports of other coarse grains are likely to remain at about the same levels as in 2002/03.

In Asia, maize imports by the Republic of Korea are forecast to increase significantly, mainly in response to smaller imports of feed wheat. Barley imports by China and Saudi Arabia could rise slightly due to growing demand. In most other Asian countries, however, imports are likely to remain stable or decline, mostly in reaction to sluggish economic growth and subdued feed demand. In Africa, imports by Morocco, Tunisia, Zambia and Zimbabwe are likely to fall sharpest based on expected increases in domestic production. However, in most Central and South American countries, imports are likely to remain at previous year’s levels. In Mexico, imports are forecast to increase because of strong and rising demand, but smaller imports are anticipated in Brazil, in view of the anticipated bumper crop this season.

Higher coarse grain exports by major exporters offsetting lower sales by China

In spite of the anticipated decline in world trade in 2003/04, exports from most major exporting countries are forecast to increase significantly, mainly due to the anticipated sharp decline in sales from China. Exports from Canada and the United States are likely to rise most while sales from Argentina and Australia are also likely to increase. By contrast, shipments from the EU could remain below the previous year’s level, in part due to reduced world demand for barley. In China, smaller maize harvests are expected to result in a significant drop in its exports to 8 million tonnes, down 45 percent from 2002/03. Barley exports by the Russian Federation could also decline substantially following an expected crop reduction. Sales from South Africa could decline slightly, but larger maize surpluses in Brazil and Hungary could lead to more exports from those countries.

Review of world cereal imports in 2002/03

World cereal imports in 2002/03 are estimated at 239.6 million tonnes, slightly below the previous season’s level. The decline is characterized by lower wheat and rice purchases, while imports of coarse grains are estimated to have increased.

Global trade in wheat in 2002/03 is forecast to fall to 105 million tonnes, down 2 million tonnes from the previous season. Most of the decline would be on account of smaller imports by several countries in Asia. The largest drop is anticipated in the Islamic Republic of Iran, where, following a bumper crop in 2002, wheat imports are estimated at 2.5 million tonnes, down 60 percent from the previous season and the lowest level since 1986/87. Good harvests in many Asian countries are also expected to limit imports by those countries, bringing total imports in Asia down to 43 million tonnes, compared to nearly 47 million tonnes in 2002/03.

In Africa, aggregate wheat imports are estimated to have remained close to the previous season’s high of over 26 million tonnes with larger purchases by Algeria and Tunisia mostly offsetting declines in Egypt and Morocco. Imports by most countries in the sub-Saharan area are expected to have remained unchanged. As in the previous season, imports into Europe are seen to exceed usual levels, supported by large purchases by the EU. With estimated imports of 11 million tonnes, the EU has emerged as the world’s largest wheat importer for the second consecutive season. Imports by most countries in Latin America and the Caribbean have remained close to the previous season, including in Mexico and Brazil, the two leading wheat importers.

Exports from non-traditional wheat exporters continued to play a significant role in global wheat markets in 2002/03. Shipments from the Russian Federation could surge to 13.5 million tonnes, placing it as the world’s third largest wheat exporter after the United States and the EU. Exports by Ukraine have also increased sharply, to 8 million tonnes. In addition, Kazakhstan and India are also estimated to have exported at least 5 million tonnes each. Overall, therefore, the combined volume of exports from non-traditional exporting countries is estimated at 32 million tonnes, representing some 30 percent of the global market. By contrast, shipments from the five major exporters are estimated to have fallen sharply in 2002/03. Only sales from the EU are expected to have increased and this after a sudden drop in the previous season. Exports by the United States are estimated to have declined slightly, but the sharpest falls have occurred in Australia, Argentina and Canada, mainly due to production shortfalls.

World imports of coarse grains in 2002/03 are estimated at 107 million tonnes, down 1 million tonnes from the previous season. The decline is mostly driven by slightly lower imports of barley and sorghum while imports of maize, rye and oats are estimated to have increased from the previous season. On a regional basis, total coarse grain imports by countries in Africa are estimated to have increased sharply, reaching a record 17 million tonnes. Most of the expansion is seen in sub-Saharan Africa. The largest increase is in Zimbabwe, where imports are estimated to have surged by over 1 million tonnes. Other countries in the region are estimated to have sharply increased their imports in 2002/03 include Ethiopia, Malawi and Zambia. In Asia, total imports are estimated to have decreased to about 56 million tonnes. Significantly lower imports are estimated for Saudi Arabia (barley) and the Islamic Republic of Iran (maize and barley). Similarly, imports in Europe are also estimated to have decreased in 2002/03, to just over 7 million tonnes. The decline is mostly driven by a reduction in imports by the EU in response to larger purchases of cheaper feed wheat. By contrast, in North America, drought in Canada gave rise to much higher imports of maize, while in Central America, larger maize purchases are estimated for Mexico, reflecting a decline in production. In South America, imports by most countries are likely to remain at the same levels as in the previous year.

Large maize exports from China have made up for most of the smaller maize sales by the major exporters in 2002/03. China is expected to have shipped a record 14.5 million tonnes in 2002/03, more than twice as much as in the previous season. Exports from the Russian Federation and Ukraine have also increased significantly due to larger supplies. By contrast, shipments from the United States are estimated at only 52 million tonnes, down 4 million tonnes from 2001/02, mostly due to poor crops and competition from China. Smaller exports are also forecast for Canada and Australia given the decline in their domestic supplies. Sales from Argentina and the EU have increased slightly.

International trade in rice down from the 2002 record

FAO’s forecast of international trade in rice in 2003 has been raised by 300 000 tonnes from the last report to 27.1 million tonnes, which would be a contraction of 1 million tonnes from the previous year. The year-to-year drop mainly reflects expectations of a sharp decline in exports by India and Australia, following production setbacks in these two countries, while on the import side, it results from smaller deliveries to some of the major rice markets, including the Philippines, Indonesia, the Islamic Republic of Iran and Iraq.

In Asia, imports by Bangladesh have been officially forecast at 502 000 tonnes in 2003, some 40 000 tonnes below last year and some 100 000 tonnes less than previously anticipated. The decline is consistent with the bumper crop harvested by the country in 2002.

The forecast for Indonesia’s rice deliveries in 2003 remains at 3.4 million tonnes, 100 000 tonnes less than last year. However, much will depend on the production outcome this season. Despite its pledge towards rice self-sufficiency, the country has failed to achieve its paddy production target of 53 million tonnes in the past three years and has continued to rely extensively on the international market. Imports are made by both Bulog, a government agency, and the private sector, subject to a tax of 430 rupiah per kilo (about US$50 per tonne). In January 2003, the status of Bulog was changed into a state trading enterprise, which is to operate according to commercial principles. In particular, the agency, which is also responsible for the distribution of cheap rice to special and poverty groups, is to be a self-financing enterprise, making profits from trading in basic food commodities.

Following a 17 percent increase in its WTO minimum market access quota, the Republic of Korea has committed to import around 180 000 tonnes of rice in 2003, a move which should mainly benefit China, which has traditionally filled the bulk of the quota. The Republic of Korea, which opted in 1995 not to convert its rice import barriers into their tariff equivalents, is due to start negotiating the introduction of a new import regime in 2004.

Because of less buoyant expectations for 2002 production than had been anticipated, the forecast for the Philippines imports has been raised by 100 000 tonnes to 1.1 million tonnes. This would be less than the 1.3 million tonnes estimate of imports in 2002, but significantly more than the country’s target of 800 000 tonnes. Part of the rice imports will be undertaken by rice farmer organizations under new and tight trade guidelines passed this year. However, the National Food Agency is anticipated to continue to be responsible for a large share of the imports.

Last March, Sri Lanka restored the level of its rice import tariff to Rupees 7 per kilo, which had been lowered to Rupees 5 per kilo at the end of 2002 to check high domestic prices. The move is anticipated to have a negative impact on imports, which, are now estimated at 60 000 tonnes compared to 90 000 tonnes previously.

Overall shipments to Near East countries are forecast to fall by close to 400 000 tonnes in 2003, to some 4.6 million tonnes. Much of the decline reflects expectations of reduced shipments to Iraq, currently forecast at 1.0 million tonnes,0 000 tonnes less than last year, and to the Islamic Republic of Iran, whose purchases might fall from 1 million tonnes in 2002 to 700 000 tonnes this year. However, based on newly released official forecasts, a number of countries in the region are anticipated to raise their purchases, including Jordan, Oman, Syria, and Turkey. Officials in Saudi Arabia are also forecasting an increase in rice deliveries from 786 000 tonnes in 2002 to 835 000 tonnes this year, which is less than the previous FAO forecast of 1 million tonnes.

Similarly, the flow of rice into Africa is expected to decrease by 500 000 tonnes, to 7.8 million tonnes. Part of the reduction would be on account of the Côte D’Ivoire, which continues to face insecurity problems, and Nigeria. The latter country introduced new import procedures last February, in an attempt to limit under-invoicing practices. Under the new system, all charges on imported rice would be calculated on a minimum price of US$230 per tonne plus a US$40 per tonne freight. Under the recently announced domestic rice production programme, Nigeria’s Government reportedly considered the possibility of introducing a rice import ban by 2007. Rice imports had already been prohibited between 1986 and 1995, after which they had been replaced by high tariffs. Other governments in the region have also attempted to slow the inflow of foreign rice into their country, which, for Africa as a whole, doubled between 1995 and 2002. For instance, Ghana raised the tariff on rice from 20 percent to 25 percent in February. The country is anticipated to purchase 400 000 tonnes of rice this year, down from 500 000 tonnes last year. Among the other major importers in the region, Cameroon officially set imports this year at 248 000 tonnes, 20 percent less than in 2002. Government forecast for imports by Senegal, at 650 000 tonnes also suggests a drop compared with last year. By contrast, the authorities of Libya forecast a 45 percent increase over last year, to more than 160 000 tonnes.

Rice imports to Latin America and the Caribbean countries are currently anticipated to reach 3.3 million tonnes, half a million tonnes more than earlier anticipated and 600 000 tonnes above the level in 2002. The change for 2003 reflects an upward revision in imports by Brazil, which are now forecast to surpass 1 million tonnes, following the disappointing crop just harvested. Import forecasts for the other countries in the region remain unchanged from the last report, with a 10 percent annual increase anticipated for Cuba and Mexico, two of the major importers in the region, to some 600 000 tonnes each.

In the rest of the world, few amendments have been made to the major players’ imports. According to the official forecast by the United States, purchases should reach some 400 000 tonnes, similar to last year. Likewise, those by the EU are set to remain in the order of 700 000 tonnes. By contrast, shipments to the Russian Federation could dip from the official level of 441 600 tonnes in 2002 to 350 000 tonnes this year, reflecting the expected elevation of tariff protection. Indeed, in April, the Russian Government Commission for Protective Trade Measures recommended to add, on top of the normal ad-valorem duty of 10 percent currently applied, an import charge of 0.03 euros per kg on all types of rice, for a period of nine months.

Regarding rice exports in 2003, most of the 1 million tonne drop foreseen this season would be imputable to India, following the very bad crops it harvested last season. Although the country still holds large stocks, the tightening of supply induced the Food Corporation of India (FCI) to raise, in May, the minimum price at which it sells rice for export by U$15 per tonne. As a result of the move, India is no longer the cheapest source of rice, a development likely to affect the country’s exports negatively. Consequently, India’s shipments are anticipated to fall from the record 6.6 million tonnes in 2002 to 4 million tonnes this year, half a million tonnes less than previously forecast. Contradicting earlier expectations, exports from Uruguay might also contract in view of the production shortfall the country experienced again this year. The current forecast puts its shipments at close to 600 000 tonnes, 50 000 tonnes less than previously expected. Similarly, very thin supply should halve sales from Australia, which were heavily curtailed already in 2002.

By contrast, exports by Thailand, the leading rice exporter, are anticipated to rise from 7.3 million tonnes last year to 7.5 million tonnes in 2003, as the country recovers some of the markets it had lost to India. Reduced competition from the latter should also boost exports by Viet Nam, which, unlike in 2002, holds sufficient quality supply to remain competitive. The current FAO forecast puts shipments from the country at 3.9 million tonnes, up from 3.2 million tonnes in 2002. During the first quarter of this year, it had already shipped 1.4 million tonnes, twice as much as in the same period in 2002. Sales from Pakistan have also been raised from the previous report to 1.9 million tonnes, or 300 000 tonnes more than last year, reflecting a relatively good performance in the first four months of 2003. Exports by Myanmar are also anticipated to rise to 1.1 million tonnes, 16 percent above last year and 400 000 tonnes more than previously anticipated. The new rice trade policy announced by the Government on 23 April gives private traders the right to engage in rice export operations, subject to a 10 percent tax and a 50 percent sharing of profits with the Government. However, the new policy assigns considerable powers to the Myanmar Rice Trading Committee, to be established with representatives of the Government and the private sector. Official forecasts for exports by the United States were also raised to a new record level of 3.6 million tonnes, a large share of which will continue to be shipped in the form of paddy rice. Food aid shipments should also boost exports by Japan.

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