Table of Contents

I. INTRODUCTION

II. WHEAT

A. Production

B. U0tilization

C. Trade

D. Stocks

E. International prices

III. RICE

A. Production

B. Utilization

C. Trade

D. Stocks

E. International prices

IV. COARSE GRAINS

A. Production

B. Utilization

C. Trade

D. Stocks

E. International prices

V. CONCLUSIONS AND MAJOR POLICY ISSUES

I. INTRODUCTION

1. Between the mid-1980s and the mid-1990s (1993-95), the global cereal market was characterized by slow growth in production and demand and almost no growth in trade. While the developing countries expanded cereal production by 2 percent annually, production among the developed countries limped along at less than 0.2 percent per year, largely as a result of changes in policies among the major grain producing and exporting countries designed to restrict area and reduce carryover stocks, especially the Common Agricultural Programme in the EC and agricultural reforms in the United States. Cereal production also took a sharp dive among the countries in transition following the economic reforms instituted in the early 1990s. At the same time, world utilization of cereals expanded by only 1.3 percent per year but grew faster among the developing countries. The economic reforms in the transitional countries also took a toll on demand, which declined at a faster rate than production during the last decade. Largely as a result of relatively strong production growth in the developing countries, especially in China, and the sharp drop in consumption in the countries in transition, international trade stagnated. Since 1993-95, other events also contributed to constraining growth in import demand, including the spike in cereal prices in 1995-96 and the global financial crisis that began in Asia in 1997. However, it has been assumed that these events were of a temporary nature and would not significantly affect market developments in the medium-term.

2. By contrast to the previous decade, FAO's projections¹ point to a more positive growth scenario in the world cereal market, in particular for trade. Fundamentally, this is based on the following assumptions: intensification of livestock production systems, with a strong derived demand for feed grains; faster global income growth over the projection period, from the 1993-95 base period to 2005, compared with the previous ten years, with, in particular, a strong economic recovery in the countries in transition; and the continuation of structural reform programs and full compliance of countries with their Uruguay Round Agreement (URA) commitments.

II. WHEAT

3. Wheat production is widely dispersed and is produced roughly equally between the developing and developed countries. Its production repres-ented about one-third of the world cereal output in the base period. It is primarily a cereal food crop accounting for 43 percent of cereals used for food in the base period, mostly in the developing countries, and is also an important feed crop representing some 15 percent of the world total. About 18 percent of the world's wheat production was traded in the base period and accounted for some 45 percent of global cereal trade. The bulk of the world trade in wheat (85 percent) was supplied by five major exporters² while the developing countries accounted for three-quarters of the world imports.

A. PRODUCTION

4. Global prospects for wheat production show an expansion of 95 million tonnes, or 17 percent, to 642 million tonnes by the year 2005. This represents an annual growth rate of 1.5 percent compared to 0.8 percent during the previous decade. Some 60 percent of the projected increase in output will likely be due to better yields, although the growth in wheat yields could slow during the projection period compared to the previous decade. By contrast, the medium-term outlook for global wheat area shows a modest advance, reversing a slight downward trend observed since the mid-1980s.

5. The developing countries are estimated to account for about 59 percent of the total projected increase in global wheat output. Over three-quarters of the increase is likely to occur in Asia, another 14 percent in Latin America and the Caribbean (LAC) and 8 percent in Africa. In Asia, China and India, together, are anticipated to account for three-quarters of the total gains in the region. The expected growth in wheat production in the LAC region, while modest compared to Asia in absolute terms, is estimated at 3.4 percent annually, the fastest rate among the developing country regions, primarily as a result of strong growth in Argentina, the major wheat producing country in LAC. In the Central American sub-region, Mexico could expand its output by 10 percent compared to the base period. North Africa and the sub-Saharan countries could also experience relatively strong expansion in wheat output, with each sub-region contributing about one-half of the total increase for Africa as a whole.

6. Among the developed countries, including four of the major wheat exporting countries, output is expected to increase by 13 percent over the base period. The strongest growth is anticipated in Australia, approaching 3 percent per annum, while a more modest expansion is likely among the other major exporting countries. Wheat production is projected to recover in the group of transitional countries, primarily eastern Europe and the CIS, as their agricultural sectors continue to reform following the breakdown of their agricultural systems.

B. UTILIZATION

7. The medium-term outlook for world wheat demand shows an increase of 14 percent to 640 million tonnes by 2005. This translates into an annual growth of 1.2 percent compared to 1.4 percent during the previous decade. The somewhat slower growth rate in the projection period is linked to a small increase in the world per capita food consumption of wheat, from 69.7 kilograms annually in the mid-1990s to 70.8 kilograms by 2005.

8. Total food consumption of wheat could expand by 18 percent to 460 million tonnes. The bulk of the growth is expected in the developing countries of Asia, accounting for two-thirds of the total global increase. The largest expansion is projected for South Asia, in particular in India's as it's per caput food consumption of wheat could increase by 10 percent up to 64 kilograms per year. By comparison, the very high levels of per caput food consumption of wheat in North Africa (165 kilograms) are expected to limit any significant growth in most countries of the sub-region, and, in fact, a decline in per caput consumption could occur in some of the countries due to the growing availability of alternative foods, especially in urban areas. The rest of Africa, as a whole, is likely to maintain its very low level of per caput wheat consumption (14 kilograms ) due to cheaper alternative local food sources, low income levels and limited foreign exchange for imports. A modest increase in wheat consumption is also projected for the LAC region where other native crops, including maize, compete with wheat in the local diets.

9. Among other countries, gains in wheat consumption for food are likely in the transition countries where income growth is expected to recover sufficiently to boost food consumption of wheat in some countries. Very little growth is expected among other countries, in particular in western Europe, where per caput food consumption of wheat could fall slightly by 2005.

10. The feed use of wheat, although significant in some countries, is projected to grow by only 5 percent to 103 million tonnes by 2005, limited primarily by the competitiveness of alternative feeds. In the group of economies in transition, feed use of wheat in 2005 is foreseen at around the same volume as during the base period, which was about one-third of total utilization, and in the EC, where wheat feed use is about 40 percent of the total, much smaller growth is projected than during the previous decade.

C. TRADE

11. Global trade in wheat is projected to expand by 15 percent to reach 115 million tonnes by 2005. The largest contribution to that growth is likely to come from increased import demand in the developing countries. Although imports into the developed countries are also expected to rise somewhat, this would be more than offset by an anticipated decline of wheat imports into the countries in transition.

12. On a regional basis, wheat imports will likely continue to expand mostly in Asia, which could account for some 46 percent of the total increase. In mainland China, wheat imports are foreseen at around 4 million tonnes in 2005, compared to an average 9 million tonnes in the base period, after having fallen to just 1-2 million tonnes in recent years. India, the second largest wheat producing country in Asia after China, is expected to meet its domestic needs to a large extent, requiring minimal imports. The net wheat importing countries in the LAC region are likely to continue to expand their imports as climate and land are not suitable for wheat production in many areas. Consequently, Brazil and Mexico will continue to be the largest wheat importers in the region, taking almost half of the projected total increase in the region. North Africa is anticipated to account for three-quarters of the projected increase in total imports into Africa by 2005. Among other net wheat importing regions, eastern Europe and the CIS are predicted to reduce their wheat imports with the largest decreases anticipated in Poland and the Russian Federation. Wheat imports into North America are likely to stabilize, while Japan could see a small increase above current levels by the end of the projection period.

13. As for the net wheat exporting countries, the countries in transition are expected to raise their combined exports with Poland, Romania and the Ukraine being the best performers. Among the traditional wheat exporting countries, Argentina and Australia are also expected to account for larger shares of world trade, while Canada and the EC could lose some of their global market share by 2005. The United States is anticipated to maintain its one-third share of world wheat trade.

D. STOCKS

14. Wheat stocks represent an important element in global food security. In the past, the major exporting countries held the bulk of the world's stocks that were available to meet increased import demand during periods of supply shortfalls. Since the mid-1980s, however, wheat stocks held by the major exporting countries declined from about 50 percent of the world's total to around 30 percent in the base period, which is the same proportion expected to be maintained in 2005. In terms of the level of world ending stocks in relation to total utilization, the ratio is estimated to decline from 23 percent in 1993-95 to 21 percent in 2005. While not a large relative reduction, the change is significant as it represents a tighter wheat market situation in 2005, compared to the base period.

E. INTERNATIONAL PRICES

15. The tighter global market situation for wheat in 2005 is reflected in the international price of wheat, represented by the index of the export unit value for wheat and wheat flour, which is expected to increase by 3.2 percent. In real terms the export unit value would rise from US$150 in the base period to US$155 by 2005. However, this price would still be considerably below that of the previous decade when, for example, the export unit value averaged US$251 in 1983-85.

III. RICE

16. Rice is the most important basic staple food for about one-half of the world's population and provides over 20 percent of the global calorie intake. As most of the rice produced is consumed domestically, only 4 percent of global production is internationally traded. The world rice economy is also featured by a high degree of concentration, with Asia responsible for slightly less than 90 percent of global rice production and consumption, about 50 percent of imports and 72 percent of exports in the base period.

A. PRODUCTION

17. World rice production is projected to expand by 1.4 percent per year to 424 million tonnes, slightly below the 1984-94 growth rate. Most of the expected increase would be brought about by yield improvements likely to arise from on-going research and progressive adoption of high yielding, pest and drought resistant varieties and of hybrid rice technology. By contrast, area is anticipated to expand marginally, by less than 2 percent over the whole period, constrained by increasing competition for land and water not only from other crops but also from industrialization and urbanization. In that regard, some countries, including Japan and Egypt, have instituted policies aimed at gradually reducing the area under rice, but others, like China, Indonesia and the Philippines, have taken steps to prevent rice fields from being diverted to other end-uses. As in the preceding decade, most of the envisaged land expansion would be in Africa where both swampland and upland are potentially available for rice cultivation.

B. UTILIZATION

18. World demand for rice is expected to expand at an annual rate of 1.3 percent to 422 million tonnes, down from 1.9 percent in 1984-94 and basically in line with population growth. This means that average rice per caput consumption world-wide is expected to remain constant at around 59 kilograms, constrained by a slight decline in Asia. In that region, different consumption patterns are expected in the medium term. They point to further increases in India, Indonesia, Vietnam, Bangladesh and the Philippines, where the income threshold at which substitution of rice for other foods takes place may not be attained by 2005. By contrast, consumption is anticipated to fall in Japan and the Republic of Korea, in line with the tendency prevailing since the early 1980s, as well as in China, Thailand and Malaysia. In Africa, little change in per caput rice consumption is anticipated, constrained in many countries by a lack of purchasing power. In the other regions, per caput rice consumption is expected to expand, albeit from relatively low levels. In Latin America and the Caribbean (LAC), it is projected to be lifted by a switch from traditional coarse grains to rice, fostered by an increase in incomes. In the developed countries, the growth in per caput consumption of rice is expected to be influenced by dietary diversification and demographic changes.

C. TRADE

19. The international rice market is very thin, a feature that confers a large degree of variability to trade, as small fluctuations in production or consumption may induce large changes in export availability or import requirements. Assuming normal conditions, world rice trade is projected to rise by about 2 percent per annum to 24 million tonnes by 2005, or 6 percent of the projected world production. Countries in Asia should remain the most important destination, taking about 49 percent of the total. Within that region, countries in the Near East are likely to remain major growth markets, with imports sustained by an expected economic recovery and, as in the case of Saudi Arabia, by a growing presence of immigrant work force from other Asian rice-eating countries. Imports by Indonesia, the Philippines and Nepal are projected to rise significantly, because of a slowing of production growth over the period. The Republic of Korea is also anticipated to step up its purchases in compliance with its URA commitments. Elsewhere, African countries could import more, especially as several of them have lowered barriers to trade. As a result, their dependency on foreign sources of supply could rise to 30 percent of total consumption by 2005, 3 percent more than in 1993-95. By contrast, imports into the LAC region would expand moderately compared with the previous period. Overall purchases by the developed countries are projected to stagnate, with Japan's imports, that were particularly high during the base period, anticipated to fall to the level of compliance with its URA minimum market access commitments.

20. On the export side, rice shipments from both Thailand and Vietnam are projected to rise. Although Thailand should remain the leading world rice supplier, it is expected lose out in terms of market share in favour of Vietnam which, in turn, might consolidate its current position as the second most important exporter. Increased sales from Pakistan, Myanmar and Cambodia are also projected. By contrast, both India and the United States might export less, while remaining important players on the market. China is projected to retain its re-acquired status as a net exporter although volumes shipped may be limited. Exports from LAC are projected to increase to over 2 million tonnes by the year 2005, supported mostly by increased sales from Argentina and Uruguay.

D. STOCKS

21. World rice stocks are forecast to increase in absolute terms to 65 million tonnes, about 8 million tonnes more than their base period level. That increase would not be sufficient to prevent a slight deterioration in the global stocks-to-use ratio, compared to the base period. That relation is projected at 15.4 percent in 2005, equivalent to about two months of world consumption.

E. INTERNATIONAL PRICES

22. The international market for rice is projected to clear in 2005 at a price 5 percent higher, in real terms, than in the base period. However, price movements are likely to vary depending on rice types and/or grades. For instance, the projected rise in incomes should foster a growing import demand for medium and high-quality rice. The price for high-quality aromatic rice, in particular, is expected to increase fastest, since demand is anticipated to out-pace supply. By the same token, low quality rice prices could fall as demand is likely to contract. To some extent, however, such a price fall could be limited by a rise in the demand for broken rice as animal feed. In general, given the tightness in the projected balance and the relatively small proportion of rice traded, international market prices are expected to be quite sensitive to demand and/or supply shocks that could lead to considerable volatility.

IV. COARSE GRAINS

23. Coarse grains comprise maize, barley, sorghum, oats, rye and millet plus numerous minor grains. Together they accounted for almost one-half of the world cereal production in the base period (1993-95). About 60 percent of the global output was produced in the developed countries and the countries in transition. Coarse grains constitute the primary cereal source for animal feed, accounting for 83 percent of the world total. They are also an important food source for many countries in Africa and in Latin America and the Caribbean (LAC) and represented some 20 percent of total cereal utilization in that region. About 11 percent of global coarse grain production was traded in the base period, with 60 percent imported by the developing countries. The bulk of the world coarse grain exports (82 percent) were supplied by the five major exporters³.

A. PRODUCTION

24. Global coarse grains production is projected to expand by 171 million tonnes from the base period, an increase of over 20 percent, to 1 008 million tonnes by the year 2005. This represents an annual growth rate of 1.7 percent compared to 0.6 percent during the previous decade. Some 80 percent of the projected expansion is likely to be due to higher yields, although yield growth could slow during the projection period. The total area under coarse grains is expected to expand modestly, reversing the small downward trend since the mid-1980s.

25. The developing countries are estimated to account for about half of the total projected increase in coarse grain production. Asia is estimated to contribute 46 percent of the increase, with 28 percent coming from Africa and another 26 percent from the LAC region. In Asia, China is anticipated to account for the bulk of the region's gains. Overall, the annual growth in Asian coarse grain production is estimated to slow over the projection period (1.7 percent) compared to the previous decade (2.3 percent). Coarse grains production in the LAC region is projected to grow at 2.2 percent annually, an improvement over the previous decade (1.6 percent), primarily as a result of strong growth in Argentina and Brazil. Most African countries are projected to expand their production of coarse grains which in many sub-Saharan countries constitute subsistence crops, such as white maize, sorghum, millet and other minor grains.

26. Among the developed countries, including four of the major exporting countries, output is expected to increase by 20 percent over the base period. The strongest growth is expected in the United States and Australia, although the latter is a relatively small coarse grain producer. The United States alone would account for 85 percent of the total increase among the developed countries as a whole. Similar to wheat, the downward trend in coarse grain production observed during the previous decade is expected to be reversed in the group of transitional countries, resulting in a rise of 10 percent during the projection period.

B. UTILIZATION

27. The growth in the global demand for coarse grains is likely to be stronger than during the previous decade, reaching 1 007 million tonnes by 2005, an increase of 148 million tonnes. Total utilization of coarse grains is expected to grow by 1.5 percent per year, compared to 0.9 percent during the previous decade. About three-fourths of the increase is for feed use (107 million tonnes), up 20 percent from 1993-95, largely in response to expected strong growth in the demand for livestock products in the developing countries. Food consumption of coarse grains, an important human dietary source in several developing countries, is expected to account for the second largest increase in total utilization, of almost 14 percent.

28. About two-thirds of the projected global increase in feed use is likely to occur in the developing countries (67 million tonnes), of which Asia accounts for about one half of that. The largest growth is foreseen in South East Asia, up 48 percent from the base period. A somewhat less pronounced increase (30 percent) is projected for feed use in the LAC region, especially in Brazil where part of the gain is attributed to an expected expansion in poultry meat exports. In Africa, the use of coarse grains for feed is anticipated to remain relatively low, except in North Africa where a sharp increase (36 percent) is expected.

29. Among other countries, substantial gains in feed use are likely in the developed countries, accounting for 29 percent (31 million tonnes) of the global increase. The United States, in particular, is expected to boost its feed use of coarse grains, largely to meet domestic requirements for livestock products and to support the projected growth in exports of poultry and pig meat. The countries in transition could experience a reversal of the decline in feed use experienced during the previous decade as their economies are expected to continue to recover.

30. Although food consumption of coarse grains is projected to increase by only 14 percent at the world level, it is likely to remain strong in some regions which are more dependent on coarse grains for food. In Africa, food demand is projected to rise by almost 37 percent from the base period, and in Central America by 36 percent. By contrast, food consumption of coarse grains is likely to decline slightly in the countries in economic transition and to grow by only 2 percent in Asia.

C. TRADE

31. Global trade in coarse grains is projected to expand by 21 percent (20 million tonnes) to 114 million tonnes by 2005, primarily among the developing countries. Future coarse grain imports into the developed countries and the countries in transition are expected to be limited by rising domestic production.

32. On a regional basis, the developing countries of Asia are likely to account for 60 percent of the total increase in world imports. The most dramatic increase could be in mainland China where imports are projected to double, compared to the base period, to 8.7 million tonnes by 2005, primarily maize for feed, although the brewery industry is also likely to increase its dependence on barley imports. However, China is likely to continue to export maize because internal transportation and infrastructure bottlenecks could still make some exports economically more attractive than internal shipments. Coarse grain imports into the LAC region are projected to account for 13 percent of the total global increase, especially for maize in Brazil and Mexico. Africa is anticipated to account for another 17 percent, reaching 12.9 million tonnes by 2005. Unlike the other developing regions, the bulk of the coarse grain imports by countries in sub-Saharan Africa are likely to be for food, in particular maize.

33. Projected imports into Japan, the world's largest import market for coarse grains, are expected to stabilize at around 20 to 21 million tonnes, with maize imports accounting for three-quarters of the total. Among other developed countries, those in eastern European are expected to increase imports of coarse grains, but these may still be below the average volume of the previous decade. Future imports into the CIS could also rise over the base period.

34. Among the traditional coarse grain exporting countries, Argentina and the United States are expected to supply the bulk of the expansion in shipments, with the United States maintaining its 60 percent share of the global market while that for Argentina is estimated to grow from 6 percent in the base period to 8 percent by 2005, mostly in maize. The EC is projected to expand shipments by almost 2 million tonnes to 9.2 million tonnes by 2005, maintaining its 8 percent share of the world market. As for the other net-exporting countries, the eastern European and CIS countries are also expected to raise their combined share of global coarse grain exports from 4.8 percent to 5.7 percent by 2005, primarily in barley and maize. In this regard, eastern Europe is projected to shift from a net importer of coarse grains in the base period to a net exporter, as maize imports decline and other coarse grain exports expand.

D. STOCKS

35. Global coarse grain stocks are expected to increase by about 5 percent during the projection period. In relation to total utilization, world stocks would increase from 12.9 percent in 1993-95 to 13.6 percent by 2005, all of the increase coming from the net-importing, mainly developing, countries. The share of world inventories held by the five major coarse grain exporters are projected to decline slightly, from 39 percent in the base period to 36 percent in 2005.

E. INTERNATIONAL PRICES

36. The international price of coarse grains, as represented by the index of the export unit value of maize, is projected to increase by 4.3 percent in real terms. The export unit value of maize would increase from US$134 in the base period to US$140 by 2005, but would still be considerably below the level during the previous decade when, for example, it averaged US$226 in 1983-85.

V. CONCLUSIONS AND MAJOR POLICY ISSUES

37. The current set of cereal projections point to a relatively balanced expansion in global demand and supply in the medium term. While the projection results are based on a set of critical assumptions, there are a number of issues that, by nature of the modeling process, could not be directly addressed in the projections but could have significant influences on the future development of the global cereals market. These are reviewed briefly and could be used as a basis of discussion by the Groups.

38. One of these issues is the ability of the developing countries to take fuller advantage of existing production technologies. The development of this potential among these countries will largely depend on individual country policies and access to existing technologies. In this regard, it is critical that government policies and research institutions provide the much needed support to cereal production in the developing countries, in particular in the adaptation of varieties which are less resource demanding and more adaptable to local growing conditions. National and international networks will also play a critical role in ensuring access to the new technologies world-wide.

39. The relative stability of per caput cereal food consumption expected in the medium term is a reflection to a large extent of the diversification in the dietary patterns towards meat and other non-traditional foods, which is expected to be accentuated by the continuing rural-to-urban migration. This, however, is likely to conceal that continued poverty in many countries would leave hunger problems still unresolved, especially among the most vulnerable sections of the population. A major challenge in the near future will, therefore, be that of making cereal supplies more accessible to the developing countries.

40. Accessibility to cereal supplies, to a large degree, can be accomplished through trade which should benefit from continued market and trade liberalization policies. However, there have been signs recently that progress in this area is being delayed as generally low cereal prices in recent years have put additional pressure on some governments to raise protection to their farm sectors. Furthermore, the special situation of the least-developed and net-food-importing countries, recognized in the Ministerial Decision of the last GATT Round, merits further consideration; in particular regarding levels of food aid, technical assistance and financial support to their agricultural sectors and to help their structural adjustment reforms, and assistance in financing food imports.

Table 1 - TOTAL CEREALS

Table 1 (cont'd) - TOTAL CEREALS

Table 2 - WHEAT

Table 2 (cont'd) - WHEAT

Table 3 - RICE, MILLED