1. Since the preparation of the main document on this subject (CL 115/2) there have been some developments in the current situation reported here for the information of Council. These concern the situation on food shortages and emergencies (Section 3 of CL 115/2), the latest estimates of the world cereal supply situation and outlook (Section 4) and recent developments in world agricultural commodity markets as a result of the deterioration in world economic conditions (Section 7).

2. Latest information points to a slight deterioration in the cereal supply outlook for 1998/99 following a further downward revision of this year’s estimated output. Since the preparation of the Council report there is evidence of sharper than expected reductions in the CIS grain harvest, while prospects for rice crops in several of the major producers in Asia have also deteriorated. World cereal output in 1998 is now expected to decline by some 2 percent to 1 872 million tonnes (including rice in milled terms) from last year's record. At the forecast level, cereal output would be just below the anticipated consumption requirements in 1998/99, and as a result stocks would have to be drawn down. Nevertheless, the global stock-to-utilization ratio in 1998/99, forecast at 17 percent, would remain within the 17-18 percent range that the FAO Secretariat considers the minimum necessary to safeguard world food security. While at the global level cereal stocks are expected to decline slightly, those held by the major exporters, which usually provide the main buffer against variations in world output, are forecast to rise considerably in 1998/99 as a result of an increase in their production and sluggish world import demand. Although they have rallied in recent weeks, international wheat and coarse grain prices remain generally weaker than a year ago, and food aid availabilities from the major donors are forecast to rise sharply for 1998/99. As 1998 draws to a close, the probability of any further deterioration in the outlook for 1998/99 supply is diminishing. However, the final outcome is still dependent on clarification of the size of the CIS grain harvest and that of rice in some of the major producing countries in Asia which continue to be affected by adverse weather. Winter wheat planting of 1999 crops is already underway in the major northern hemisphere producers under generally favourable conditions. The area likely to be sown for next year’s crop is uncertain but early indications point to a possible reduction due to less attractive price prospects, apparently the main influence in the United States, but also to changes in policy, such as in the EC where the land set-aside requirement has been doubled from 5 percent to 10 percent for 1999.

3. In sub-Saharan Africa, food supply difficulties stem from weather adversities and/or civil strife. In eastern Africa, famine conditions have eased in southern Sudan with increased food aid distributions and the beginning of the new harvest. However, the food and nutritional situation of a large section of the population remains precarious. In Somalia, the food supply situation gives cause for serious concern as a result of a sharply drought-reduced 1998 main "Gu" crop, which followed the worst floods in decades. In Uganda, emergency food assistance is still needed for some 400 000 displaced people in northern areas, affected by continuing insurgency, as well as for 130 000 people in the east where the harvest was poor. In Tanzania, despite an overall increase in the 1998 food production, some 300 000 people in central, northern and coastal areas will need food assistance. In Burundi and Rwanda, despite a recovery in food production this year, food assistance is needed for large numbers of displaced people affected by persistent insecurity in parts.

4. In western Africa, a bumper crop is anticipated in the Sahel with record harvests in Niger, Chad, Mali and well above average harvests in The Gambia and Mauritania. However, production remains average in Burkina Faso and Senegal and below average in Cape Verde where localized food supply difficulties are anticipated. In Guinea-Bissau, civil strife has hampered agricultural production and the overall food outlook is poor. Liberia and Sierra Leone remain heavily dependent on international food assistance despite some improvement in food production. In central Africa, civil strife in the Democratic Republic of Congo since early August is hampering agricultural and marketing activities in the Kivu region in the east, where increasing population displacement is reported. In southern Africa, the food supply situation has tightened in several countries, particularly in Lesotho, Namibia and Zambia following reduced cereal production associated with El Niño. Production of foodcrops improved this year in Angola, but due to continued insecurity, relief assistance will be required for the internally displaced, vulnerable and drought-affected population.

5. In Asia, persistent rains and floods in the summer, attributed to the La Niña phenomenon, caused loss of life and heavy damage to crops and property. The damage was particularly heavy in Bangladesh, with floodwaters covering most of the country for more than two months. In Korea DPR, despite a modest recovery in cereal output in 1998, a large food deficit is forecast for 1998/99. In Indonesia, a recent FAO/WFP mission found that food security has worsened as production fell further and the economic crisis deepened. In Afghanistan, despite a recovery in cereal production, the food situation remains precarious in the areas affected by civil strife. In Iraq, despite the easing of the food supply situation with the implementation of the oil-for-food deal, malnutrition still remains a serious problem. In Laos, food supply difficulties have been exacerbated by drought, while in Mongolia, food supply problems persist among vulnerable sections of the population.

6. In Latin America and the Caribbean, hurricane rains, widespread flooding and sustained high-force winds caused severe loss of life and immense damage to housing, infrastructure and crops in several countries of the sub-region. Cuba, Dominican Republic, Haiti, Antigua and Barbuda, and St. Kitts/Nevis were among the island states particularly affected in late September by the hurricane, while Honduras, Nicaragua, Guatemala and El Salvador were also seriously affected in the last days of October. Between 26 October and 1 November, hurricane "Mitch" swept across Central America with torrential rains and widespread flooding. Thousands of people have perished and millions have been left homeless. The damage to housing, infrastructure and agriculture is on an unprecedented scale. Honduras and Nicaragua have been the hardest hit. Guatemala and El Salvador have also been severely affected, and, to a lesser extent, Costa Rica, some south-western parts of Mexico and Jamaica.

7. In the Commonwealth of Independent States (CIS), vulnerable people in Armenia, Azerbaijan, Georgia and Tajikistan continue to need relief food assistance.

8. In Europe, displaced people in Bosnia-Herzogovina, Albania and the Kosovo Province of the Federal Republic of Yugoslavia are receiving food assistance.

9. The slowdown in world economic growth in 1998 has been reflected in world agricultural commodity markets. But other factors have also been at work recently in these markets, some depressing markets and in other cases supporting them.

10. Thus, the financial crisis, propagating the slow-down in income growth largely in Asia and the CIS, but encroaching into the rest of the world, had a dampening effect on global import demand for many commodities, resulting in a fall in their prices. At the same time, the devaluation of a number of currencies associated with the turmoil, coupled with sharply lower shipping costs, enhanced the export competitiveness of some commodities (e.g. tropical fruit). Intertwined with these developments were, on the one hand, the effects of good harvests of some temperate food commodities, triggered by favourable weather in many countries outside the two tropics and of expectations of weather induced record production of some tropical products (e.g. coffee and tea) which contributed to weakening prices. On the other hand, the impact of a decline in output of some commodities (e.g. rice), resulting from the effects of El Niño in a number of developing countries, exerted upward pressure on their prices while the waning of fears of consuming meat contaminated by various diseases has supported the demand for meat.

11. This interplay of economic climatic and, in the case of livestock products, human health factors resulted in diverse developments in the markets of agricultural commodities in 1998 as set out below. Abundant supplies of wheat and coarse grains from bumper harvests in major exporting and importing countries in 1996/97 exerted strong downward pressure on international prices over two seasons in the absence of an offsetting rise in demand. Prices, largely of wheat, however, have risen recently, fuelled by the traders' anticipation of increased imports by the Russian Federation, despite this country’s financial difficulties and relatively large carryover stocks. By contrast, a sharp, weather-related, fall in paddy output in major producing countries in Asia in tandem with continued strong import demand from Asian countries for their basic food staple, pushed prices upwards in the first half of 1998. They peaked in July 1998 with the bulk of import requirements covered and new crop supplies beginning to enter the market. Cassava prices declined despite a drop in global production under the impact of competitively priced feed grains replacing cassava in compound feeds. Tight supplies in the vegetable oil market, particularly emanating from a drought-induced contraction in palm oil availability from major Asian producing countries, boosted prices, while oilmeal prices suffered from a decline in the demand for animal feeds in crisis affected regions, accentuated by abundant supplies of competing feed grains. The international meat market was governed by different factors for the various types of meat, at times neutralizing each other and generating divergent price trends. Thus, while fading fears of consuming beef, pork and poultry meat contaminated by BSE, e-coli, foot-and-mouth disease and avian flu, respectively, led to a modest recovery in demand in a number of countries, the loss in purchasing power in crisis-affected countries had the opposite effect, despite financial incentives granted by major exporting countries. Overall, rising supplies of most meats, supported by lower feed input costs, together with sluggish import demand have kept meat prices under downward pressure.

12. As regards other crops, expectations of record coffee and tea production, and some recovery in cocoa production had induced lower prices which could be further prolonged by reduced import demand firstly in the area of the former USSR and subsequently by the effects of more general economic slowdown which could dampen demand growth. For some of these commodities, until recently the area of the former USSR and countries of eastern Europe contributed significantly to the growth of total import demand. For sugar, the financial crisis which initially curtailed imports into major Asian markets has also led to a substantial drop in imports into the Russian Federation, the largest single import market. The global economic slowdown is expected to weaken import demand while export availabilities would remain high with a resultant downward pressure on prices during the remainder of 1998 and early 1999. For major fruit traded internationally, citrus and bananas, the markets in most countries of the area of the former USSR, and particularly the Russian Federation, have contracted significantly. The general tendency for prices to weaken has, however, been reversed in the case of citrus fruit due to early season indications of smaller 1998/99 crops in the Mediterranean region, the United States and Brazil. Imported fruit into some major markets of Asia have contracted in favour of domestically produced tropical fruits. The export of tropical fruit has also received a boost from the currency devaluation by some leading exporters. The slowdown in world income has had a serious impact on the markets for a number of raw materials, particularly cotton, rubber, and hides and skins, while for industrial fibres such as jute and hard fibres the impact is slight. Cotton prices are at their lowest for 4 years as a result of weakened demand in several major consuming countries, while markets for both hides and skins and for rubber have been seriously affected by weaker demand for final products induced by the poor economic performance in many economies. On the contrary, the depressed prices for jute are mainly the result of the sharp rise in production following high prices in 1996 while the market for sisal remains relatively strong.

13. On balance, the economic deterioration has no doubt had an impact on market developments of most major commodities. It generally had a more dampening effect on higher-valued, income elastic, products rather than on essential food staples which have a lower elasticity of demand. However, it would be very difficult to quantify these effects, given that the economic factors set in motion by the crisis frequently have been overlaid by other factors, particularly related to the weather.