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GRAIN1.AGR
GRAINS: WORLD MARKETS AND TRADE, PART ONE
September 15, 1997
This report provides the data and tables from the current GRAINS: WORLD MARKETS AND TRADE, PART ONE. This report draws on information from USDA's global network of agricultural attaches and counselors, official statistics of foreign governments, other foreign source materials, and results of office analysis. Estimates of U.S. acreage, yield and production are from the USDA Agricultural Statistics Board, except where noted. This report is based on unrounded data; numbers may not add to totals because of rounding. The report reflects official USDA estimates released in the World Agricultural Supply Estimates -->WASDE 330-September 12. This report was prepared by the Grain and Feed Division, FAS. Agbox 1048, 14th and Independence Ave. Washington DC 20250. Further information may be obtained by writing to the division, by calling (202) 720-6219, or by FAX (202) 720-0340. The next issue of the Grains circular will be available electronically after 3:30 pm local time on October 14.
EXECUTIVE SUMMARY
SITUATION/OUTLOOK
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
WORLD AND U.S. GRAIN OVERVIEW
WHEAT
The global trade in wheat is expected to grow for the second consecutive year due to a record high 596.1 million ton production level and a corresponding decline in prices. However, unlike the bumper crop of 1996/97, which saw three of the world's five major exporters harvest record amounts, most significant production increases in the current year are centered in traditionally non-exporting nations such as China, the former Soviet Union, India and Eastern Europe. This raises the possibility that export availabilities of quality supplies may not be as abundant as production levels might suggest. The increased production will exceed consumption for the second year in a row and by a wider margin, allowing for the rebuilding of severely depleted global stocks from the prior year's record low. Prices continue to reflect the markets' growing shift in focus away from the level of global stocks and toward the amount of world production.
RICE
Projected 1998 world rice trade was increased 100,000 tons this month, from 18.4 to 18.5 million tons. The U.S. export projection was raised from 2.7 to 2.8 million tons due to larger than previously expected exportable supplies. On the import side, adverse weather conditions in Central America have led to increases in expected imports for Costa Rica, El Salvador, Honduras and Panama in both 1997 and 1998. Forecast imports for these four countries were increased by 65,000 tons for 1997 and 75,000 tons for 1998. The import forecast for Jordan was also raised for both 1997 and 1998, by 20,000 and 10,000 tons, respectively.
COARSE GRAINS
Global trade of coarse grains during 1997/98 is projected to be 91.1 million tons, a marginal increase over the 1996/97 level and the second highest level of the last 5 years. Global production of coarse grains in 1997/98 is expected down moderately from the 1996/97 level, primarily due to expected decreases in prospects for the U.S., Canada, China, North Africa and Latin America. Foreign coarse grain stock levels are forecast to be sharply lower primarily because China's corn stocks are expected to be drawn down from 1996/97 levels. U.S. stocks are also expected to decline in 1997/98. World stock levels at the end of the 1997/98 season are forecast to decline about 16.3 million tons to 105.6 million tons. The global stocks-to-use ratio for 1997/98 is expected to fall moderately to 11.8 percent -- the second lowest level on record.
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
A Review of U.S. Trade Restrictions on Grain Exports
Economic sanctions can be powerful foreign policy tools targeted to further U.S. foreign policy and national security objectives. Trade restrictions imposed by the U.S. Government, however well-justified, do impact U.S. commodity exporters and consequently the entire agricultural sector. Furthermore, the effects of these restrictions are not limited to just the markets that U.S. exporters are prohibited from trading with: other exporters change their marketing strategies to the detriment of the U.S. Sanctions preventing trade are administered by the Department of the Treasury's Office of Foreign Asset Control (OFAC). Through various laws and Acts, grain trade with Cuba, Iran, Iraq, Libya, and North Korea is restricted. While economic sanctions against these countries were implemented at differing times, all have been in effect since August 1990. Occasionally licenses for export are given, notably the broad-based "General License" given for exporters to participate in the UN-supervised Oil-for-Food Program in Iraq, and "Specific Licenses" given to an individual company, as in the recently collapsed barter deal between North Korea and a U.S. exporter. Despite these and other occasional exemptions, the trade restrictions currently in force effectively reduce the size of the world market available to U.S. commercial exports.
WHEAT
After three years of decline, global wheat import demand grew in 1996/97 and is expected to rise further in 1997/98. However, U.S. export prospects have not improved by a commensurate amount as several growing markets are closed to direct U.S. commercial wheat exports. Wheat imports by Cuba, Iran, Iraq, Libya, and North Korea totaled only 5.3 million tons in 1995/96 but are expected to reach 10.4 million tons in 1997/98, representing nearly 11 percent of world trade. This is the largest percent of global wheat trade that the U.S. has been excluded from due to self-imposed trade restrictions since the 1980 embargo on exports to the Soviet Union. Thus at a time when U.S. producers are harvesting the largest crop of the 1990's, U.S. exporters are facing the second lowest level of serviceable import demand of the decade.
RICE
Of all grains exported by the United States, rice has been particularly hard-hit by trade restrictions. In 1962 the largest export market for U.S. rice was Cuba. The Cuban Assets Control Regulations issued on July 8, 1963, closed that market to U.S. exporters. The largest importer of U.S. rice in 1989 was Iraq, which was closed to U.S. exporters by Executive Order 12722 on August 2, 1990. In 1995 Iran was the largest export market for U.S. rice, despite trade being closed off on May 6 of that year by Executive Order. For 1997/98, when the U.S. is expected to harvest the third largest rice crop on record, more than 13 percent of projected global rice import demand will have restrictions placed upon it.
OTHER COMMODITIES, OTHER EFFECTS
With the exception of Iran, corn imports by these countries are quite minimal. Iran did purchase as much as one-half million tons of corn from the U.S. in 1994/95, but a recent tightening of the trade sanctions against Iran by Executive Order 12957 in May 1995 has stopped even this small amount of trade. Consequently, Argentina has significantly expanded shipments of corn to Iran, meeting over 75 percent of Iran's import needs in 1995/96 and 1996/97. Similarly, South Africa's corn shipments accounted for less than ten percent of all Iranian corn imports from 1988-1990, as compared to more than 25 percent in 1995/96 and 1996/97.
Economic sanctions have historically only affected U.S. companies, with the recent Helms-Burton Amendment concerning Cuba being a notable exception. However, other exporters, particularly single-desk countries, modify their sales programs pursuant to U.S. economic sanctions. For example, Canada for the three marketing years prior to 1990 exported on average less than one-half million tons of wheat to Iran. Since 1990, however, wheat exports by the Canadian Wheat Board to Iran have averaged over 1.3 million tons per year. Australian Wheat Board exports to these countries have remained relatively stable over the past 10 years.
Expanding market share is not the only, and perhaps not even the primary, benefit of U.S. economic sanctions to U.S. competitors. Prices, particularly those charged by single-desk exporters, can take advantage of the lessened competition brought about by the removal of U.S. traders. Higher-than-prevailing market prices charged to several of the sanctioned countries have been reported by numerous sources. This in turn enables a board exporter to charge a lower price in a market where the U.S. can compete, and still maintain an average return. Thus not only is the U.S. kept from participating in the embargoed markets, but U.S. exporters must compete with lower bids in other markets.
So far, only sanctions imposed at the federal level have been mentioned. There has also been a recent flurry of unilateral sanctions imposed at the state, county, and city level. Included are resolutions and laws prohibiting trade with and travel to various countries. While the legality of these sanctions is in question, the negative publicity that may result from pursuing legal business activities doubtless has dampening effect upon export activities of industries and individuals within these localities.
As previously stated, unilateral trade and other economic sanctions are powerful foreign policy tools that exist to be used as deemed necessary by U.S. policymakers. However, they are not without cost to the U.S. agricultural sector.
For further information, please contact Scott Thompson at (202) 690-4195.
Eastern Europe Returns to Wheat Exporter Position as Market Reform Continues
With an eye toward accession to the EU, Eastern Europe is undergoing a series of market reforms, although the market is rather fragile, as was demonstrated by last year's wheat crisis. Price signals to increase planting did not reach Eastern European farmers. Moreover, weather itself was extraordinarily inclement, but coupled with the farmer's severe lack of crop inputs (from deficient credit), the harvest was exceptionally poor. Struggling with a wheat shortage, governments found themselves once again intervening in grain markets, resorting to protectionist measures such as imposing export bans, or importing high levels of wheat to replenish state reserves. The region as a whole imported 3.8 million tons of wheat and was only able to export a meager 650,000 tons.
At present, the wheat harvest is coming to a close, but production and trade numbers remain uncertain. In contrast to last year's disastrous crop, a year of better weather and higher yields are expected to thrust Eastern Europe back into the international wheat market in 1997/98 as a net exporter, a status the region enjoyed during 1994/95 and 1995/96. However, much of the wheat across the region suffered from prolonged rains when it was ready to harvest, and a large percentage of the crop will only be of feed quality. Regional exports of 2.9 million tons are nearly five times those of last year, and imports are projected at 1.4 million tons, far under half those of 1996/97.
In recent years, Bulgaria's wheat market has perhaps been the most variable of all the Eastern European nations after completing several 360 turnarounds in the export market. High world prices enticed Bulgaria into the export market in 1995, and Bulgarian wheat flooded into the international market. Wheat exports were later banned when domestic supplies fell to a critical low, almost doubling bread prices and causing riots. This year, a US$22/MT export tax (local currency equivalent) and a minimum support price have been devised to discourage exports and prevent further shortage. However, due to lack of funds for the harvest, many farmers are closing contracts at much lower prices at which commercial companies would have no problem paying an export tax. Bulgaria was to ship an allotted amount of wheat to Poland as repayment of a barter arrangement, but some reports now indicate this may be done in cash instead. Bulgaria is likely to again enjoy the status as surplus producer, and may even emerge as a net exporter.
In Hungary, estimated wheat exports of 1.2 million tons in 1997/98 eclipse the previous year's level of 400,000 tons due to forecasts for excellent production. In spite of a large production surplus last year, high domestic prices deterred export sales, and most export licenses remained unused. Effective immediately, licenses for the 1997/98 crop may be issued to traders, and are more likely to be used as domestic prices are anticipated to be lower. Hungary is not expected to import any wheat in 1997/98.
Last year's duty-free import regime in Poland replenished wheat stocks to unprecedented levels, and has enabled Poland to return to a much more balanced wheat trade. Projected imports of 400,000 tons would be a fraction of the 1.8 million tons from the previous year, as stocks are expected to be drawn down to help meet consumption needs.
Following several years of intense market liberalization measures, and unfulfilled expectations for export surpluses, Romania may be a reemerging player in the world wheat export market. Last year exports were banned and state-owned grain farms were forced to sell to the state. This year all barriers have been removed in order to encourage higher exports, which are expected to skyrocket from near zero in 1996/97 to 750,000 tons in 1997/98, and imports should accordingly fall to zero.
Wheat production in former Yugoslavia is forecast up almost 50 percent in 1997/98 due to a large increase in planted area and excellent yields. In sharp contrast to an annual average import level of approximately 400,000 tons, domestic wheat requirements are expected to be covered, leaving exportable surpluses of around 200,000 MT of wheat. However, prospects for exports are dampened due to an overvalued domestic currency and a season of excessive rainfall, which has compromised the wheat's quality and rendered much suitable only for feed. A producer support system was reinstated in 1996, establishing a protective price for wheat, but payment will disbursed this year by the Government of Serbia rather than the federal government due to lack of funds.
For further information, please contact Sara Gilbreth at (202) 720-3049.
Peru's Grain Industry Benefits from Market Liberalization
Peru has made great strides opening its economy to the world marketplace in recent years. The grain sector and its clients have benefitted substantially from the far-reaching liberalization measures adopted since the Fujimori government took over in 1990. As Peru depends on imports for virtually all of its wheat, over half of its feed grain, and a substantial percentage of its rice supplies, the deregulation of the grain trade has been a significant move. Grain imports are now in the hands of the private sector, free to respond to market needs. Given Peru's promising economic outlook, its rapidly expanding population, and production limitations, grain imports should remain an important feature of the country's agricultural economy. The United States is well-positioned to share in this large and growing market.
General Economic Overview
The Government of Peru (GOP) has achieved enormous progress in implementing the difficult and comprehensive economic reform program it initiated about six years ago. As Peru entered the 1990's, its economy was plagued by a hyper-inflation that reflected many serious problems, ranging from huge public deficits to widespread terrorist activities. But not long after it was elected to office in 1990, the populist government of President Alberto Fujimori instituted a campaign of measures to liberalize the economy and rid the country of terrorism.
The Fujimori administration, now in its second five-year term, has made great progress in its efforts to liberalize trade, attract foreign investment, reduce government control, promote tourism, reduce tariffs, increase tax collection, and complete the privatization process by 1998. The economy has been totally restructured, eliminating subsidies, state monopolies, artificial pricing and many market access barriers. As part of its march towards market liberalization, most import duties have been reduced to some of the lowest levels in Latin America, though they remain at 15 - 25 percent for some agricultural products. Ports have been modernized and loading/unloading costs have been reduced by as much as 80 percent. Due to its relative economic stability, control of terrorist activities, reentry into the international financial community and establishment of clear economic "rules of the game," Peru currently offers one of the most favorable investment climates in Latin America.
Notwithstanding the stress of structural adjustment, the economy quickly reversed many years of negative performance by growing at the rate of 6.5 percent in 1993, 13.0 percent in 1994, and 6.9 percent in 1995. This torrid pace has since slowed, but the outlook for future growth is positive. Inflation has been brought under control (expected to fall below 10 percent in 1997) but perhaps even more importantly, the terrorist movement that had drained the country for the past 15 years has been virtually defeated. This alone has restored a degree of confidence in the society, and has encouraged substantial foreign investment, generating further economic growth.
The liberalization of trade and sharp reductions in import duties have opened the Peruvian market to the world. Peru has recently agreed to become a fully integrated member of the Andean Pact, it has bilateral trade agreements with other Latin American nations, and has begun negotiating participation in the growing regional MERCOSUR trading union. However, the United States remains as Peru's single most important trading partner.
Selected Economic Data (1995)
Area: 1,285,220 sq. km. (2 X California)
Population: 24.3 million
Population growth rate: 2.0%
Per capita GDP: $2,125
GDP growth rate: 6.9%
Inflation (CPI): 10.2%
Exports: $5,572 million
Imports: $7,688 million
Trade balance: minus $2,116 million
Exports to U.S.: $754 million
Imports from U.S.: $1,069 million
Trade balance with U.S.: -$315
Agriculture as:
percentage of imports: 9.0
percentage of exports: 11.2
percentage of GDP: 13.2
percentage of workforce: 30.0
The market oriented policies under President Fujimori have brought major changes to the agricultural sector, including land tenure laws, increased private and foreign investment, opening of the market to foreign competition, credit availability and growth in production. The government has also begun to focus on the potential for agricultural exports, though no specific programs have yet been put in place. The private sector is expected to take the lead in export promotion, bolstered by government market reforms and infrastructure investment.
Subsidies for farm inputs have been eliminated, import tariffs lowered, and an 18 percent value-added tax has been levied on producer inputs. It is clear that the government is relying on the private sector to drive on market forces to compete with foreign suppliers. Major exports are coffee, cotton, asparagus and sugar (to the United States under the quota system).
The GSM-102 Program has provided financing of about $75 million over the past year for purchases of U.S. agricultural products. Such credit guarantees have been a key factor in increasing U.S. market share in Peru's $1 billion agricultural import market.
Commodity Highlights:
Wheat
Production: Wheat is a minor crop in Peru. Almost all production is soft wheat used primarily for soups and semolina, rather than for bread or pasta. Wheat production for MY1997/98 is forecast at 140,000 MT, the same level as last year. The GOP has no specific policy to promote production of wheat.
Consumption: Wheat consumption has been rising gradually during the 1990's, along with population growth and increases in average per capita income. It is expected to reach 1.45 million tons in 1997/98, translating to a per capita wheat flour use of around 35 kgs. compared with about 60 kgs. in the United States. The three largest wheat milling companies have merged into a single operation, which now accounts for about 60 percent of total wheat imports and product distribution. Rising consumer incomes also are generating demand for a wider range of products. For example, cookie consumption has risen by 50 percent over the past two years.
Trade: Until several years ago, Peru's wheat imports were under a state monopoly. The recent liberalization of the country's economy included permission for millers to import wheat on their own. This freedom has encouraged millers to purchase a wider selection of wheat classes, taking into account the specific qualities needed for producing different products. While Hard Red Winter is still the U.S. wheat most commonly imported by Peru, Hard Red Spring wheat has taken a strong second position, and imports of Soft Red Winter and Soft White wheats have begun. The U.S. share of Peru's wheat imports has ranged between 20 and 50 percent during the past decade, except for the jump to 65 percent that occurred in 1996/97 when Argentina's crop failed. The availability of GSM-102 credit guarantees, though limited, has also had an impact on purchasing decisions favoring U.S. wheat.
Total wheat imports for MY1997/98 are forecast at 1.3 million tons, the same as last year's level.
Corn
Production: Corn production in Peru averages almost half of the country's annual consumption requirements. It is divided between yellow corn, mainly for animal feed use, and starchy corn for direct human consumption. Yellow corn makes up about two-thirds of the total corn output, which is projected at 850,000 tons for 1997/98. Production has not shown any tendency to increase in recent years. It actually has declined compared with levels it reached nearly 10 years ago. Future prospects for corn production depend on comparative economic advantage in relation to major crops such as cotton, rice and sugar.
Consumption: Most of the yellow corn supply is used in the poultry sector. The poultry industry expanded rapidly during the first half of this decade, especially broiler production. With last year's slowdown in Peru's economy, poultry output stabilized, and so did the consumption of corn. During the first part of 1996, poultry production exceeded demand, resulting in lowered producer prices for poultry meat and eggs. Due to the benign climate for poultry production in the coastal areas of Peru, small-scale producers can activate and deactivate production rapidly, and at low cost. As prices fluctuate, these smaller units, which account for about 30 percent of output, step in and out of production. The larger enterprises, which have high fixed costs, are more prone to weather the price storms.
Trade: Peru's corn imports have grown markedly during the past several years, responding to rising incomes and consumer expenditures on livestock products. The U.S. share of this growing market has been significant, but it has fluctuated inversely with the supply availability of Argentine corn. Peruvian importers have given preference to Argentine corn largely because they can purchase it on very favorable credit terms, and at lower prices. Credit offered under the GSM-102 program has enabled U.S. suppliers to offset some of this advantage. Peru's corn imports are forecast at 850,000 tons for 1997/98, slightly below last year's level. Future increases in corn imports hinge on the continuation of Peru's economic recovery and growth in per capita income.
Rice
Production: Rice is one of the principal crops produced in Peru. It is grown mainly in the northern coastal areas, on desert land irrigated by the numerous rivers that flow down from the Andes. Rice accounts for almost one-fifth of Peru's coastal cropland, with around 200,000 hectares harvested in recent years. Production in 1997/98 is forecast at 890,000 tons (milled basis), second-best to the record crop produced in 1994/95. With a mighty El Nino in the working, it is anticipated that there will be very heavy rains in the Andes toward the end of the year. While this should have beneficial impact on water reserves, rainfall could be excessive, as it was during the last hefty El Nino of 1982/83. At that time, swelling rivers caused flooding and serious damage to irrigation facilities. Heavy rains fell even in parts of the arid rice producing areas.
Consumption: Per capita rice consumption is estimated at 46 kgs. for 1996, and it has been rising during the past decade. Rice is sold traditionally in small markets, weighed out and bagged from a 50 kg. sack. In recent years, Peru has seen a rapid expansion of supermarket chains. This has had an impact on consumer habits. There is a growing demand for pre-packaged, one kg. bags, which now account for about 10 percent of all rice sales. Higher quality rice, including U.S. product, is generally marketed in this manner.
Trade: Peru's imports of rice have ranged between 200,000 and 400,000 tons in recent years. Several years back, the state monopoly on rice imports was abandoned, and trade handed over to the private sector. The U.S. share of this market has traditionally been modest, though gains have been made the past two years. While U.S. rice competes at the high end of the market (with Uruguay and higher quality Thai rice), lower quality Asian rice has competed with the local crop. Peru produces only a small amount of high quality rice. Uruguay has a considerable market share because of regional tariff preferences.
Several significant developments have altered the market for imported rice. Recently, Peru has imposed phytosanitary regulations which restrict imports of rice to origins only in the Western Hemisphere. This action has effectively limited rice imports to Uruguay, Argentina, and the United States. Another important factor was the increase in the import tariff from 15 percent to 25 percent. Obviously, these policy changes will have the effect of increasing both domestic and imported rice prices. U.S. rice will now be very competitive with the imported rice of these other origins, however.
Based on reports from the Office of the Agricultural Attache, American Embassy, Lima, Peru. For further information, please call Kenneth L. Murray at (202) 690-1252.
India Struggles for Balance in Grain Supplies Even As Good Weather Continues
With the 50th anniversary of India's independence from Britain just past, India seems ready to take on the challenges of the future. With roughly 952 million people, India struggles with, but remains a firm believer in, food self-sufficiency, relying on as few imports as possible. The volatility of India's overall grain production over the past 5 years, though, has fostered a shift in India's most recent stint as a wheat exporter in 1994/95 and 1995/96. The government of India late last year returned to the world market for their first substantial wheat imports since early 1993.
Volatility in annual grain supplies and subsequent trade fluctuations are nothing new to India. India endured four droughts during the 1980's which resulted in significant wheat and rice imports. What makes the current tight grain situation noteworthy is that India's weather conditions have been quite good during the past nine years, yet current combined wheat and rice stocks are at their lowest level since 1983.
Selected Economic Data (1996)
Area: 3,287,590 sq. km (slightly more than one-third the size of the U.S.)
Land use: arable land (55%), permanent crops (1%), meadows and pastures (4%), forest and woodlands (23%), other (17%)
Major agricultural products: rice, wheat, oilseeds, cotton, jute, tea
Value of agricultural output: $98,700 million
Total agricultural imports: $2,113 million
Major agricultural imports: vegetable oils, pulses, tree nuts, sugar
U.S. share of total agricultural imports: 5.0%
Major agricultural exports: rice, oil meals, sugar and molasses, wheat
U.S. share of total agricultural exports: 10.0%
Agricultural trade balance with the U.S.: -$550.0 million
Population: $952 million
Population growth rate: 1.9%
Real GDP): $302.2 billion
Real GDP growth rate: 6.8%
Per capita: $330
Inflation (CPI): 7.0%
Agriculture as:
percentage of imports: 5.5
percentage of exports: 20
percentage of GDP: 29.0
percentage of workforce: 65
General Economic Overview
Economic reforms undertaken over the past five years have contributed to impressive growth in India's economy. Average annual growth of 6.5 percent in the four years since initiation of economic reforms in 1991 has been higher than the initial target of 5.6 percent. Despite a good monsoon last year, however, growth in agriculture, which contributes 29 percent to GDP, was a negative (-) 0.4 percent in 1995/96. A drop in overall grain production was the main reason for the slow growth. There was a marked recovery in agriculture in 1996/97 with growth of over 5 percent in agricultural production. Most of the country's economic fundamentals, including the current account balance and reserves (now over $20 billion), are healthy. While industrial growth has slowed in the last year, the overall economy grew 6.8 percent in 1996/97 and is expected to continue to grow at well above 6 percent, that is, well above three times as fast as population growth. India faces a major challenge in the medium term to attract sufficient investment for its basic infrastructure sector, in which it remains far behind most other developing countries which compete with India in the world market.
Agricultural production has managed to keep pace with India's population in recent years, growing about 1.9 percent per annum until last year when it registered a slight negative growth. This year it grew at 5 percent, as wheat production rebounded and set a new record of about 67 MMT. Agriculture continues to employ nearly 65 percent of India's population and contributes almost 30 percent to GDP. Removal of controls on domestic and international trade (chiefly exports) in agricultural commodities has improved export incentives and investment opportunities for agriculture. Despite this, the share of agriculture in India's total exports is less than 20 percent and investment in agriculture continues to be somewhat limited.
Meanwhile, the country remains anxious whenever a basic foodstuff such as grain or vegetable oil has to be imported in large quantities. Looking at all agricultural products, India exports over $5 billion/year and imports $2 billion and thus is a substantial net exporter. Nevertheless, the ideal of self-sufficiency continues to raise an alarm in the minds of many politicians, political parties, and journalists when India fails to remain self sufficient in any major foodstuff. India's agricultural market is essentially closed to imports except for those commodities whose demand cannot be met by domestic production. However, with a growing emphasis on agricultural exports, the previous strategy of meeting the requirements of the domestic market first and exporting the surplus has changed. With comfortable foreign exchange reserves to purchase needed imports and normally an adequate supply of essential commodities like wheat and rice, limits on exports are not as stringent as they once were. This new approach emerges in part from the fact that grain stock levels held by the government in recent years have been quite comfortable. However, when wheat supplies became short in late 1996, the 1950's mentality emerged. While the government moved quickly to import some wheat to ensure adequate food supplies, in tandem there were charges of conspiracies by the private trade, which was thought to be hoarding wheat in order to profiteer. Using an outdated law called the "Essential Commodities Act," some states placed draconian storage limits on flour mills, forbidding holding of more than a few days of supplies. As more enlightened policies gradually reduce the role of government operation, private investors will gradually gain confidence to invest in the modern storage and handling facilities which the country desperately needs.
The Government of India (GOI) continues to cover substantial quantities of rice and wheat under price support operations. The procured stocks are used to meet the grain requirements of the Public Distribution System (PDS), a system of "fair price" shops which makes rice and wheat available to consumers at below market prices, and for sales in the open market to check price rises during lean months and sometimes for exports. Recently, the government has set up a modified PDS system supposed to be targeted only to the poor and providing wheat and government issue prices. The challenges of making such a system work are considerable, particularly in checking extensive leakages of low priced grain into normal commercial channels, without ever reaching the hands of the poor.
Commodity Highlights:
Wheat
Production: Wheat production during 1996/97 totaled 62.6 MMT, the second largest crop on record, but also the first decline in six years, down 2.9 MMT from 1995/96. Wheat production is estimated at a record 67 MMT in 1997/98, based on unusually favorable (prolonged cool) weather conditions. There was also an increase in wheat area, encouraged by a 9.5 percent rise in the wheat support price to rs. 4,150/MT ($118). This was subsequently increased to rs. 4,750/MT ($134) in order to promote state procurement.
India's wheat production has increased about 11 fold since independence to the present. But there is little future potential for area increase, so the country is focusing on improved yields, principally by seeking to introduce better varieties year after year. Wheat production has grown steadily over the past 11 years, rising 32 percent between 1986 and 1996. During this period, area has increased less than 10 percent while yields have increased 25 percent. It is clear that yields rather than area has been a more significant determinant of changes in annual production over the longer term and in years when production rises dramatically. Wheat yields have begun to plateau during the 1990's. Yields rose 50 percent from 1981 to 1991, but have only increased 10 percent since 1991, while area is up just 5 percent since 1991.
Government scientists have predicted that rising incomes and shifts in consumption from other grains to wheat will require production increases averaging 1.8 MMT/year over the next two decades in order to keep up with demand. Realizing such a huge increase (109 MMT by the year 2020) could make India the largest wheat producer in the world (surpassing China just as it surpassed the United States in wheat production in 1995/96 and 1996/97). Further yield increases are likely, but some years of less than ideal weather should also be anticipated. While much of the wheat is irrigated, excessive rain, a short winter, diseases, and the effect of drought on other grains are likely to result in the need for occasional wheat imports. In addition, some people, including the Minister of Agriculture, have suggested that it might make sense to export wheat from northern India in the harvest season and import wheat to southern India in the lean season.
Consumption: While per capita grain consumption is largely unchanged over the past 10 years, wheat has become an increasingly important part of the Indian diet as per capita rice (down 3 percent since 1989) and coarse grain consumption (down 14 percent since 1989) have declined in recent years. Per capita wheat consumption has increased from 64 kgs in 1994 to 72 kgs in 1996, fueled by large supplies of subsidized wheat from government stocks for industry and consumers, rising wheat consumption in traditional rice consuming areas, continued growth in the wheat-based food processing sector, and the emergence of bread and bakery products as convenience foods in urban areas. Feed use of wheat becomes more competitively priced vis-a-via corn. However, high wheat prices are likely to curtail feed use of wheat during 1997/98.
Trade: In an effort to control spiraling domestic wheat prices and to rebuild its wheat stock, the government allowed the import of up to 4.0 MMT of wheat in late 1996 and 1997 and authorized the State Trading Corporation (STC), a government trading company, to import wheat on its behalf. Simultaneously, the government stopped exports of wheat and imposed restrictions on wheat flour exports. For the first time ever, the government is permitting wheat flour millers to import wheat duty free for their own domestic use and subject to registration with the government, although no imports have taken place as they have no experience in importing wheat, their requirements are usually smaller, and they have to deal with complex and stringent phytosanitary and various other bureaucratic issues. Recently, the government permitted STC and other government companies to import wheat on behalf of the flour millers
Given larger 1997/98 wheat procurement and improvement in the government's stock situation, the government has decided to postpone additional wheat imports. Purchases of one million tons are expected to be shipped from Australia this fall. The government will review the wheat situation in the fall when more is known about kharif (fall harvested) grain production, the trend in the wheat prices, and offtake through the PDS. The key factor determining whether additional wheat imports will be needed in 1997/98 is what happens to open market prices. High open market prices will lead to larger offtake from government stocks, which could prompt government imports, and could possibly stimulate private sector imports. However, wheat prices remained relatively steady through August. If domestic wheat prices start to move up
sharply in coming months, the government may consider restarting open market sales to stabilize the market.
Rice
Production: The 1997/98 crop will depend largely on the summer monsoons which began in June. Rainfall was fairly normal in most of the country through August, but there was a fairly serious deficiency in Andhra Pradesh and parts of neighboring states. Also, there are pockets of irrigated production areas (particularly in Haryana) where cultivation of rice is causing a serious decline in the water table and creating weed problems in rice/wheat rotation. Nevertheless, the general outlook is for a good rice crop. The rice crop is predominantly rainfed and use of high yielding seed varieties is most prevalent in the states of Punjab and Haryana in the north and Andhra Pradesh and Tamil Nadu in the south. Public and private sector attempts to popularize hybrid rice cultivation have not yet achieved commercial success. Assuming normal weather and no significant decline in fertilizer consumption, 1997/98 rice production is forecast at 81 MMT (milled basis), up only slightly from 1996/97 rice production levels at 80.5 MMT (milled basis).
All India rice area has increased just 6 percent since 1980, while yields have increased 40 percent. Yields have benefitted from the spread of high yielding rice varieties and a near tripling of kharif season nitrogen applications in 1980. However, looking over the past 7 - 8 years it appears that the annual marginal yield gains from better inputs have begun to slow.
With high returns and an assured market, rice is an important cash crop in Punjab, Haryana, and West Uttar Pradesh, replacing coarse cereals. While there are indications that the intensive rice-wheat rotation in this region is causing soil problems, a major shift to less intensive crops is not imminent in the absence of a more profitable crop rotation. Due to low productivity in certain regions, the governments are encouraging farmers to shift production to less intensive crops like soybeans and pulses. These factors could limit future increases in rice area.
Domestic procurement of rice by various government agencies during the 1996/97 marketing year is ahead of last year's pace. With the marketing year almost over, government has procured 12 MMT of rice compared with 10 MMT procured during 1995/96.
Consumption: Rice has traditionally been the staple grain of the majority of Indians. Unlike Indian wheat, which is relatively uniform, more than 4,000 varieties of rice are grown in India, and farmers have generally adopted the varieties which are more suitable for local consumption. Aggregate rice consumption is growing 1.2 - 1.5 percent annually, slower than the rate of population growth. Rice production is just keeping pace with consumption. This, coupled with exports, has led to a draw down in rice stocks. Additionally, offtake of rice from government stocks has increased dramatically since 1994, nearly doubling to 14.7 MMT in CY1996. The increase has been driven by large exports of rice from government stocks in 1995 and declining real prices of government rice, which have spurred consumption. The government recently increased the general issue price of rice supplied through the PDS, while announcing its decision to supply rice to the poorer consumers at half the normal PDS issue price.
Although the situation is not nearly as tight as that of wheat, government rice stocks are still declining. There have been rumors that the government might reinstate controls on rice exports in an effort to conserve domestic food grain supplies.
Trade: Indian exports are now limited to high-quality parboiled and basmati rice. Export prices for higher quality rice have dropped in the face of strong international competition. Exports of basmati rice from India are lower this year as supplies are tight and prices are currently about $900 per MT FOB compared to $750 a year ago. The small increase in rice production over the past few years, relatively high domestic prices, increased domestic freight costs, competition from Vietnam and Pakistan in the low and medium rice grades, and a discontinuation of special government efforts to make rice available from its stocks for export have resulted in a sharp decline in India's rice exports during CY1997, which are estimated at 1.6 MMT compared with 3.5 MMT in CY 1996.
Currently the forecasted 1998 rice exports are at 1.5 MMT, marginally below the estimated CY1997 exports of 1.6 MMT. Factors that could affect rice exports during CY1998 include the Food Ministry's proposal to restrict exports of low quality rice, declining government rice stocks, a decline in rice procurement, and likely higher offtake of rice through the targeted PDS. Recently the Food Ministry has been advocating restricting exports of low quality rice, covered under the targeted PDS for the poorer segments of the population. The Ministry has recently proposed a minimum export price for rice at a high level ($265 - $280/MT), which would automatically restrict exports of low and medium quality rice. However, the Commerce Ministry has permitted duty free imports of low quality rice by private trade, which is considered as an alternative to restricting rice exports. Government rice stocks as of July 1 decline to around 6.5 MMT on October 1, before the start of procurement of the new crop. The projected October 1 stocks will be around 3 MMT below the stocks a year ago.
Coarse Grains
Production: India produces several types of coarse grains such as sorghum, corn, millet and barley, which are major staples for the rural population in several states, and an important feed source. Most coarse grains, except barley and some corn are grown during the monsoon season on marginal lands under rainfed conditions with little fertilizers or other inputs. Hence production is subject to wide year-to-year fluctuations. The green revolution, which began in the 1960's, with its focus on wheat and rice, has resulted in a gradual decline in coarse grain area, as farmers have shifted to rice, wheat, and oilseeds. In recent years, total coarse grain production has averaged just over 30 MMT.
While corn area is largely unchanged since 1980, sorghum and millet area have dropped 10 and 25 percent respectively, as farmers have shifted to more profitable crops. Millet and sorghum yields are variable but the trend is up. Future production growth prospects seem greatest for corn, where yields, 1.6 MT per ha, are well below yields in other large producing countries. Emerging dairy and poultry feed industries and a growing starch industry should create improved market opportunities for corn growers. Foreign investment in the seed industry has increased the use of yield-improving hybrid corn seeds. Future production growth may be directed to non-food uses which could limit the availability of corn for food use. In the case of millet and sorghum however, yields have remained stagnant or declined as farmers plant these crops in more marginal areas.
Consumption: While corn and sorghum use for feed and industrial purposes continues to grow, food use still accounts for a major share of total coarse grain use. In the absence of significant production gains, rising feed demand is pushing corn prices even higher as the marketing year progresses and corn could generally be imported profitably during the latter half of the marketing year. Livestock feeding of sorghum increases when there are large supplies of poor quality grain in the market. Millet is consumed mostly as food in areas where it is grown. In the case of barley, a major share is consumed as human food; some good quality malt type barley is used for malting; and small quantities of low grade barley go for feed use. Total coarse grain consumption in 1997/98 is forecast at 32.8 MMT, unchanged from 1996/97. Stocks are limited and large shifts in consumption are linked to falling production.
Trade: There have been no commercial imports of coarse grains in recent years. The poultry industry has expressed interest in importing corn when domestic prices rise, but the government continues to limit corn imports for feed use. The Indian government permits limited exports of coarse grains subject to a quota.
Continued growth in the poultry and dairy sectors combined with limited growth in coarse grain production are expected to lead to pressure from corn users for access to imported corn. While prices currently do not favor imports considering ocean and domestic freight costs, if domestic prices rise sufficiently above world market prices, pressure to allow imports will intensify.
Based on reports from the Agricultural Affairs Office, American Embassy, New Delhi. For more information, please contact Ronit Kirshner at (202) 690-1252.
SITUATION AND OUTLOOK: COMMENTARY AND CURRENT DATA
WORLD WHEAT SITUATION AND OUTLOOK
World trade is forecast to reach its highest volume in three years despite the fact that China and the former Soviet Union are expected to remain all but absent from the global market. The slight pick-up in trade can partially be attributed to the need to replenish pipeline stocks, which may be running low after an extended period of hand-to-mouth buying by importers seeking price advantages during the unusually competitive 1996/97 season. As the market's focus shifts between the Northern and the Southern hemisphere harvests, rising demand has helped to fuel an increase in prices.
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Exporters
The export estimate for Canada was lowered by one-half million tons based on a reduced production forecast. Projected exports from Hungary and the former Yugoslavia were raised by 200,000 tons each on expectations for increased production.
Importers
Imports by Brazil and Mexico were reduced by 300,000 and 200,000 tons, respectively, as production forecasts were raised for both countries.
WORLD RICE SITUATION AND OUTLOOK
International price movements for rice varied substantially during the month of August and into September. In Thailand, export prices fell by almost 20 percent, while export quotes in the United States eased by about 5 percent and export quotes for Vietnamese rice rose slightly. The price decline for Thai rice was provoked by the continuing fall of the Thai Baht. By the second week of September the Baht had- at least temporarily- stabilized and export values had done likewise. In the U.S., the pace of the 1997/98 harvest picked up considerably during August and long grain prices eased in response, while medium grain prices were steady or slightly higher. Price increases in Vietnam were triggered by early flooding and uncertainty over the size of exportable surpluses.
Exporters
The calendar year 1998 export forecast for the United States was raised 100,000 tons from the previous month, to 2.8 million tons. The increase is due to higher than expected carryover, coupled with continued strong demand.
Calendar year 1996 exports from the European Union were adjusted from 175,000 tons to 301,000 tons based on receipt of official data.
Importers
Latin America
The calendar year 1997 and 1998 import forecasts for several Central American countries have been increased. While it is still too early to gauge the full impact, adverse weather conditions related to the El Nino phenomenon are causing widespread crop shortfalls. The 1997 import forecast for Costa Rica has been increased to 75,000 tons (up 15,000 tons). The 1998 forecast has been raised 20,000 tons, to 100,000 tons.
In Panama, the Government of Panama has authorized the importation of 100,000 tons of paddy rice. As a result, the 1997 import forecast was increased 20,000 tons (to 30,000); and the 1998 import forecast has been increased 35,000 tons (to 45,000). The import forecast for El Salvador and Honduras have also been increased for both 1997 and 1998. Honduran imports are now forecast at 45,000 tons in 1997 and 40,000 tons in 1998, up from 25,000 tons and 30,000 tons, respectively. The forecast of Salvadoran imports was raised 10,000 tons for each year, to 30,000 tons in both 1997 and 1998.
North America
The 1997 rice import forecast for Mexico was lowered 25,000 tons from the previous month, to 275,000 tons. An increase in the 1997/98 Mexican rice production forecast is expected to translate into lower import needs in the final months of the year.
Middle East
The import forecast for Jordan for calendar year 1997 has been increased 20,000 tons from the previous month, to 110,000 tons, due to continued strong import pace. The 1998 forecast was increased to 100,000 tons, a 10,000 ton increase from the previous month.
Other Asia
The calendar year 1997 import forecast for the Philippines was increased 100,000 tons from the previous month, to 1,100 thousand tons.
European Union
Calendar year 1996 imports by the European Union were adjusted from 800,000 tons to 895,000 tons based on receipt of official EU data.
WORLD COARSE GRAINS SITUATION AND OUTLOOK
World corn trade in 1997/98 is expected to increase somewhat from 1996/97 levels. U.S. corn exports are expected to regain some market share, at 51.5 million tons, mainly due to less competition from other major corn exporters--Argentina, China, and South Africa. Though U.S. corn prices have remained at last year's levels, world corn stocks are projected to fall moderately from 1996/97 levels, to 70.8 million tons--the third lowest level in over a decade. U.S. export opportunities are expected to expand in Asia and Latin America, due to the reduced presence of China and Argentina in those markets.
World trade in barley is expected to decline slightly in 1997/98, due to lower production in some major exporting countries--especially in Australia. Asia continues to be a significant growth market, primarily for malting barley, as their barley imports are projected to continue to increase to record levels in 1997/98.
Exporters
While China is expected to have significantly
reduced crop prospects for 1997/98, they are forecast to export
one-half million tons more corn than forecast last month, at 1.5
million tons. While China has record carry-over stocks from the
1996 record crop, much of the exports of the past few months
reportedly have been from the 1995 harvest, which was procured by
provincial governments at approximately $80 per ton, enabling
exports at a profit in the international market. Also, it is
believed that the record volumes of wheat harvested this summer
are pushing 1995-crop corn out of storage facilities and into
export. At the point that 1995 corn supplies are exhausted, China
will likely re-evaluate its export position. In the meantime,
U.S. shipments to key importers in Asia, particularly South
Korea, Malaysia, Indonesia, and the Philippines, will likely be
reduced due to China's ability to ship smaller vessels at lower
prices.
ENDNOTES TO GRAIN: WORLD MARKETS AND
TRADE
REGIONAL TABLES
1) Includes Canada, Mexico, and the United States.
2) Includes Central America, the Caribbean, and South America.
3) Includes Azores, Cyprus, Iceland, Malta & Gozo, Norway, and Switzerland
4) Includes Albania, Bulgaria, Czechia, Hungary, Poland, Romania, Slovakia, and former Yugoslavia.
5) Includes Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, and Yemen.
6) Includes Algeria, Egypt, Libya, Morocco, and Tunisia.
7) Includes all other African countries except North Africa.
8) Includes Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan, and Sri Lanka.
9) Includes all other Asian countries except South Asia.
10) Includes Australia, Fiji, New Zealand, and Papua New
Guinea.
OTHER NOTES
Unless otherwise stated, stock data are based on an aggregate
of differing local marketing years and should not be construed as
representing world stock levels at a fixed point in time.
Current and historical data on the European Union in this
issue refers to the EU-15.
Consumption statistics reflect total utilization, including
food, feed, seed, and differences in marketing year imports and
marketing year exports.
This circular was prepared by the Grain and Feed Division,
Commodity and Marketing Programs, Foreign Agricultural Service,
USDA, Washington DC 20250. Information is gathered from official
statistics of foreign governments and other foreign source
materials, reports of U.S. agricultural attaches and Foreign
Service officers, results of office research, and related
information. Further information may be obtained by writing the
division or telephoning (202) 720-6219.
Note: The previous report in this series was the Grain:
World Markets and Trade Foreign Agricultural Service Circular
FG 8-97 August 1997. For further details on the world grain
production see World Agricultural Production, Foreign
Agricultural Service Circular WAP 9-97 September 1997.
Principal portions of this circular are available on the World
Wide Web via the Foreign Agricultural Service Home Page. The
address is:
http://www.fas.usda.gov