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GRAINS: WORLD MARKETS AND TRADE, PART
ONE
October 14, 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 331-October 10.
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 November 12.
EXECUTIVE SUMMARY
SITUATION/OUTLOOK
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
WHEAT
The global production of wheat is now projected to exceed 600 million tons for the first time in history while China and the former Soviet Union, once the world's largest importers of wheat, remain all but absent from the international market. Abundant new supplies and little risk of sudden, large-scale purchases is expected to keep the global trade in wheat flat for the third consecutive year as importers seeking price advantages continue their practice of hand-to-mouth buying. However, unlike the bumper crop of 1996/97, which saw three of the world's five major exporters bring in record harvests, 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. The increased production will exceed consumption for the second year in a row and by a wider margin, allowing for a recovery of the global stocks-to-use ratio from the prior year's record low. While stock levels have rebounded from recent all-time lows, the supplies necessary to maintain the current high rate of consumption remain largely dependant upon continued high domestic production.
RICE
Global rice trade in calendar year 1998 is projected to be 19 million tons, a 1.1 million ton increase over the estimated 1997 level, and the third highest level on record. World rice production (rough basis) in 1997/98 is expected to be up slightly from the previous year due to increased crop prospects for many of the major exporters. For China, the calendar year 1998 export forecast was raised 500,000 tons this month due to an increase in the production forecast. In Latin America, however, adverse weather is expected to result in production declines in several countries. The import forecast for Colombia was raised 50,000 tons this month for both 1997 and 1998; and calendar year 1998 import forecasts were increased for the Dominican Republic, Ecuador, and Nicaragua by a total of 120,000 tons. A notable exception to this trend is Brazil. The import forecast for Brazil was lowered 250,000 tons this month due to an increase in the production forecast.
COARSE GRAINS
Global trade of coarse grains during 1997/98 is forecast at 92.8 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 somewhat 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 will 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 19 million tons to 100 million tons. The global stocks-to-use ratio for 1997/98 is expected to fall moderately to 11.1 percent -- the lowest level on record.
Adverse Weather in Latin America Expands Market Opportunities for U.S. Rice
Adverse weather in a number of Central and South American countries is expected to result in an increase in rice import needs in the region. In addition, decreased exportable supplies in the area's traditional rice exporter countries has put the United States is a good position to capitalize on this marketing opportunity.
Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, and Panama are all expected to need increased rice imports in the final months of 1997 and into 1998 as local governments are anticipating domestic crop shortfalls. Central America and Colombia are all experiencing extremely dry weather. The crop concerns in Ecuador, however, stem from excessive rainfall. The unusual weather patterns have generally been attributed to the El Nino phenomenon.
As a result of the adverse weather conditions, local governments are beginning to develop policies to deal with the expected crop shortfalls. Several governments have declared national emergencies due to the drought, and the Government of Panama (GOP) has already announced that it will issue import licenses for nearly 100,000 tons of paddy rice.
In the case of Panama, domestic rice production is typically sufficient, thus imports are not required. However, since approximately 80 percent of all rice farmers in Panama depend on rain as their only source of water, the GOP is concerned that the rice crop will be significantly impacted by the continued dry weather. To supplement the expected domestic crop shortfall, the GOP intends to auction import licenses for 99,336 MT of rough rice at a special three percent ad valorem duty. (Upon Panama's accession to the WTO, the GOP had agreed to a tariff-rate quota of 5,000 tons at 15 percent, growing over 10 years to 9,700 tons, also at 15 percent.) The import licenses will be auctioned for six lots of 16,556 MT each, for monthly deliveries running from November 1997 through April 1998.
As the only country that consistently exports significant volumes of rough rice, the U.S. is well positioned to supply the Panamanian import needs. Further, U.S. paddy rice faces virtually no competition since possible South American suppliers are unlikely to have sufficient quantities available for export during the required time frame.
The United States could also benefit from increased rice import requirements in Colombia. The Government of Colombia is concerned that a projected continuation of current dry weather conditions will adversely impact production for the upcoming rice crop. Colombia typically imports rice from Ecuador and Venezuela. However, the excessive rainfall in Ecuador is likely to severely reduce exportable supplies.
For further information, please contact Linda Kotschwar at 202-690-1147.
GSM Program for Thailand Heightens Opportunities for U.S. Grain Sector
The USDA recently announced its first GSM-102 program for Thailand in over ten years and the first-ever to include grains. It covers imports for the fiscal year 1998, starting October 1, 1997. The program provides credit guarantees up to $100 million to exporters on sales of many commodities, including wheat, corn, and pulses. Thailand has not had a GSM program for many years, in part because of its booming economy and banking structure. However, the current financial crisis and greater presence of foreign banks has finally generated serious interest by Thai banks in the GSM program. Exporters and commodity groups can play a role in presenting this program as part of their technical and trade service activities.
Until the beginning of this decade, Thailand was an important exporter of corn. But with the rapid increase in demand from the flourishing domestic poultry and pork sectors and flat production levels, a rising level of imports has been necessary to cover consumption requirements. For MY 1997/98 (July/June), a 700,000-metric ton reduction in corn production should force Thailand to import a record amount of corn, reaching an estimated 750,000 tons. Historically, about half of corn imports have been sourced from the United States. Exports of Thai corn, which were once formidable, should remain marginal due to a lack of supply and uncompetitive prices. Expected growth in livestock production (particularly poultry and swine) may be tempered by higher prices for imported corn, likely forcing feed millers and livestock producers to search for alternative feed ingredients. However, rising prices of other substitutes, such as broken rice (rice exports being supported by a weaker baht) will keep corn import demand strong.
Wheat consumption in 1997/98 is expected to be 800,000 tons, all of that imported. The United States has typically provided about 40 percent of Thailand's wheat imports.
The current economic environment may also force the Thai government to improve market access, either through tariff reduction (peas/lentils and wheat) or a less-restrictive Tariff Rate Quota (TRQ) on corn. Although Thailand generally favors efforts to reduce imports, it can be argued that improved market access would improve Thailand's own export competitiveness in poultry (corn as an input) and processed foods (peas/lentils and wheat as ingredients) by keeping input costs reasonable. In addition, this would help to keep a lid on domestic inflation.
With relatively poor economic conditions expected to prevail for the next 18-24 months, U.S. exporters will now have to take into account the challenges and opportunities this situation provides. The 35-40 percent devaluation of the Thai baht is of immediate concern to importers and is the main factor reducing the competitiveness of imported goods. Nonetheless, the approval of GSM-102 funds provides U.S. exporters with a new sales tool for meeting Thailand's grain import needs.
Based in part on reports from the Office of Agricultural Affairs, American Embassy, Bangkok. For further information, please contact Rick O'Meara at (202) 720-4933.
Demise of South African Grain Boards Creates Opportunity for U.S. Grain Exports
The Republic of South Africa has been undergoing massive reform of its political and economic systems since 1989 when then-president de Klerk assumed office. Under President Mandela's leadership additional reforms were introduced, including liberalization of South Africa's agricultural sector, that are having and will continue to have far-reaching implications for domestic producers and industry and for trading partners like the United States.
General Economic Overview:
South Africa is a middle-income country with an abundant supply of natural resources, developed financial, legal, communications, energy and transport sectors and a modern infrastructure supporting an efficient distribution of goods and services to major urban centers throughout the region. South Africa remains the most advanced, broadly-based and productive economy in Africa, with a GDP nearly four times that of Egypt, its closest competitor on the continent. Real GDP growth was estimated at 3.1 percent in 1996. It is believed however, that in order to offset the country's high unemployment rate of 30-40 percent and an average annual population growth rate of about 2.4 percent, the economy needs to grow between 5 and 10 percent per year. Investments and net farm income are severely hindered by interest rates which hover around 20 percent.
Selected Economic Data (1996):
Area: 1,219,912 sq. km. (about twice the size of Texas)
Land use: arable land (10%), permanent crops (1%), meadows and pastures (65%), forest and woodland (3%), other (21%)
Major agricultural products: corn, wheat, sugarcane, fruit, vegetables, livestock products
Total agricultural imports (million $US): 1,995
Major agricultural imports: rice, wheat, poultry meat, beef, corn, oil/meals
U.S. share of total agricultural imports (percent): 16.3
Total agricultural exports (million $US): 3,503
Major agricultural exports: corn, fresh and dried fruit, wool, sugar, hides and skins
Share of total agricultural exports to U.S. (percent): 3.1
Agricultural trade balance with the U.S.(million $US): -216
Population (million): 43.7
Population growth rate (percent): 2.4
Unemployment (percent): 30 to 40
Real GDP growth rate (percent): 3.1
Real GDP per capita ($US): 2,762
Inflation (CPI, percent): 9.6
Agriculture, as:
% of imports: 7.8
% of exports: 12.8
% of GDP: 4.7
% of workforce: 30
The Agricultural Economy:
Agriculture's contribution to the GDP was estimated at 4.7 percent in 1996 compared to roughly 4.4 percent in 1995. South Africa has developed into a growing market for U.S. agricultural exports, reaching $325 million in 1996, the largest in sub-Saharan Africa and 10 percent higher than a year earlier. Almost two-thirds of U.S. agricultural exports to South Africa are bulk items, including wheat, coarse grains and rice. Import levels vary directly with domestic production, which is very weather-dependent, particularly with respect to grains. Even in a normal year, South Africa receives only half the world average rainfall. Thus, water is the most limiting factor in agricultural production. As a result, the threat of drought due to El Nino is causing a great deal of uncertainty about the 1998/1999 crops.
Transportation is a factor that influences trade but is often overlooked. Transport costs from the inland to export points are prohibitive. Therefore, export sales are not likely to give the same returns as domestic sales (also known as the export parity price). By corollary, domestic inland sales are protected from imports by the cost of moving commodities from the port to the interior. So, South Africa tends to import to its coastal areas (most notably Cape Town) and use domestic grains in the interior.
South Africa's agricultural policy currently focuses on dismantling of the individual commodity marketing boards and on land reform initiatives and policies aimed towards encouraging small-scale farmers and assisting them in increasing production. The Marketing Act of 1996 stipulated that fourteen marketing boards be phased out by January 1998 and replaced with a liberal market system based on the elements of free trade and in line with South Africa's WTO commitments. The status of each marketing board will be covered in the "Commodity Highlights" section that follows. Regarding the government's efforts to encourage small-scale production, there are fears that South Africa's production efficacy will suffer if land is broken into smaller units and put in the hands of producers whose primary interest is subsistence farming.
In the absence of the marketing boards, price discovery and information gathering are issues. The South African Commodity Exchange (SAFEX) has emerged to fill the role. Currently, white maize and yellow maize are the only grains traded on the SAFEX. Activity on the exchange is still not liquid enough to provide truly viable price discovery. The SAFEX is still more of a cash market than a futures market, with roughly 85 percent delivery versus the CBOT's delivery rate of 2 percent. Data gathering formerly provided by the marketing boards will instead be funded through statutory levies. The levies, which are supported by the industry, will also fund research efforts.
Commodity Highlights:
Wheat:
Production: The MY (Oct/Sept) 1997/98 South African wheat production forecast is 2.7 million metric tons (mmt), on par with last year's crop. Planted acreage is up slightly, but yields are expected to decline. Wheat quality tends to be average to low, and end users typically blend South African wheat with high quality imported wheat.
Consumption: Wheat consumption has been increasing steadily over the last five years, in line with world consumption trends. Most of that increase can be attributed to human, industrial and residual use. Wheat utilization for animal feed has actually dropped off during the same period from a high of 60,000 mt in 1993/94 to 10,000 in three successive years. Domestic wheat consumption during 1997/98 is estimated at 3.25 mmt.
Trade: South Africa is typically a net importer of wheat. As with all grains, imports and exports vary with weather conditions on a year-to-year basis. A four-year average (July/June) show imports of 750,000 mt versus 139,000 mt of exports. For the 1997/98 (June/July) year, South Africa is expected to import an estimated 700,000 mt and export 150,000 mt. This seems to indicate an average year for wheat, despite fears of drought in the region.
Policy: The Wheat Board is scheduled to cease operations on October 31, 1997. The Board stopped single-channel marketing of wheat and issuing import/export permits on September 1. Next year's crop will be traded on the open market.
Coarse Grains:
Production: Corn is South Africa's number one crop. Total corn production (white and yellow varieties) for MY (May/April) 1997/98 is estimated at 8.5 mmt, a drop of 500,000 mmt from 96/97 and 1.7 mmt below 1995/1996. South Africa is the world's largest white corn producer (slightly more that half its total crop) and also its top exporter. Production tends to vary significantly from year to year depending on the prevailing weather conditions. South Africa's Agriculture Minister was quoted as saying that the next maize crop might be halved by an El Nino drought. While the drought is mere speculation, it may nonetheless provide an impetus for producers to switch to more drought-resistant crops like sorghum. Industry sources speculate that contract farming will increase in an effort to ensure supply and price.
Sorghum production in South Africa has declined slightly in recent years, from a four-year peak of 432,000 mt in 1993/94 to an estimated 350,000 mt in 1997/98. Production should remain fairly stable in order to meet human consumption needs, but as those needs slowly decline production seems likely to follow.
Consumption: Contrary to consumption patterns in most countries, in South Africa (and southern Africa at large) corn for direct human consumption prevails over corn for feed use. Total consumption is forecast at 7.8 mmt of which 4.0 mmt -- primarily white corn -- is slated for human consumption.
Sorghum is consumed either as porridge or as beer. While porridge consumption is fairly flat, beer consumption is declining somewhat as consumers incomes rise and tastes shift toward Western style beers (also known as "clear beer").
Trade: Corn exports reflect the varied production patters mentioned above. South Africa tends to export in years of large production and import in off years. For the 1997/98 (May/April) year South Africa will likely be a net exporter to the tune of 750,000 mt (1 mmt of exports less 250,000 mt of imports). South Africa will not likely produce enough white corn to enter the export market.
In the short term, fixed capital and a comfortable familiarity with the old system will keep corn production and distribution fairly stable despite significant changes in agricultural production and marketing policy. A shift in type of corn produced (yellow versus white) and in sourcing may occur. In the past, mills purchased grain from any location at a fixed price. Now that prices are allowed to float purchasing will be based on costs and thus locality will be a significant variable. The most likely scenario will be that coastal regions will import grain while interior regions will use domestic grain and export surplus to neighboring countries. Also in the short term, South African corn exports may cost less. Theoretically, the increased competition among private exporters will drive prices down. Such an effect was unlikely under the Maize Board because the Board was able to hold onto corn stocks until world prices moved in its favor. Now, storage is in the hands of cooperative and not readily available to producers who are thus apt to sell their crops immediately to exporters who sell at the given world price.
With respect to sorghum, South Africa produces sufficient sorghum for its own needs and does not import except in unusual circumstances.
Policy: The Maize Marketing Board and the Grain Sorghum Board are two of the fourteen marketing boards dismantled by the government. During its tenure, the Maize Board operated a surplus removal system through which the Board procured, stored and marketed corn. The Maize Board officially ceased operation on May 1, 1997, while the Sorghum Board was slated to terminate its operations by the end of September.
NAMPO (the National Association of Maize Producers) is a highly organized producer organization whose role is changing due to agriculture's deregulation. NAMPO is taking a proactive response to the newly liberalized market which leaves many producers feeling lost in a newly liberalized world. NAMPO has appointed a manager through whom members can market their maize, much like the Maize Marketing Board used to do. NAMPO charges a small fee for the service -- reportedly at a rate below that which private traders charge.
There are no trade barriers to corn imports, but strict aflatoxin standards limit imports from some areas. Sorghum imports, however, are subject to a 3 percent import tariff and a 14 percent value-added tax. The VAT has received little attention since South Africa doesn't import grain sorghum.
Rice:
Production: South Africa does not produce any rice, but rather relies on imports to meet consumption needs.
Consumption: Typically, consumers in South Africa purchase white corn, wheat or even sorghum to meet their grain needs. However, in the last ten years rice has become increasingly popular. Rice consumption has increased threefold during that time. Total consumption for CY97 is forecast at 600,000 metric tons. Consumption of low-quality, broken rice tends to prevail over higher quality rice.
Trade: Imports have grown from 190,000 tons in CY86 to a forecast of 600,000 tons in CY97. Imports of low quality rice constitute a significant portion of total imports. This segment of the market is extremely price sensitive and is dominated by Asian sellers. The U.S. rice industry is focusing its efforts on premium quality packaged rice for niche markets.
Prior to 1991, the U.S. was the primary supplier of rice to South Africa. Since then, U.S. market share has declined to roughly 28 percent, according to industry estimates. Despite the decline in market share, South Africa is actually buying a higher quantity of U.S. rice overall and is still the largest market for U.S. rice in Africa. Competition from Asian suppliers is intense and South Africa is purchasing an ever-higher quantity of Thai, Vietnamese, Pakistani and Chinese rice. Thailand is the market leader with price and transportation advantages.
Based on reports from the Agricultural Affairs Office, American Embassy, Pretoria. For more information, please contact Deanna Johnson at (202) 720-4204
Pakistan Shows Contrast as Exporter, Importer of Grains
Pakistan continues to struggle, striving for political stability, economic progress, and fiscal prudence. Economic growth and agricultural production gains have been respectable but uneven. Last year, mismanagement and trade imbalances nearly led the country into a financial crisis when foreign exchange reserves were severely depleted.
Agriculture dominates the economy, accounting for nearly 25 percent of GDP, 50 percent of the labor force, and a major share of foreign exchange earnings. Pakistan is simultaneously the world's fourth-largest rice exporter--from a society which does not consume rice as a staple--and the seventh-largest wheat importer.
Selected Economic Data (1996)
Currency: Rupee (Rs). $1 = Rs 40.5 (approximately)
Area: 803,940 sq. km. (about twice the size of California)
Land use: arable land (23%), permanent crops (0%), meadows and pastures (6%), forest and woodland (4%), other (67%).
Real GDP (billion $US): 274.2
GDP growth rate (percent): 4.7
GDP per capita ($US): 495
GDP growth rate (percent): 6.1
Inflation (CPI, percent): 13
Population (million): 129.3
Population growth rate (percent): 2.8
Trade deficit (billion $US): 3.4
Major agricultural products: cotton, wheat, rice, sugarcane, fruits, vegetables
Major agricultural imports: cotton, tea, wheat, pulses, tallow, edible oils, sugar
Major agricultural exports: cotton, rice, molasses
Agriculture as % of GDP: 24
Value of agricultural output (million $US): 15,247
Total agricultural imports (million $US): 1,696
U.S. share of total agricultural imports (percent): 28.2
U.S. share of total agricultural exports (percent): 21
Agricultural trade balance with the U.S.(million $US): 364.1
Real GDP (billion $US): 274.2
Agriculture, as
% of imports: 15
% of exports: 72
% of workforce: 46
General Economic Conditions
Pakistan is a poor, highly populated Third World country struggling to make the difficult transition to the modern world of high technology and internationalized markets. The economy has long suffered from slow growth and price instability; domestic political factors and external macroeconomic factors have also affected economic performance. Wealth is highly concentrated, military spending is high, infrastructure is woefully inadequate, foreign investment is lacking, political stability remains a dream, and public corruption persists.
Following the election of Nawaz Sharif as Prime Minister in February 1997, the government introduced a program of structural reforms designed to lead to another IMF-sponsored Enhanced Structural Adjustment Facility (ESAF) in 1997. By May 1997, a plan for cutting import tariffs and sales and income taxes was in place. In addition, structural reforms in government revenue-sharing, banking, state enterprises, and foreign exchange management were proposed. At present, the Government of Pakistan (GOP) awaits approval by the IMF board of a $1.6 billion ESAF.
The performance of the economy during the fiscal year 1996/97 (July/June) was very poor despite an 11.5 percent devaluation of the rupee. This was due to unstable policies and limited availability of foreign exchange. The balance of payment position remained under stress during 1996/97 caused by a 5.1 percent decrease in export value while imports increased 1.5 percent. The trade deficit during 1996/97 rose 8.9 percent to $3.4 billion.
Agriculture in the Economy
Agriculture remains the dominant sector of the economy, accounting for nearly one-quarter of GDP, half of the employed labor force, and a large share of foreign exchange earnings. As well, it provides the base for key industries such as textiles and sugar. Pakistan is a net importer of agricultural commodities. Annual imports total $2 billion and include wheat, edible oils, sugar, pulses and high-value, consumer-ready food products. Export earnings are dominated by cotton and cotton products.
Pakistan has a total cultivated area of 22 million hectares and a total geographical area of about 80 million hectares. It has one of the largest irrigation systems in the world. There are two principal crop seasons: the "kharif" season starts from April-June and ends in October-December while the "rabi" season starts from October-December and ends in April-May. Major crops include wheat, cotton, rice, sugarcane, gram (garbanzos), and coarse grains. Other crops include pulses, potatoes, onion, chillies and garlic.
During 1996/97, the agriculture sector grew at a rate of just 0.7 percent, compared with 5.3 percent in 1995/96. This was lead by a 4.5 percent decline in the production of major crops, mainly cotton, sugarcane, and wheat. The production of livestock and fish increased 6.6 and 0.8 percent respectively.
The GOP is attempting to boost growth in the agriculture sector with a comprehensive package of incentives. This package includes increases in support prices for various crops, relief in the prices for key agricultural inputs, improved availability of agricultural credit, better irrigation and drainage facilities, and measures to check the adulteration of fertilizers and pesticides. Interestingly, however, the GOP withdrew the subsidy on phosphate fertilizers last year, causing an estimated 40-50 percent price increase and leading to spot shortages. The subsidy on certified planting seeds was also withdrawn at that time.
Commodity Highlights:
Wheat
Production: The MY 1997/98 (May/April) wheat crop, principally semi-hard white, is estimated at 17 million tons, up slightly from last year's harvest. All production is for domestic consumption. About 85 percent of total wheat area is estimated to be irrigated. Pakistan has seen a significant increase in herbicide usage on wheat fields every year.
Improving on the long-term trend of a 2 percent annual increase in yield, yields for MY 1997/98, are expected to increase by about 4% to 2.1 tons per hectare. More than 75% of the wheat crop is planted under a double-cropping system following cotton, rice, feed grains, fodder, and oilseeds. Yields can be increased by planting early but since 60% of the total wheat area is planted following cotton and rice, the planting season can be short, affecting yields. In the United States, wheat yields average about 2.5 tons per hectare across all classes of wheat.
Production Policy: The government's production policy is to maximize output and therefore minimize imports. Self-sufficiency in wheat is unlikely as the returns on wheat have lagged behind other fall-sown crops, nor is further area expansion likely, at least in the short run. Efforts are therefore focused on increasing yields. The GOP maintains production incentives through support prices, imports of phosphate fertilizer and providing certified planting seed.
Timing of the wheat support price is an issue for farmers, millers, and low income consumers. Since there is no legal deadline to announce the prices, the dates vary. The GOP is determined to keep the price of atta (ground wheat, not wheat flour) low through a subsidized issue price.
The government determines both a support price and an issue price for wheat. The issue price is the price at which wheat is sold (issued) to flour mills from government-held stocks and is the same for domestic and imported wheat. The government influences the price to consumers by supplying wheat to the millers at a set issue price. The procurement price is the price paid to farmers for wheat, but farmers can--and do--sell in the open market at prices higher than the procurement price. Any increase in the procurement price must therefore be weighed in relation to the issue price. Flour millers do not pay premiums for special characteristics or wheats, unlike U.S. wheat marketing.
Though it has not been substantiated, some Government officials believe that little benefit accrues to the consumer as a result of the wheat pricing policy. Flour milled from wheat supplied by the Government is usually priced at what the market will bear at the retail level. Since the distribution is poor, prices at the retail level in recent times have exceeded Government guidelines.
Consumption: Most of the wheat produced in Pakistan is consumed on the farm. Domestic consumption of wheat for MY 1997/98 is estimated at 20 million tons; consumption for food purposes is growing at an annual rate of nearly 3 percent, roughly equal to the annual population growth rate. The volume of wheat smuggled out of the country to Afghanistan and India (possibly as high as 800,000 MT this year) has increased due to lower prices in Pakistan which in turn are determined by the GOP subsidy. The use of wheat in poultry feed is a regular feature of this smuggling market and may reach 1.3 million tons.
Although a substantial rice producer, Pakistan is a bread-eating culture. Per capita consumption of wheat in 1996/97 was estimated at 124 kg. In the northern and mountainous regions where coarse grains have traditionally been consumed, wheat is becoming even more important as a food grain. This is because of the GOP policy of a uniform wheat-releasing price across the entire country as part of a consumer subsidy program.
The supply of wheat in the market is of national political importance in Pakistan, because it is by far the major food grain produced in the country. The GOP subsidizes the sale of wheat in order to keep the price of chapati (local bread) lower in urban areas. The establishment of fast food outlets and improvement in standards of living is very slowly fostering an increase in consumption of different breads and other baked goods. The milling industry is slowly expanding with an existing capacity of around 13.0 MMT, although capacity utilization is low.
Trade: Pakistan is a continuously growing wheat import market. Imports for MY 1997/98 are projected to be 3.5 million tons, of which 50,000 MT will be imported under the World Food Program for Afghan refugees residing in Pakistan. About 80 percent of the total is expected to be bought from the U.S.; the balance will likely come from Australia. Wheat imports should average from 3.0-4.0 million tons over at least the next several years in an attempt to build stocks.
Credit on competitive terms is needed to keep Pakistan buying wheat and will directly affect the amount of wheat that is imported. Credit offered by USDA in the form of GSM-102 has so far been used effectively to meet competitors. The allocation for FY 1997 was $350 million, the same as the previous year; FY 1998 amount will be $250 million. Food aid in the form of P.L.-480 Title I credit in the amount of $25 million was used in fiscal year 1997.
Another issue of concern in future wheat trade is whether GOP agrees to eliminate the consumer subsidy on wheat. If the subsidy is dropped on wheat, then the flour mills in the Karachi and Hyderabad port areas--requiring over 1.2 million tons of wheat annually--may contract directly with importers. This will save huge unofficial payments to the food department officials that are needed to get releases of government stocks. These "bonuses" undoubtedly effect the price of end products.
The GOP allows the private sector to import wheat duty-free and to compete equally with government imports. Private sector wheat imports--unlike certain other commodities--are exempt from sales tax, education tax, and import license fees. Although private imports are permitted, they are probably not economic because GOP wheat is cheaper.
Port and transport facilities are not currently considered adequate to handle imported wheat. The lack of bulk storage results in above-normal discharge time and leads to vessel congestion. Pakistan can handle a maximum of 450,000 tons per month, but imports of only half that amount are handled more efficiently. Inland transportation consists of rail cars and trucks for bagged wheat.
Stocks: The GOP is active in procuring domestic wheat at harvest, but must compete with private merchants. The government keeps reserve stocks and sells the remaining quantities to privately owned flour mills; it also makes periodic sales to stabilize rising wheat product prices or relieve wheat flour shortages in certain areas. The private sector also maintains stocks primarily in the countryside, available for local use.
Rice
Production: Rice production during 1997/98 (November/October) is projected at 6.5 million tons (rough basis), a 1 percent increase over this year's record crop. A small decrease in planted area will balance a correspondingly small improvement in yields. In 1996/97, production was up by 8 percent to a record 6.4 million tons. This increase was attributed to favorable weather conditions during the crop growing season, early start of monsoon in Punjabi, timely water availability, and normal rains in Sindh province. There were only minor pest attacks.
In the province of Sindh, the production of IRRI (International Rice Research Institute varieties) rice was up 15 percent compared with last year. Some 70 percent of total IRRI production will be exported. Of the total production of 4.3 million tons, IRRI was 2.2 million, Basmati (fragrant) was 1.5 million tons, and other varieties were 600,000 tons.
Although the annual use of certified seed to sustain hybrid vigor is not required for rice, approximately one-fifth of the area should nonetheless be planted to certified seed. However, supplies in Pakistan have only been sufficient to meet 3-7 percent of annual rice seed needs. New varieties are normally disseminated by progressive farmers and research institute staff.
It is estimated that 10-15 percent of plantings are of mixed seed and this has resulted in discounting of Pakistani rice by international traders. Land holdings are relatively small; hence, farmers are not very quality-conscious about harvested rice.
Production Policy: The government annually reviews the support prices of paddy rice in order to keep pace with the increased cost of production. Prices are announced prior to the start of planting season and act as the minimum guaranteed price to farmers during the post-harvest period. The support prices of paddy (rough) rice during 1996/97 were increased 15 percent for all varieties, while the prices for milled rice were increased by 10 percent for Basmati varieties and 15 percent for IRRI varieties. For the 1997/98 crop, support prices for IRRI rice will be increased just over 10 percent to Rs. 5,886 ($145) for per ton for Average grade milled rice and to Rs. 6,689 ($165) for Superior grade to cover the increases in production costs. Fertilizer subsidies have been recently withdrawn, causing farmers to complain about the rising prices.
The government of Pakistan has been trying to increase rice production through price incentives, timely availability of inputs, and dissemination of technical knowledge among the farmers. There is significant potential for increasing rice productivity through use of available technology, proper resource management, and the provision of extension support; all at the farm level.
Consumption: Rice is not a staple in the typical Pakistani diet. Consumption for 1997/98 is forecast to remain flat at 2.5 million tons. Although rice consumption is not well-documented in Pakistan, the per capita consumption is estimated to be 18 kg. Broken rice and rice refractions are used in poultry feed.
Unlike wheat for milling, retail rice prices are not subsidized. Consequently, wholesale prices of both IRRI and Basmati increased substantially in 1996/97 because of strong demand from both export and domestic markets.
Trade: Pakistan is the world's fourth-largest rice exporter, behind Thailand, Vietnam, and the United States, with exports forecast at 1.7 million tons (milled) for calendar year 1997. The country is famous for exporting long-grain aromatic Basmati rice, in addition to sizeable quantities of IRRI rice. Competitors in coarse rice include Thailand and Vietnam; and India in Basmati.
Recent changes such as the merging of the Rice Export Corporation of Pakistan (RECP) with the Trading Corporation of Pakistan portend greater involvement by the private sector in exports of rice. In fact, this year it is expected that all rice exports will be handled by the private sector. Less government and parastatal involvement may mean that Pakistan will become a more aggressive exporter. The Government does not provide export subsidies to private traders.
Stocks: At the beginning of the marketing year (November 1996), stocks stood at 513,000 tons, down significantly from 711,000 tons the year before. Overall, stocks had been trending downward as a result of both higher exports and consumption but have since flattened out. Rice stocks are mostly held by traders in small lots.
Corn
Although small in area and value when compared with wheat and rice, corn is still the country's third most important crop. It is grown in a wide variety of climactic zones for a variety of purposes and by both commercial and subsistence farmers. High-yielding spring corn is grown under contract for the wet-milling industry.
Pakistan's corn production is forecast at 1.3 million tons this marketing year (July/June), similar to previous years, and all for domestic consumption. Yields of 1.5 tons per hectare (non-spring corn) are low and must be improved if goals of enhanced livestock and meat production are to be met. Some of the increased corn supply will come about from the use of hybrid seed, presently used on only one-third of the growing area. New joint ventures in seed production, however, have recently begun.
Imports of corn (and sorghum) carry a 25% tariff, although neither commodity has been imported for over ten years.
Based on reports from the Office of Agricultural Affairs, American Embassy, Islamabad. For further information, please contact Rick O'Meara at (202) 720-4933.
Renewed Negotiating Authority and U.S. Grain Exports
Future export prospects for grain depend heavily on increasing access to foreign markets and ensuring competition. Fast track legislation now under consideration by Congress would renew the President's authority to negotiate comprehensive new trade agreements aimed at achieving these objectives. What's at stake for the U.S. grain industry in a renewed fast track authority is summarized on the FAS Web Site at http://www.fas.usda.gov/itp/fast_track/facthome.html. This web site also contains a wide range of information relating to U.S. agricultural trade, including an entire copy of this monthly grain circular.
WORLD WHEAT SITUATION AND OUTLOOK
Significant changes this month revolve around another 4.5 million ton net increase in the 1997/98 world wheat production forecast. Estimated global production has risen over 21 million tons since the initial projection this past May and now stands above 600 million tons for the first time ever. Despite the increase overall, production is down by an estimated 20 million tons, about 12 percent, from 1996/97 levels in traditional exporters Argentina, Australia, Canada and the European Union. This loss is only partially offset by a six million ton increase in the projected production in the United States. Nevertheless, it has been the rising production estimates in importer countries which have reduced the global trade forecast by nearly 2.5 million tons since May, keeping world trade flat.
Exporters
Trade data prompted a one million ton increase in the 1996/97 estimated exports from the European Union. Lower than expected late-year shipments from last season's record harvest in Argentinaled to a decrease of 300,000 tons in the nation's 1996/97 export estimate while increased consumption suggested a 500,000 ton reduction in forecast exports during the current year. Higher 1997/98 production estimates for both Australia and Canada led to 500,000 ton increases in the projected exports of each. The additional competition in turn reduced the United States' export forecast by one-half million tons. A three million ton increase in expected production in Russiaresulted in a reduction in projected imports and an increase in expected exports, putting Russia's wheat trade exactly in balance. The net change in non-former Soviet Union trade was offset by trade revisions in Kazakstan stemming from a forecast for reduced production there.
Importers
Successful trade year purchases to date and an outstanding line of credit from the United States allow for a one-half million ton increase in the import forecast for Pakistan. The lack of any significant wheat trade activity from China forced an import reduction of 500,000 tons, reducing estimated imports to two million tons, just about the lowest level on record.
WORLD RICE SITUATION AND OUTLOOK
After easing slightly in mid-September due to harvest pressure, U.S. export quotes rebounded during the past two weeks on expected sales to Latin America. In Thailand, export quotes climbed during the last week of September, only to fall back again in early October on slow export sales. Fluctuations of the Baht also continue to swing the market. Quotes for Vietnamese rice declined steadily during the month on light exports and competition from low-priced Thai rice. The spread between Thai 100B and Viet 5% has widened over the past month, but still remains relatively tight. Prices in Pakistan also fell during the month due to lack of buying interest as the new crop becomes available.
Exporters
The calendar year 1998 export forecast for China was raised to 1.0 million tons. The 500,000 ton increase is based on an increased 1997/98 production forecast.
Importers
Latin America
The import forecast for several Latin American countries was increased due to expected production declines resulting from adverse weather. In Colombia, the import forecast was increased 50,000 tons in both 1997 and 1998. Colombian rice imports are now forecast at 200,000 tons for both years. The 1998 import forecasts for Nicaragua and the Dominican Republic were each increased 10,000 tons, bringing the 1998 rice import forecast for each country to 60,000 tons. The 1998 import forecast for Ecuador was increased from zero to 100,000 tons.
In Brazil, however, the 1998 import forecast was lowered to 1 million tons. The 250,000 ton downward revision is due to an increase in forecast rice production in Brazil in both the 1996/97 and 1997/98 crops.
Other Asia
The calendar year 1997 import forecast for the Philippines was lowered 200,000 tons. Although the Philippines has been in the market, it now appears that additional imports will be deferred into early 1998.
WORLD COARSE GRAINS SITUATION AND OUTLOOK
After hitting a 28-month low of $109/ton in July, corn prices have rebounded the past two months, averaging $115 in September and $118 through the second week of October. 1997/98 corn crop (Sept/Aug) export commitments by the U.S. stand at 10.6 million tons as of early October, with nearly three million tons having been exported. Prices will likely remain volatile over the near term, largely due to uncertainty concerning Chinese export/import posture and the actual size of the U.S. corn crop.
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 are expected to remain near last year's levels, world corn stocks are projected to fall dramatically from 1996/97 levels, to 64 million tons--the lowest level since 1975/76. 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 increase slightly in 1997/98, due to rising import demand for malting and feed barley from virtually all key importers. Asia continues to be a significant growth market for malting barley; their barley imports are projected to continue to increase to record levels in 1997/98, while imports by the world's largest feed barley importer, Saudi Arabia, are expected to reach the highest level since 1985/86.
Exporters
The estimate for corn exports by China in 1997/98 was raised one million tons to 2.5 million, as trade reports indicate that more than 2.0 million tons has been sold for delivery over the next four months. While new sales of Chinese corn are expected to come to a virtual standstill in the near future, speculation of imminent defaults on the 2.0+ million tons of outstanding sales appears premature. Corn imports by China are still projected at 250,000 tons. Reduced expectations for China's corn harvest (from 110 to 105 million tons), coupled with continued strong feed demand for corn is expected to reduce stocks to the lowest level since 1989/90.
United States barley exports have been increased in both 1996/97 and 1997/98 (200,000 and 100,000 tons, respectively) to reflect large sales and shipments to Saudi Arabia since early summer. Expectations for 1997/98 barley exports by the EU are down marginally this month, from 6.8 to 6.5 million tons, due to a lackluster pace of export licenses to date. Conversely, reports from Turkey indicate prospects for increased exports by TMO, resulting in the export forecast being raised 25 percent to 800,000 tons.
Importers
Despite a substantial cutback in the swine population on Taiwan, imports of corn over the past six months continue at an only marginally reduced pace. Thus the 1997/98 corn import forecast was raised 500,000 tons to 5 million tons. Imports of barley by Saudi Arabia are expected to attain 6 million tons in 1997/98, as greater consumption of barley in that country is anticipated.
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 9-97 September 1997. For further details on the world grain production see World Agricultural Production, Foreign Agricultural Service Circular WAP 10-97 October 1997.
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