Foreign Countries' Policies and Programs

The recent economic and financial crisis in Asia has policymakers there struggling to come up with remedies to minimize the impact on domestic industry. In the United States, the following General Sales Manager (GSM)102 credit packages have been approved to give exporters a competitive tool for maintaining or even expanding their sales to Asia:

Country or Region	Allocation ($ Mil.)	Usage ($ Mil.) and Principal Commodity Registered*
South Korea	1,100**	40.9 Corn, 11.2 Wheat***
Indonesia	400	26.3 Oilseeds
Malaysia	100	0.0
Philippines	100	0.0
Thailand	300	45.7 Oilseeds
TOTAL	2,000

Changes brought on by the financial and economic crisis may result in increased sales of grain to Asia under GSM-102 programs. Asian countries have generally made little use of the GSM-102 program because of their rapid growth and strong liquidity. IMF-mandated reforms and difficulties in obtaining credit, however, may mean that GSM-102 programs in South Korea (first private sector use in FY 97) Malaysia (first in several years), Thailand (first ever to include grains), and Philippines (historically low usage) will result in greater sales of U.S. grains to a region where export competition is fierce.

Programs for all the countries in the above table include wheat and feed grains; rice is included for Indonesia and Philippines. The $2 billion in available credits represents over a fivefold increase from earlier allocations in fiscal year 1998, before the financial crisis hit. Supplier Credit Guarantees in the amount of $50 million are also available for the four Southeast Asian nations listed above plus Singapore. Wheat and corn are eligible commodities under this initiative.

Indonesian importers are having a difficult time arranging letters of credit (L/C’s) because of problems in meeting strict collateral requirements in order to purchase foreign goods. Recent announcements by the Bank of Indonesia that it will cover corporate debts and savings, however, should facilitate arranging trade finance, including the use of GSM-102. In addition, the Indonesian regulation that restricted the use of offshore financing to terms of one year or less (known as PKLN) was suspended indefinitely for seven commodities, including rice, wheat, wheat flour, corn, and corn flour. The will allow the full three-year term (or other terms allowable by the importer’s bank) of GSM-102 to be used.

Also in Indonesia, BULOG’s monopolies over both the importation of wheat and wheat flour and the distribution of wheat flour were lifted effective February 1. This, together with the opening of two new flour mills, may boost U.S. wheat exports to this major market long dominated by Australia.

There are indications that Canada and Australia have offered or are developing credit packages for key markets and may be offering assistance directly to their own exporters. The Association of Southeast Asian Nations, ASEAN, is working on an IMF-sanctioned scheme to pay for intraregional trade in member currencies. There have been a few recent reports of commodity sales that were settled in the currencies of ASEAN exporters and not in U.S. or Australian dollars.

Within the next two months, teams from USDA will be traveling to the region in order to promote GSM, Supplier Credit Guarantee, and Facility Guarantee programs to importers and banks.

The Government of Colombia (GOC) has authorized rice imports of up to 200,000 tons (rough basis) for delivery in the coming months. Colombia has been a rice importer since the mid- 1990's, typically purchasing from Venezuela and Ecuador. However, it is unclear how much Venezuela will be able to supply this year, and Ecuador is currently importing rice. As a result, the United States is well positioned to meet Colombia’s import needs.

Under an existing bilateral industry-to-industry agreement, Venezuela will be given the opportunity to supply approximately half of the authorized amount. Imports from Venezuela can be either milled, brown, or rough, but purchases from other countries are limited to rough rice. Location, quality, and willingness to export rough rice all make the United States a likely source for Colombian purchases.

The GOC controls all legal rice imports through an import licensing system. Potential importers must have purchased domestic rice during the past season to participate in the import program. For those meeting this requirement, the Ministry of Agriculture will allocate import quotas based on their market share in purchasing last year’s domestic crop. This method helps ensure that mills utilize the domestic crop before turning to imports. The authorized imports must be delivered prior to local harvest, which typically begins in June.

Based on reports from the Office of Agricultural Affairs, American Embassy, Bogota. For further information, please contact Linda Kotschwar at 202-690-1147.

On January 6, 1998, the Government of Nigeria (GON) announced that it was lifting the import ban on barley and barley malt. The ban, which was in contravention of Nigeria’s Uruguay Round commitments, will be replaced by a 20 percent tariff on barley and barley malt. This change represents a solid opportunity for U.S. barley and barley malt exporters.

Since Nigeria currently has no facility for malting barley, the most obvious export opportunity is for barley malt. Brewers are considering barley malt as a substitute for local corn and sorghum, both of which are priced above world levels because of import bans and local production problems. Nigeria’s coarse grains production has suffered from several years of fertilizer scarcity which coupled with the ban on barley imports caused hefty price increases. Around 5 million metric tons (mmt) of domestically-produced corn are used annually in Nigeria’s food/industrial sector along with over 6 mmt of domestic sorghum. Roughly 10 percent of domestic corn is used by the brewing industry.

Now that the ban has been lifted, industry sources estimate that some of the larger breweries will substitute 10 to 15 percent of their corn input with barley malt. Thus, as much as 50,000 to 75,000 mt of barley malt would be consumed. However, larger purchases are limited by at least three factors: (1) brewers have made advanced purchases of corn (2) many have invested in technical equipment and personnel to capitalize on enzyme technology to enable use of local grain in the brewing process (3) brewers are gauging consumer responses to the taste of beer made with barley malt. Smaller breweries, on the other hand, are not as limited by these factors. Most did not invest in enzyme technology, they have the flexibility to brew "micro brews" for niche markets.

As in most markets, the Nigerian market favors 2-row over 6-row malting barley. Thus, producers of two-row malting barley (typically in the northwestern United States) will be most able to meet Nigerian needs. These U.S. exporters will face stiff competition from the EU, which controls roughly 60 percent of world malt trade, thanks in part to continued use of export subsidies. Canada and Australia are also likely competitors.

With respect to barley, some feedmills are considering importing barley for feed. Imported feed barley is priced significantly below local corn. The trade impact has not been assessed, but this seems to be a modest export opportunity considering annual feed use of corn and sorghum is roughly 400,000 mt.

For both barely and barley malt, the final barrier U.S. exports must overcome is the expense and time lost for a preshipment inspection. Australia, Ireland & UK are currently exempt from these inspections; exemptions are expected to follow as GON contracts with preshipment inspection companies lapse; shipping industry sources indicate that by April 1, most of these contracts will have expired and all imports will be subject only to destination inspection.

Based on reports from the Office of Agricultural Affairs, American Embassy, Lagos, Nigeria. For further information, please contact Deanna Johnson at (202) 720-4204.

Peru is a relatively small producer of wheat, relying on imports to meet its growing demand for wheat products. Until several years ago, wheat imports were controlled by a state monopoly. With Peru’s wheat trade now liberalized, individual millers make the import decisions. This freedom has encouraged them to purchase a wide range of wheat classes, in order to better service the growing demand for quality products. It also has put them in more direct contact with suppliers. Peru’s wheat imports are projected at the near-record level of 1.3 million tons in 1997/98.

The United States averaged a 40 percent share of the Peruvian wheat market over the past five years, although year-to-year fluctuations have been large. After being the major supplier of wheat to Peru in 1995/96, the U.S. has seen a marked deterioration in its market share. Although it’s true that the surge in U.S. sales in 1995/96 was mainly due to relatively short supplies in competitor countries that year, the subsequent decline in market share results largely from Canada’s aggressive entry into the market. Canada has taken over as the major wheat supplier , displacing not only U.S. wheat, but also wheat from the other traditional supplier, Argentina. It appears that the Canadian Wheat Board has been able to develop a trading relationship with Peru’s largest wheat miller, a conglomerate that controls about 60 percent the wheat flour industry. Peruvian wheat sector sources also indicate that the Canadian Wheat Board is evaluating opening an office in Lima to facilitate direct negotiations with the nation’s flour millers, and give it a regional operating base.

Peru has traditionally imported wheat from Argentina during the first semester of the year, after the harvest of the Argentine crop. Wheat purchased from the U.S. and other sources would be imported to fill out demand for the remainder of the year. This traditional purchasing pattern appears to be changing.

The greater purchases from Canada this marketing year reflect more than just competitive prices from the "single desk" seller. Due to the current competitive situation in the Peruvian market among wheat processors and pasta producers, the consumer is benefitting from higher quality products, produced from "stronger" U.S. and Canadian wheats -- at the expense of Argentina.

The future for marketing U.S. wheat in Peru now appears to hinge not only on the level of wheat supplies in Canada and Argentina, but the marketing strategy of the Canadian Wheat Board. The USDA’s GSM-102 Credit Guarantee Program, which was a positive force in U.S. wheat sales to Peru in the recent past, has become less of a factor. Greater liquidity in the growing Peruvian economy has resulted in competitive interest rates from domestic banks, while international shippers are also extending attractive credit terms to Peruvian wheat millers. Consequently, the advantages of using GSM-102 credit for U.S. wheat purchases seems to have been virtually eliminated in Peru.

Peru recently increased its wheat import duty from 15 to 25 percent (a 20 percent regular duty plus a "temporary" 5 percent surcharge). This was a move taken apparently in support of local potato producers who believe that they compete with wheat products as suppliers of carbohydrates. The tariff increase falls within Peru’s commitment to the World Trade Organization, but it is being disputed by local wheat industry representatives. In any case, the tariff increase is not expected to greatly affect Peru’s wheat import level.

Based on reports by the Office of Agricultural Affairs at the American Embassy in Lima. For further information please contact Kenneth L. Murray at (202) 690-1252.

The Mexican Secretariat of Commerce and Industry (SECOFI) announced new procedures for the auction of dry beans in the December 31, 1997 Diario Oficial (official gazette). The new system responds to issues raised in meetings of the NAFTA Committee of Agricultural Trade. In previous years, the auction date, delivery periods, and the definition of qualifying bidders changed considerably, thereby causing uncertainties in the marketplace. As Mexico is the largest market for U.S. dried beans, these uncertainties had significant effects on U.S. producers’ planting decisions, prices, and other factors. The new auction procedures, resulting from NAFTA negotiations, should resolve prior industry concerns.

The dry bean auctions took place on January 29 and 30, 1998. The tariff rate quota (TRQ) certificates are valid throughout the year, and unused certificates will not be re-auctioned. The auction of duty-free import permits for dry edible beans from the United States and Canada under the respective 1998 NAFTA TRQs took place on January 29. The 1998 TRQ for U.S. beans is 56,276 MT. On January 30, the SECOFI auctioned quota certificates for the duty-free importation of 42,036 MT of additional dry beans from all countries, including the United States and Canada. Participation in the auction was limited to traders and packers in operation for at least one year. According to SECOFI sources, the total quota amount was awarded and bidders paid 600 Mexican pesos (US $71) per metric ton for quota certificates. The Government has indicated that an additional import quota is unlikely, though it will depend on the next spring/summer dry bean harvest.

According to trade sources, the Mexican Government (GOM) significantly expanded the dry bean import quota in response to the poor output of the 1997 spring/summer Mexican crop. Official Government statistics estimate the 1997 bean crop at only 685,000 MT, which is roughly 240,000 MT less than expected. The Secretary of Agriculture declared that dry bean production suffered significant damage due to recent dry weather conditions. The GOM was concerned that lower production and high prices would cause a shortage of dry beans, a basic staple food. Though consumers may see higher dry bean prices, the government expansion of the import quota should buffer this increase. The new import system and expanded import quota for dry beans should facilitate US exports, while stabilizing domestic Mexican dry bean prices.

Based on reports from the Agricultural Affairs Office, American Embassy, Mexico City. For further information, please contact Kim Svec at (202) 720-9523.