FOREIGN COUNTRIES' POLICIES AND PROGRAMS
World Rice Supplies Sufficient to Meet Indonesian Demand, But Next Monsoon is Critical
Indonesia is forecast to import a record 4 million tons of rice in calendar year 1998 to supplement a drought-reduced and delayed domestic crop. This huge level of demand has pushed the forecast for 1998 world rice trade to a record 21.4 million tons. Despite this tremendous surge in trade volume, record world rice production in 1997/98 means that ample supplies are available. In fact, most of Indonesias expected imports have already been booked, and world rice prices have risen only modestly. However, the 1998/99 monsoon will be critical; another delayed or reduced main crop would likely mean that Indonesia would need additional imports in late 1998 and early 1999.
Indonesias Current Rice Purchases Will Commit Unloading Systems Until At Least Early May. Since beginning this import campaign in November, Indonesia is believed to have purchased nearly 3 MMT of rice. December through February arrivals are estimated at 1.1 MMT, and early indications suggest that March imports could reach as high as 750,000 tons. Although normal port capacity would limit intake to around 500,000 tons per month, a slow-down in imports of other goods is expected to allow a shift of port resources to rice.
Indonesias Seasonal Imports in 1997/98 are Larger and Concentrated in a Shorter Time Frame. When Indonesia suffered from drought in1994/95 and 1995/96, heavy import campaigns ran from September through June. During those years, approximately 2.5 MMT was imported over the period, compared to about 3 MMT expected to be imported in the comparable 1997/98. In the current case, imports did not begin until December 1997 and are expected to continue heavy until May 1998. The later start in 1997 was likely due to the currency crisis.
Indonesian Import Demand From Fall 1998 Forward Depends on the 1998 Monsoon. The critical factor to the Indonesian import scenario is the 1998 monsoon and timely planting of the 1998/99 main crop. If the monsoon is delayed again, which wont be known until October, heavy imports will be needed and will likely begin in fall 1998 and run through the first half of 1999.
Production Outlook for 1998/99 is Favorable. Although no official forecast will be published until July, the outlook for 1998/99 Indonesian rice production is favorable, assuming a return to normal weather. An increase in area planted to rice is expected due to high prices. In addition, heavy rains in February and early March are believed to have replenished reservoirs, critical to the dry season crop. Coupled with a return to normal rainfall in the 1998 monsoon and increasing use of high yield varieties, higher yields can be expected.
The Major Exporters Have Enough Rice to Meet Indonesias Demand. The traditional rice exporters have enjoyed strong production in 1997/98. The worlds two largest rice exporters, Thailand and Vietnam, both have increased exportable supplies available. China has had two successive years of record rice crops, and is returning to the market as a major exporter in 1998. Chinese exports are expected to fill demand in the Philippines and Africa, allowing Thailand and Vietnam to focus on Indonesia. India also harvested a record 1997/98 crop, and like China, is expected to step in to help meet demand outside of Indonesia, including the additional demand from Bangladesh.
Graphs related to this article.
For further information, please contact Linda Kotschwar at 202-690-1147.
Vietnam Proposes Rice Oversight Board In Response to Oversold Export Contracts
In response to widespread over-booking of rice contracts, the Government of Vietnam (GOV) has announced plans to create a Rice Marketing Board, which could be running by the third quarter of this year. Although operational details are not yet available, according to the Ministry of Trade, the Board is intended to provide market information to buyers and sellers of Vietnamese rice.
Vietnamese provincial and state-owned rice export companies are believed to have signed up to 2.5 million tons in contracts for delivery in the first half of 1998. Although exports in January and February were nearly four times the year ago pace, and March volume is likely to shatter the old record, it is quite likely that logistical constraints and rising prices will lead to defaults.
Paddy prices in the Mekong River Delta, where harvest is currently in full swing, are at record levels. Nonetheless, some exporters have reported difficulty in procuring rice, as producers hold back in hopes of even higher prices. This situation, coupled with rising export prices, is expected to result in some exporters looking to renegotiate earlier contracts signed at what now seem unacceptably low prices.
Vietnam currently controls rice exports through quota allocation to provincial and state-owned companies, and two large central food corporations. Ironically, the move to introduce additional state oversight through a Rice Marketing Board comes on the heels of a limited opening of the export regime to allow some private sector participation. Two private sector companies had recently been approved as rice exporters.
Based on reports from the Agricultural Affairs Office, American Embassy, Hanoi. For further information, please contact Linda Kotschwar at (202) 690-1147.
U.S. Faces Aggressive Competition in the Colombian Wheat Market
Colombia is currently experiencing some developments in the domestic wheat sector and in trade policy negotiations which seems certain to affect the U.S. competitive position in this market, both in the short and long-run. Disappearing Colombian wheat production, increasing experience with the free market system by Colombian millers, and negotiations between the Andean Community and Mercosur which could eliminate the price band system, are the principal factors involved. Although the Colombian market is expected to grow, U.S. market share is being challenged by Canada and could face increased competition from Argentina, which will likely receive duty preferences in the years to come.
Colombian wheat production in 1997/98 is estimated at a mere 30,000 tons, a decline from the early 1990s when its was around 100,000 tons. The area devoted to wheat has declined to less than half of what it was just a few years ago. Wheat grower incomes have declined as price increases have not kept up with inflation, so they are turning to the production of more profitable crops, such as fruits and vegetables. There is the possibility that within the next 3-4 years, Colombian wheat production may no longer exist.
Prior to 1992, IDEMA, the Agricultural Marketing Agency of the Ministry of Agriculture, had been the exclusive importer of wheat and had restricted imports. After 1992, importation was turned over to the private sector and IDEMA was officially eliminated in December, 1997. Since this market opening or liberalization program called "Apertura," import volumes and consumption have risen dramatically. So as Colombian production vanishes and millers become more attuned to dealing with the market directly, imports should continue to increase in the coming years.
In the early 1990s, the United States was supplying about two-thirds of Colombias import needs. However, the U.S. share of Colombias wheat imports fell in 1996/97 to 35 percent, while Canadas share climbed to 42 percent. Colombian wheat imports in marketing year 1997/98 are estimated at 950,000 tons. This volume is expected to consist of almost 90 percent hard wheat and approximately 10 percent soft wheat. All soft wheat imports are supplied by the United States while hard wheat imports will be supplied by Canada and the United States. In recent years, the Canadian Wheat Board has successfully gained market share, partly due to aggressive pricing strategies.
Currently, the Andean Community and Mercosur are discussing a possible merger which will have implications for wheat exports to Colombia. The Colombian wheat milling industry is urging the Government of Colombia to push for the removal of wheat from the price band system and to seek a reduction in the common external tariff from 15 to 10 percent. Wheat milling industries in Ecuador and Peru are also seeking the elimination of the price band system. This restrictive import regime continues to make it difficult to know what duty will be assessed on wheat shipped into Colombia and other Latin American countries that employ price bands.
Under the price band system, the Andean Board of Directors sets the floor and ceiling prices in April, and then adjusts reference prices every two weeks. These reference prices (rather than actual invoice prices) are used to calculate the duty for each two week period to cover wheat imports. If the reference price falls within the floor and ceiling price band, the import duty is calculated using the common external tariff rate for the Andean Community which is 15 percent. When the reference price falls below the floor price an additional duty is applied. Conversely, when the reference price is above the ceiling price, the applied duty is reduced.
Elimination of the price band system and a duty reduction would be beneficial to the United States in terms of transparency. However, it is important to realize that since Argentina is a Mercosur member, its wheat could eventually enter Colombia duty-free if Colombia becomes a member, while the United States, Canada and any other suppliers outside the Mercosur would still face import duties. Argentina has usually made small sales to Colombia; in 1996/97 they had just a 10 percent market share. With these trade policy developments, however, Argentine sales to Colombia may well increase in the coming years.
The Colombian wheat market is just one example of a trend which is becoming apparent in many of the South American wheat markets. That is, increased Canadian competition on the one side, and trade policy agreements among the South American countries on the other, are complicating the environment in which the United States must operate to maintain wheat sales.
Based on reports by the Office of Agricultural Affairs at the American Embassy in Bogota. For further information please contact Barbara Elliott (202) 720-4203.
U.S. Pet Food Exports are Enjoying Rapid Growth in Latin America
The United States is the worlds leading pet food exporter, and international sales are the fastest-growing component of the U.S. pet food industry. The United States exported nearly $745 million of pet food in 1997, accounting for 1.3 percent of total agricultural exports. U.S. pet food exports have grown nearly 14 percent annually since 1992, and have increased more than sevenfold in the last decade. Canada, the European Union, and Japan comprise the three top markets for U.S. pet food, and account for 72 percent of total exports. However, these countries share of U.S. exports has fallen from 86 percent in the past five years, as exporters are enjoying rapid growth in non-traditional markets, such as Latin America.
U.S. pet food exports to Latin America are enjoying phenomenal growth, and further expansion looks promising. In the past five years, total U.S. pet food exports to Latin America have increased more than fivefold, from less than $22 million to $114 million. Pet food exports to Latin America now account for over 15 percent of total U.S. exports, up from 5.5 percent in 1992. While this extraordinary level of growth is unlikely to continue, there is still considerable room for expansion in these largely untapped markets. Though pet food promoters believe that the volume of pet food sales in Brazil is second only to the United States, only about one-quarter of Brazils 22 million cats and dogs consume processed pet foods. That percentage is generally much lower for most other Latin American countries, where pets are fed table scraps or left to fend for themselves. A major constraint to pet food exports is the lack of information and knowledge on proper feeding habits, as it is generally believed that homemade food and table scraps are more nutritious than commercially prepared pet foods. However, a growing middle class, rising personal income, changes in family structure, and the increasing popularity of pet ownership in Latin America suggest that marketing efforts by U.S. exporters should continue to result in booming exports.
U.S. pet food exporters are enjoying considerable success in Mexico. Dog and cat food exports to Mexico have expanded from $5.5 million in 1991 to more than $41 million in 1997, making Mexico the fourth largest market for U.S. pet food. This rapid growth is partly attributable to the Pet Food Institutes (PFI) market promotion activities in Mexico, such as efforts to educate consumers and veterinarians on the nutritional superiority of commercially prepared pet food over homemade food and table scraps. Since PFI began targeting Mexico under USDAs Market Access Program (MAP) in 1993, U.S. pet food exports to Mexico have increased more than 27 percent annually. Though exports declined during Mexicos severe recession in 1995, exports have since increased an average of 46 percent annually. Strong growth in U.S. pet food exports is expected to continue in Mexico, and throughout Latin America.
For further information please contact Kim Svec (202) 720-9523.
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