FOREIGN COUNTRIES' POLICIES AND PROGRAMS

Australia Remains Aggressive in its Grain Export Policies and Marketing Practices

Australia is currently enjoying one of the longest periods of continuous economic growth in its history. A dark spot is their generally sparkling record is high unemployment. Another is the financial crisis in Asia. Since exports to Asia represent two-thirds of Australia’s merchandise exports, the financial crisis affecting that region is likely to disrupt trade. Most of the negative effects are expected to hit later this year, and could slow domestic growth. The Government of Australia (GOA) has taken some steps to ameliorate the situation facing exporters and the domestic economy remains buoyant, but concerns are that the impact will be more severe than originally expected. On a positive note, the value of the Australian dollar has declined, giving Australian exports to Asia a slight break and a distinct advantage over U.S. products. With respect to agriculture, the Asian market represents as much as 85 percent of cotton, skim milk powder and live cattle shipments and at least half of beef, sugar, cheese, wool, and whole milk powder shipments. Meanwhile, exports of basic foodstuffs such as wheat should be relatively stable given the diversity of Australia’s export markets and sales already locked under fixed and long-term contracts by the Wheat Board.

Like the U.S. Government, the GOA has offered credit insurance through its Export Finance Insurance Corporation (EFIC) to keep trade flowing. EFIC offers export credit insurance for up to 180 days through its commercial window. In cases where the risk is too great or where the acceptance of a contract would unbalance its portfolio, EFIC makes credit available though a special "national interest window". This requires a Ministerial decision or, as was the case in response to the Asian crisis, a Cabinet decision that extension of additional insurance coverage is in the national interest. The GOA has announced additional credit insurance coverage under the national interest window, A$300 million (US$237 million) for Korea, a program for Indonesia, that includes export credit insurance cover of at least A$380 million (US$300 million) for the remainder of the 1997/98 year.

Selected Economic Data (1996)*

Area: 7,686,850 sq. km. (slightly smaller than the United States)

Land use: arable land (6%), permanent crops (0%), meadows and pastures (58%), forest and woodland (14%), other (22%)

Major agricultural products: wheat, barely, sugarcane, cotton, fruit, cattle, sheep, poultry

Total agricultural imports : $5.5 billion (1996)

Major agricultural imports: forest products, vegetables and fruits, oilseeds, tobacco, beverages.

U.S. share of total agricultural imports: 13.5 percent

Major agricultural exports: meat, wool, wheat, cotton, horticulture, wine

Total agricultural exports : $17.4 billion (1996)

U.S. share of total agricultural exports (excluding minerals): 4.4 percent

Agricultural trade balance with the U.S. : $262 million

Population : 18.3 million (July 1996 est.)

Population growth rate: 0.99 percent

GDP purchasing power parity : $405.4 billion (1995 est.)

GDP real growth rate : 3.3 percent (1995 est.)

GDP per capita : $22,100 (1995 est.)

Inflation (CPI): 4.75 percent (1995 est.)

Unemployment: 8.5 percent

Agriculture, as percent of:

- imports: 6

- GDP: 3.1

- workforce: 6.1 (1987)

* A$0.789=US$1

The Agricultural Sector

Australia’s agricultural sector is highly oriented toward the export market; nearly all of its wool, 90 percent of all cotton, 80 percent of sugar, 75 percent of rice and wheat and 65 percent of beef production are exported. Exports of horticultural products and, in particular, wine are growing rapidly. In the absence of price supports, producers base their planting decisions purely on market signals and are prepared to respond rapidly to changes in global supply and demand.

The Australian Quarantine and Inspection Service (AQIS) is undergoing changes in an effort to enhance its science-based import risk analysis capacity and to make its risk assessment process more transparent and to increase stakeholder involvement. One of the supposed goals is to conduct risk assessments (RA) on a more timely basis. However, many requests (including those for U.S. corn) are classified as "non-routine" analyses which, by all accounts, are no less time-consuming that the prior RA process.

AQIS’s currently has tight quarantine standards on the importation, transportation, storage and final processing of grain. Import protocols include devitalization of the grain to eliminate weed seeds and kill pathogens.

Commodity Highlights:

Australian Field Crop Production (Thousand Metric Tons)

*Forecast

Wheat

Production: Australia is one of the world’s top ten wheat producers, averaging 16.4 million metrictons (mmt) annually during the last five years. The 1997/98 (Oct/Sep) crop is estimated at 19.0 mmt, roughly 20 percent smaller than last year’s record crop. Australia produces mainly Australian Standard White and Australian Hard Red wheats. Red winter wheat was produced commercially for the first time in 1996/97. In fact, it is the first time Australia has promoted production of feed wheat, in recognition of the growing world demand for feed wheat, especially in Asia.

The Australian Bureau of Agricultural and Resource Economics (ABARE) has forecast that in the medium-term wheat acreage will decline to 8.9 million hectares by 2002-3. In turn, production will decline to 15.8 mmt, despite technological innovation and yield increase. Instead, producers are likely to increase plantings of malting barley, oilseeds and pulses.

Consumption: Human consumption of wheat has increased by nearly 1.5 mmt since 1991/92 to a record 4.9 mmt in 1997/98. Meanwhile, wheat feed use has remained steady over the last five years at roughly 1.6 mmt. Feed wheat usage will jump in 1997/98 to 2.6 mmt due to an abundance of lower-quality Australian wheat. Expansion of Australia’s intensive livestock industries could result in increased utilization of wheat for feed in the future.

Trade: Australia’s wheat industry is export-oriented and a major competitor, particularly in the Middle East (Iran, Egypt, Iraq, Yemen) and Asia (Indonesia, India, Japan, Pakistan). Roughly 75 percent of the Australian crop is exported each year. Indonesia and Iran are typically Australia’s largest wheat markets, but this year sales to India and Iraq have knocked Iran, Egypt and China out of the AWB’s top five markets list. Australia’s export sales for marketing year 1997/98 (July/June) are virtually complete. Any remaining supplies are reportedly earmarked for regular customers. In the coming year, the Asian financial crisis is unlikely to cause a major disruption to wheat sales. In particular, the AWB reports that sales to Indonesia will go forward but will be on a more "hand-to-mouth" basis.

The AWB retains its status as Australia’s sole wheat exporter. While other countries typically use a price system determined by a free market where all foreign buyers pay essentially the same price for comparable quality grain, single-desk exporters can differentiate prices between different destinations. They also enjoy a large degree of pricing flexibility by paying producers government-backed initial payments that are typically 70 to 80 percent of the estimated net pool return for that particular grade of wheat. It is the margin between the initial payment and the final price that allows the AWB maximum pricing flexibility. These factors also enable STEs like the AWB to negotiate long-term, fixed contracts. Among those negotiated by the AWB are: Japan’s MAFF (a minimum of 900,000 mt in CY98), Indonesia (new mill with 450,000 mt capacity).

The AWB is currently under restructuring that moves it closer to a commercial entity but without removing its single-desk export authority. The primary impetus for the restructuring is that the Government of Australia’s guarantee on AWB borrowing expires in 1999, forcing the AWB to secure an alternative financial base. The AWB is in the process of creating its new financial base by converting growers' current equity in the Wheat Industry Fund (WIF) into shares of a grower-owned AWB. In addition, the Australian National Competitive Policy, which is a sweeping program to reform anti-competitive regulations by 2000, has required that statutory marketing authorities such as the AWB must justify that they operate in the public interest in order to continue their monopoly status. The key elements of the new structure, based on the Grower Corporate Model, are: retention of the AWB’s single-desk monopoly on wheat exports, a capital base to fund harvest and post-harvest payments to producers, greater producer control and ownership, commercial flexibility, and self-determination.

Barley

Production: Barley is Australia’s number one coarse grain crop. Production over the last ten years has been steadily increasing and over the past five years has averaged 5.6 mmt (versus U.S. average production of 8.3 mmt). Area devoted to barely has increased by nearly 1 million hectares compared with the average of the late 1980's. Coupled with higher yields, this has led to bigger and bigger harvests. 1997/98 barley production is forecast at 6.0 mmt.

Consumption: As with corn, barley consumption is on the rise due primarily to higher feed demand. Feed usage will increase by 200,000 mt in 1997/98 to 2.2 mmt. Usually around 40 percent of the barley crop is of malting barley quality.

Trade: Australia is one of the world’s leading barley and barley malt exporters. Total barley exports have averaged 3.1 mmt (92/93-96/97, Oct./Sept.). In 1997/98, exports are forecast down to 2.8 mmt due to smaller supply, including less quality barley. Australia’s barley exports fluctuate greatly from year-to-year.

Asia is the most important market for Australian malting barley, taking over 70 percent in 1992/93 (the last year for which ABARE data broke out malting barley exports). China is Australia’s most important customer followed by Japan, Taiwan and South Korea. Growing beer consumption in Asia is expected to keep export potential high, provided Australia can meet quality standards which are rising with consumption.

Barley exports and domestic procurement are regulated by the Australian Barley Board (ABB), much like the AWB. The ABB was reviewed under the standards set by the National Competition Policy. The consultants found that the ABB provided no particular benefit to the community as a whole and recommended that domestic and export powers be phased out and both markets be deregulated. Some farm and industry constituents are fighting to keep the ABB’s single-desk export powers.

Other Coarse Grains

Production: Australia produces small amounts of other coarse grains including corn, oats and sorghum. Together, these three account for roughly 35 percent of all coarse grain production with sorghum production highest followed by oats and corn. Roughly 1.1 mmt of sorghum is produced annually in Australia. Production fell off during 1989/90-1993/94 when acreage was reduced, but as some acreage returned to sorghum and yields increased production increased to around 1.35 mmt. The 1997/98 forecast is down slightly to 1.2 mmt.

Oat production has been relatively stable, around 1.6 mmt per year. 1997/98 output is estimated at 1.3 mmt, down due to reduced acreage.

Corn production has doubled in the last ten years to reach 330,000 mt in 1997/98 (Mar/Feb). Still, corn ranks a distant third in coarse grain production after barley and sorghum. Corn production is expected to remain in third place despite an increase in available acreage which is more likely to go into other crops.

Consumption: Sorghum consumption is forecast at 950,000 mt in 1997/98, slightly above the five-year average. Feed use has shown modest growth over the past ten years. Total corn consumption is on the rise, buoyed almost exclusively by feed corn usage. Since 1986/87, both total consumption and feed consumption have tripled to 330,000 mt and 200,000 mt, respectively.

Unlike other coarse grains, oats are consumed by a diverse range of users. They are used extensively by thoroughbred horse and stud stock industries while milling quality oats are used for human consumption. Consumption has been flat and this year’s 1.1 mmt is just slightly below average.

Trade: Australia is a net coarse grain exporter, but other coarse grains contribute little to the net export position compared with barley. Sorghum exports represent around one-fourth of total coarse grain exports, or, 275,000 mt. Likewise, oat exports are small, around 206,000 mt annually. Corn exports have fallen dramatically from 55,000 mt in 1986/87 to 10,000 mt in 1997/98 as domestic feed consumption is increasing.

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

China Seeks Balance in Providing for Its Expanding Grain Needs

China has experienced rapid development since 1979, when economic reforms began. Its GDP growth rate has averaged 9% since then. As China’s economy expands, one would expect continued increases in consumption of meats and high-quality, non-traditional wheat products, which translates into increased import requirements for grains.

China has traditionally been very concerned with self-sufficiency. Grain trade continues to be dominated by a few state entities, namely the Cereals, Oil and Food Corporation (COFCO) and its branches in several key provinces. However, with improvements in China's grain supply/demand balance sheet, and ample grain supplies in the world, there appears to be some relaxation of the preoccupation with self-sufficiency, and rather a focus on self-reliance, which includes some role for imports. China's leaders have accepted the reality that imports will be needed to cover a portion of their domestic production shortfalls--possibly as much as 5 percent. However, China will continue to source imports from various countries in an effort to reduce its dependence on any one supplier.

China's self-sufficiency concerns boosted production and stocks to a point in which supplies far exceed demand, and prices fell. Now the preoccupation is with supporting an equitable return to farmers without stimulating food price inflation. The hot issue four years ago was "Who Will Feed China?"; today it is "Who Will Pay the Farmers?" Additionally, joint ventures between the Ministry of Internal Trade, Ministry of Foreign Trade and domestic businesses have indicated the government’s interest in continuing the liberalization of trade. Some believe that these joint ventures are a concerted effort to resume liberalization momentum.

Economic Overview:

The People’s Republic of China (China) has in recent years boasted one of the faster growing economies in the world. Despite the financial crisis in Asia, China's economy has remained relatively stable. In fact, certain regions in China, especially those along the coast, are growing, and incomes are rising for many people.

China’s economy is expected to continue developing in the coming decade as well. The average annual growth rate through 2000 is projected at 8.8 percent. The growth rate is projected to slow somewhat from 2001-2005 to 7.5 percent per year.

Selected Economic Data for 1997 1/:

(Billions of U.S. dollars unless otherwise indicated)

Population (billion) 1.22

Nominal GDP 892.5

Real GDP Growth (pct) 2/ 9.0

GDP by Sector 3/:

Agriculture 170.1

Manufacturing 442.3

Services 228.5

Per Capita GDP ($US) 721

Labor Force (millions) 707

Unemployment Rate (pct)4/ 3.1

Consumer Price Inflation (percent) 3.4

Exchange Rate

(Rmb/US$ annual average) 8.3

Total Exports (FOB) 5/ 181.0

Exports to US 60.0

Total Imports (CIF) 5/ 142.0

Imports from US (FAS) 13.0

Trade Balance +39.0

Balance with U.S +47.0

1/ Estimated from third quarter and end August 1997 data.

2/ Growth rate based on constant renminbi (RMB) prices using 1978 weights. All other income and production figures are converted into dollars at the exchange rate.

3/ Production and net exports are calculated using different accounting methods and do not tally to total GDP. Agriculture includes forestry and fishing; manufacturing includes mining.

4/ "Official" urban unemployment rate; agricultural laborers are assumed to be totally employed in China's official labor data.

5/ Source: U.S. Department of Commerce (U.S.­China bilateral trade data) for U.S. trade; PRC

Customs (Chinese global trade data and 1997 estimates).

Agricultural Support Policies:

China's overall agricultural policy objectives are to: (1) maintain farm income, (2) stimulate production, and (3) provide sufficient supplies of grain to keep prices low in the urban areas. China attempts to meet policy objectives through price controls, a combination of administrative fiat, and manipulation of markets. Although "protected prices," "quota prices" and "negotiated prices" have been used by the Government for quite some time, the announcement of the 1997 "protected price" was important to producers' decisions because of the low market price in relation to the "protect price". See below.

Pricing Scheme in China:

Protected price--minimum price paid by the government for grains beyond the quota quantity (protected prices are generally below the quota price).

Quota price--price paid for the amount of grain obligated to the government (US$125.76/mt for corn, US$169.29/mt for wheat, US$181.38 for rice).

Negotiated price--price paid to farmers for any additional grains sold to the government, these prices are permitted to vary with market conditions.

China’s trade regime has received considerable attention in the past year as part of the WTO accession process. Tariff rates on bulk grains are minimal and not a serious barrier to additional trade. However, all imports are based on quotas and import licenses. No imports are allowed without Government approval. Additionally, China has implemented sanitary and phytosanitary (SPS) barriers that the United States and other countries believe are not scientifically sound in an apparent attempt to exclude imports of certain commodities. Discussion of these barriers will continue to be a top priority in WTO accession talks with China.

Commodity Highlights:

Wheat

Production: China is the world’s biggest producer of wheat. A slight decrease in wheat area is expected in the coming years as growers shift some land into production of higher valued crops, such as vegetables. Green houses dedicated to the production of vegetable crops can be seen throughout the country side. In 1997/98 marketing year, China’s wheat crop is forecast to reach 124 metric tons. Over 60 percent of the wheat is produced in five provinces--Hebei (10.4 percent), Jiangsu (8.7 percent), Shandong (20.2 percent), Henan (17.2 percent) and Sichuan (7.2 percent).

In 1996/97, the wheat flour industry complained about the poor quality of domestic wheat. Most of these quality concerns stem from the use of higher yielding varieties which were developed with insufficient consideration of quality factors.

Consumption: Per capita consumption of wheat is expected to remain relatively flat due to a shift in diets to more vegetables and meats. However, there is a trend to consume more of the higher-end wheat products such as pastries, which will likely result in the need for more imports of high-quality wheat.

Trade: China’s wheat imports have dropped off sharply in the past two years due to large crops. China is forecast to import approximately 2.0 million tons of wheat in 1997/98, well below the 12.5 million tons two years ago. The underlying demand factors (i.e., limited land, increasing population, wider variety of wheat-based food products) as well as the need to blend imported wheats with domestically produced wheat indicate that China will continue to be a major consumer and importer of wheat into the next decade.

Imports of wheat are based on a quota system controlled by the State Planning Commission for Grain Quota Allocation, which reviews quotas 2 to 4 times a year. Allocations are based partially on domestic supplies. Wheat imported outside of this allocation system is charged a 114 percent duty, making such imports prohibitive.

Barley

Production: The barley crop in 1997 was harvested before the onset of drought conditions, production in MY 1997 is estimated to remain at the same level as 1996. China is estimated to have 1.3 million hectares in barley area with production estimated at 4.0 million tons.

Consumption: All barley used in animal feed is from domestic production while the majority of imported barley is used to produce beer. The beer industry relies heavily on imports. In 1996, China produced more than 16 million tons of beer which is double that of just five years ago. The malting barley used in China is the European two-row barley. The limited amounts of two-row barley grown in the United States are produced in the Pacific Northwest, a region from which imports to China currently face a phytosanitary restriction attributed to the TCK smut fungus.

Trade: Australia and Canada dominate China's market for malting barley. After 3 flat years, China’s barley imports increased sharply to around 2.0 million tons in 1996/97. However, the import pace apparently was too rapid, stocks rose, and prices dropped. Thus, imports are expected to fall back somewhat to 1.5 million tons in 1997/98. The increased imports are attributed to the gradual downturn in domestic barley production and the increase in beer consumption.

Corn

Production: China ranks second to the United States in global corn production. Approximately 70 percent of China’s corn production occurs in seven provinces: Hebei, Liaoning, Jilin, Heilongjiang, Shandong, Henan, and Sichuan. Governmental support given to corn producers varies by province and may include cash or subsidized inputs. Although in mid-1997 the Government announced a program which guaranteed that it would purchase unlimited amounts of grain from producers, in reality this policy is honored more in words than in deeds. The local Grain Bureaus have limited storage and cash. While wholesale prices fell approximately 15 percent in 1997, purchases that were made by the Grain Bureaus helped support prices paid to producers.

Because of drought conditions, corn production in MY 1997/98 is expected to decrease to 110 million tons, about 14 percent below the previous year’s record crop.

Consumption: Increases in income, demand for more meat products, and limited resources for growing corn should result in a steady market for corn imports in future years. Corn consumption is forecast to exceed 120 million tons in MY1997/98, which would be a record level. Approximately 75 percent of the corn consumption is in animal feed. The majority of the corn demand for corn is strongest in southern China where livestock production is increasing rapidly and where supplies are short.

Trade: China is a major producer of corn and has been a strong competitor of the United States in Asia. Because of high internal transportation and storage costs, local corn is sometimes better placed for the export market. China’s corn exports are estimated at 5.0 million tons for 1997/98. This would be more than double the average of the past three years, but well below the 11.3 million tons of corn exports averaged during the 1991/92 - 1993/94 period. The financial crisis in Asia will likely decrease demand for Chinese corn in the short term. Projections are for China to import 250,000 tons of corn in MY 1997/98.

Rice

Production: China’s rice production is forecast to approach a record 200 million tons on a paddy basis in MY 1997/98 on 31.8 million hectares. Rice production, which accounts for about one-third of the world’s total, continues to be divided between early, middle, late rice crops in roughly the same proportions. Early rice is a long grain type, tends to be of poorer quality, and is not favored by consumers. However, farmers continue to produce early rice because they can use it to fill their government sales quotas. State stocks of early rice reportedly are high. Long grain rice is generally grown south of the Yangtze River and along the Pearl River.

Consumption: Consumer preference has traditionally been divided along the Yangtze River. Consumers north of the river prefer the shorter grain, Japonica rice, while the consumers south of the river prefer the long grain, Indica rice. However, consumer tastes are shifting from the traditional varieties of rice grown in China to the higher quality, medium grain varieties such as Japonica.

Trade: During the past decade, China usually has been a net exporter of rice, but trade has not been a major factor in the country’s rice sector. In MY1997/98, imports are expected to remain flat at 400 thousand tons. Most of China's rice imports are from Thailand and to a lesser amount Vietnam. However, there are opportunities for U.S. exports in the high-end of China's rice market where U.S. manufacturers’ ability to custom package their products is valued. China’s rice exports are projected at a relatively high 1.75 million tons in 1997/98.

Based on reports from the Agricultural Affairs Office, American Embassy, Beijing. For further information, please contact Chin-Zen Lin Plotner at (202) 720-6233.

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Last modified: Thursday, November 13, 2003