FOREIGN COUNTRIES' POLICIES AND PROGRAMS
Australian Wheat Board Moves Aggressively in Egyptian Market
The first sale of wheat to the Australian Wheat Board Limited's joint venture flour mill in the Middle East has been concluded, and the grain will be loaded at the Western Australia ports of Geraldton and Kwinana in early June. The sale is considered significant because it marks the beginning of new opportunities for Australian wheat growers in what is currently the international trade's biggest market for wheat.
The 55,000 ton shipment is the first of a series planned for the Five Star Flour Mill in Cairo, Egypt, in which AWB Limited is a 30 percent joint venture partner. The mill is expected to import 120,000 tons of Australian wheat per year. By playing a part in the operation of this mill, AWB Limited hope to gain a better understanding of how the Egyptian market operates.
Egypt is seen as an important part of AWB Limited's export focus, with an import requirement of 6.5 million tons, a growing population and a rapidly changing and developing milling industry. In 1996/97, Australia's exports of wheat to Egypt totaled 1.7 million tons, making them Australias third largest market.
The Five Star Flour Mill is a state-of-the-art mill which includes the most modern flour milling technology. The AWB expects that the technology employed in the mill will allow them to showcase Australian wheat products to the region, and enhance AWB's reputation as a supplier of quality grain. The mill has 75,000 tons of wheat storage which the joint venture partners aim to use to store grain for delivery to the many smaller flour mills in Egypt which will assist Australian wheat to penetrate this market due to reduced freight costs by adding on composite cargoes for smaller customers.
The Australian Wheat Board sees the Five Star Flour Mill investment as important to growers who own Wheat Industry Fund Equity. Profits from the venture are ploughed back into the fund, which will be the vehicle through which Australian wheat growers will take over ownership of AWB Limited next year. The mill has been commissioned and commences operations this month.
Prepared in the Office of Agricultural Affairs, American Embassy, Canberra. For further information, please contact Deanna Johnson at (202) 720-4204.
Romania Works Toward Establishing Itself as Consistent Grain Exporter
The completion of a new grain export elevator at the Black Sea port of Constanta this fall is expected to increase Romanias export potential by at least one million tons. After harvesting a near-record grain crop in 1997/98, Romania was hoping to export over 3 million tons of grain, but partly because of limitations in storage, transportation, and port facilities, as well as grain quality problems and competition, this goal proved far out of reach.
The Romanian economy has undergone significant change in the 1990's, as the country strives toward closer integration with Western Europe and eventual EU membership. The grain trade has been liberalized, private farm ownership has been partially re-established, and producer subsidies are being cut back. This has led to short-term disruptions in Romanias grain trade, but should help its long-term export prospects.
In 1997, the Government of Romania (GOR) allocated the equivalent of over $600 million for producer subsidies. This consisted mainly of subsidized credit, vouchers to purchase seeds and fertilizer, and funds to support irrigation and land conservation. The 1998 agricultural budget is expected to be less generous as the government moves further away from market intervention. Government officials apparently are skeptical regarding the efficacy of the subsidies. However, the GOR reportedly is considering a provision for corn export subsidies in the 1998 budget.
In its quest for expanded grain export markets, Romania faces several problems beyond the countrys inadequate infrastructure. Grain production is particularly vulnerable to weather, so very large fluctuations in output and quality are common. When large crops occur, post-harvest losses are considerable due to inadequate handling and storage facilities. In addition, costs of production and movement of the grain into export position are relatively high, equivalent to nearly half of the producer price of corn compared to less than one-fifth in the United States.
A smaller Romanian grain crop is forecast this year, likely cutting exportable supplies for 1998/99. Grain production is forecast to slip to about 17 million tons, or 25 percent below last years bumper harvest. Wheat exports are projected at 650,000 tons and corn at 500,000 tons for 1998/99. Romanias grain export markets include mainly Mediterranean and Middle Eastern countries, such as Turkey, Lebanon, Jordan, Morocco, Tunisia, Israel, Iran, Iraq, and Libya.
It appears that the new grain export elevator about to come on stream on the Black Sea may have to wait another year to be fully utilized. However, it is likely that Hungarian grain exporters will also take advantage of the facility.
Prepared by Aanton Pavel, Agricultural Specialist, Office of Agricultural Affairs, at the American Embassy in Bucharest. For further information, please contact Jay Mitchell at (202) 720-6722.
Frances Delay in Final Approval of Corn Varieties Precludes U.S. Exports to Iberia
Failure by France to grant final approval on two U.S. corn varieties produced with the aid of modern biotechnology (GMOs) --- despite administrative consent by the EU Commission --- is prolonging a ban on U.S. corn sales to Iberia (Spain and Portugal) this year. The absence of U.S. sales is in stark contrast to the dominant position U.S. corn generally holds in Iberias corn import market. By this time last year, the U.S. had sold over one million tons of corn to Iberia. Because the U.S. corn varieties have still not received final approval for commercialization in the EU, no U.S. corn has been sold to Iberia in 1998. This is having a profound impact on U.S. trade with Iberia, where corn exports generally account for 20 percent of total agricultural sales and are valued above $200 million annually.
Under reduced-duty import programs, Iberia imports nearly 2.0 million tons of corn per year. Portugal has a 500,000 ton reduced-duty quota that was granted as part of the Blair House Agreement and incorporated into the Uruguay Round Agreement. Spain, on the other hand, was granted the right to import 2.3 million tons of feed grains at reduced-duty rates when it acceded to the EU. After sorghum and specified non-grain feed ingredients are deducted from Spains total quota, Spains corn quota is usually about 1.4 million tons. The quotas for both countries are operated identically: importers bid on the amount of reduction (abatement) from the normal standing duty they would require to import the corn. In other words, importers compete for the right to import based on who is willing to pay the highest duty, albeit a duty much lower than the normal standing levy.
While the corn imported under these quotas could be supplied from any third-country, Iberian importers have overwhelmingly favored U.S. origin due both to price and execution factors. However, as Iberian importers have been unable to consider U.S. corn in 1998, none of the 1.2 million tons purchased under these quotas as of early June was of U.S. origin.
The European Commission finally completed its approval of three corn varieties in April. Nonetheless, before U.S. corn is actually eligible to be imported into the EU, each of the Member States that made the initial applications for approval of the U.S. corn varieties must provide its final consent. Ironically, France, which made the original request for approval of two of the varieties, is now hesitating in granting the final green light. Meanwhile, Iberias corn importers will continue to purchase from non-U.S. suppliers, further eroding the U.S. share of a market once led by U.S. supplies. Portugals quota is virtually completed, but about one million tons remain to be purchased under Spains quota.
Prepared by Chris Rittgers, Office of Agricultural Affairs, American Embassy, Madrid. For more information, please call Richard Battaglia at (202) 720-1135.
Canadas Remains a Major Grain Competitor For The United States
The structure of Canadas economy closely resembles that of the United States. The Canadian economy had been growing modestly over the last ten years and finally broke out in 1997 with growth estimated at 3.5 percent. The 1998 forecast is for continued growth, around 3.3 percent. Canadian economic growth in 1997 was broadly based, with consumers spending more freely on housing, furniture and cars, and with business reportedly boosting investment in industrial machinery and computers. Canadas unemployment rate is expected to fall to 8.8 percent in 1998 and the federal deficit is also expected to shrink, further brightening the long-term economic outlook.
The Agricultural Sector
Agriculture contributes only 2.3 percent to gross domestic product (1997 estimate) and employs a slightly larger fraction of the population. As in the United States, the trend in Canada is to reduce government support to the agricultural sector. Federal and provincial program payments fell to C$1.05 billion (US$8 billion) in 1997, 2 percent below the year-earlier level, 9 percent below 1995 and 49 percent lower than the C$1.785 billion (US$1.3 billion) spent in 1994. The trend away from government intervention does not extend as far into the marketing of agricultural commodities, though. The Government of Canada (GOC) continues to operate marketing boards, the most well-known of which is the Canadian Wheat Board (CWB).
Canadas agricultural industry continues to experience rationalization in the food processing industry, particularly in the prairie provinces where the provincial agricultural economies continue to strive for increased value-added processing of livestock and horticultural products. The GOC set an agricultural export sales goal of C$20 billion (US$14.6 billion) by the year 2000, a goal that was nearly met in 1996 when agricultural exports reached C$19.95 million.
Selected Economic Data (1996):
Total area: 9,976,140 sq km (slightly larger than the United States)
Land use: arable land (5%), permanent crops (0%), permanent pastures (3%) forest and woodlands (54%), other (38%)
Major agricultural products: wheat, barley, corn, oats, canola, cattle, hogs
Total agricultural imports (billion $US): 9.7
Major agricultural imports: coffee, beef/veal, wine & sherry, biscuits, sugar, horticultural products, corn
U.S. share of total agricultural imports (percent): 63
Total agricultural exports (billion $US): 14.6
Major agricultural exports: wheat, live cattle, canola, pork, barley, oats
Share of total agricultural exports to U.S. (percent): 51
Agricultural trade balance with the U.S.(million $US): 615.4
Total exports (billion $US, f.o.b.): 195.4
Population (million, July 1997 est.): 30.3
Population growth rate (percent, 1997 est.): 1.13
Unemployment (percent, 1997 est.): 9.3
Real GDP growth rate (percent, 1997 est.): 3.5
GDP per capita ($US): 25,000
Inflation (CPI, percent): 1.4
% of GDP: 2.2
% of workforce: 3
Exchange rate: CA$0.73 = US$1
Production: Canadas climate is best suited for hard red spring and durum wheat production although at least nine classes of wheat are produced. Area devoted to wheat has been down the last two years, as market signals have encouraged farmers to increase plantings of coarse grains, oilseeds, pulses and other specialty crops. The downward trend is expected to continue in 1998/99; total wheat area harvested is estimated to fall by 800,000 hectares to 10.6 mha, the lowest in 19 years. Durum wheat acreage, on the other hand, should expand significantly in 1998/99 to a record 2.9 million hectares (Statistics Canada). Despite the decline in total wheat area, prospective yields will keep total wheat production close the 1997 level; the current 1998/99 forecast is 24.0 mmt. With respect to durum production, a sharp rise is expected. Based on the current total wheat crop estimate and tight carry-in stocks, Canada will likely reduce exports in 1998/99 to 16 million tons.
Although wheat production is not regulated, its marketing channels are. Western Canadian producers sell their wheat into a pool operated by the CWB which then markets the wheat to domestic and export markets. The CWB makes initial payments to producers based on the returns that the CWB anticipates it can obtain for the grain over the course of the marketing year. The initial payment is set at the start of the marketing year at a level equal to roughly 75 percent of the projected final payment producers receive for their grain. The CWB reviews the initial payment periodically throughout the marketing year, making upward adjustments when warranted.
Ontario operates its own marketing board, the Ontario Wheat Producers Marketing Board (OWPMB), and markets primarily white and red winter wheats. Ontario producers will have the option of selling wheat "off-board" under a trial program during the 1999/2000 marketing year. Producers must decide by November 1998 whether to market their entire 1999 production through the OWPMB or export the entire amount to the United States.
Consumption: Wheat consumption in Canada has plateaued in the last five years to around 8.2 mmt annually. Wheat consumption for food and for feed use is virtually even. In the long run, as more producers shift acreage to coarse grains and oilseeds, that ratio may lean more toward food use. Any reduction in wheat acreage is unlikely to affect Canadas ability to feed itself, however.
Trade: With production outpacing consumption by nearly 18 mmt annually for the past five years, Canada depends on the export market for remaining sales. The CWB is an aggressive marketer, actively promoting its wheat as high quality wheat and offering competitive prices. The result has been highly successful; Canada is the worlds number two wheat exporter in volume terms, after the United States, 19.3 mmt versus 30.31 mmt annually, respectively, over 1994/95-1997/98. Canadas exports are forecast to decline in 1998/99 to 16.0 mmt as a result of very low carry-in stocks and slightly lower production.
The United States competes with Canada for markets in Asia, North Africa and Latin America. Canadas top wheat export markets are: China, the United States, Iran, Japan and Algeria. Together, these countries purchase roughly 35 percent of Canadas yearly wheat (including durum) exports.
In 1996/97, Indonesia was one of Canadas top ten wheat markets; recent changes in Indonesias financial and political systems caused concern about the future of the Indonesian wheat market. However, Indonesian wheat imports are expected to remain relatively stable, since they are a staple commodity and since many countries, including Canada are offering credit programs and aid to assist Indonesia while it rebuilds its economic and political structures. The CWB has earmarked US$250 million in credit facilities to support its wheat exports to Indonesia. Also of concern to Canada is the potential loss of the Chinese market. China has been steadily increasing wheat production and reducing imports. Wheat exports to Iran have surged. Iran became the CWBs largest customer in 1996/97 with sales of 2.5 mmt. Canadian wheat exports to Japan average 1.4 mmt. One advantage the CWB has over private traders is its ability to negotiate large, yearly contracts with suppliers. For example, the CWB has an agreement with Japan for a minimum sale of 1.2 mmt of wheat (and 480,000 mt of barley) in 1998. In Latin America, Canada has negotiated a bilateral free trade agreement with Chile which came into effect in June 1997 providing preferential access to each others markets. Canada has entered into similar trade negotiations with members of MERCOSUR (Brazil, Argentina, Paraguay, Uruguay) although no formal agreement has yet resulted.
In comparison, U.S. sales to Indonesia have historically been very small. However, sales under the GSM-102 program and under PL-480 may usurp some Canadian sales. The U.S. market presence in Iran is restricted by U.S. government regulations. Japan is a hotly contested wheat market between the United States and Canada. The United States typically supplies half of Japans total wheat imports while Canada supplies roughly one-fourth. The United States has been losing market share in Latin America, primarily to Argentina but also to Canada.
Canada is also the worlds leading durum wheat exporter with exports of around 4.0 mmt forecast in 1997/98 (July/June, unofficial USDA figure). Current expectations of weaker demand for durum in North Africa suggest that Canadian durum wheat exports could retreat to 3.8 mmt tons in 1998/99. Algeria, the EU (Italy), Morocco and the United States are Canadas largest durum markets; they are expected to collectively take at least three fourths of total durum exports in 1997/98. In the last several years, Canadian sales have been expanding in the United States, Japan, Venezuela and Peru.
Policy: Bill C-4 to reform the Canadian Wheat Board has been dogged by controversy since its introduction in September 1997. Based on Bill C-72, which was introduced in 1996 but failed to pass before Parliament was dissolved to hold Federal elections, C-4 originally contained several important provisions, including: (1) reorganization of the CWBs governance structure, including replacement of the current government-appointed commissioners with a majority producer-elected Board of Directors; (2) giving the CWB new tools and flexibility for marketing western Canadian grain; and (3) allowing for the inclusion or exclusion of other grains under the CWB marketing umbrella. The CWB will remain the single-desk selling authority for Western Canadian wheat and barley exports. On May 14, C-4 the Senate approved an amended version of C-4. Amendments to the bill include: (1) the president would be appointed by the Governor in Council, upon the recommendation of the Minister, but only following consultation with the Board of Directors; (2) the Auditor General would have the option to commence an audit of the CWBs accounts and financial transactions within the first two years after implementation; and (3) the inclusion/exclusion clauses would be deleted and any future changes to the CWBs jurisdiction would require that the Minister consult with the Board of Directors and that the producers of the grain in question vote on the question. The amended legislation must now return to the House of Commons for consideration. Failure to pass the legislation before Parliament recesses for the summer in June would dash hopes of implementing key provisions of the bill by the December 31, 1998, deadline.
Production: Canada is the worlds third largest barley producer after the EU and Russia. In 1997/98 barley production was 13.65 mmt, down 2 mmt from the previous year. The outlook for 1998/99 is for no change in area harvested but a modest increase in output to 14.0 mmt due to slightly higher yields.
Consumption: Feed barley use has been on the rise and is expected to reach a record high of 10.3 mmt in 1998/99. Meanwhile, non-feed use of barley, mostly for malt, has been relatively flat, at around 800,000 mt annually. Continued growth in Canadian feedlot and poultry sectors is expected to fuel additional demand for feedgrains, including barley.
Trade: Canada exports roughly 20 to 25 percent of its total barley crop, about the same volume as Australia. Malting barley exports are typically somewhat higher than feed barley exports. While world feed barley demand has been on the decline, malting barley sales have increased consistently since the 1950s and expected to continue this trend in coming years. In 1997/98, Canadian barley exports are estimated at 2.5 mmt (Oct./Sept.), ranking Canada as the third largest exporting country. Given only modest gains in production and some increase in stocks, exports will decline slightly from last years level to a forecast of 2.75 mmt in 1998/99.
Canada competes directly with EU subsidized barley for markets around the world but has captured significant market share, nonetheless. Canadas main barley customers are the United States (1.0 mmt, primarily malting barley), Japan (950,000 mt, primarily feed barley), Saudi Arabia (650,000 mt, feed barley), and China (345,000 mt, primarily malting barley) (all figures are 1992/93-1996/97 Oct./Sept. averages). During the first eight months of the 1997/98 marketing year China has been the leading barley importer followed by the United States, Saudi Arabia and Japan. U.S. barley imports from Canada peaked in 1993/94 at 1.5 mmt due to unusual supply and demand circumstances which necessitated feed barley imports. Typically, malting barley makes up at least two-thirds of total U.S. barley imports.
Canadian imports of barley are small. In 1997, Canada suspended its tariff rate quota on U.S. barley, providing a competitive advantage to U.S. barley exports. Canada recently purchased small shipments of U.S. barley and Eastern European feed wheat. Those purchases have been attributed to attractive freight rates and low world barley prices rather than the lifting of the TRQ.
Policy: As with wheat, barley production is not regulated and domestic sales for human consumption are pooled and marketed by the CWB. Barley for livestock feeding is sold "off-board" in Western Canada. Prices have reportedly been consistently higher in the Western Canadian off-board market during the last year, discouraging producers from delivering their feed grade barley to the CWB.
Since barley is under the CWBs jurisdiction, Bill C-4 to amend the CWB will affect the barley pool. One important change that would result from C-4 would be the CWBs authority to purchase barley on the cash market. Also of note, the CWBs single desk export status would remain intact.
Other Coarse Grains:
Production: Corn, oats, and rye are considered relatively minor crops with production averaging 7.1 mmt, 3.6 mmt and 327,000 mt, respectively, over the 1993/94-1997/98 period. The 1998/99 forecast shows more area going into all three crops and production increasing, respectively, to 7.5 mmt, 4.3 mmt and 450,000 mt.
Consumption: Corn use has been steadily rising as the feedlot and poultry industries grow. In the last ten years, corn consumption has jumped from 6.9 mmt to 8.1 mmt and is forecast to expand in 1998/99 to 8.25 mmt. Consumption of oats for feed has been fairly stable the past five years at around 2.0 mmt and is expected to change little. The 1998/99 forecast is 2.2 mmt. Oats consumption for food and other uses is roughly 11 percent of total use and has also been stable. Canada is self-sufficient in rye production and domestic use fluctuates with yearly production, both of which are forecast to increase in 1998/99. Rye consumption is forecast at 200,000 mt in 1998/99.
Trade: Canada is a net importer of corn; exports were around 265,000 mt while imports averaged 827,000 mt over the 1993/94-1996/97 period. The United States is Canadas primary corn customer and supplier, purchasing around 85% of total Canadian corn exports and supplying all of Canadas imports. 1998/99 imports are forecast at 1.0 mmt, down by 200,000 mt from this year.
Roughly 1.3 mmt of oats are exported annually versus only 3,000 mt of imports (1993/94-1996/97 average). Again, the United States purchases virtually all of Canadas oat exports. The 1998/99 forecast shows total oat exports up 200,000 mt from the 1997/98 estimate to 1.6 mmt.
Roughly half of Canadas annual rye production is exported. In 1997/98 (Oct./Sept.) 157,000 mt of exports are exported and the 1998/99 forecast increases exports to 200,000 mt. Japan and the United States are Canadas largest customers.
Based on reports from the Agricultural Affairs Office, American Embassy, Ottawa. For more information, please contact Deanna Johnson at (202) 720-4204
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