Change on the HORIZON

by Teresa Acklin
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COCERAL conference assesses effects of GATT, NAFTA, CAP reforms.

   World trade in grain and feed ingredients is likely to shrink in the short term, despite the signing of the historic General Agreement on Tariffs and Trade earlier this year. Trade patterns also are likely to change, with cheaper grains displacing such non-grain feed ingredients as tapioca and citrus pulp.

   Longer term, though, trade should increase, both in raw materials and for meat and dairy products, as demand from the former Soviet Union, China and the Pacific Rim countries expands.

   These were the main conclusions to emerge from the mid-year grain and feed conference of the Comite du Commerce des Cereales et des Aliments du Betail de la C.E.E. (COCERAL) in Cambridge, U.K.

   It was inevitable that so soon after the GATT was signed, conference speakers would find it difficult to make specific forecasts. The changes resulting from the reform of Europe's Common Agricultural Policy and the North American Free Trade Agreement also were difficult to predict. Even European Commission officials were keen to point out that there were still a lot of unresolved areas ahead.

   Maeve Doran-Schiratti, head of the Commission's section on agricultural trade relations with third countries, said she believed the most important breakthrough was that agricultural policy had changed direction toward a much more fair and market-orientated trading system.

   But areas of uncertainty remain, she said. These include how to account for Norway, Sweden, Finland and Austria — new members of the European Union — under terms of the new GATT and the future of the U.S. Export Enhancement Program.

   “Import restrictions will not disappear,” Mrs. Schiratti said, “but the most obvious ones have been replaced by clear and tranparent tariff equivalents.”

   The tariff equivalents might appear very high, but they will be reduced, she said. Access commitments are more difficult to evaluate and depend entirely on how they are implemented, but the obligation to allow imports of up to 5% of base-period consumption by the end of the transition period can be verified. Export subsidies are clear and can easily be verified, Mrs. Schiratti said.

      Export competition to remain intense

   Reviewing trade prospects for cereals, Mike Tuckey, managing director of Marc Rich & Co., London, said prospects for trade in the short term were not encouraging.

   The E.U. is unlikely to curb cereal production by as much as official projections suggested, Mr. Tuckey said, and internal use of cereals in animal feeds is unlikely to meet the Commission's target of an extra 12 million to 13 million tonnes. Meanwhile, export markets are contracting or static, largely because of lack of credit.

   An example is the dramatic decline in sales to the Commonwealth of Independent States, including a 9-million-tonne drop in total imports by Russia. And China's imports in the first three quarters of the 1993-94 marketing year were only 6 million tonnes, compared with 16 million in the previous 12 months.

   The contraction in these two markets has helped bring wheat and barley prices down to 1990-91 levels, when world wheat production was 30 million tonnes higher and coarse grain production was 35 million higher, Mr. Tuckey said.

   Turning to production prospects in Argentina, Mr. Tuckey did not expect that output would rise to the record levels of 1983-84, when the wheat, maize and sorghum crops totaled more than 32 million tonnes. If this happened, Argentina would be obliged to look at expanding its markets outside South America.

   But at current production costs and with wheat valued at less than U.S.$100 f.o.b., Mr. Tuckey said world market prices would have to improve considerably to encourage increased production. Argentina's 1993-94 wheat and coarse grains production is expected to total about 24 million tonnes.

   It also is possible that Ukraine could increase its annual wheat production to 60 million tonnes, Mr. Tuckey said. Although this is unlikely to occur within the next few years, it is a strong possibility in the longer term, he noted. Ukraine's annual wheat production has averaged about 20 million tonnes in the past two years.

   All of these factors point to markets becoming more competitive and world prices more responsive to short-term changes in supply and demand, Mr. Tuckey said. Both the United States and the E.U. will continue to compete for what they consider their traditional markets, and this will have the effect of keeping world prices down.

      Non-grain feedstuffs to feel effects

   Lower grain prices will have an important effect on trading patterns of non-grain feed ingredients, according to Leon van Lingen, European manager for Cargill, Inc.'s non-grain feed ingredient import/distribution operations. Mr. van Lingen anticipates the biggest change will be seen in Thai tapioca.

   He predicted that E.U. imports of tapioca would decline by 2.5 milion tonnes, with China's imports falling by a similar amount. Prices already have declined by about 35%, which he said was encouraging growers to switch to other crops such as sugarcane, maize, rubber and eucalyptus. At the same time, without the need for complex quota systems previously in operation, tapioca will be traded more freely on the world market, Mr. van Lingen said.

   Lower grain prices also have affected the prices of other non-grain feed ingredients, such as citrus pulp pellets and corn gluten feed. Although these price declines are not as dramatic as in tapioca, producers of these products will have to look for other markets outside the E.U., Mr. van Lingen said.

   The most obvious market probably will be in the U.S., where the feed industry is gearing up to meet the steadily rising demand for meat from Asia, Canada and Mexico, Mr. van Lingen said. The F.S.U. and Eastern Europe also are likely to provide expanding markets for meat until their own livestock industries are more fully developed.

   He noted that in the F.S.U., cattle numbers had fallen by 13% since 1990, pigs by 21%, poultry by 14% and egg production by 13%. Grain production was down by 12%, and grain imports had declined by 40%.

   Because the price of food products is likely to come down as a result of GATT, it will be cheaper for these countries to import meat, providing the cash problem can be solved. Opportunities could surface for the E.U. and U.S. livestock industries to increase production for export based on cheaper grain and lower non-grain feed ingredient prices.

   European feed compounders already are reacting to the changes in prices of feed ingredients, according to Nico van der Vlist, raw materials purchasing manager for B.P. Nutrition Feed and Animal Products, Europe. In the first half of the 1993-94 marketing year, B.P. Nutrition's cereals use has increased by 13% compared with the same period a year earlier, he said.

   But cereal prices have not fallen as much as expected, which has cut inclusion levels in the second half of the year. For the crop year just ended, Mr. van der Vlist expects a change in ingredient groupings, with cereals, vegetable proteins and tapioca/pulses each accounting for about one-third of compound feed materials.

   Mr. van der Vlist said inclusion levels of cereals varied widely between countries in the E.U. Inclusion was lowest in France, where cereals competed with relatively cheap pulses. French cereal usage in animal feeds also is affected by the system of twice-monthly increases, which pushes up prices toward the end of the year.

   In the 1993-94 crop year, Mr. van der Vlist forecast tapioca and corn gluten feed use would decline by 500,000 tonnes each, soybean meal use by 300,000 and other protein meal by 750,000, while cereal inclusion levels would increase by at least 5 million tonnes.

   Even so, Mr. van der Vlist said the use of cereals in compound feeds would not increase as much as the Commission predicted and at least half of the actual increases would occur at the farm level.

      Market expansion seen in Pacific region

   Some of the most important expanding markets for grain and livestock products will be in China and the Pacific Rim countries, according to Bill de Maria, assistant executive director of the International Wheat Council. But he said the expansion would be patchy and the timing difficult to forecast.

   The biggest market is China, which is likely to see a fall in its food self-sufficiency as a result of its efforts to become a major industrial power, Mr. de Maria said.

   Despite official measures to limit growth, the population is forecast to reach 1.6 billion by 2000. Land suitable for agricultural production is almost fully exploited, and significant areas are being diverted to cash crops, urbanization and industrialization. China's trade surplus with the U.S., for example, already is U.S.$18.3 billion, a figure that could increase further, Mr. de Maria noted.

   Expanding markets for agricultural products are likely to surface in other areas of Asia, Mr. de Maria predicted. On current evidence, it would appear that cereal trade within the Pacific region could expand significantly, with a higher proportion of total shipments delivered to countries other than China, he said.

   In the food sector, trade in high-value agricultural products is expected to increase, Mr. de Maria said. Livestock products, including eggs, dairy produce and better-quality meats, all will be in greater demand.

   The feed industry should develop rapidly, in line with growth in livestock numbers. And, as feed formulations become more sophisticated, oilseeds will become a more important ingredient in livestock rations, Mr. de Maria noted.

   But this trade growth will not be sudden or regular.

   “Overall growth in trade depends on the incorporation of the regional with the multilateral approach; they cannot be regarded as mutually exclusive,” Mr. de Maria said. “For this reason, trade expansion in the Pacific region will be linked to the actual results devolving from the implementation of commitments under the Uruguay Round (of GATT.)”

   The GATT and NAFTA agreements and their implications for Canadian farmers were welcomed by Lorne Hehn, chief commissioner of the Canadian Wheat Board. But he said the C.W.B. was “more than a little disappointed” that the grain lobby in the E.U. had succeeded in negotiating a significant increase in the volume of subsidized exports in the early years of the agreement and that the U.S. was allowed to subsidize more exports than under the original Blair House agreement.

   Mr. Hehn also criticized the continuing distorting effects of U.S. price-support programs and export credit guarantees that were not eliminated by the agreement.

   Emphasizing the importance of world trade conditions to Canada's agricultural and food industries, Mr. Hehn said Canada now accounted for 3.5% of world trade in these sectors. Exports represent 45% of Canadian farm cash receipts, he added.

   Mr. Hehn expects world wheat trade to recover to 108 million tonnes by the end of the century. By then, Asia will be to the world grain trade what Europe was in the 1950s — a market accounting for more than half of the world's wheat and coarse grain imports, he predicted.

   The trend towards privatization and the removal of trade barriers in Latin America also are of major importance. The region currently accounts for 10% of world grain imports, a number that is likely to increase to 15% by 2000, Mr. Hehn said.

   Total exports of Canadian wheat to western Europe will increase by about 500,000 tonnes over recent levels, Mr. Hehn predicted, but the increase will come from a larger market share rather than an increase in overall tonnage.

   Mr. Hehn said Canada intended to hold or increase its share where possible, particularly by developing specific products for specific markets, such as the Asian noodle market. The C.W.B. is spearheading a total industry approach to these markets, he added.

   Diane Montague owned and edited the U.K.'s leading agribusiness trade weekly, Agricultural Supply Industry, for 22 years. In 1987, she was awarded the Guild of Agricultural Journalists' Netherthorpe Award as Communicator of the Year. She sold ASI two years ago and now concentrates on freelance writing and consulting.