Global grain trade forecast
May 01, 1996
by Teresa Acklin
Conference delegates predict a bright future for international grain trade while the E.U. focuses on internal markets.
What a difference a year makes. The picture changed dramatically in the 12 months between the first grain conference sponsored by the European publication AgraEurope and Sosland Publishing Co., publisher of World Grain, at the end of 1994 and the second held in Brussels, Belgium, in late 1995.
The first conference took place soon after the successful conclusion of the Uruguay Round talks under the General Agreement on Tariffs and Trade. Then, the mood was one of cautious optimism amid reservations about the complexities of the GATT changes and concern about continuing trade distortions and artificial trade barriers.
A year later, world grain prices had soared to near-record levels, stocks were described as dangerously low and the European Union was under attack from all sides for imposing an export tax to keep grain prices down. And the mood changed from cautious optimism to one of confidence and even excitement.
Prices rose in 1995 because of poor harvests in many of the world's main grain producing areas and fears over low stock levels, but the underlying optimism came from the growing conviction that demand for grain worldwide would increase steadily. The familiar whining about trade barriers and artificial subsidies was almost forgotten.
For countries like the United States and Australia, the opportunities are huge. Population increases and new levels of prosperity in developing countries and emerging economies will fuel demand for wheat and feed grains. Improved crop production technology and better infrastructures in countries like India and China should ensure that production increases in line with demand.
Trevor Flugge, chairman of the Australian Wheat Board, predicted exciting times for the grain industry. Germain Denis, executive director of the International Grains Council, said developing countries would grow more and import more. Charles Sosland, president and chief executive officer of Sosland Companies, Inc., said the grain business faced a bright future as huge increases in demand opened up markets in Asia.
In stark contrast, the European speakers were more concerned with keeping production in check to avoid breaching GATT ceilings on exports, reducing intervention stock levels and concentrating on internal markets. This group also grappled with the assimilation of the Central and East European Countries and the less predictable developments in Russia.
CONSUMPTION GAINS AHEAD.
But for the other grain exporters, the future looks good. Trevor Flugge said the world's grain trade was entering a new era of strong consumption, particularly in Asia and South America, and of relatively higher world price levels.
The Uruguay Round is at last allowing the laws of comparative advantage to operate, he said. Centralized purchasing in countries like China, Egypt and the former Soviet Union is being replaced by commercial activity, which invariably leads to increases in trade.
This year, Mr. Flugge said, Asia will account for more than 30% of total wheat imports and 50% of coarse grain imports, while Latin America will take up to 14% of wheat and coarse grain imports. Higher prices will encourage more land back into production, although weather has a far greater effect on output than the area sown, he noted. Australia is determined to take advantage of the situation, Mr. Flugge said, by focusing on quality and an integrated marketing chain that links wheat breeders, agronomists, growers and elevator operators to the A.W.B. at the marketing end.
Equally optimistic was Charles Sosland. The grain industry should make the most of its present strong position to affect future trends, he said.
In fact, the real expansion of the grain business has been masked by low trade figures, Mr. Sosland said. Global consumption of wheat and coarse grains has expanded by 55% since the start of the 1970s, but by only 18% since the 1980s. In terms of trade, exports of wheat have fallen from 23% of consumption in the early 1980s to the present 18%, while trade in coarse grains has dropped from 15% to 10%.
But huge changes in consumption brought about by prosperity in many Asian countries are opening up new opportunities as consumers in these areas switch from rice to wheat and meat products, Mr. Sosland said. Commercial interests have created one of the most dynamic grain markets in the world; an outstanding example is the noodle industry in Indonesia, which is one of the fastest growing food businesses anywhere, he noted. By the end of the century, Southeast Asia is expected to import more than 12 million tonnes of wheat and 8 million tonnes of coarse grains.
The dominance of developing countries as both producers and consumers was highlighted by Germain Denis. Basing predictions on his own guesstimates rather than official statistics, Mr. Denis said developing countries now accounted for nearly 50% of world grain production thanks to remarkable technological progress in countries such as India and China. Over the next 10 years, 90% of the growth in wheat consumption and 75% of that in coarse grains will be in developing countries, he predicted, and by 2000, these countries will account for 89% of wheat imports and 76% of coarse grain imports.
Despite this growth, he expected exporting countries would be able to keep pace with demand.
“I don't believe in any kind of doom and gloom scenario,” he said.
FOCUS ON INTERNAL MARKETS.
But the lure of Asia is not, it appears, so strong for the European Union. The Commission is determined to concentrate on internal markets, according to Jose Manuel Silva Rodriguez, director of market organization for crop product. He robustly defended the Commission's decision to impose export taxes on grain as a means of keeping down the price of feed for livestock farmers.
The taxes will allow the Commission to restrict exports depending on the market situation, he claimed, with priority given to traditional markets in North Africa and Cuba and to processed products like malt and wheat flour. This means E.U. exporters will not be able to take as much advantage of new opportunities as other major grain producing countries, Mr. Silva Rodriguez said.
The Commission's policies on disposing of intervention stocks and taxing exports were criticized by Michael Rouge, president and director general of Continental Company, France. He said the policy of constant intervention had forced up prices. He also noted that the Commission was too concerned with the internal market and was forgetting about foreign buyers.
“The Commission would have done better to keep the stocks because then there would have been a clearer indication of the balance between supply and demand,” Mr. Rouge said.
He added that market prices should be given a leading role so that producers could be given clearer signals. The E.U. needs another four or five years of increased production to rebuild stocks, he said, and should look at the system in the U.S. where stocks were used strategically.
Apart from the problems of the internal market, delegates heard how the E.U. is likely to be preoccupied with membership of East European countries. Integration of their agricultural systems with the E.U. and the costs are looming ever larger on the Commission's agenda.
Brian Gardner of the European consulting company EPA Associates said that he expected negotiations for membership would begin by 2000 and that six countries would join the Union by 2005. These countries would be Hungary, Poland, the Czech and Slovak Republics, Bulgaria and Romania, with a combined grain production of 64 million tonnes. The countries' present agricultural systems vary from the low support and intervention levels in Bulgaria to systems similar to the E.U.'s Common Agricultural Policy already in place in Hungary, Mr. Gardner said.
Further modification of the CAP will be essential because it will be too costly to extend the present system to new members, Mr. Gardner said. But the gaps will narrow as the E.U. switches support from commodities to people via direct income payments.
In contrast to the upbeat prospects for some parts of the world, Russia is unlikely to be in the market for imports for some time to come. The days of large scale purchases on world markets are gone, at least in the near future.
Andrei Sizov of SovEcon, the Moscow-based grain analysis service, said total production in 1995 at only 64 million tonnes was the worst since 1963. Grain stocks were down to 32 million tonnes, 14 million lower than in 1994.
But decentralization of grain procurement, currency problems and lack of credit lines will limit the country's grain imports for some time, Dr. Sizov said. He said Russia probably would need to import about 9 million tonnes in 1995-96, but most of this would come from East European countries and Yugoslavia.