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Appendix C
Commodity Market Outlook and Trade Implications
Indicated by the FAPRI Analysis
WILLIAM H. MEYERS, S. DEVADOSS, AND BRUNA ANGEL*
Center for Agricultural and Rural Development, Iowa State University
INTRODUCTION
In this evaluation we use a multinational and multi-commodity trade model to project
grain production, consumption, trade, and prices for selected countries and regions for the
period 1987/88 to 1996/97. The projections are compared to historical data and are used
to assess the grain needs of the importing countries.
In evaluating the food requirements, factors such as supply and demand conditions
in other countries, world market price for agricultural commodities, economic growth and
purchasing power of the importing countries are often ignored. It is important to take
these factors into account in assessing the food needs of the importing countries. The trade
model used in this study incorporates these factors. The trade models are econometric
models consisting of behavioral components of supply and demand for wheat, coarse grains,
soybeans, soymeal, and soyoiT for major exporters and importers.
Before presenting the results, we briefly explain the structure and components of the
model and assumptions used in the projection. The projections are first presented in general
terms for wheat, coarse grains, and soybeans. Then a regional analysis is conducted for
wheat and coarse grains.
MODEL DESCRIPTION
The CARD/FAPRI agricultural trade models are dynamic, nonspatial, partial equilib-
rium econometric models for wheat, coarse grains (corn, barley, and oats), sorghum and
the soybean complex. All four trade models are used in the analysis; however the detailed
results are presented only for wheat and coarse grains. The models are non-spatial in
that they do not identify trade flows between regions the major concern is to identify net
,,. ~ _ O
quantities traded by each country or region.
*William H. Meyers is Professor of Economics, S. Devadoss is Assistant Professor of Economics, and
Bruna Angel is Research Associate.
98
OCR for page 99
While the individual commodity components may be run independently, they are
integrated into a larger system with other commodity components through price linkages
permitting cross-commodity and cross-country interactions to take place. These linkages
between countries and commodities are designed to reflect the simultaneity of the price
determination process in the agricultural sector. A simultaneous solution can be obtained
to arrive at a consistent market clearing equilibrium for the four commodities. In regions
where internal prices are not insulated from the world market, domestic prices are linked
to their respective U.S. commodity prices- corn, sorghum, barley, wheat, soybean, soymeal
and soyoil.
A descriptive econometric approach is employed in the structural specification which
imposes few constraints on the parameter estimation. While the functional form of the
models is generally linear, fundamental identities and other basic variables, such as relative
prices, render the models nonlinear. The models include domestic supply and demand
functions for major trading and producing countries and regions. Equilibrium prices, quan-
tities and net trade are determined by equating excess demands and supplies across regions
and explicitly linking prices in each region to a world price. Except where they are set by
governments, domestic prices are linked to world prices via price linkage equations including
bilateral exchange ranges and transfer service margins. Where some degree of insulation of
domestic prices from external market conditions exists. the free adjustment of trade flows
is restricted. The price linkage equation defines the degree of price transmission of external
market conditions into the internal system. Bade occurs whether price transrn~ssion is
allowed or not. If there is no price transmission, the quantity traded merely adjusts to
internal conditions.
Figure 1 illustrates the linkages between the four commodity trade models and the
regional and country details of each model. The coarse grains model includes corn, barley
and oats, while sorghum is modeled separately. Within this group of coarse grain crops
(corn, barley and oats) supply and demand of the one or two most important crops in
each country or region have been modeled. Net import demand (export supply) of the
endogenous commodities are added (with a weight equal to one) to the exogenous net trade
of the minor commodities to find the net imports (exports) for all coarse grains. The market
equilibrium identity is defined in terms of the aggregate commodity, coarse grains.
Coarse grains and sorghum are mainly used as feed and therefore this derived demand
is of primary importance. While the portion of coarse grains directly consumed for food
compared to total usage is small, the proportion of coarse grains utilized for nonfeed uses
is large in Africa. and significant en c] rising in t.h~ F,~19 zing in t.h~ TInit."r] ~t.=t.~e In t.hme"
~ ~ t~ ~ O ~ ~ w ~ ~ ~ ~ ~ ~ v ~ ~ _ ~ ~ ~ ~ v _ ~ ~ v w ~ ~ ~ · ~ ~ ~ u ~ ~ ~ ~ ~
.
areas, coarse grain used as food is determined endogenously in the model.
The coarse grain model includes 20 countries and regions. In all of them, the demand
component is endogenous. In countries or regions where production is important, supply
has been endogenized, but in countries with very little domestic production, such as Japan,
domestic supply is exogenous.
The wheat model is composed of 22 countries and regions. In 16 countries and regions
both production and demand functions are estimated.
In the Soviet Union, Eastern Europe and Japan, production is exogenous and domestic
demand is endogenized. Other Western Europe and High Income East Asian regions each
consist of a net import function. Wheat demand equations are usually specified either as
total demand (feed plus food) or as food demand only. However, in those countries or
regions where wheat feed use is a significant proportion of total domestic use, such as in the
United States, Canada and the EC-12, wheat feed demand is estimated separately.
99
OCR for page 100
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OCR for page 101
ASSUMPTIONS
The macroeconomic, policy, and yield growth assumptions used in the projections are
external to the models.
Macroeconomic Assumptions
The macroeconomic assumptions for the projection were provided by the WEFA Group
(1987~. The macroeconomic environment for the next 10-year period (1987/88 to 1996/97)
contrasts sharply with that of the early 1980s. Then, low or negative real GDP growth was
experienced by many countries. Although still sluggish, the recovery of the world economies
from the performance in the early 1980s has a significant impact on the level of demand and
trade over the next decade. The growth patterns in the developing market economies are
diverse, with some struggling under heavy external debt, and others, like the Asians NICs
(Newly Industrialized Countries) experiencing sustained growth.
The projection for world economic growth averages 2.8 percent per annum from 1988
to 1992. Significant price declines, Tower interest rates, a cheaper dollar, and Tower oil and
commodity prices signify ongoing adjustments in the world economy. The debt crisis and
high unemployment in individual developing countries remain as potential problems. The
outlook is influenced by assumptions about oil and non-of! commodity prices, international
debt, exchange rates, and fiscal and monetary policies. The baseline implicitly assumes that
the GATT negotiations result in few changes and that protectionist forces are held in check
at their historical level of influence.
The projected pattern of economic growth activity in developing market economies
is much more fragmented compared to developed economies. Several oil-exporting debtor
countries, e.g., Mexico, Venezuela, Nigeria, and Indonesia, continue to stagger under the
growing weight of external debt. A reduction in external assets would cushion some of the
impact of lower oil prices for the oil exporting countries in the Middle East and Africa, but
the bulk of the adjustment is expected to be accomplished through a decline in domestic
demand and imports. For the oil importing developing countries, such as the Asian NICs,
prospects are good. Lower of} prices, lower global interest rates, and continued expansion
of the developed economies combine to boost projected growth above the average for the
developing world as a whole.
The debt crisis may worsen somewhat in light of a weaker U.S. and world econorn~c
outlook. The renewed debt crisis in Brazil could dampen Latin American growth this
year. Continuing structural adjustments in most debtor economies and restrained growth
are expected. These economies will reduce investment to repay past debts, making new
financial transfers to developed countries.
Pacific Basin. Countries in the Pacific Basin region are expected to have higher econorn~c
growth rates in the projection period compared to those of other regions. Projected real
GDP growth rate of the Pacific Basin countries is 5.5 percent in 1988 and increases to 6.0
percent in 1992. The higher economic growth rate of Pacific Basin countries is partly due
to their expanding export markets. Since this region is a growth market for U.S. exports,
higher economic growth rates in this region should have a positive effect on the U.S. exports.
Other Asia and Mididle East. The projected real GDP growth rate for this region is around
4 percent in the projection period. Since countries in this region are net importers of food
products, their imports heavily depend on their economic growth. In recent years, some
101
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parts of this region, e.g., India, were profoundly affected by a severe drought. This year,
Bangladesh was hit by severe flooding.
Latin America. The projected real GDP growth rate in Latin America averages 2.5 percent
over the projection period. Economic growth in these countries is plagued by the debt crisis.
Other debtors may now follow Brazil's example of interest moratoria, delayed rescheduTings,
reduced flows of bank credits, postponed implementation of structural reforms, and more
import and capital controls. This continued adjustment to accommodate the foreign debt
is likely to restrain economic growth.
Africa. The projected real GDP growth rate of 2.5 percent in African countries, is the
lowest compared to those of other regions in the world. This Tower growth rate would limit
their purchasing power to import agricultural commodities in the world market.
Farm Policy Assumptions
The Food Security Act of 1985 has reduced world commodity prices and increased trade
shares for the United States. The increase in exports were achieved by allowing target prices
to decline slowly while lowering loan rates substantially, adopting marketing To an programs
for rice and cotton, and conducting aggressive export enhancement programs. It is assumed
in this analysis that current programs will prevail and future legislation will continue with
the objective of reducing stocks, and remaining competitive in world markets. This implies
reductions in support prices and continued use of programs to control production and
encourage the utilization of commodities currently in excess supply.
Target prices, for most major commodities, were allowed to decline slowly. For example,
in the case of wheat, the target price in 1988/89 was set at $4.23 and was reduced to $3.54
by 1996/97. Similarly, the corn target price was allowed to decline from $2.93 in 1988/89
to $2.44 in 1996/97. The baseline assumes a target price reduction of 2 percent per year
during the five years following the end of the current farm legislation.
For all program commodities, we assume that loan rates will be reduced in 1989/90.
In 1990/91, however, cotton, rice, and soybean loan rates will not be reduced, because
they will have reached the minimum levels permitted by the FSA85. For feed grains and
wheat, however, loan rates are set equal to 75 percent of the average market price for
the previous 5 marketing years. excluding the years with the highest and lowest prices. A
further qualification is that loan rates may not fall more than 5 percent in a given year.
Beginning in 1990/92, the 75 percent rule begins to take effect for wheat, barley, and oats.
and loan rates for these commodities increase from 1989/1990 levels.
The conservation reserve program is assumed to reach its maximum of 45 million acres
by 1990/91. The annual acreage reduction program is gradually reduced over time and the
paid diversion is eliminated as CRP expands and market prices begin to increase.
A large proportion of U.S. grain exports is under one or more of a variety of government
programs, including PL-480, various loan programs, and the Export Enhancement Program
(EEP). The EEP is a new program created by the FSA85 that has played a major role
in expanding U.S. wheat and barley exports. Under the EEP, exporters receive generic
certificates equal in value to the difference between export prices and the accepted bid
prices of countries qualified to buy EEP grain. We assume that the EEP and other export
programs will be phased out by 1990. As market prices increase and government stocks
decline, there is less incentive to utilize export subsidies.
It is assumed that the European Community will increase its intervention price only
102
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slightly over the next decade due to a strain on the European Agricultural Guidance and
Guarantee fund. The initial prices paid by the Canadian Wheat Board to Canadian farmers
are assumed to decline because of the Tower world market prices.
Yield Assumptions
Production in the forecast period depends on acreage projections and yield assumptions.
In most of the countries acreage is endogenously projected; however, yield growth is assumed
to be exogenous. More sDecificallv. when yield is not ~ncinF~no',~l~r ~~t.im~t.~H ~ t.r~nA growth
rate is assumed.
, 7 ~ o ~ ~ _ _ ~ ^^ ~ _ _ _ ~ ~ V _ ~ ~ ~ ~ ^ ~ ~ ~ ~ ~^
COMMODITY MARKET PROJECTIONS
The baseline projection (Table 1) was prepared before the onset of the 1988 U.S.
drought. The drought will reduce 1988 crop production and increase market prices above
baseline levels. Stocks will be reduced more quickly and 1989 planted area will be higher in
response to higher prices and reduced U.S. government acreage reduction programs. Most
impacts of the drought will have played themselves out by the early 1990s. This study
focuses primarily on the 1990-1996 period. That is, most results of this analysis are not
substantially affected by the drought (Westhoff et al. 1988~.
Real prices of wheat, maize, and soybeans are expected to remain constant or decline
over the period 1989/9~1995/96 (Table 1 and Figure 2~. In particular, the real price of
maize remains nearly constant, wheat prices decline by 5 percent and soybean prices by
more than 8 percent over the period. Thus, the historical pattern of declining real prices for
these commodities continues, but at a somewhat slower rate than during the last decade.
From 1989 to 1995 world wheat production increases by 12.5 percent, feed grain produc-
tion by 13.7 percent, and soybean production by 12.5 percent. Consumption is projected to
grow at a slightly lower pace except for soybeans, and ending stocks are projected to remain
stable or increase. The increase in carryover stocks from 1989 to 1995 still leaves inventories
well below the high levels that existed in 1986/87. In fact, the stock-to-use ratios for wheat,
coarse grains, and soybeans are projected to be 0.25,0.24, and 0.15 in 1995/96 compared
to 0.34, 0.33, arid 0.20 in 1986/87, respectively (Table ~ and Figure 33.
Trade for grains and soybeans increases more rapidly than production and consumption.
The patterns of change in net imports and net exports indicate that demand growth
continues to outpace supply growth in developing and centrally planned economies and that
production growth continues to exceed demand growth in the industrial countries (Table
1 and Figures 4 and 5~. This pattern has been evident for more than a decade and raises
concerns about the foreign exchange costs of the projected imports of developing countries.
Using U.S. Gulf port prices, the import cost of wheat, coarse grains, and soybeans to
developing countries in 1988 dollars is projected to increase from $9 billion in 1986/87 to
$15 billion in 1995/96. The trade picture for soymeal is different. Argentina and Brazil are
projected to export an increased quantity and value of soybean meal to the industrial and
centrally planned economies.
The supply, demand and prices in the evaluation period indicate a return to more
stable commodity market conditions after the extraordinary market boom that occurred
in the mid-1970s and the equally traumatic decline of the first half of the 1980s. Much of
the explanation for this boom and bust cycle lies in the macroeconomic factors external to
agriculture. However, the explanation also rests with agricultural policies and productivity
changes. Johnson, et al. (1988) recently evaluated the sensitivity of these projections to
103
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TABLE 1 Baseline Projections of Wheat and Coarse Grains and Soybean Supply, Use, Trade, and Prices
Actual
1986/87 1989/90 90/91
Projected
91/92 92/93 93/94 94/95 95/96
Nominal Prices ($/mt)
Wheat 1 109 134 137 138 138 139 144 150
Maize 2 74 90 91 94 99 98 100 105
Soybeans3 193 211 204 233 215 232 224 228
Real Prices (1988$/mt)
Wheat 1 117 131 129 128 124 122 123 124
Maize 2 79 87 87 87 89 86 85 87
Soybeans3 207 205 194 215 194 204 191 188
Wheat (milt mt.)
World Production 529 535 548 560 572 583 591 602
World Consumption 521 536 549 561 572 582 592 602
World Ending Stocke 176 150 149 149 149 149 149 149
Net Exports
Industrial 72 79 81 83 85 86 87 89
Developing -53 -61 -62 -64 -66 -68 -70 -71
CPE (excl. China) -18 -18 -19 -19 -19 -18 -17 -17
Coarse Grains (milt mt.)4
World Production 752 748 767 792 805 825 838 851
World Consumption 724 764 776 791 802 817 831 845
World Ending Stocks 236 182 173 174 177 186 193 199
Net Exports
Industrial 41 46 48 51 53 56 59 62
Developing -27 -31 -32 -34 -37 -38 -42 -43
CPE (excl. China) -14 -15 -16 -17 -17 -18 -18 -19
Soybeans (milt mt.)
World Production 98 112 113 114 119 120 124 126
World Consumption 101 110 112 115 118 120 123 126
World Ending Stocks 20 18 19 18 19 19 19 19
Net Exports
Industrial 1.6 2.6 2.9 3.4 3.6 4.1 4.5 5.0
Developing 0.3 0.3 0.1 -0.4 -0.6 - 1.1 - 1.4 - 1.9
CPE (excl. China) -1.9 -2.9 -3.0 -3.0 -3.0 -3.1 -3.1 -3.1
SoYmea1 Net Exports (milt mt.)
Industrial -2.1 -3.4 -3.6 -3.7 -3.7 -3.8 -3.9 -3.9
Developing 8.6 10.6 11.1 11.4 11.7 12.2 12.5 12.8
CPE (excl. China) -6.5 -7.2 -7.5 -7.7 -8.0 -8.4 -8.6 -8.9
2 Wheat - FOB Gulf #2 H.W. 13%
3 Corn - FOB Gulf #3 Yellow
4 Soybeans - FOB Gulf #2 Yellow
Maize, Sorghum, Barley and Oats
alternatives for the macroeconomy, productivity growth, and potential policy changes that
could occur over the next decade.
DETAILED REGIONAL IMPI,ICATIONS
In this section, we discuss the results of projecting grain production, consumption, and
import requirements of four major regions from 1987/88 to 1996/97. These regions include
Africa and Middle East, Latin America, Asia, and Centrally Planned Economies.
104
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500
450
400
O 350
~ 300
Lit
250
to
Go
-
10Q
50
FIGURE 2 Real U.S. Gulf Port Prices
-
~ \
_ ~ \
I \
I \
/ \ Soybean
I \
I \
\
\
\
, Wheat ~ / \
/ \
\
71/72 76/77 81/82 86/87 91/92 96/97
YEAR
0.29 _
0.28 _ /~\
~ ~ ~ j ~ {4 ~ {/ / my\
0.16 _ I I I \
0.15 _\ / I I Feed Grains \
0.14 ~ \ / \~ / 1 J a___ __
oooo1~3o _/ 11/
71/72 76/77 81/82 86/87 91/92 96/97
YEAR
FIGURE 3 World Stocks to Use Ratio
105
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110
100
90
80
70
LU
60
50
40
30
20
10
76/77
81 /82
FIGURE 4 Net Importers: Coarse Grain Imports
110
100
90
z
o
By
o
3
-
80
70
60
50
40
30
20
10
o
FIGURE 5 Net Importers: Wheat Imports
YEAR
_ [//1 Developed Market
CPE
If// Developing
~ .
. I
:
-
~ .
71/72 76/77 81/82 86/87 91/92 96/97
YEAR
106
OCR for page 107
75
70
65
by
o
at
o
_ 45
60
55
50
40
35
30
FIGURE 6 Africa and Middle East Wheat
Africa and Middle East
.
_
Domestic Use
''
-
/
_
_! , I ~ I ~ ~
/
/
Production
._
-
. -
.
-
_.
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97
YEAR
African and Middle Eastern countries' imports of wheat are projected to increase from
27.7 million metric tons in 1987/88 to 34.5 million metric tons in 1996/97. This increasing
trend is due to the widening gap between domestic use and production levels over the
projection period (Figure 6~. Production grows only at an average annual rate of 1.5
percent, whereas the domestic use grows at a much faster rate of 1.9 percent, resulting
in increased import needs in the next decade by the countries in this region. A similar
projection for coarse grains shows that imports increase from 11.5 million metric tons in
1987/88 to 17.1 million metric tons in 1996/97 (Figure 7~. As in the case of wheat, the
domestic use growth rate is projected to increase at a faster pace than that of production.
The increase in domestic use of wheat and coarse grains can be attributed to the projected
rise in population throughout the region and income growth rates in certain countries. The
projected real GDP growth rate of 3.0 percent over the next decade is sianificantIv hither
than the-0.06 percent over the previous decade.
To_ _ _ ` _~ ~ ~ ~ ~1 · _ · ~
~ ., A,
~~ Argosy of one countries In ants region, Domestic production does not meet the grow-
ing demand. For example, countries in the Middle East do not have suitable agronorn~c
conditions to produce enough food to meet the increased demand generated by population
and income growth. In many Middle Eastern countries the contribution of the agricultural
sector to GNP is very small.
In most of the African countries, however, agriculture contributes at least 50 percent of
the GNP. Governments in many of these countries tend to subsidize consumption but tax
the agriculture sector and food production. Moreover, projected population growth rates
in this region exceed food production growth rates. Also, the economies in many of these
countries are plagued by foreign debt problems. Agriculture is generally characterized by
declining per capita income, slow or no increase in per capita food production, recurrent
107
OCR for page 108
65
60
50
45
40
z55 _
o
50 _
~ 45 _
o
~ 40 _
J
35 _ .'
30 - /
25
FIGURE 7 Africa and Middle East Coarse Grains
a'
Domestic Use ~ \
.
I I I I I I I I I I I I i I I I I I I I ~
Production ~
-
-
-
'
.
-
-
-
-
-
-
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97
YEAR
droughts, and unmanageable debt. Therefore, most of the African countries are likely to
rely on foreign food aid and development assistance in the near future.
One of the countries studied more closely in this region is Egypt. because of its growing
import demand. For two decades, Egypt has not been self-sufficient in food production
and currently imports about half of the food requirement to meet the growing demand of
its rapidly rising population of more than 50 million people. As shown in Figures 8 and
9, wheat and corn production is virtually stagnant, whereas the combined domestic use of
these commodities increases from 14.0 million metric tons to 15.4 million metric tons from
1987/88 to 1996/98, resulting in an increase of 2.1 million metric tons of imports over the
same period.
Countries like Algeria and Morocco are expected to make little progress in their grain
production, but face significant demand growth, which would make them more dependent on
the world market for their imports. As indicated in Figure 10, four North African countries
(Egypt, Algeria, Tunisia, and Morocco) are expected to expand their wheat imports by an
additional 2 million metric tons by 1996/97.
Expansion of the livestock industry coupled with import subsidies have made Saudi
Arabia one of the worId's largest importers of barley. Saudi Arabia increased its barley
imports from less than 0.1 million metric tons in 1976/77 to 8.6 million metric tons in
1986/87 (Figure 11~. Future imports are expected to remain high with relatively little
growth.
Latin America
Production and domestic use of wheat and coarse grains of Latin American countries,
excluding Argentina, are shown in Figures 12 and 13. Since Argentina is a net exporter
of wheat and coarse grains, inclusion of Argentina would mislead one to conclude that
countries in this region do not rely heavily on imports of these commodities. It is evident
108
OCR for page 111
8
7
7
FIGURE 11 Saudi Arabia Barley
25
23
21
by
o
lo
in
o
YEAR
FIGURE 12 Latin America Excluding Argentina Wheat
111
9
6
5
4
3
2
1
_
\r
Domestic Use
Production
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93
YEAR
19
17
15
13
11
9
-
94/95 96/97
-
/
~ _
6 `_~ 1 1 1 1 1 1 1 1 1
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91
Domestic Use ~
-
-
Production _
_ _
, _
_ _
-
92/93 94/95 96/97
OCR for page 112
56
54
he 50
o
G 46
~ 44
~7
o
3
-
52
48
42
40
38
36
34
32
Domestic Use ~
_
/ ~
/ \
/` 'N
_ , , \ ,
J / , ~ __
/
a\\\/,
\ //
\
/
Production _
-
-
-
. _
-
. _
30
76/77 78/79 80/81 82/83 84/85
86/87 88/89
YEAR
FIGURE 13 Latin America Excluding Argentina Coarse Grains
10
9
8
z
o
cr:
At
o
3 4
5
6
5
3
2
76/77 78/79 80/81 82/83
-
W
-
-
l
Domestic Use ~
-
l
-
-
Production
-
90/91 92/93 94/95 96/97
-
FIGURE 14 Brazil Wheat
84/85 86/87
YEAR
112
88/89 90/9] 92/93
94/95 96/97
OCR for page 113
30
28
by
o
24
~ 22
Ad
O 20
26
18
16
it'
-\ /
\ /
\ /
14 _ \/
1 1
I'
13
76/77 78/79 80/81 82/83
FIGURE 15 Brazil Coarse Grains
Domestic ~:
-
/
~ ~ / /
i\\//
/ ~
-
84/85 86/87 88/89 90/91
YEAR
Production
_
92/93 94/95 96/97
distribution. Furthermore, its economic growth is closely tied to of! prices, since Mexico is
a of} exporter. Mexico's imports are likely to vary because its foreign exchange earnings
depend heavily on the oil price and its repayment of the foreign debt.
Asia
The production and domestic use of coarse grains and wheat of all Asian countries are
shown in Figures 18 and 19. The coarse grain imports of this region in the last decade
averaged 5 million metric tons per year, but are projected to increase to an average of 12.2
million metric tons per year over the next decade. The average wheat imports corresponding
to these two periods are 21.5 and 27.5 million metric tons, respectively. Clearly, the projected
increase in imports by the countries in this region is due to faster growth in consumption
than in production. The faster consumption growth is attributed to the projected increases
in population in countries such as India, Pakistan, and Bangladesh, and rising per capita
income in East Asian countries such as South Korea, Taiwan, and Hong Kong.
For both wheat and coarse grains, countries in High Income East Asia (South Korea,
Taiwan, Hong Kong, and Singapore) show strong import demand (Figures 20 and 21~.
Countries in this region made a significant advancement in the manufacturing sector and
experienced high economic growth over the last decade. They are able to earn foreign
exchange by exporting industrial goods. It is assumed that these countries will continue
their economic progress in the next decade. Recently, these countries have also expanded
their livestock sectors, which made them more dependent on imports of coarse grains. Thus,
countries in this region are increasingly becoming high growth markets for these grains.
China and Thailand are both expected to continue to export corn. Therefore, the
production and domestic use projection for this region, excluding China and Thailand, is
113
OCR for page 114
6
5.5
5
by
0 4.5
~ 4
0 3.5
v
2.5
FIGURE 16 Mexico Wheat
\
\
-
Domestic Use
/ /
l \ l
~ / \ i
/
l
_
~ Production
_ _,
2 1 1 1 1 1 1 1
76/77 78/79 80/81
82/83 84/85 86/87 88/89 90/91 92/93
YEAR
94/95 96/97
a better indicator of the growing need for coarse grains imports (Figure 22~. Furthermore.
the High Income East Asian (HIEA) countries would not have significant foreign exchange
constraints, so they are excluded. The average annual imports of coarse grains by the
remaining Asian countries over the last three years were nearly 2.0 million metric tons, and
are projected to more than double over the next ten years.
In the case of wheat, India is expected to remain approximately self-sufficient and
the HIEA countries will not have difficulty paying for imports. As shown in Figure 23,
wheat imports by other countries in this region, excluding India and HIEA are projected to
increase slowly.
Centrally Planned Economies
This region includes the Soviet
tries over the last ten years show a
Union and Eastern Europe. Imports by these coun-
high degree of fluctuation because they are primarily
determined by centralized political decisions and production variability.
Countries in this region are expected to continue to be major importers of wheat and
coarse grains (Figures 24 and 25~. Unfavorable climatic conditions, inefficient input use,
and little technological innovation in the past have made these countries more dependent on
the world market. Moreover, these countries' economic policies have favored development
in the industrial sector over the agricultural sector. However, both production and domestic
use of wheat and coarse grains are projected to increase over the next ten years with annual
imports averaging 20.2 million metric tons of wheat and 18.7 million metric tons of coarse
grains.
114
OCR for page 115
15
14
Oh
Ad 13
o
by
o
12
11
10
9
8
7
FIGURE 17 Mexico Coarse Grains
CONCLUSIONS AND IMPLICATIONS
~ I
_ ~ \ /
\/
,~
J 111 \
/ l
/ I
Domestic Use
Production
/\ ''
/ \\
l /
l
~ \
-
1 1 1 1 1
-
_~
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97
YEAR
The implications of these projections are summarized by looking at per capita income,
production, consumption, and net imports of the major developing regions of the world.
Per capita income growth rates for the Latin American and Asian regions are slightly lower
than those experienced in the last decade. In Africa and the Middle East per capita income
is still projected to decline but at a much slower rate than occurred during the last decade.
Overall, the general economic picture for the world is projected to be significantly more
favorable than the past five years but not as robust as in the 1970s. Thus, the ten year
historical averages mask the sharp economic downturn that occurred in the early 1980s and
the more recent improvement in economic performance that occurred in the mid-1980s.
While the improved economic conditions are encouraging, the fact remains that in
many developing countries production growth cannot keep pace with the growth in demand
resulting from both population and income increases. This leads to increased import demand
for both wheat and coarse grains in most developing regions. Some of the strong growth
markets, such as High Income East Asia, can cover the increasing cost of grain imports
with increasing revenues from export sales. However, many other countries and regions in
the developing world have heavy debt service problems and foreign exchange constraints
that inhibit their ability to substantially increase the imports of grains. Thus, the rate of
production and import growth in these projections is not sufficient to maintain current per
capita consumption levels.
While grain prices are stable or declining in real U.S. dollars, the cost to the importers
will also depend heavily on whether local currencies appreciate or depreciate relative to
the U.S. dollar. The same countries which have a shortage of foreign exchange and heavy
115
OCR for page 116
240
220
oh
o
~ 180
LL
z 160
o
140
120
100
/
/ ~
80 1 1 1 1
76/77 78/79 80/81 82/83
Domestic Use ~
-
-
Production _
-
-
84/85 86/87 88/89 90/91 92/93 94/95 96/97
YEAR
FIGURE 18 Asia Wheat
160
150
140
z
~ 130
cr
~ 120
z
o
c
FIGURE 19 Asia Coarse Grains
-
Domestic Use ~
/
110
100
90
80
70 1 1 1 1 1 1 1 .
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91
art'
,
~ Production
92/93 94/95 96/97
YEAR
116
OCR for page 117
18
20
16
Oh
o 14
to
12
~ 10
of
o
8
6
4
2
o
Domestic Use ~
L ~
/
/
Production
.
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93
YEAR
FIGURE 20 High Income East Asia Coarse Grains
7
6.5
6
an
O 5.5
111
~ 4.5
o
·' 4
c
5
3~5
3
2.5
94/95 96/97
-
/
/
I
/
\ .'
, .
_,/
1
Imports ~
-
I J
76/77 78/79 80/81 82/83 84/85 86/87 88/89
YEAR
FIGURE 21 High Income East Asia Wheat
90/91 92/93 94/95 96/97
117
OCR for page 118
Oh
O 28
27
26
25
32r
31
30
29
24
23
22
21
20
3~ it/
3 _~1 \
`~, x/
-
-
_
Domestic Use /
Production
, _ -
_
, _
-
19 1 1 1 1 1 1 1 1 1 1
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97
YEAR
FIGURE 22 Asia less China, Thailand, and HIEA Coarse Grains
debt service obligations are the ones whose currencies are likely to depreciate relative to the
dollar, causing the import costs of these commodities to increase.
Our analysis suggests that the region under the greatest pressure in terms of potential
reductions in per capita consumption is Africa and the Middle East. Second to this region
is the Latin American region excluding Argentina. The Asian region is expected to perform
better, because production growth is expected to keep pace with or be slightly ahead of the
population growth rate. A major reason for the declining per capita consumption in the
other regions is that per capita production is declining. Although imports are increasing in
all developing regions, these increases are not sufficient to offset the slower rates of growth
in production.
Measures to improve productivity growth in these regions would be the most desirable
solution to these problems. A recent analysis by Johnson, et al. (1988) indicated that
improved rates of yield growth globally would benefit the developing regions by reducing
world market prices, increasing developing country production and reducing their net
imports.
Another important measure is the resolution of the Third World debt problem. The
debt service burden is one of the constraints to import demand in developing countries. A
resolution of the debt problem or other measures that would increase the rate of economic
growth in developing countries would be expected to stimulate more import demand for
grains and lead to higher levels of trade.
Food assistance programs are recognized as being a short term or stop gap measure
rather than a solution to stagnant or declining per capita consumption levels. Targeted
export subsidies can have a similar effect, provided that the targeting is based on human
need rather than on geopolitical or policy strategy considerations.
118
OCR for page 119
170
160
150
he
o
CC
IL
o 100 _
90
80
140
130
120
110
70
60
50 _
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97
/ ,
~,``,/'
,
. ~
'_ _, _
.,
-
-
YEAR
FIGURE 23 Asia less HIEA and India Wheat
160
155
150
an
o
O 140
E
LL
A
o
145
135
130
125
120
115 _
I/ \`
110 1 ~ 1 ~, ~ ~ ~ ~ ~ ~
76/77 78/79 80/81 82/83 84/85 86/87 88/89 90/91 92/93 94/95 96/97
YEAR
_
~ /\
_/ I I
/ I I
i"1 i,',
I / \
I, ~
/\/ Production,
W.
I \ _
I \ _
I \
I \,
l
-
/
/ \
I'
-
-
-
.
.
FIGURE 24 Centrally Planned Economies Wheat
119
OCR for page 120
200
190
180
170
~ 160
LL
150
140
130
120 _
110 1
76/77 78/79
L\',
\ a/\
\/ \
\
Domestic Use /
-
\
~ /
~ /
/' ~ ~
-
-
-
-
Production
-
-
80/81 82/83 84/85 86/87 88/89
YEAR
FIGURE 25 Centrally Planned Economies Coarse Grains
90/91 92/93 94/95 96/97
A conclusion of the recent 1988 World Food Conference (Helmuth and Johnson) is that
there needs to be a shift in priorities. Third World countries must have assistance in de-
veloping their entire infrastructures education, health care, highways, harbors, marketing
and distribution systemsas well as their agricultural and industrial sectors. Only through
long-term, sustainable growth can the problem of food security be solved. When Third
World nations are able to efficiently produce and sell the products for which they have a
comparative advantage, they will have command of the resources necessary to feed their
populations. When economic development reaches this point, the investment of developed
nations in economic assistance returns benefits to the donors as well as to the recipients.
DOCUMENTATION AND REFERENCES
Bahrenian, A., S. Devadoss, and W.H. Meyers. 1986. "FAPRI Trade Model for Feed Grains: Specification,
Estimation, and Validation." Center for Agricultural and Rural Development, Iowa State University,
Ames, Iowa. Staff Report 86-SR1. (Revised)
Devadoss, S., M.D. Helmar, and W.H. Meyers. 1986. "FAPRI Trade Model for the Wheat Sector:
Specification, Estimation and Validation." Center for Agricultural and Rural Development, Iowa
State University, Ames, Iowa. Staff Report 86-SR3. (Revised)
"FAPRI Ten-Year International Agricultural Outlook." 1988. Food and Agricultural Policy Research
Institute, University of Missouri-Columbia and Iowa State University. FAPRI Staff Report #1-88.
Helmuth, J.W., and S.R. Johnson, editors. 1988 World Food Cor~ferer~cc Proceeding Volume II: Policy Addresses
and Recommendations (Iowa State University Press, Ames, Iowa) forthcoming.
Johnson, S.R., W. H. Meyers, P. Westhoff, and A. Womack. 1988. "Agricultural Market Outlook and
Sensitivity to Macroeconomic, Productivity, and Policy Changes, pape" prepared for the Twentieth
International Conference of Agricultural Economists, Buenos Aires, Argentina, August 23-31, 1988.
Meyers, W.H., S. Devadoss, and M.D. Helmar. 1987. "Agricultural Trade Liberalization: Cross-Commodity
and Cross-Country Impact Products." Journal of Policy Modeling 9~3~:455-482 (1987~.
120
OCR for page 121
Meyers, W.H., M.D. Helmar and S. Devadoss. 1986. "FAPRI Trade Model for the Soybean Sector:
Specification, Estimation and Validation.n Center for Agricultural and Rural Development, Iowa
State University, Ames, Iowa. Working paper No. 86-SR2. (Revised)
Westhoff, P., W.H. Meyers, S.R. Johnson, J. Brandt, and A. Womack. 1988. `'The Drought of 1988:
Possible Market Impacts and Policy Implications." Food and Agricultural Policy Research Institute,
University of Missouri-Columbia and Iowa State University. FAPRI Staff Report #2-88.
"World Economic Outlook." 1987. The WEFA Group, Bala Cyawyd, Pennsylvania.
121
Representative terms from entire chapter:
metric tons
