ACKNOWLEDGEMENTS

The Food Outlook report is a product of the FAO Trade and Markets Division. This report is prepared under the overall guidance of Boubaker Ben-Belhassen, Director, and Abdolreza Abbassian, Senior Economist. It is written by a team of economists, whose names and email contacts appear under their respective contributions. The report benefited from research support by many staff, namely, David Bedford, Julie Claro, Harout Dekermendjian, Lavinia Lucarelli, Emanuele Marocco, Marco Milo and the fisheries statistical team.

Special thanks go to David Bedford and Lavinia Lucarelli for preparing the charts and statistical tables and to Valentina Banti for her administrative support. Additionally, the team is grateful to Ettore Vecchione for the desktop publishing and to Clare Pedrick for her valuable editorial assistance.

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FAO. 2019 Food Outlook - Biannual Report on Global Food Markets – November 2019. Rome.

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Contents

MARKETS AT A GLANCE

Wheat

Coarse grains

Rice

Oilcrops, oils and meals

Sugar

Meat and meat products

Milk and milk products

Fish and fishery products

COMMODITY FOCUS

Banana Fusarium Wilt Tropical Race 4: A mounting threat to global banana markets?

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Oilcrops

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Futures markets

Ocean freight rates

The FAO price indices

Food Outlook is published twice a year. The first report of the year, published in May or June, provides comprehensive supply and demand assessments on a commodity by commodity basis. As of 2018, the second report, which is normally published in November, contains market summaries (Markets At A Glance) and a section dedicated to more in-depth analysis of a topical issue (Commodity Focus).

WHEAT

Global wheat supply is forecast to recover in 2019/20, as reflected in persistent low international prices since the start of this year. At around 765.0 million tonnes, the latest FAO forecast for world wheat production in 2019 confirms the earlier projection of a strong rebound from 2018 to a new record high. An expected production recovery in the EU constitutes the bulk of the year-on-year increase in world production. However, much bigger harvests than last year are also foreseen in other top producing countries, including the Russian Federation, Ukraine and the United States.

Total wheat utilization in 2019/20 is set to reach 759.5 million tonnes, 1.5 percent higher than in 2018/19. Total food use of wheat is forecast to approach 518 million tonnes, up 1.1 percent and rising in close tandem with world population growth. However, large supplies and competitive prices are likely to drive up feed use of wheat by 2.8 percent, a faster rate than was projected earlier, while industrial use is also anticipated to register strong growth.

Based on the latest production and utilization forecasts for 2019/20, global wheat inventories could climb to almost 275 million tonnes, the second highest level on record. If realized, stocks would be up 1.9 percent from their opening levels. However, most of the projected accumulation of world wheat stocks is expected to occur in China, where carryovers could increase by 8 percent to 129.0 million tonnes. While inventories in the EU and India are also expected to expand, notable declines are anticipated in Australia, the Russian Federation, Pakistan, Morocco and Turkey.

At around 172 million tonnes, the forecast for global wheat trade in 2019/20 (July/June) has been trimmed slightly in recent months, but still up from the 2018/19 reduced level. Larger wheat imports by drought-affected Morocco and higher purchases by several countries in Asia account for most of the forecast expansion in world trade. On the export side, while the Russian Federation is seen maintaining its position as the world’s largest wheat exporter, its overall wheat sales in 2019/20 could fall short of the previous season, in view of stiffer competition from other major exporters.

For additional analyses and updates, see:

FAO Cereal Supply and Demand Brief
http://www.fao.org/worldfoodsituation
Crop Prospects and Food Situation
http://www.fao.org/giews/reports/crop-prospects
AMIS Market Monitor
http://www.amis-outlook.org/amis-monitoring

Contact:

Erin.Collier@fao.org

COARSE GRAINS

The global market of coarse grains in 2019/20 is set to tighten for a second consecutive season, despite an anticipated production recovery from the 2018 slump. Total production of coarse grains is forecast to reach at least 1 425 million tonnes in 2019, the second highest level on record, mostly underpinned by an increase in barley production (of 13.4 million tonnes). With record level maize production in Argentina and Brazil offsetting a poor harvest in the United States, global maize production is also set to increase, but only marginally (5 million tonnes).

Coarse grain total utilization in 2019/20 is expected to remain close to the 2018/19 level as strong growth in barley utilization, increasing by almost 5 percent from 2018/19, is likely to be countered by declining sorghum consumption, while maize use is expected to remain stable. For the first time in almost a decade, a contraction in feed use of coarse grains, especially maize, is likely in 2019/20. This is mostly because of a sharp anticipated drop in the feed use of maize in the United States from a record high level in 2018/19. In addition, maize use for feed is expected to be negatively influenced in several Asian countries, especially China because of the devastating impact of the African Swine Fever (ASF) on pig herds.

With consumption outweighing overall supplies for a second consecutive season, coarse grain inventories are forecast to fall again in 2019/20 (by 4 percent). China’s continued destocking, and a significant stock drawdown in the United States following a poor harvest, may result in a 25 million tonne contraction in global maize stocks. Reflecting this decline, the world coarse grains stocks-to-use and major exporters’ stocks-to-disappearance (defined as domestic consumption plus exports) ratios will decrease.

World trade in coarse grains in 2019/20 (July/June) is forecast to drop from the 2018/19 record, weighed down by a decline in maize trade on lower import demand especially in the EU. Reduced maize shipments from the United States, in part driven by a likely decline in this year’s production, and Ukraine are expected to be only partially offset by significant increases in maize exports from Argentina and Brazil. By contrast, increased import demand for barley in North Africa and Saudi Arabia is likely to be met by larger barley exports from Ukraine and the EU, boosting barley trade by almost 9 percent over 2018/19 levels.

For additional analyses and updates, see:

FAO Cereal Supply and Demand Brief
http://www.fao.org/worldfoodsituation
Crop Prospects and Food Situation
http://www.fao.org/giews/reports/crop-prospects
AMIS Market Monitor
http://www.amis-outlook.org/amis-monitoring

Contact:

Erin.Collier@fao.org

RICE

An erratic unfolding of the northern hemisphere spring and summer rains has deteriorated the outlook for global rice production since May, providing modest support to international rice prices in an otherwise quiet trading environment.

Based on the latest forecasts, global rice production in 2019 is set to fall 0.8 percent below the 2018 all-time high. Much of this decline is expected to occur outside Asia, particularly in Australia, Brazil, Nigeria and the United States, often as a result of adverse weather, compounding diminished producer margins. On the other hand, Asia appears headed towards another abundant harvest, with anticipation that a shortfall in China and a slight reduction in India would be largely compensated by output expansions elsewhere in the region.

Prospects of a strong trade recovery in 2020 have been tempered by expectations that ample local availabilities will keep import demand in Asian countries subdued for another year. Nonetheless, global rice flows in 2020 are still forecast to exceed their 2019 level, as imports are anticipated to expand in all other regions. This is the case of Africa in particular, where countries such as Guinea, Senegal and Nigeria would need to purchase more to compensate for reduced production levels. With the exception of Australia, Brazil and Thailand, all traditional rice suppliers are expected to boost exports in 2020, although the largest increases are predicted for India and China. Indeed, continued growth in Chinese rice exports in 2020 could essentially eliminate the trade imbalance that China has had since emerging as a net importer of rice in 2011.

Growth in the food use of rice is predicted to slightly outpace population growth in 2019/20, lifting global utilization to a level that exceeds expected production. As a result, world rice inventories at the close of 2019/20 marketing seasons could decline, albeit to a level that would still stand out as the second highest on record. Rice importers are envisaged to account for all the stock drawdown, led by reductions in China and, to a lesser extent, Bangladesh and Indonesia. By contrast, reserves held by the five major exporting countries could rise to a five-year high, primarily on the back of another foreseen build-up in India.

For additional analyses and updates, see:

AMIS Market Monitor
http://www.amis-outlook.org/amis-monitoring
Cereal Supply and Demand Brief
http://www.fao.org/worldfoodsituation/csdb/
Crop Prospects and Food Situation
http://www.fao.org/giews/reports/crop-prospects

Contact:

Shirley.Mustafa@fao.org
Cristina.Costlet@fao.org (Production)

OILCROPS

FAO’s preliminary forecasts for the 2019/20 season point to relatively balanced markets for oilseeds and derived products.

After reaching an all-time high in 2018/19, global oilseed production is anticipated to contract for the first time since 2015/16, mostly reflecting expected declines in soybean and rapeseed outputs that would outweigh foreseen gains in other oilcrops. Soybean production could fall short of last season’s record level, largely as a result of both a contraction in plantings and lower yields in the United States, amid unattractive production margins and unfavourable weather conditions. Regarding rapeseed, uncertain export prospects contained plantings in Canada, while in the EU and Australia, harvests have been compromised by prolonged dryness. As for palm oil, global production could slow, tied to a deceleration in area expansion and modest yield prospects in Indonesia and Malaysia.

On the demand side, global meal utilization is forecast to resume growth, albeit timidly – after being severely affected by the outbreaks of African Swine Fever (ASF) in 2018/19. Oils/fats consumption is also poised to expand at a below-average rate, reflecting generally stagnant economic growth and more moderate uptake by the biodiesel sector. However, based on current forecasts, global utilization of meals and oils would still outstrip production, triggering sizeable year-on-year drawdowns in meal/oil reserves. Despite the predicted tightening in global carry-over stocks, major exporters’ stock-to-disappearance ratios still point to a comfortable market situation.

International trade in meals and oils is expected to continue expanding in 2019/20, though at a relatively low rate, underpinned by the predicted slowdowns in global utilization and reductions in exportable supplies. Ongoing trade tensions between individual countries are poised to continue affecting markets for oilcrops and derived products, adding uncertainty to the market outlook.

Looking ahead, prices in the coming months will be influenced by weather conditions in South America and Southeast Asia, the evolvement of the ASF epidemic, implementation of domestic biodiesel policies, and trade policy developments. Should the current forecasts of sizeable drawdowns in global inventories materialize, prices of products in the oilcrops complex could gain ground compared with recent multi-year lows.

For additional analyses and updates, see:

Oilcrops Monthly Price and Policy Update
http://www.fao.org/economic/est/publications/oilcrops-publications/monthly-price-and-policy-update/
AMIS Market Monitor
http://www.amis-outlook.org/amis-monitoring

Contact:

Peter.Thoenes@fao.org
Di.Yang@fao.org

SUGAR

International sugar markets are seen heading for a modest tightening in the 2019/20 marketing season, as production is forecast to fall below the previous season’s record level while world consumption is expected to expand. As a result, sugar inventories are predicted to decline in 2019/20.

FAO expects world sugar production to drop in 2019/20 (October/September), falling below total consumption. The forecast for global sugar production in 2019/20 has been revised downwards in recent months and is now pegged at just over 175 million tonnes, representing a 2.8 percent decrease from 2018/19. India, Thailand and Pakistan account for much of the anticipated year-on-year contraction in global sugar production. Unfavourable weather conditions during sugar cane tillering and elongation stages are largely behind the reduced output.

Global sugar consumption is set to expand by 1.4 percent in 2019/20, a modest increase compared with the growth registered in the previous season, but still below its long-term (10-year) trend, reflecting the growing consumer concerns about excess sugar consumption. Growth in sugar consumption is expected to be particularly marked in Africa, the Middle East and Latin America and the Caribbean, driven by rising per capita incomes and lower sugar prices.

World sugar trade is expected to expand in 2019/20, underpinned by a stronger import demand from the traditional sugar importing countries and ample availability in major exporting countries. The introduction of export incentives by some of the major exporting countries is also anticipated to boost global trade in sugar. Exports by Brazil and India are set to rise, prompted by abundant sugar stocks, but to fall in Thailand, the second largest sugar exporter, due to an 11 percent decrease in production. International sugar prices have followed a declining trend in recent months, weighed by large accumulated inventories in both importing and exporting countries, and a strengthening of the Brazilian real against the US dollar, which tends to stimulate shipments from Brazil, the world’s largest sugar exporter.

Contact:

Alice.Fortuna@fao.org
ElMamoun.Amrouk@fao.org

MEAT AND MEAT PRODUCTS

World meat production is forecast at around 335 million tonnes (in carcass weight equivalent) in 2019 1.0 percent lower than in 2018. This marks a departure from the stable growth trend recorded over the past two decades and indicates a sharper fall than anticipated in May, principally due to a deeper than earlier expected impact of African Swine Fever (ASF) in China and its spread to several East Asian countries. China’s meat output is forecast to fall by 8 percent, offsetting expected increases in production in several major producing countries, namely the United States, Brazil, the European Union and Argentina. The overall decline in China’s meat output reflects a contraction of pig meat output by at least 20 percent, partially offset by higher production of other meats. In the United States, a rise in carcass weights is sustaining growth, whereas in Brazil external demand is encouraging higher production. In the European Union, total meat output is also expected to expand, albeit slower than predicted earlier due to a likely decline in bovine meat production. Production gains are expected for all other categories of meat in the European Union, especially pig meat production, reflecting robust demand from China. Argentina’s meat production is likely to rise, primarily on increased culling.

World trade in meat and meat products is forecast at 36.0 million tonnes in 2019, up 6.7 percent from 2018, principally driven by increased imports by China due to domestic tightness caused by ASF-related production losses. China’s overall meat imports are expected to rise by 35 percent (around 2 million tonnes), with increased purchases across all meat categories. By contrast, several countries are expected to import less meat, including the United States and Angola. On the export side, much of the anticipated expansion in global demand is forecast to be met by Brazil, the European Union, the United States, Argentina, Thailand and Canada. However, limited export availabilities could depress meat shipments from Paraguay, Belarus and Uruguay.

International meat prices, measured by the FAO Meat Price Index, have continued to register moderate month-on-month increases since the start of 2019, with pig meat prices, frozen in particular, recording the sharpest rise due to the surge in import demand by China. Poultry, ovine and bovine meat prices strengthened, also supported by stronger Asian demand.

Contact:

Upali.GalketiAratchilage@fao.org

MILK AND MILK PRODUCTS

Global milk production is forecast at 852 million tonnes in 2019, an increase of 1.4 percent from 2018 – a smaller rate of growth than earlier anticipated in May, reflecting downward revisions made for India and the European Union. Much of the anticipated output expansion will originate in India, Pakistan, China, the European Union and Brazil, partially offset by declines in some countries including Australia, Colombia and Argentina. In India and Pakistan, herd expansions drive output growth, while in China, farm efficiency improvements underpin the higher growth. In the European Union, output is rising, albeit slowly as dry weather during the summer constrained milk deliveries, while in Brazil, rising dairy herd and stable milk prices support higher production. By contrast, output may decline in Australia and Colombia due to dry weather, whereas in Argentina, rising feed costs and restrained consumer demand may dampen production. Elsewhere, in the United States, higher milk yields sustain the growth momentum, whereas in New Zealand, favourable weather supports a positive production outlook.

World trade in dairy products (in milk equivalent) in 2019 is forecast at 76 million tonnes, up 0.8 percent from 2018, significantly lower than the previous growth forecast. This emanates largely from a more subdued import growth forecast for China, reflecting expected import curtailments of butter, but also of whey products due to reduced demand from piggeries. Elsewhere, the Russian Federation, the Philippines, Indonesia and Japan may purchase more dairy products in 2019. Much of the expanded global supply is likely to come from New Zealand and the European Union, thanks to increased export availabilities and new trade agreements. By contrast, retaliatory tariffs, reduced demand for whey products as hog feed and strong competition will constrain dairy exports from the United States, while tighter export availabilities weigh on exports from Australia.

International dairy prices, measured by the FAO Dairy Price Index, rose by 24 percent between January and May of this year, largely driven by a strong global demand. Since June, price quotations for butter and cheese were subject to more downward pressure due to increased export availabilities, especially from New Zealand, whereas those for Skim Milk Powder (SMP) and Whole Milk Powder (WMP) drifted higher, reflecting strong import demand from Asia.

Contact:

Upali.GalketiAratchilage@fao.org

FISH AND FISHERY PRODUCTS

No growth is expected for global fish production in 2019. Trade tensions are taking a heavy toll on consumers and businesses alike, with seafood trade expected to contract.[1]

Global fish production is expected to be flat year-on-year for 2019, with a 3.4 percent decline in capture fisheries production offset by a 3.9 percent increase in aquaculture harvests. Cephalopods and cod are among the wild stocks for which supplies have been tight. Anchoveta production was also lower in the first fishing season (late April 2019 to late July 2019). Meanwhile, the growth trajectory of the aquaculture sector remains steady. Supplies of the major farmed finfish species will rise again in 2019, but shrimp production in Asia is expected to drop sharply. Both aquaculture and capture harvests have been affected by higher water temperatures this year.

Pressured by unfavourable macro-economic developments, in particular slower economic growth prospects and trade tensions, global trade in fish and fish products could contract this year, projected to drop by 1.2 percent in volume and 1.4 percent in value. Imports into the United States and the European Union are expected to fall marginally, while those to China are expected to increase substantially. In terms of exports however, China, will see a decline in export revenues, mainly driven by a drop in exports to the United States due to the trade war and associated tariffs.

Aside from the direct impact of tariffs on United States-China trade flows, the wider geopolitical uncertainty is translating into an increasingly cautious decision-making environment for seafood businesses, consumers and investors. The trade war is also driving potentially permanent transformations in key markets, including those for cephalopods, lobster, groundfish and tilapia, as Chinese exporters seek alternative markets and US buyers look for new suppliers. For other commodities, such as bivalves and small pelagics, the impact of trade tensions has been lower and the demand outlook is more positive.

The FAO Fish Price Index has fallen by 2.1 percent between January and September, compared with the same period last year, primarily due to price declines for many important farmed species, including shrimp, salmon, pangasius and tilapia, a consequence of both increased supplies and faltering demand. Prices are also weaker for canned tuna, with limited prospects for recovery.

For additional analyses and updates, see:
The GLOBEFISH market reports at
http://www.fao.org/in-action/globefish/market-reports

Contact:

Audun.Lem@fao.org
Stefania.Vannuccini@fao.org

[1] Unless otherwise specified, the terms ‘fish’ and ‘seafood’ indicates fish, crustaceans, molluscs and other aquatic animals from farmed and wild origin, but excludes aquatic mammals, reptiles, seaweeds and other aquatic plants.

Banana Fusarium Wilt Tropical Race 4: A mounting threat to global banana markets?

The recent spread and potential future impact of the disease on global banana trade

Sabine Altendorf[1]

Sabine.Altendorf@fao.org

Commercial banana production has been subject to intensive farming techniques since the late nineteenth century, with the emergence of large-scale trade from Central American and Caribbean banana producing countries to the United States and Europe. To cater for rapidly growing demand in mostly far distant import markets, producers identified the Gros Michel variety as the most suitable for monoculture propagation and long transport routes. By 1955, the global export volume of bananas from Central American producers had reached approximately 3 million tonnes, making bananas the most exported fresh fruit globally – ahead of citrus fruits and apples – at a volume share of 40 percent in world fresh fruit trade.[2]

The Fusarium wilt disease of banana, scientifically denominated as Fusarium oxysporum f. sp. cubense and considered among the most destructive of all plant diseases, was first detected in banana plantations in Australia in 1876.[3] The first large-scale outbreak in export plantations was subsequently reported in 1890 in Panama. A soil-borne pathogen, the mycelium and spores of Fusarium wilt spread through: infected plants and planting materials; soil particles attached to shoes, vehicles and tools; water, including irrigation, drainage and floods; as well as other physical means of spread. Facilitated by the monoculture and intensive plantation cultivation techniques and concentrated transport routes of the commercial banana industry, by the mid-1950s, this first strain (Race 1) of Fusarium wilt had caused such enormous damage to the production of Gros Michel that the export industry was forced to switch its entire production to the Fusarium wilt-resistant Cavendish variety. Official data suggest that total losses to trade in Gros Michel bananas at the time amounted to a current equivalent of USD 2.3 billion.[4] Given the decades-long persistence of the Fusarium wilt fungus in the soil, Gros Michel bananas continue to be practically absent from world export markets to this day.

TROPICAL RACE 4 – A RENEWED CHALLENGE TO GLOBAL BANANA SUPPLY

The current strain of the Banana Fusarium Wilt disease, described as Tropical Race 4 (TR4), was first discovered in 1970 in Cavendish banana plantations in Taiwan, and then on a more severe scale in Cavendish plantations in Indonesia and Malaysia in 1992/93. By the early 2000s, TR4 had spread to Australia, Papua New Guinea, China and the Philippines. In 2013, TR4 was discovered on farms in northern Mozambique and in Jordan, and in 2015 it emerged in Lebanon, Oman, India and Pakistan. Between 2017 and 2019, TR4 was found in Laos, Viet Nam, Myanmar and Thailand. In August 2019, the fungus was detected for the first time on a banana plantation in Latin America, in the northeastern region of La Guajira, Colombia. According to official information, TR4 is currently confirmed in 17 countries, predominantly in South and Southeast Asia.[5] This fourth race of the fungus poses particularly elevated risks to global banana supplies, as it can affect a much broader variety of banana and plantain cultivars than previous strains of Fusarium wilt.[6] In addition, there is currently no effective fungicide or other eradication method that is capable of eliminating TR4. In affected plants, the disease can quickly cause a total yield loss. Due to the longevity of the fungus in the soil, infected land becomes unavailable for banana or any other cultivation for decades, resulting in a shift of production to new, unaffected land as the only recourse. Depending on the severity of the spread, outbreaks can result in an increasing scarcity of pathogen-free soils. In all reported cases, once a farm has been contaminated, managing the disease has proved extremely challenging and costly. This poses a particular threat to the livelihoods of smallholder banana producers in affected regions, who often lack the financial means to sustain operations in the face of simultaneous yield losses and increased production costs. In this regard, prevention, rapid containment and quarantine are particularly important.

Given the serious implications for infected farms, precise and complete documentation of the damage caused by TR4 is often unavailable. In the worst cases of disease management, farms are abandoned without reporting and without being adequately quarantined, further impeding rapid containment of the disease. While no global estimates are available, figures for some countries indicate that the disease has affected around 15 700 hectares (ha) of banana plantations (out of a total 440 000 ha) in the Philippines,[7] and some 70 percent of plantations in China’s Guangdong and Hainan provinces.[8] Annual economic losses caused by TR4 have been estimated at USD 121 million in Indonesia, USD 253 million in Taiwan and USD 14 million in Malaysia.[9] On the infected farm in Mozambique, TR4 caused such severe damage to the 1,500-ha plantation within 4 years of the first detection of the disease that the farm was forced to cease operations.[10]

BANANA MARKETS IN THE PRESENCE OF TR4 – SUPPLY SHORTAGES AND HIGHER PRICES BY 2028?

The very recent discovery of Fusarium wilt TR4 in the world’s most significant net exporting region, Latin America and the Caribbean, as well as its enduring occurrence in Asia, has caused considerable alarm in the banana export industry. To date, few estimates of the additional disease-related costs to producers are available. However, industry experts believe that, given the current annual value of production for export and the importance of Cavendish bananas for smallholders, it is possible that TR4 will eventually cause even greater losses than the original strain of Fusarium wilt that affected the production of Gros Michel bananas.

To assess the potential future impacts of TR4 on global banana markets, a partial equilibrium commodity market model covering national and international banana markets was used. The model adopts the basic specifications for supply, demand, trade and prices of FAO’s commodity simulation model (COSIMO), which is used to generate ten-year projections for global temperate agricultural commodities on an annual basis. The underlying assumptions of the model concerning the global economic and demographic projections follow those outlined in the OECD-FAO Agricultural Outlook published in July 2019.[11] The scenario presented herein regarding the hypothetical market impact of TR4 provides suggestive rather than predictive impact results, which should not be interpreted as actual forecasts, but rather as an indicative basis for informing policy decisions.

The time span for the simulation analysis covers ten years, from 2019 to 2028, to enable a direct comparison with the baseline projections, which were produced in May 2019. These were based on ‘business-as-usual’ assumptions, foreseeing normal weather, no changes in policy, and in particular no changes in the prevalence of crop diseases. Under the baseline projections, global banana production will grow at an annual rate of 1.5 percent over the ten-year period, to reach approximately 135 million tonnes in 2028. Global trade in bananas is projected to grow at a moderate rate of 1 percent per year due to slowing demand in large developed country import markets, where consumption is forecast to reach near saturation levels.

As mentioned above, the framework underpinning the assessment of the possible impacts of TR4 on global banana markets is a standard multi-commodity, multi-country partial equilibrium model. The scenario analysis was adapted from a similar approach used by Acquaye et al. (2005), who conducted an evaluation of the economic consequences of an invasive species outbreak for a large-country exporter applied to the case of Citrus Canker. The results of the model are contingent on the stylized assumptions of perfect competition and homogenous world markets for bananas. In this regard, the model deviates somewhat from the observed reality of global banana markets, which may display regional fragmentation and oligopolistic behaviour by large, dominant banana corporations. However, the fundamental conclusions reached by the analysis are consistent with those of alternative model specifications. For example, an uncontained spread of TR4 in fragmented markets would lead to higher prices and larger economic losses to either producers or consumers in the respective regional producing and trading countries. Similarly, relaxing the assumption of perfect competition would lead to larger world price increases, as oligopolistic behaviour would extract rents from markets that are short in supply.

Box: Bananas in food security and world markets

Bananas represent one of the most consumed and traded fruits globally. In many developing countries, bananas, along with their subcultivar plantains, serve as a staple food that is included in many forms in local diets. While precise statistics on consumption remain sketchy due to the informality of subsistence cultivation in many regions, Filipinos reportedly have the highest per capita consumption of dessert bananas at around 60 kg per year, followed by Brazilians who consume a slightly lower amount. In some African countries, such as Angola and Rwanda, per capita consumption of all dessert and cooking banana types combined exceeds 200 kg per year. Particularly in the rural areas of these countries, bananas can provide up to 25 percent of daily calorie intake.[1] In tandem with the increase in the world population to more than 7 billion people, global banana production expanded from 21 million tonnes in 1961 to approximately 114 million tonnes in 2017. According to some estimates, more than 100 billion bananas are now consumed worldwide each year.[2] The main driver of this rapid rise in production has been the increasing consumption requirements of the growing populations in developing countries. The bulk of the global production increase has taken place in top producing countries who are also top consumers, such as Brazil, the Philippines and, in particular, India and China. The total value of global production stood at an estimated USD 38.5 billion for bananas and USD 6.6 billion for plantains in 2016.

In addition, bananas have particular significance in some of the least developed and low-income food-deficit countries, where they contribute not only to household food security as a staple, but also to income and employment generation as a cash crop. At farmgate prices of around USD 300-400 per tonne and typical smallholder yields of 10-15 tonnes per hectare, bananas can generate an estimated USD 3 000 to 6 000 per hectare per year. Research conducted in 10 banana producing countries revealed that revenue from banana farming can account for some 75 percent of total monthly household income for smallholder farmers.[3] It is further estimated that approximately 400 million workers rely on income from direct employment in the banana industry globally.[4]

Bananas play a similarly important role in developed country importing markets, where they have ranked among the most consumed fruits for decades. This is reflected in the noticeable performance of the global banana export market, which reached an unprecedented 19.2 million tonnes in 2018. Preliminary data for the first half of 2019 suggest that global trade in bananas expanded by a further 11 percent over the same period of the previous year. Ample import demand in developed markets, combined with strong yield-driven supply growth in the leading exporting countries, have been the principal factors behind this increase.

Globally, Latin America and the Caribbean ranks as the largest banana exporting region, accounting for nearly 80 percent of world exports. Ecuador has been positioned as the world’s leading exporter over the past several decades, supplying an average of 5 to 6 million tonnes to world markets per year. In 2018, Colombia ranked as the fourth leading exporter globally with a total volume of 1.7 million tonnes, equivalent to approximately 9 percent of global exports. Asia, the second largest supplier of bananas for export, accounted for approximately 20 percent of global shipments in 2018, almost entirely supplied by the Philippines, the dominant exporter in the region. In terms of leading importers, the European Union and the United States absorbed, respectively, approximately 32 percent and 26 percent of total global supplies in 2018. The Russian Federation, China and Japan are also significant importers, albeit with single-digit market shares in 2018.

Given the popularity of bananas in import markets, their global value chains have been characterized by intense competition between market actors all the way to the retail level. This has exerted downward pressure on prices at each stage, which resulted in producer prices displaying little fluctuation and, by and large, remaining at very low levels. Combined with rising production costs, low prices and tight profit margins greatly hinder the adequate remuneration of banana workers and smallholder farmers and act as a major obstacle for producers in coping with emerging challenges, in particular the looming threat of TR4.

[1] FAOSTAT

[2] Bananalink, http://www.bananalink.org.uk/all-about-bananas

[3] Bioversity (2012)

[4] FAO (2019

The scenario is further based on potential TR4 spread rates and losses in harvested area in key banana producing countries, which are provided in a CGIAR working paper by Scheerer et al. (2018). The paper presents two spread and loss scenarios, which are constructed from a base probability of infection that hinges on the prevalence of Cavendish monoculture in a producing country, as well as internal geographical, phytosanitary, transport and other factors.[12] The high spread scenario assumes an internal disease spread at a rate of 50 percent in five-year time intervals up to 25 years. For the current study, the estimated internal spread and impact on area in the lower loss scenario presented by Scheerer et al. (2018) was chosen, which anticipates incremental increases in losses of 25 percent every five years. It should be noted that the estimated internal spread rates show the area losses due to TR4 to be increasing over time, indicating that the disease impacts over a period beyond the ten years chosen for this scenario would be amplified. Furthermore, although TR4 can affect a broad variety of banana cultivars, the analysis presented in this assessment encompasses the possible economic impact on the Cavendish variety only, which is predominant in global trade and plays a significant role in income and foreign exchange generation for exporting countries.

Figure 1 shows the expected percentage of area loss to the production of bananas in 2028 due to TR4 infection for each of the countries for which estimates are provided. Weighted averages of the internal spread rates of the Cavendish, AAA, Other AAA and EAH AAA banana cultivars specified in the paper were calculated and applied to total FAOSTAT banana production data.[13] Scheerer et al. (2018) determine that the highest rates of spread will affect key producers in Asia, most notably China, the Philippines, Pakistan and Viet Nam, as well as Mozambique and Tanzania in Africa. At the time of writing, Scheerer et al. assumed a TR4 arrival time in Colombia after ten years. Considering the low score for the internal spread rate identified for Latin American and Caribbean banana producers, which results mainly from their superior internal plant quarantine capabilities, the area loss due to TR4 infection was assumed to amount to 1.25 percent of banana area in Colombia by 2028. Although neighbouring key banana producing countries are at elevated risk of contamination by TR4, most notably Ecuador, Peru, Brazil and Panama, the current scenario does not include a spread of TR4 outside the boundaries of Colombia. This was based on the absence of sound scientific assessments regarding the potential arrival of TR4 in those countries. Information gathered by the author from leading plant pathologists and banana experts pointed to the conclusion that assigning a rate of spread within Latin America and the Caribbean would at this stage be difficult and, moreover, highly speculative, given that any hypothetical spread may hinge on many unpredictable and virtually unmanageable factors. Similarly, it has proved difficult to pinpoint the precise costs of containment and prevention of TR4. As such, in the current scenario, production costs for both affected and unaffected countries have not been adjusted to reflect the numerous additional expenses arising from TR4 adaptation and mitigation. As more information becomes available, the scenario can be modified to reflect realistic estimates of these costs.

For the current scenario, the banana area response equation of the model was shifted in linearly increasing steps from 2019 to 2028 in each of the countries for which data are provided, arriving at the assumed area losses by 2028, as displayed in Figure 1.[15] Compared with the baseline projection, this would lead to a loss of an estimated 160 000 hectares globally by 2028. Assuming an average of 1.5 workers per hectare, this would imply the loss of direct employment for approximately 240 000 banana workers. In terms of production volume, the area loss would result in a 2.8 million tonne or 2 percent reduction in global banana production by 2028. Since markets would ration reduced supply, the decline in world production would induce a 9.2 percent rise in the global reference price for bananas by 2028, contingent on the inelastic demand for bananas, which would cause prices to rise more than production would fall. As further illustrated in Figure 2, global trade, which would rise to partially compensate for shortages in domestic supply in affected producing countries, would increase by 3 percent over the baseline by 2028.

Looking at the potential impact on banana production by region, given the sizeable projected area losses in several Asian and Southeast Asian countries (Figure 3), aggregate losses would be most pronounced in Asia, amounting to an estimated 3.9 million tonnes in 2028 relative to the baseline. Again, because such substantial losses to the world market would result in a rise in the world reference price, producers in unaffected countries would receive a stimulus to increase their production, thereby partially offsetting the losses incurred in Asia. Accordingly, the Latin America and Caribbean region, which is assumed to remain mostly unaffected by TR4 in the current simulation, is projected to produce 1.2 million more tonnes of bananas in 2028 than in the baseline scenario. Small increases in production over the baseline are also expected for banana cultivation in the developed country producers – notably in the European Union and South Africa – and in the Near East, which are similarly assumed to remain unaffected by TR4.

Globally, producer receipts would increase on account of significantly higher prices, more than offsetting lower production. Producers in unaffected countries would gain considerably under this scenario, particularly those in the highly exporting Latin American and Caribbean countries. However, in countries affected by TR4, banana producers would incur considerable losses. This would particularly apply to producers in China, Indonesia, Pakistan, the Philippines, Viet Nam and Mozambique, where future area and production losses are assumed to be greatest, translating into significant losses of gross incomes and employment in the banana sector in these countries.

In terms of global exports, the shortage in supplies from Asia would, to some extent, be offset by increased exports from Latin America and the Caribbean (Figure 4). Compared with the baseline scenario, Asia would export 880 000 tonnes less per year by 2028, while the Latin America and Caribbean region would see its exports rise by 1.5 million tonnes, thereby further strengthening its dominance in world markets. On a net trade basis, i.e. when subtracting imports from exports, Asia would incur losses of approximately 2 million tonnes per year by 2028 under this scenario, highlighting the severely damaging consequences of an unabated spread of TR4.

As displayed in Figure 5, in order to satisfy internal demand, Asia would be obliged to import approximately 1.1 million tonnes per year more than it would have in the absence of TR4. Import prices in developed countries, the main importers of bananas, would meanwhile rise, resulting in an estimated volume reduction of 370 000 tonnes in 2028. In conjunction with elevated prices, the rise in exports from Latin America and the Caribbean would translate into considerably higher export revenues for suppliers from this region.

On account of the resulting higher prices, the economic costs to consumers in all regions would increase (Figure 6). Globally, on average, while consuming almost a 2-percent lower volume of bananas, consumers would spend 1.8 percent more on bananas by 2028 than they would have under the baseline scenario. Regionally, the worst impact would be felt by consumers in developed country markets, where price elasticities for bananas tend to be comparatively low and price transmission high, resulting in a 3.2-percent increase from the baseline price by 2028.

The projections suggest that a further spread of TR4 would entail considerable loss of income and employment in the banana sector in the affected countries, at varying degrees contingent on the internal spread of the disease. Consumers in all countries with open markets would face rising costs due to higher prices, as market effects would transmit across borders. In affected producing countries, consumer costs could rise significantly as a result of possible border controls designed to protect domestic producers. Meanwhile, producers in unaffected countries would gain from the higher prices induced by the global area losses caused by TR4, and would additionally receive incentives to increase production. Unaffected exporting countries would, correspondingly, capture higher export revenues resulting from higher volumes of shipments at higher unit values.

MITIGATING THE THREAT OF TR4

The simulation results suggestively illustrate the likely far-reaching repercussions that an unmitigated spread of TR4 would have on global banana markets. The underlying postulations of the simulation assume a low-spread scenario, implying that the potential impact on world banana supply and world banana markets could translate into significantly larger effects should the disease spread more rapidly or further afield. In particular, given the importance of the Latin America and Caribbean region in global banana exports, the specific outcome of the impact on global markets would hinge on whether the recent outbreak of TR4 in Colombia can be contained or not. In the best case scenario, the disease would not spread further, resulting in no significant impact on global markets diverging from the projections presented here over the next decade.

In the worst case scenario, a wide spread of TR4 in Latin America and the Caribbean would have a considerable economic impact on trade, food security and the economic wellbeing of producing countries in the region, as well as on producers in other exporting countries and consumers in importing countries. The potential repercussions of infection by TR4 are of even greater concern to organic banana production, since organic agricultural practices do not permit genetic modifications, leaving classical breeding of disease-resistant cultivars as the only option for adaptation. This would be particularly alarming for the main producing countries of organic bananas that border Colombia, notably Peru and Ecuador.

In view of the wide-ranging potential ramifications on both conventional and organic banana markets, the recent outbreak of TR4 in Colombia necessitates elevated vigilance in the banana sector, not only in Latin America and the Caribbean, but also globally. The expertise of a leading plant pathologist suggests that future banana production may only become viable for growers who are able to implement more advanced management techniques and financially sustain significantly higher investments into disease prevention.[16] Governments of producing countries have a key role to play in mitigating the spread of TR4 and managing the disease where it has already emerged, particularly in view of its potential impact on smallholder banana farmers and workers employed in the industry. Close co-ordination of the capacity-development and extension activities of all concerned national institutions will be beneficial to the development of proper policies, regulations and strategic measures that address the challenges of TR4 in a comprehensive way. National support schemes drawn up in strategic collaboration with different stakeholders and designed to assist in the implementation of adequate biosecurity measures, as well as in the facilitation of diversified production systems that have shown to be less susceptible to TR4 infection than monocropping systems, may serve as responses that can alleviate the problem. Such compensating or support schemes may further contribute to containment of the disease, by easing the moral hazard problem of farmers not reporting and not treating infected plantations properly.

Markets and open trade display considerable potential to mitigate global economic costs of a greater spread of TR4, given the role of trade as a balancing force between supply and demand. As previously described, higher production in unaffected countries would largely compensate for lower production in affected countries. However, both national and global welfare costs can only be efficiently contained if open trade is maintained. Closing borders to trade would rapidly raise the economic costs of the disease in domestic markets. As such, those developed countries that are on a high net import position in banana trade would benefit from investing in research on TR4 prevention and mitigation, since the impact on consumers in developed country markets would be relatively high. Similarly, net exporting countries stand to benefit from investments in effective disease management strategies, as containment of disease spread will enable exporters to benefit from increased market access.

An assessment of the economic returns to four different banana research investments conducted by Scheerer et al. (2018) suggests that investments in integrated crop and disease management, as well as in the development of either conventional or genetically modified Fusarium-resistant banana cultivars, would yield the highest internal rates of return of the assessed options. The potential of Fusarium-resistant banana cultivars in managing epidemics of TR4 also seems evident in the progressive experiences with somaclone varieties on some commercial farms.[17] In conjunction with stringently imposed biosecurity measures, including early detection, effective eradication and on-farm quarantine, the planting of the partially TR4-resistant somaclonal Giant Cavendish Tissue Culture Variants appears to have significantly aided in counteracting losses from TR4. Recent advances in the development of fully Fusarium-resistant Cavendish varieties using chemical mutagenesis techniques or gamma radiation may offer an even more holistic solution to abating the threat from TR4.[18] Strengthened international collaboration, particularly with regards to enhanced data collection and information sharing, will further support improved awareness, prevention and containment of Fusarium wilt TR4 and be conducive to more resilient global banana production systems.

REFERENCES

Acquaye, A. K. A., Alston, J. M., Lee, H. & Sumner, D. A. 2005. Economic Consequences of Invasive Species Policies in the Presence of Commodity Programs: Theory and Application to Citrus Canker. Review of Agricultural Economics Volume 27, Number 3: 498-504.

Alston, J. M., Norton, G. W., Pardey, P. G. 1998. Science under Scarcity. Principles and Practice for Agricultural Research Evaluation and Priority Setting. Oxford, UK.

Aquino, A. P., Bandoles, G.G. & Lim, V.A.A. 2013. R&D and policy directions for effective control of Fusarium Wilt Disease of Cavendish banana in the Asia-Pacific region, retrieved 15 May 2017.

Chen, X., Dong, T., Huang, Y. & Yi, G. 2013. Socio-economic impact of Fusarium wilt on Cavendish banana in China. Paper presented at the Consultation-Workshop on the Socio-economic Impacts of Fusarium Wilt Disease of Cavendish Banana in the Asia-Pacific Region. Davao City, Philippines, 11-15 November.

Cook, D. C., Taylor, A. S., Meldrum, R. A. & Drenth, A. 2015. Potential economic impact of Panama disease (tropical race 4) on the Australian banana industry. Journal of Plant Diseases and Protection, Vol. 122, No. 5/6: 229-237.

May, S. & Plaza, G. 1958. The United Fruit Company in Latin America. National Planning Association.

Ordonez N, Seidl MF, Waalwijk C, Drenth A, Kilian A, Thomma BPHJ, et al. 2015. Worse Comes to Worst: Bananas and Panama Disease—When Plant and Pathogen Clones Meet. PLoS Pathog 11(11).

Pemsl, D.E. & Staver, C. 2014. Strategic assessment of banana research priorities. Lima, CGIAR Research Program on Roots, Tubers and Bananas (RTB). RTB Working Paper 2014-2.

Peterson, E. & Orden, D. 2006. Linking Risk and Economic Assessments in the Analysis of Plant Pest Regulations: The Case of U.S. Imports of Mexican Avocados. Selected Paper prepared for presentation at the American Agricultural Economics Association Annual Meeting, Long Beach, California, July 23-26.

Ploetz, R. C. & Pegg, K. 1997. Fusarium wilt of banana and Wallace’s line: Was the disease originally restricted to his Indo-Malayan region?. Australasion Plant Pathology 26: 239-249.

Ploetz, R. C. 2015. Fusarium wilt of banana. Phytopathology 102: 1512-1521.

Ploetz, R. C. 2015. Management of Fusarium wilt of banana: A review with special reference to tropical race 4, Crop Protection 73, 7-15.

Scheerer, L., Pemsl, D., Dita, M., Perez Vicente L. & Staver, C. 2018. A quantified approach to projecting losses caused by Fusarium Wilt Tropical Race 4. Acta horticulturae, 1196, March 2018.

Scheerer, L., Staver, C., Dita, M., Perez V., L. & Pemsl, D. 2018. Strategic assessment of Banana Fusarium Wilt research priorities. A quantified approach to project losses caused by Fusarium Wilt Tropical Race 4 & results of the ex-ante assessment of four Fusarium research options. CGIAR Research Programme on Roots, Tubers and Bananas (RTB). Lima, RTB Working Paper.

Stokstad, E. 2019. Devastating banana disease may have reached Latin America, could drive up global prices. Sciencemag.org, 17 July 2019. (also available at www.sciencemag.org/news/2019/07/devastating-banana-disease-may-have-reached-latin-america-could-drive-global-prices).

[1] The author extends sincere thanks to Dr Charles Staver, Dr Altus Viljoen, Dr Diemuth Pemsl, Dr Lorna Herradura, Dr Randy Ploetz, Dr Tony Pattison and Dr Luis Pérez Vicente for their expert inputs on the probable spread of the disease.

[2] May et al. (1958)

[3] Ordonez et al. (2015)

[4] FAO (2019)

[5] FAO (2019)

[6] Ploetz (2005)

[7] The Southern Mindanao Agriculture, Aquatic and Natural Resources Research and Development Consortium, as quoted by Freshplaza, 10 March 2016.

[8] Chen et al. (2013)

[9] Aquino et al. (2013)

[10] Altus Viljoen, Stellenbosch University, South Africa

[11] www.doi.org/10.1787/agr_outlook-2019-en

[12] As Scheerer et al. (2018) explain, factors linked to the time lag for TR4 to reach a country include the importance of mono-cropped Cavendish bananas in the country; global banana traffic to and from a country; quality of borders and internal plant quarantine measures; and land and other links to countries where TR4 is currently present. The rate of internal spread was rated based on three factors: quality of internal quarantine measures; importance of Cavendish bananas; and the importance of banana for research investment and public policy. These two elements were then combined in an aggregated score that was used to estimate banana production area loss by country.

[13] For the case of India, Scheerer et al. (2018) assume an arrival of TR4 in the country after ten years. However, official information specifies that TR4 has been present in India since 2015. In the absence of estimates for the production area lost due to TR4 in the first ten years as otherwise adapted from Table 7 in Scheerer et al. (2018), a moderate spread rate arriving at a loss of 2.5 percent of total area as indicated in Figure 2 of the same paper was chosen as indicative of a potential spread of TR4 in India.

[14] Adapted from Scheerer et al., (2018)

[15] The implementation of a linearly increasing rather than exponential disease spread, which may be more reflective of the actual disease spread, facilitates the projected area losses after ten years as provided by Scheerer et al. (2018).

[16] Dr Charles Staver, Bioversity International, Montpellier, France

[17] www.banana-networks.org/Bapnet/2016/02/22/fusarium-wilt-resistantcavendish-cultivars/

[18] www.iaea.org/newscenter/news/iaea-fao-help-develop-bananas-resistant-tomajor-fungal-disease

Statistical appendix tables

Appendix Table 1 (A & B): Cereal statistics

Appendix Table 2 (A & B): Wheat statistics

Appendix Table 3 (A & B): Coarse grains statistics

Appendix Table 4 (A & B): Maize statistics

Appendix Table 5 (A & B): Barley statistics

Appendix Table 6 (A & B): Sorghum statistics

Appendix Table 7 (A & B): Other Coarse grains statistics

Appendix Table 8 (A & B): Rice statistics

Appendix Table 9: Cereal supply and utilization in main exporting countries

Appendix Table 10: Total oilcrops statistics

Appendix Table 11: Total oils and fats statistics

Appendix Table 12: Total meals and cakes statistics

Appendix Table 13: Sugar statistics

Appendix Table 14: Total meat statistics

Appendix Table 15: Bovine meat statistics

Appendix Table 16: Ovine meat statistics

Appendix Table 17: Pigmeat statistics

Appendix Table 18: Poultry meat statistics

Appendix Table 19: Milk and milk products statistics

Appendix Table 20: Fish and fishery products statistics

Appendix Table 21: Selected international prices for wheat and coarse grains

Appendix Table 22: Wheat and maize futures prices

Appendix Table 23: Selected international prices for rice and price indices

Appendix Table 24: Selected international prices for oilcrop products and price indices

Appendix Table 25: Selected international prices for sugar and sugar price index

Appendix Table 26: Selected international prices for milk products and dairy price indices

Appendix Table 27: Selected international meat prices

Appendix Table 28: Selected international meat prices and FAO meat price index

Appendix Table 29: Fish price indices

Appendix Table 30: Selected international commodity prices

NOTES

GENERAL

• FAO estimates and forecasts are based on official and unofficial sources.

• Unless otherwise stated - all charts and tables refer to FAO data as source.

• Estimates of world imports and exports may not always match - mainly because shipments and deliveries do not necessarily occur in the same marketing year.

• Tonnes refer to metric tonnes.

• All totals are computed from unrounded data.

• Regional totals may include estimates for countries not listed. The countries shown in the tables were chosen based on their importance of either production or trade in each region. The totals shown for Central America include countries in the Caribbean.

• Estimates for China also include those for the Taiwan Province - Hong Kong SAR and Macao SAR - unless otherwise stated.

• Up to 2012/13 - the European Union includes 27 member states. From 2013/14 - the European Union includes 28 member states.

• ‘-’ means nil or negligible.

• Cereals include wheat - rice and coarse grains. Coarse grains include maize - barley - sorghum - millet - rye - oats and NES (not elsewhere specified).

Production

• Cereals: Data refer to the calendar year in which the whole harvest or bulk of harvest takes place.

Utilization

• Cereals: Data are on individual country’s marketing year basis.

Trade

• Trade between European Union member states is excluded - unless otherwise stated.

• Wheat: Trade data include wheat flour in wheat grain equivalent. The time reference period is July/June - unless otherwise stated.

• Coarse grains: The time reference period is July/June - unless otherwise stated.

• Rice, dairy and meat products: The time reference period is January/December.

• Oilseeds, oils/fats and meals: The time reference period is October/September - unless otherwise stated.

Stocks

• Cereals: Data refer to carry-overs at the close of national crop seasons ending in the year shown.

Price indices

• The FAO price indices are calculated using the Laspeyres formula; the weights used are based on the average export value of each commodity for the 2002-2004 period.

COUNTRY CLASSIFICATION

In the presentation of statistical material, references are made to special country groupings: Low-Income Food-Deficit Countries (LIFDCs) - Least Developed Countries (LDCs). The LIFDCs include 51 countries that are net importers of basic foodstuffs with per caput income below the level used by the World Bank to determine eligibility for International Development Aid (IDA) assistance (i.e. USD 1 945 in 2011). The LDCs group currently includes 47 countries with low income as well as weak human resources and low level of economic diversification. The list is reviewed every three years by the Economic and Social Council of the United Nations.

DISCLAIMER

The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country - territory - city or area or of its authorities - or concerning the delimitation of its frontiers or boundaries.

Futures markets

Futures prices for wheat, maize and soybeans exhibited sizable, mostly synchronous price swings during the past five months, as unstable US weather patterns and trade uncertainties dominated market sentiment. Maize experienced the greatest price variation, rising by USD 25 per tonne from an 11-month low to a 5-year high in mid-June, as record rainfall and widespread flooding caused significant planting delays across the US growing region. Soybean prices, which had touched an 11-year low in May in response to massive hog culling throughout Southeast Asia and China’s retaliatory tariffs on the US oilseed, rose to a 1-year high. Wheat prices also rose in concert with those of maize and soybeans, but to a lesser extent. Values fell for all three commodities when the US weather normalized and the United States Department of Agriculture (USDA) projected crop production, especially for maize, at levels considerably above trade expectations. Following the price slump in September, soybean values bounced after reports of sizable increases in Chinese purchases in October and the US administration announcement that a trade resolution was within reach. At the same time, wheat prices advanced as an aberrant snowstorm swept across the US northern plains, while maize recovered after hitting a typical seasonal low in September. Elsewhere, USDA offered guidance that global supplies were adequate, citing fractional changes to various regions. The effects of developments in exogenous markets, such as energy prices and foreign exchange movements, appeared muted. Excluding a brief price spike, West Texas Intermediate crude oil traded in a narrow USD 50–60/barrel range during the last five months and the US dollar remained steady, but firm. In common with last year’s price action, weather and trade issues superseded other factors.

FORWARD CURVES

Forward curves for wheat, maize and soybeans exhibited dramatic moves as buyers amassed both old and new crop contracts for maize and soybeans during the rain-drenched spring planting period. The y/y curve (calculating the difference between December 2019 and December 2020 contracts) for maize attained a substantial inverse (downward sloping) of USD 18 in June at the height of the price rise, falling USD 31 by month end and reconfiguring into a steep contango (upward sloping) of USD 13, before rebounding somewhat. The y/y soybean spread (November 2019 – November 2020) saw similar tightening and subsequent relaxation from USD 5 contango to USD 23 contango, but by a much lesser degree than the y/y maize spread. It too rebounded on increased demand prospects and a sharp downward revision by USDA of 2020 ending soybean stocks. Conversely, wheat curves experienced tightening of front spreads as cash wheat prices were quoted at substantial premiums over nearby futures prices. Notably, the July 2019/September 2019 spread inverted by USD 5 during July expiration, as commercial end-users of wheat (flour millers) maintained long futures hedges into expiration in order to force futures and cash convergence. This cash wheat shortage has caused the December 2019/December 2020 wheat spread to trade at a narrow upward slope of USD 10, compared with USD 24 and USD 29 during the two previous years.

VOLUMES

Trade volumes slowed for wheat and soybeans y/y, but set new monthly records for maize during the height of planting uncertainties in May and June. Volumes for all three commodities followed seasonal trends, declining from July onwards, with only maize posting higher levels compared with the same period in 2018. All three commodities recorded declines in open interest y/y. Commercial participants (reported by the Commodity Futures Trading Commission (CFTC) as number of traders) in soybeans declined among the three commodities y/y, underscoring the relative complexity of hedging price risks amid ongoing trade disputes. Options open interest, which grew steadily over several years as options transactions increasingly transitioned from open outcry to screen-based trading, raised open interest totals by 28, 30 and 22 percent for wheat, maize and soybeans respectively, similar to last year.

VOLATILITY

Volatility levels for wheat, maize and soybeans rose to their highest level during June since the beginning of the calendar year, as torrential rains threatened to slow or halt planting progress in spring-planted crops across the US growing region. Weather appeared to eclipse any reports of progress or setbacks in the US-China trade dispute, which has lingered since April 2018 when China first halted US soybean purchases in response to US tariffs on Chinese imports. Historical volatility (based on 30 days) for maize reached multi-year highs, ranging between the levels of 13 and 32 since the start of the year. For wheat, normally the most volatile of the three commodities, historical volatility ranged between 15 and 36, remaining close to seasonal averages, while for soybeans, it stayed in a subdued range between 11 and 22 (all based on monthly averages). Implied volatility (calculated by the level of option premiums on underlying futures contracts) reached a multi-year high level for maize of 37 for June, while for wheat and soybeans it mostly tracked seasonal patterns, ranging between 14 and 30 and between 12 and 22, respectively (monthly averages). The closely watched commodity volatility index, the OVX, which measures crude oil price volatility, remained in a narrow range mostly between 30 and 40, compared with the upper 20s a year ago.

INVESTMENT FLOWS

Managed money accumulated large net short positions for wheat, maize and soybeans prior to the start of spring planting, which triggered a wave of short covering as prices soared in May and into the first half of June. Commercials, which held close to even positions at the start of planting, sold heavily into the rally, particularly for maize, net selling over 448 000 thousand contracts, the equivalent of 57 million tonnes in six weeks. Managed money’s ill-timed positioning yielded negative rates of return through August, although a September turnaround lifted year-to-date returns to a barely positive 0.15 percent, according to the Barclay agricultural hedge fund tracker. Swaps dealers, which offer securitized products tracking weighted price indices of select commodities, noticeably retreated from the market y/y according to the CFTC. Open long and short positions for wheat, maize and soybeans, as detailed in the CFTC’s Commitment of Traders Report, declined between 25 and 30 percent compared with last year, probably signifying client withdrawal of funds under management owing to lacklustre or negative price performance. The Deutsche Bank Agricultural Index Fund, which tracks ten agricultural futures markets including wheat, maize and soybeans, sunk to a new low of USD 14.92 during September, before rebounding somewhat in October, marking eight consecutive years of declining agricultural prices.

Ann Berg
(International Consultant)
a.e.berg@netzero.net

Ocean freight rates

International Grains Council (IGC)

www.igc.int

OCEAN FREIGHT MARKET (MAY 2019 – OCTOBER 2019)

The dry bulk freight market posted steep gains over the past six months, mainly linked to a strong showing during the summer months. Despite background worries about ongoing trade disputes, vessel earnings climbed to multi-year highs recently on strong spot demand, with the Baltic Dry Index (BDI) – a benchmark for costs across dry bulk segments – approaching a nine-year peak in early-September. Despite a subsequent retreat amid mounting worries about a slowing global economy, the Index more than doubled since late-April and is up by 15% y/y.

Freight costs in the grains and oilseeds market segment also firmed markedly, although gains were smaller compared to the broader market. While the IGC Grains and Oilseeds Freight Index (GOFI), which provides a measure of nominal voyage rates on main routes, strengthened by 11%, overall increases were capped by declines in bunker prices. However, the fuel market witnessed two-sided swings, with prices spiking following mid-September attacks on oil facilities in Saudi Arabia.

The market for the largest Capesize vessels, typically engaged in the transportation of heavy raw materials, posted the sharpest gains over the period, with the corresponding Baltic sub-Index increasing nearly five-fold. Values staged a speedy recovery from early-April lows, rising to a nine-year peak in early-September on resurgent iron ore dispatches from Brazil following disruption due to a mining dam collapse. This was coupled with fresh business out of the Black Sea region and Canada, while robust ore and coal flows from Australia added to upside. Reflecting generally strong demand, China’s total imports of coal, iron ore and soyabeans hit a quarterly record in July-September. However, a weakening trend in freight rates prevailed in recent weeks as the market focused on slowing global economic growth, with such international bodies as the WTO and the OECD downgrading outlooks for world trade and GDP. Nevertheless, ongoing scrubber-fitting activity ahead of the introduction of IMO 2020 regulations has been a notable supportive factor lately.

The Panamax segment also witnessed two-sided trends. After a period of somewhat hesitant trade, average rates surged in July, driven by firm demand for soyabeans and maize shipments out of South America. Gains were led by transatlantic routes, where daily earnings rose to around USD 29,000 – the highest since October 2010. Against this backdrop, a nominal voyage rate from Brazil to China touched USD 51/t in late July, the highest in at least four years, while the spread between transatlantic and transpacific timecharter levels also reached a multi-year peak. Although markets in Argentina and Brazil remained active in the period since, the Baltic sub-Index partly reversed gains thereafter, in part linked to losses in the Capesize sector, but remains up by about one-half compared to late-April. Some recent support was afforded by news of fresh fixings from the Pacific Northwest and, more recently, the US Gulf, as China secured a number of soyabean cargoes ahead of a new round of trade talks.

Values for smaller Supramax and Handysize carriers in part tracked movements for Panamax bulkers, as an initial downturn was followed by sustained advances through early September. Supramax gains were mainly attributed to strong demand in the Pacific, with fresh business in the Indian Ocean, limited vessel availability in the Mediterranean and strength in the northern Atlantic adding to upside at times. Handysize gains over the period were partly tied to steady increases at the US Gulf, where inland logistical difficulties were coupled with exporters’ interest to load smaller cargoes in effort to secure fresh business. Firmer demand for Handysize grains/oilseeds shipments was also noted in Argentina, where participants reportedly experienced difficulties completing Panamax cargoes owing to low water levels on the Parana River and dwindling supplies at Atlantic ports.

Supply side developments

With Panamax vessels likely accounting for the bulk of newbuilding deliveries, the global fleet of grains and oilseeds carriers (including vessels below 10,000 dwt) is expected to expand by 2.5% in 2019, a modest drop in growth from the prior 12 months. Likewise, mostly because of a large order-book for Panamax bulkers, the rate of increase in 2020 is forecast at around 3%, as larger deliveries are expected to be only partly countered by increased vessel scrapping. This forecast compares to projected annual rise in seaborne trade in coal and grains/ oilseeds of about 2%, which points to a potential for continued overcapacity in the near-term.

It should be pointed out that projections for global trade and demand for carriers have a significant downside risk, not least because of persistent economic headwinds and global trade tensions, while projections for vessel supply are complicated by uncertainties about the upcoming implementation of IMO 2020 requirements.

FAO price indices[1]

FAO Global Food Consumption Price Index

The FAO Global Food Consumption Price Index (GFCPI) tracks changes in the cost of a global food basket. It uses calorie weights of major food items, derived from the FAO food balance sheets (http://www.fao.org/faostat/en/#data/FBS) for the base period of 2002–2004. Calorie weights for wheat, rice, coarse grains, sugar, oilseed/crops, vegetable oils, beef, pig meat, ovine meat, poultry, milk, and butter are multiplied by their respective commodity price indexes and summed up. These commodities cover 80 percent of global daily average calorie consumption. The index is dominated by crop products, which comprise an 83 percent share of the calories covered. The corresponding price indexes for world trade are found in Appendix Tables 21–28.

The GFCPI reached its all-time peak in February 2011 at a level of 265 (basis 2002–2004=100). By 2015, it had fallen by 40 percent and since then fluctuated between 160 and 180, a range that is about one-third lower than its historical peak, suggesting a considerable relief for consumers in terms of calorie costs in recent years. In October 2019 the index averaged 175 points, just 3 points above its value a year earlier. Over the last twelve months, the index has fluctuated within the range of 171-177 points, as lower prices for wheat and butter have been offset by increasing prices for other commodities. Meat prices (particularly pig meat) which increased the most over the last year have not markedly affected the index given their low weight in the calorie basket. The GFCPI peaked in June 2019 before falling to more subdued levels.

A calorie vs protein basis

As a measure of the changing costs of the calorie basket of primary food commodities, the current GFCPI is an indicator of the purchasing power for calories and therefore also a rough gauge for changes in the access to food, of calorie deficits and of undernourishment. When based on protein weights, the index captures the aggregate purchasing power for different sources of protein. For animal protein sources, these are meats, milk products and fish, and for crops, cereals are the dominant source of proteins.

Two alternative formulations of the GFCPI have been constructed, one on a calorie, the other on a protein basis. The exact weights of calorie and protein shares are summarized in Table 1 and the corresponding price indices in Tables 21–29. While these weights can differ markedly across commodities, the dominant role of cereals as a source of both calories and protein kept two indexes evolving in tandem (figure 2). This was particularly the case in 2018 and 2019 where the two series practically overlapped.

Some differences in the two indexes remain both with regard to their levels and their variability. In general, the calorie-based index displays a higher monthly variation and more pronounced overall swings. In terms of levels, the protein-based measure consistently remained below the calories-based index. Only in 2019, the protein-based index exceeded the calorie-based measure for the first time in many years. Fish has been included as a weight in both indexes, given its importance as a protein source for human diets. At about 25 kg per capita, current global fish consumption is higher than that of individual meats, excluding poultry meat. However, given its low calorie content, it assumes a low share in the calorie-based index and its inclusion therefore translates into only a small difference (0.3 points) compared with the existing calorie-weighted GFCPI. By contrast, the high share of fish in total protein consumption (7.2 percent, Table 1) makes it an important element in the protein-weighted GFCPI.

Merritt Cluff
(International Consultant)
merritt.cluff@gmail.com

October registered the first monthly increase in the value of the FAO Food Price Index since May 2019[3]

The FAO Food Price Index[2] (FFPI) averaged 172.7 points in October 2019, up by 4.2 percent (3 points) from September and 6.0 percent higher than in the corresponding period last year. The increase in October marked the first significant month-on-month rise in the value of the Index since May 2019, as surges in the prices of sugar, cereals and, to a lesser extent, meat and vegetable oils, more than offset a small decline in the value of the dairy sub-index.

The FAO Cereal Price Index averaged 164.0 points in October, up by 4.2 percent (nearly 7 points) from September but still 1.0 percent below its October 2018 level. International wheat prices moved up sharply in October largely on robust trade activities and lower crop prospects in Argentina and Australia. Among major coarse grains, maize export prices also surged in October from very low levels in September, reflecting not only reduced crops in the United States and worries over planting conditions in Argentina, but also a pick-up in export sales. By contrast, FAO’s rice price index subsided in October, driven by declines in fragrant rice quotations prompted by low demand and prospects of an abundant basmati harvest.

The FAO Vegetable Oil Price Index averaged 136.4 points in October, up 0.5 percent (or 0.7 points) from the previous month and marking the highest level since September 2018. The small month-on-month increase mainly reflects higher palm oil price quotations, which more than offset lower values for sunflower and rapeseed oils. International palm oil prices rose for the third consecutive month, fuelled by firm global import demand and expectations of an output slowdown in leading producing countries, as well as news of higher biodiesel mandates in Indonesia next year. By contrast, sunflower oil price quotations fell on active farmer selling in the wake of bumper sunflower seed harvests in the Black Sea region, while higher than expected rapeseed crushing in the EU weighed on rapeseed oil prices.

The FAO Dairy Price Index averaged almost 192 points in October, down 0.7 percent (1.4 points) from the previous month, representing the second consecutive month of decline but still 5.6 percent above its level in the corresponding month last year. The October decline was the result of notably lower quotations for cheese, more than offsetting increases in those for Skim Milk Powder (SMP) and Whole Milk Powder (WMP). Increased export availabilities in New Zealand were the principal factor behind the latest decline in cheese price quotations. By contrast, strong import demand, especially from Asia for short-term deliveries, underpinned the price increases of SMP and WMP. After four months of continuous decline, butter prices began to stabilize, reflecting renewed import interests.

The FAO Meat Price Index[4] averaged 182.7 points in October, up 0.9 percent (1.7 points) from September, representing the ninth consecutive monthly increase. International price quotations for bovine and ovine meats continued to rise, with buoyant import demand, especially from China, providing support. Quotations for pig meat also increased, albeit moderately, reflecting continued import demand in Asia despite seasonally increasing supplies from Europe and higher export availabilities in Brazil. Prices of poultry meat fell under downward pressure due to increased export availabilities in main producing regions.

The FAO Sugar Price Index averaged 178.3 points in October, up 5.8 percent (9.8 points) from its reduced September average. The sharp rebound in international sugar prices in October was mainly underpinned by expectation of much tighter supply prospects in 2019/20. Latest indications point to a significant contraction in sugar output in India, the world’s largest sugar producer, mainly because of a 10 percent reduction in sugarcane planted area compared to the previous season. Likewise, sugar output in Thailand, the world’s second largest sugar exporter, is seen lower by 7 percent from last year as a result of protracted dry conditions. Still, sugar prices remained volatile, influenced by swings in crude oil prices, changing weather conditions in India, and movements in the Brazilian Real against the United States Dollar.

[1] All changes referred to in this section, in absolute or percentage terms, are calculated based on unrounded figures.

[2] The FAO Food Price Index and its sub-indices are updated on a montly basis and are available on http://www.fao.org/worldfoodsituation

[3] The FAO Global Food Consumption Price Index is published twice a year in Food Outlook.

[4] Unlike for other commodity groups, most prices utilized in the calculation of the FAO Meat Price Index are not available when the FAO Food Price Index is computed and published; therefore, the value of the Meat Price Index for the most recent months is derived from a mixture of projected and observed prices. This can, at times, require significant revisions in the final value of the FAO Meat Price Index which could in turn influence the value of the FAO Food Price Index.