PART II - MEDIUM-TERM PROSPECTS FOR MAJOR AGRICULTURAL COMMODITY MARKETS

1. Basic food and feed crops

Cereals

Introduction

Global production of cereals is projected to grow 1.1 percent annually over the projection period, continuing a decline in per capita terms from the previous decade. However, there are differences among the various economic country groups. A major feature is the performance of the transition economies where cereal production fell 4 percent annually in the 1990s, but may increase by over 2 percent annually to 2010, mainly for wheat and coarse grains. For rice, high production growth is anticipated in Latin America and in Africa. However, in most regions and for each of these crops, the yield growth attained in previous decades is not expected to be achieved.

Aggregate demand for all cereals is growing slowly, especially for food use; feed demand supporting an expanding livestock sector is projected to be the main source of growth. While prices in real terms have been considerably below their long-term trend, they are projected to move back to trend levels by the end of the current decade. In the cases of maize and rice, prices could move somewhat above the trend as yield growth slows and demand remains steady.

Trade patterns for cereals are expected to change in the medium term. Aggregate wheat exports are projected to increase by over 20 percent by 2010, and countries such as Kazakhstan, the Russian Federation and Ukraine could become important market players. Exports by Argentina are projected to increase sharply, as are those by the EU. As a result, the more traditional wheat exporters such as the United States, Canada and Australia may find their market shares reduced. For rice, imports into Africa are projected to grow. Several developed markets are also expected to increase their rice imports as a result of new preference access programmes such as the EU’s Everything-But-Arms (EBA) scheme.

In coarse grains markets, the United States is projected to increase its market share of maize exports, mainly as China, recently a large exporter, is anticipated to become a net importer in the medium term.

The market situation for cereals is critical from a food security perspective, particularly for developing countries where they are the main source of calories and protein. Current low inventory to use ratios of around 20 percent are projected to continue throughout the medium term, largely as a result of policy reforms. At these relatively low levels, upward price spikes are a potential risk. However, given cereal markets’ apparent ability to respond to price changes, a price spike situation would not be expected to prevail for more than two to three years. Nevertheless, during this time, high prices may adversely impact food-insecure and low-income populations.

These projections are based on a specific set of assumptions, which may neglect to consider many important changes that could take place in the medium term. As far as cereal markets are concerned, these potential changes could be classified into two broad categories: (i) those associated with developments in large markets such as China and some of the economies in transition; and (ii) those stemming from impending policy developments, such as the EU enlargement and the outcome of the World Trade Organization (WTO) negotiations.

The outcome of the current WTO negotiations is an important factor that could affect these projections. In particular, reductions in trade distorting domestic support measures and export subsidies could have a major bearing on cereal supplies in several major markets. However, in view of the fact that the final decisions related to agriculture are unlikely to be made prior to January 2005, the mandated deadline in the Doha Declaration, the main impact of the new WTO commitments on the global cereal economy could only be expected to gain momentum towards the end of the projection period.

Table 2.1. Total cereals: production projections

^1/ 1998-2000 Average