November 2018

UN: WORLD FOOD IMPORT BILL TO HIT US$1.467 TRILLION THIS YEAR

This year’s increase in the world food import bill is largely a reflection of higher international prices of bulk commodities.

By Kanaga Raja

            The world food import bill is forecast to reach US$1.467 trillion in 2018, some 3% above the previous year's level, the Food and Agriculture Organisation of the United Nations (FAO) has reported.

            In its latest Food Outlook released recently, FAO said that the predicted year-on-year increase in the world food import bill is still largely a reflection of higher international prices of bulk commodities, especially cereals and oilseeds, but also fish, and together these are expected to offset a substantial fall in the cost of global sugar imports.

            FAO said that significant changes from its last report (in July) include the expenditures on coffee, tea and cocoa, which, instead of rising as predicted in July, are now expected to fall by 2% from 2017, mostly on account of lower reference price quotations for coffee and tea.

            Similarly, the global sugar bill is set to fall even further, by 30% from 2017 compared to what was foreseen in July.

            Offsetting these developments has been the increase in the cost of freight - an important factor in determining the global food import bill.

            The Baltic Dry Index, a benchmark indicator of freight rates, has recently been on a highly volatile upward trajectory after declining in the first half of 2018.

            A positive development since the last report in July is the cost of importing food by the least developed countries (LDCs), which is now expected to fall from last year's level, reflecting a significant drop in the cost of imported sugar, said FAO.

            It noted that having reached a three-and-a-half year low in February 2018, the US dollar has begun to rise relative to major currencies, with the nominal index climbing to a 15-month high of 90.5 points in October 2018.

            With the US dollar being the primary currency in international trade, a strong (weak) US dollar typically imparts a loss (gain) to domestic purchasing power in importing countries.

            A strong US dollar raises serious concerns to low-income food deficit countries (LIFDCs), it said.

            From October 2017 to October 2018, almost all the major food importing LIFDCs, which import more than US$1 billion worth of food annually, saw their currencies fall against the US dollar in real terms, reversing the gains of generally lower international food prices.

TRENDS IN FOOD COMMODITY MARKETS

            The FAO biannual report on global food markets also highlighted trends in the markets of key food commodities such as cereals, coarse grains, rice, meat and diary products, and fish and fishery products.

            FAO has forecast the global wheat supply and demand balance to tighten in 2018/19, as evidenced by firmer international prices compared to the previous season.

            The forecast for global wheat production in 2018 has been revised downwards in recent months, and is now pegged at 727.9 million tonnes, a decline of 4.3% from the 2017 record level.

            The EU, the Russian Federation, China and Australia account for much of the year-on-year contraction.

            They are also behind the recent lowering in the global production outlook, while prospects improved in North and South America.

            Total wheat utilization is expected to increase only marginally in 2018/19, with the global growth in wheat feed use affected by lower intakes in the Russian Federation and Ukraine, mostly due to reduced domestic supplies and less attractive prices.

            FAO said that contrary to earlier predictions, world wheat trade is now forecast to contract in 2018/19 (July/ June), albeit from the record levels achieved in the past two seasons.

            Among importers, Algeria, India and South Africa are anticipated to curb their wheat purchases in the wake of larger domestic harvests.

            As for exports, said FAO, shipments from the Russian Federation are set to contract, reflecting a fall in domestic production.

            Similarly, wheat exports from Australia, the EU and Ukraine are anticipated to decline, which would more than counter a notable rebound of foreign sales by the United States, as well as bigger shipments from Argentina and Canada.

            Although the global market of coarse grains, as a whole, is set to tighten considerably in 2018/19, the overall supply prospects remain adequate, thanks to record high stocks carried over from the previous season.

            FAO has forecast coarse grain production in 2018 to drop 2.2% from last year, driven predominantly by weather-reduced maize outputs in a number of countries and a contraction in the world barley production to a six-year low.

            However, compared with earlier expectations, the production outlooks for the various coarse grains have improved considerably, as favourable weather in Asia and the United States pushed up yields.

            Despite lower availabilities, global utilization of coarse grains is expected to peak in 2018/19, rising faster than earlier anticipated - by 2.2% year-on-year.

            Robust demand for feed and industrial use in China and the United States are foreseen to push up world maize utilization to a new high.

            FAO has forecast world trade in coarse grains in 2018/19 (July/June) to remain close to the 2017/18 record level, underpinned by an anticipated rise in maize trade, offsetting a decline in sorghum.

            While on the supply side larger maize exports from the United States, Argentina and Ukraine would more than compensate for falling sales by Brazil and the Russian Federation, on the demand side, the EU is expected to remain the largest destination for maize in 2018/19.

            FAO said this season's tightening global supplies and strong import demand have pushed up international prices of the major coarse grains above their levels in the corresponding period last year.

            FAO has forecast world rice production to expand by 1.3% in 2018 to reach a new record high.

            "India is predicted to spearhead this growth, due to generally adequate monsoon rains and higher minimum support prices," it said.

            Sizeable expansions are also expected in Bangladesh, Madagascar, Sri Lanka, the United States, Tanzania and Viet Nam.

            In contrast, policy-driven output contractions are anticipated in China and Egypt, while falling returns are expected to depress production across much of Europe, Latin America and the Caribbean, and Oceania.

            World rice utilization is forecast to increase by 1.1% in 2018/19, sustained by an expected rise in rice use for food consumption, while feed and industrial uses could decline.

            Among the major exporters, principally India and the US are likely to end their seasons with larger inventories.

            Among importers, carry-overs could rise mostly in China and to a lesser extent in Indonesia and the Philippines.

            Under the current forecasts, international trade in rice is predicted to decline by 1.3% in 2019 to a level that would still be the third highest on record.

            The contraction mainly reflects expectations of reduced purchases by some of the largest importers, namely China, Indonesia and Bangladesh.

            On the other hand, imports by African countries are predicted to rebound, while Brazil, Iran and the Philippines are also likely to buy more.

            Reduced foreign sales by Thailand and Pakistan are behind the anticipated contraction in world exports, while increased availabilities could boost deliveries from India, Myanmar, and Viet Nam.

            A 19-month upward trend in international rice prices was interrupted in July 2018, reflecting a lapse in Asian and African import demand, as well as currency depreciations (against the US dollar) in some leading exporting countries.

            As the 2018/19 season gradually unfolds, preliminary forecasts of ample crops across the oilseed complex point to a comfortable world supply and demand situation for oilseeds and their by-products, said FAO.

            After stagnating in 2017/18, global oilseed production is forecast to climb to a new record this season, led by an anticipated rebound in soybean and, to a lesser extent, sunflower seed, which would more than compensate for reductions in other oilcrops.

            Soybean production is expected to increase vigorously, mostly driven by a recovery of production in Argentina and further yield improvements in the United States, as well as by area expansions in Brazil, China and India.

            Among the other main oilcrops, global palm oil production is forecast to continue growing at a moderate rate, whereas global rapeseed production could contract, impaired by unfavourable weather conditions in the EU and Australia.

            According to FAO, the international trade in vegetable oils in 2018/19 is expected to recover from last season's passive performance.

            Trade in oilseeds and oilmeals is also forecast to expand, but at a slower pace, mainly reflecting uncertainties about the US-China trade relations and related slowdowns in import demand.

            "These uncertainties, together with currently positive global production outlooks, have kept international soybean prices under strong downward pressure in recent months. International prices of oils and meals also remained on a falling trend," said FAO.

            In the coming months, factors affecting soybean crop prospects in South America and palm oil production in Southeast Asia will play a key role in determining price movements in the oilseed complex.

            Developments regarding the US-China trade relations will also be critical, said FAO.

            Based on early indications, FAO has forecast world sugar production to grow modestly in 2018/19 (October/September) and surpass consumption, resulting in a smaller surplus compared to last year's all-time high.

            Anticipated decreases in sugar output in the EU, Thailand and Pakistan are predicted to be offset by expansions in India, Brazil and China, with India possibly becoming the world's largest sugar producer together with Brazil.

            World sugar consumption is set to increase in 2018/19, in line with its long-term trend, sustained by growth in several developing countries amid expectations of falling domestic sugar prices and rising incomes.

            Sugar consumption growth is expected to be particularly marked in Africa, Asia, the Middle East and Central America and the Caribbean.

            Driven by low international prices, global sugar imports are forecast to expand in 2018/19, on the back of foreseen larger purchases by traditional importing countries, in particular China, which is predicted to regain its status as the top international sugar buyer.

            FAO noted that world sugar prices had been declining steadily since the beginning of 2018 up to September, before rebounding modestly in October on the back of concerns over Brazil's production prospects.

            The 2018 price slide was mainly in response to ample world sugar availabilities, following a robust expansion in the area planted with sugar crops in the last two years.

            Policy measures to limit imports or boost exports, as well as the weakening of the Brazilian real and the Indian rupee against the US dollar, have further amplified the fall in international sugar quotations.

            On the other hand, a continuing firming of international crude oil prices would indirectly support sugar price quotations, by increasing the quantities of sugar crops used for the production of ethanol instead of sugar.

            FAO has forecast global meat output to reach 335 million tonnes (in carcass weight equivalent) in 2018, about 1 million tonnes less than anticipated in July, but still 1.5% up from 2017, registering the fastest growth since 2014.

            The regained momentum rests on expectations of a strong recovery in China and sizeable increases in the United States and the EU, it said.

            As for the slight downward revision to the global production outlook since July, this is mainly due to China, where rising feed costs and diseases have negatively affected pig and poultry meat prospects.

            Forecasts were also lowered in the United States, on less upbeat expectations for bovine and pigmeat outputs reflecting below expected slaughter amid a slower pace of marketing, and in Brazil, where the loss of external markets overturned earlier expectations for increased poultry production.

            On the other hand, meat production forecasts were raised for the EU and Australia, where dry and warm weather propelled feed costs, fostering an increase in animal slaughter.

            Notwithstanding the recent downscaling, pigmeat is still anticipated to make the largest contribution to the expansion in world meat output this year, followed by poultry, bovine and ovine (lamb and mutton) meat.

            World meat exports in 2018 are forecast to hit a new record of 33.6 million tonnes, up 2.6% from 2017, and some 300,000 tonnes more than anticipated in July.

            Export growth this year is foreseen to originate in the United States, Australia, Argentina, Thailand and the EU, outstripping expected declines in India, Brazil and South Africa.

            On the demand side, meat imports in 2018 are seen rising in China, Japan, Mexico and the Republic of Korea, while they may fall in the Russian Federation, Saudi Arabia, Egypt and Singapore.

            FAO has forecast global milk production to increase to nearly 827 million tonnes in 2018, up 2.0% from last year, with the largest gains foreseen in Asia, followed by Europe, the Americas, and also improved prospects for recovery in Africa and Oceania.

            Milk output growth dimmed somewhat in the EU due to exceptionally dry and warm weather during the summer months, and in the United States, due to higher than normal dairy cow culling, induced by reduced profit margins.

            Brazil's output prospects were negatively affected by the disruptions to the sector caused by a truck drivers' strike that began in May.

            In contrast, milk output in Asia is set to expand more rapidly than foreseen in July, with more buoyant results expected in China and Turkey, reinforced by stable-to-larger dairy herds and rising farm-gate prices.

            In 2018, global fish production is expected to rise by some 2.1% overall, said FAO.

            "Supply is tight for many key wild fish stocks, but a continuation of the 4 to 5% annual increase in aquaculture production means the sector is now close to becoming the major source of fish for all purposes."

            Aquaculture expansion and strengthening demand in developing economies is driving an annual 1% increase in per capita consumption of fish, accompanied by a simultaneous rise in the proportion of production used for direct human consumption.

            International seafood trade is set to expand by some 7.5% in USD terms in 2018, the combined result of a weaker US currency, record high prices for some species, and generally favourable economic conditions in key markets.

            FAO said that the escalation of the United States-China "trade war" has seen tariffs applied to multiple seafood items in both countries and, given their considerable combined importance, this is a development with significant consequences for the wider seafood market.

            For individual species, the impact will largely depend on the relative diversity of producers and markets, with trade contraction likely wherever alternative options are limited.

            In the short term, end-of-year demand will kick-start upward trends in prices for many species, said FAO.

            For 2019, an expected tighter supply for a number of species should keep prices for most fish and fishery products at high levels, with the notable exception of shrimp.

            However, deteriorating economic conditions in some key markets and the introduction of tariff barriers in the United States and China may slow the current rate of expansion in international seafood trade, particularly if the Chinese Yuan weakens significantly, said FAO. – Third World Network Features.

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About the author: Kanaga Raja is the Editor of the South-North Development Monitor (SUNS).

The above article is reproduced from SUNS #8799, 20 November 2018.

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