Cereal markets to remain tight
09 September 2012
According to the EC short-term outlook report, the 2011 EU cereal harvest ‘reached a usable production of 284.7 million tonnes due to the favourable yield development mainly in maize (+8.7 per cent)’. While ‘the 2012 cereal harvest in the EU is expected to be slightly higher than in 2011’, up 0.6% to 286 million tonnes, this will leave the EU cereals balance ‘tight for marketing year 2012/13’, with no significant change in the stocks-to-use ratio (13.6%).
In 2011/12, imports of common wheat rose with the lifting of export restrictions in Russia and Ukraine.
In the 2011/12 season, EU soft wheat exports were ‘considerably lower than in previous years’ (8.6 million tonnes compared to 17.7 million tonnes in 2010/11). While EU exports of maize rose to an estimated 4 million tonnes in 2011/12 (from 2.3 million tonnes in 2010/11), they will fall back to 2.5 million tonnes in 2012/13.
At the international level, ‘despite record cereals production in 2011, international prices remained elevated’, although the bumper crop, by replenishing stocks, eased price pressures in the second half of 2011. In mid 2012, however, Rabobank was reporting scope for maize prices to ‘test record highs’ if dry weather continued in the US.
According to the OECD–FAO Agricultural Outlook 2012–2021 report, by 2021 wheat prices in nominal terms will be above the average of the previous decade, but in real terms will remain flat or even decline. Coarse grain prices are projected to dip in 2012 but to exhibit modest growth in nominal terms up to 2021 (although declining in real terms). Global cereals production is projected to grow in 2012, with continued growth over the period to 2021. However the stocks-to-use ratio will remain below historical levels, ‘potentially adding to price volatility’.
While globally the area under cereals continues to expand, yield growth is slowing. Indeed, analysts in the US have suggested that wheat yields are levelling off even in some developing countries, which account for some 35% of global wheat production. This is leading to increased attention being paid to closing the yield gap in specific regions of the ACP.
Editorial comment
Many ACP governments since 2008 have been seeking to promote increased cereals production. A variety of measures have been adopted to promote cereals production, most commonly the financing of input supply programmes for smallholder farmers and the encouragement of large-scale commercial investment in maize production. In some instances, governments consider using trade policy measures as a means of facilitating the marketing of nationally produced grains to enhance national food security. These range from managed import arrangements (e.g. Namibia), through strict import licensing (e.g. Kenyan limitation on GM crops) to import bans (e.g. the evolving position in Nigeria), and export bans in times of drought and the possibility regional cereals shortages (e.g. Mali, Burkina Faso, Tanzania, Malawi).
Managing price volatility to ensure that the production base is not undermined by sudden price declines is a policy challenge common to ACP countries and the EU. This suggests at least a need for better market information systems for governments to be able to ensure the better functioning of national and regional cereals markets.
While the extensive use made of financial safety nets in the EU is not an option in ACP countries, in some ACP regions there has been discussion of the use of regionally coordinated food reserves to even out price volatility. However, management of national and regional food reserves raises important trade policy issues, for recently the release of stocks from national reserves has been linked to the introduction of trade restrictions, to avoid ‘leakage’ of the benefits of expensive food reserves beyond national borders.
In this context, establishing binding regionally agreed rules on the use of trade policy tools would appear to be essential in fostering increased production in an era of rising, yet volatile, cereals prices.
