The Current World Wheat Situation
Paul W. Heisey, Pedro Aquino, Victor Hernández, and Elizabeth Rice
Production
World wheat production in 1995 was estimated at 541 million metric tons, up 2.6% from 1994 levels, but still well below the record harvest of 1990 or the harvests of 1992 and 1993. In 1995, wheat production continued to expand in South Asia. In China, production rose 3% from the previous year. In Australia, production recovered dramatically from the 1994 drought.
In developing countries, the 1995 wheat
harvest was the second highest on record, marginally below the 1993 total. Over the past
five years, developing countries have produced 45% and more of the world's wheat, compared
with about 30% in the 1950s and 1960s. In contrast, wheat production in the transitional
economies of the former Soviet Union fell sharply in 1994 and 1995 to levels not seen
since the late 1960s (with the exception of a bad harvest in 1975).
Wheat output in Eastern Europe was actually above average in 1994 and 1995, but not enough
to offset the large reduction in the former Soviet Union. Though wheat production in
high-income countries grew steadily from the 1950s through the mid-1980s, the share of
wheat output produced in high-income countries has fallen slowly over time, from about 45%
in the early 1950s to about 35% recently. For the past decade and more, changes in
policies such as land idling requirements and export subsidies have played a particularly
strong role in determining wheat production in many high-income countries (Figure 1).
Area fluctuations in high-income wheat producers still influence world wheat output, and
there may be potential in the future to restore some area to wheat production in the
transitional economies, where it has declined over the last 30 years. But for the world as
a whole, expansion of wheat area has not been a major source of greater wheat output for
many years. In developing countries, wheat area expansion was lower in the last decade
than at any time since the late 1950s and early 1960s (Figure 2). Yield increases remain
the major component of increased wheat production in both developing and high-income
countries, but in both groups, rates of yield increase from 1986 to 1995 (1.8 and 1.5% per
annum, respectively) were lower than in the previous two decades. Wheat yields in
developing countries have been higher than wheat yields in the transitional economies for
most years since the early 1980s and are now nearly 80% of the average yields for all
high-income countries. In the transitional economies, yields as well as areas have
declined over the past 20 years.
Trade
Published sources present varying estimates of the volume of international wheat trade.
These differences stem from at least three causes. First is the issue of which
transactions constitute international trade. All countries are included in the basic Food
and Agricultural Organization (FAO) data series that we use for our historical data on
wheat trade. On the other hand, in its periodical publications such as Food Outlook,
the FAO excludes from consideration trade within the European Union (EU) and within the
Commonwealth of Independent States (CIS) of the former Soviet Union. The International
Grains Council (IGC) also excludes from consideration EU and CIS inter-trade. The United
States Department of Agriculture (USDA) excludes EU inter-trade but includes trade within
the CIS in periodical reports such as Grain: World Markets and Trade. Second,
different sources may use differing time units, such as marketing years, international
years, or calendar years for reporting trade figures. Third, basic data obtained by the
various institutions estimating world wheat trade may vary.
Based on an "all country" convention, the total volume of wheat traded
internationally in 1995 was approximately 108 million metric tons, little changed from the
1994 total and lower than the amounts traded from 1991 through 1993. If EU and CIS
intertrade is excluded, international wheat trade in most recent years has been about 93
or 94 million metric tons.
Despite the rapid increase in wheat production in the developing world over the past 30
years, developing countries now account for two-thirds of all wheat imports based on the
"all country" convention, up from less than half in 1961. China, the world's
largest wheat producer, is also the world's largest wheat importer. Since 1980, Chinese
net imports have averaged over 10 million metric tons annually, or (very roughly) 10% of
annual requirements. Another large importer in East Asia is South Korea, where per capita
wheat consumption is relatively high and where there is almost no local production. A
number of countries in North Africa, West Asia, and South Asia produce wheat but also have
very high per capita wheat consumption. Among the developing world's largest importers in
recent years, these countries include Egypt, Algeria, Iran, Morocco, Pakistan, and Yemen.
Other large developing country importers include Brazil (which produces wheat) and
Indonesia and the Philippines, (which do not).
From the early 1970s through its breakup, the Soviet Union was, in many years, the world's
largest wheat importer. In the first few years of the post-Soviet era, imports into that
region remained high. They fell sharply, however, in 1993 and to even lower levels in 1994
and 1995. Since 1994, the transitional economies, including Eastern Europe, have accounted
for only about 5% of total world wheat imports. Depending on production conditions,
Kazakhstan has been a net exporter in some recent years, shipping as much as 5 million
metric tons or more to other CIS countries.
From the early 1960s through the late 1980s, wheat imports by high-income countries
remained roughly constant at about 20 million metric tons per year. In high-income
countries, wheat imports appear to have increased somewhat in the first half of the 1990s.
At the beginning of the 1960s, the largest net wheat importers among high-income countries
were the United Kingdom, Germany, and Japan.1 Wheat imports in Japan rose steadily
until the mid-1970s and have remained relatively constant ever since, although Japan is
still the leading wheat importer among high-income countries. As a result of expanding
wheat production, the United Kingdom and Germany have become net exporters, the United
Kingdom in the early 1980s and Germany in the late 1980s. Wheat imports into Italy have
risen since the mid-1970s, and today Italy is the second largest net importer among
high-income countries. Italy's imports appear to come, for the most part, from other EU
trading partners.
Between 1961-1965 and 1991-1995, the major shift in the pattern of wheat exports has been
the rise in the share of those exports from the EU, at the expense of the other
traditional exporters: the U.S., Canada, Australia, and Argentinabut particularly the U.S.
2 Nonetheless, the
U.S. has remained the world's leading wheat exporter, with a market share of over
one-third in the 1994/95 and 1995/96 marketing seasons. Wheat exports from the U.S.
remained high in 1995/96 despite lower U.S. production in 1995, as a result of high world
prices and the nation's desire to retain a reputation as a reliable exporter. On the other
hand, the EU's share of exports to the rest of the world, which had been above 20% in the
late 1980s and early 1990s, fell to 17% in 1994/95 and further to 14% in 1995/96. Internal
use of EU wheat has risen in the past several years as Common Agricultural Policy (CAP)
reform has lowered support prices. Canada's share of the export market has held steady at
just over 20%. Australia's share fell in 1994/95 and rose in 1995/96; Argentina's followed
the reverse pattern. In both cases these fluctuations in wheat exports reflected
fluctuations in wheat production in these countries.
Wheat utilization 3
World wheat consumption from 1990 through 1995 has
fluctuated in a fairly narrow band between 547 and 556 million metric tons, with the
exception of 1993, when consumption was estimated at 566 million metric tons. The FAO
estimates wheat consumption was 547 million metric tons in 1994. IGC and USDA estimates
place 1995 consumption variously between 547 and 552 million metric tons.
Wheat consumption worldwide has grown rapidly in the past 35 years. Rapid growth in both
production and imports by developing countries has meant that consumption growth has been
particularly fast in these countries (Table 1). Over much of this period, the rate of
growth in wheat consumption in developing countries has been slightly higher than the rate
of growth in maize utilization and over half again as high as the rate of growth in rice
consumption. Growing populations, rising incomes, and lower prices have all played a role
in increasing consumption of wheat in the developing world. Wheat consumption in
developing countries has grown at a considerably higher rate than the population of those
countries, suggesting the importance of income and price factors. The growth of wheat
consumption in developing countries appears to have decelerated somewhat in the 1980s and
1990s (Table 1).
Table 1. Growth in world utilization of wheat, 1961-1994
Growth in utilization (% per annum) |
||||
| Developing | Transitional | High-income | ||
| Period | countries | economies | countries | World |
| 1961-1970 | 4.9 | 5.5 | 2.0 | 4.2 |
| 1971-1980 | 5.1 | 2.5 | 0.4 | 3.1 |
| 1981-1990 | 3.1 | 1.5 | 1.4 | 2.3 |
| 1991-1994 | 1.3 | -7.0 | 3.2 | -0.1 |
| 1961-1994 | 4.4 | 1.6 | 1.4 | 2.8 |
| Growth in per capita | ||||
| utilization, 1961-1994 | 2.2 | 0.8 | 0.6 | 1.0 |
| Source: Calculated from FAO Agrostat data. | ||||
In many high-income countries, food wheat
markets are mature, with changes in consumption taking place slowly over time, driven by
population growth and slowly changing dietary preferences. In these countries,
shorter-term and more rapid shifts in total utilization are often associated with shifts
in feed use, which in turn are driven by changes in the ratio of the price of wheat to the
price of coarse grains that are more commonly used as feed. This phenomenon appears to be
a major reason for higher total consumption in high-income countries in the last few
years, particularly in some European Union nations.
In the transitional economies, especially in the states of the former Soviet Union, wheat
production has declined over the past 20 years, and imports have collapsed in the 1990s.
Wheat stocks have been drawn down in these countries, but consumption has been down
dramatically since 1993 for the entire region (see Table 1). In fact, consumption fell
most dramatically between 1991 and 1992 in Eastern Europe and is now increasing slowly
there; the more recent sharp declines in wheat use in the transitional economies is
attributable solely to the countries of the former Soviet Union. Use of wheat as livestock
feed was a prominent feature of consumption in most of the transitional economies; sharp
reductions in feed use have nearly always been the major component of sharp reductions in
total use.
Stocks and prices
World wheat production in 1994 was considerably
below consumption levels, partially due to reduced production in North America, China, and
Turkey, as well as to drought in Australia and some countries in North Africa. As noted
above, production in 1995 recovered somewhat, but not to the levels of the early 1990s,
while consumption held steady. As a result, world wheat stocks were drawn down in 1994 and
again in 1995. In 1994, the ratio of closing stocks to consumption was at the lowest level
since 1972, and in 1995 that record was broken, bringing the stocks-to-use ratio to the
lowest level in the postwar period (Figure 3).
Figure 3 shows that the overall trend for the wheat stocks-to-use ratio over time has been
negative for at least 35 years. This suggests that, over time, greater efficiencies in the
marketing channel may have reduced the need for larger stockholdings. Nonetheless, the FAO
considers the current levels of world grain stocks in general (stocks of other cereals
have also fallen markedly) as being below the minimum levels necessary to cope with an
emergency.
Concomitant with the tight world wheat market, nominal export prices for U.S. No. 2 hard
red winter wheat, f.o.b. Gulf ports (the world reference standard), reached an all-time
high over the 1995/96 marketing season. The highest prices were recorded in May 1996;
since then they have fallen back somewhat. The real export price of wheat, however,
remains below the levels of the 1960s, 1970s, and early 1980s (Figure 4). Nonetheless, in
1995/96, the real price moved above the trend line for the last 35 years, reaching its
highest level since 1988/89.
As this publication has noted in the past, the reference world export price frequently
overstates the actual prices at which wheat is traded on world markets because of the
export promotion policies of some major exporters. However, because of tight world wheat
supplies and increasing prices, the EU ended its export subsidies in 1995. When domestic
prices remained high, the EU even introduced an export tax. Furthermore, in 1995 the EU
Common Agricultural Policy mandatory area set-aside was reduced from 15 to 12%. The last
U.S. wheat sale under the Export Enhancement Program was made to Egypt in July 1995. 4
The short-term outlook
High prices have induced acreage expansion in many
countries, including many traditional importers. World wheat production for 1996 is now
forecast variously at between 563 and 580 million metric tons, up 4 to 7% over 1995. The
latter forecast would imply the second largest world harvest on record. Wheat output is
expected to increase particularly in China (which may harvest a record crop), the European
Union, Argentina, North Africa, Russia, and Kazakhstan. Production is also forecast to
increase over 1995 in Australia and in the U.S. The increase in total U.S. wheat
production may only be about 3%, because drought affected the output insome of the
southern Great Plains states that produce hard red winter wheat. This was one of the
factors behind the increase in world wheat prices in early 1996. Production for 1996 is
also expected to be good in Turkey and Pakistan. The Indian harvest is forecast to be
reduced slightly from 1995, but is still predicted to be the second highest on record.
Wheat output in 1996 in Eastern Europe and the Ukraine will be reduced from 1995 levels.
As the 1996 wheat harvest began, prices fell. In August 1996,the export price for U.S. No.
2 hard red winter wheat averaged US$ 192 per ton in current dollars, over 25% below the
May record. World imports for 1996/97 are now expected to be some 4 million metric tons
below 1995/96, in large part because of reduced imports forecast for China. Consumption is
also expected to be up, and world closing stocks are predicted to rise modestly, by about
3 million tons, which will leave the stocks-to-use ratio still low in historical terms
(Figure 3).
The fall in the world wheat price in mid-1996 led the EU to approve a small subsidy in
August 1996 for the sale of 20,000 tons of wheat to the African, Caribbean, and Pacific
countries. This export restitution was the first EU export subsidy in 15 months.
Wheat in the longer run
Models of the world food economy which attempt to
predict future world supply and demand relationships often contain forecasts concerning
the wheat sub-sector. They differ in complexity (e.g., degree to which they are based on
simple trend extrapolation, the degree to which they take into account supply and demand
considerations, and their assumptions regarding trade). Most of the models share certain
unstated but implicit assumptions. For example, the assumption that wheat yields will
continue to rise along historical trends may imply that research investments in wheat
technology will continue at current levels; or that research investments will fall but
become more efficient; or, at the extreme, that investments in research will have no
effect on wheat productivity.
The International Food Policy Research Institute (IFPRI) has examined some of these
assumptions in their 2020 Vision for Food, Agriculture, and the Environment.
Rosegrant, Agcaoili-Sombilla, and Perez (1995) construct a set of 35 country or regional
models that determine supply, demand, and prices for 17 agricultural commodities,
including wheat. They develop five alternative scenarios. Here, we examine the results for
wheat in two scenarios. The "baseline scenario" uses the authors' "best
assessments" of future directions for population and income growth, urbanization,
technological change and productivity growth in food production, prices, and the responses
of supply and demand to prices. In particular, the authors assume that rates of public
investment in agricultural research and infrastructure will remain at the reduced levels
prevailing in the late 1980s and early 1990s and that income growth rates in developing
countries will remain high, although varying by region. In the
"low-investment/slow-growth scenario," the authors assume that international and
national agricultural research investments will be cut even farther, by an annual total of
about US$ 1.5 billion; that non-agricultural income growth will be reduced by 25%, thus
lowering the demand for agricultural commodities; and that investment in health,
education, and sanitation will be reduced by 20% by 2020.
In the baseline scenario, world wheat production would grow to 841 million metric tons by
2020, up over 50% from current levels. Production in developing countries would grow at a
rate of 2.2% annually, down somewhat from historical trends. Wheat output in developing
countries would reach 432 million metric tons by 2020, a 70% increase over current
developing country wheat production, and over half the world total in 2020. Developing
countries would continue to import 122 million metric tons of wheatprimarily into Asia and
West Asia/North Africa and wheat consumption by the developing world would be nearly
two-thirds of the world total. The international price of wheat is forecaxń at US$ 132
per metric ton in 1990 dollars, slightly under the trend price prevailing in recent years,
but 50% higher than the price would be in 2020 were the price trend of the past 30 years
to persist for the next 30 years (Table 2).
Table 2. Projected wheat data in 2020, baseline and low investment/slow growth
scenarios
| Baseline | Low investment/slow | |
| scenario | growth scenario | |
| Growth rates in wheat production | (% per annum) |
|
| Asia | 2.0 | 1.5 |
| Latin America/Caribbean | 1.9 | 1.6 |
| Sub-Saharan Africa | 3.3 | 2.9 |
| West Asia/North Africa | 2.7 | 2.3 |
| All developing countries | 2.2 | 1.7 |
| High-income/transitional | 1.0 | 1.0 |
| World | 1.5 | 1.3 |
| Total wheat production in 2020 | (million metric tons) |
|
| Asia | 286.7 | 250.0 |
| Latin America/Caribbean | 39.3 | 35.3 |
| Sub-Saharan Africa | 4.5 | 4.0 |
| West Asia/North Africa | 101.2 | 88.4 |
| All developing countries | 431.7 | 377.7 |
| High-income/transitional | 409.0 | 415.5 |
| World | 840.7 | 793.2 |
| Developing countries' share of | ||
| world wheat production | (%) |
|
| 51.4 | 47.6 | |
| Developing countries' share of | ||
| world wheat consumption | (%) |
|
| 65.9 | 65.2 | |
| Total wheat imports in 2020 by | ||
| developing countries | (million metric tons) |
|
| Asia | 64.5 | 80.5 |
| Latin America/Caribbean | 3.6 | 4.3 |
| Sub-Saharan Africa | 12.5 | 11.6 |
| West Asia/North Africa | 41.6 | 42.7 |
| All developing countries | 122.1 | 139.1 |
| Price of wheat | (1990 US$/metric ton) | |
| 132 | 166 | |
Source: Rosegrant, Agcaoili-Sombilla, and
Perez (1995).
In the low-investment/slow-growth scenario, IFPRI
estimates that world wheat production in 2020 would be 793 million metric tons, 6% under
the total in the baseline scenario. Production in developing countries is predicted to
grow at the lower rate of 1.7% annually, and would only be 378 million tons, 13% lower
than in the baseline scenario. In the low-investment/slow-growth scenario, wheat
production in high-income and transitional economies would be slightly higher than
predicted in the baseline scenario, as farmers in these countries would respond to higher
world prices by producing more wheat. Despite higher prices, developing countries would
import 139 million metric tons of wheat, 14% more than in the baseline forecast. Most of
these added imports would go into Asia, where incomes will be high enough to finance wheat
purchases, despite lower income growth for developing countries in general. The
international price of wheat is forecast at US$ 166 per metric ton in 1990 dollars, 25%
over the price in the baseline scenario.
In the low-investment/slow-growth scenario, developing nations would suffer an annual
welfare loss of nearly US$ 7 billion (1990 dollars) in 2020 compared to the baseline
forecast; this loss would occur in the wheat sub-sector alone and would be the result of
both higher prices and larger imports. When one considers all commodities, food security
(as measured by the predicted number of malnourished children) is only marginally improved
by 2020even in the baseline scenario. In the low-investment/slow-growth scenario it is
predicted to be considerably worse than it is today. Both scenarios predict that food
security will continue to be a problem in South Asia, where wheat is a major consumption
item of the poor, and in sub-Saharan Africa, where it is less important (Rosegrant,
Agcaoili-Sombilla, and Perez 1995).
© CIMMYT
1 In
1961, Japan would probably have been classified as an "upper middle income"
country.
2 In this paragraph, we are
deliberately excluding inter-European Union wheat trade from consideration. Trade among
the European Union countries also appears to have expanded over the past 30 years, both as
a result of increased production and expansion of membership.
3 Wheat utilization or
consumption is defined to include food, feed, seed, and processed uses, as well as waste.
4 Egypt continued to
purchase U.S. wheat on commercial terms.