Cover Image
close this bookCERES No. 158 March - April 1996 (FAO Ceres, 1996, 50 p.)
close this folderCerescope
View the documentTrade: Bovine hormone stunts growth of cattle trade
View the documentLocal conditions: A middle-class revolt in Mexico
View the documentAgribusiness: Milk's own bacteria works as a preservative
View the documentHome front: Rain shadows offer opportunity
View the documentCommodities: The gathering wheat crisis - Middle-East may suffer
View the documentLab results: Sweetening the bitter fruit
View the documentField findings: Farmers embrace a creeper
View the documentFAO in action

Commodities: The gathering wheat crisis - Middle-East may suffer

Bread is fast replacing rice as the staple food in the crowded urban centres of developing countries, and it couldn't have happened at a worse time. Soaring wheat prices threaten to cause balance-of-payments deficits reminiscent of the energy crisis of the 1970s. The difference this time is that the Arab nations - including petroleum exporters - face serious economic consequences along with the rest of the developing world.

The price of wheat per ton shot up from US$140 to $210 between November 1994 and November 1995 and, according to the international Wheat Council (IWC), should reach US$250 this spring. To compound the problem, food security has already been undermined by a drawdown in strategic stocks because of poor harvests and reductions in food aid in line with post-Cold War policy orientations. The entire southern hemisphere, including the Arab countries, is feeling the effects.

FAO's Global Information and Early Warning System (GIEWS) estimates 1995-96 cereal imports will cost low-income, food-deficit countries an extra US$3 billion, up 25 per cent from 1994-95. There is growing concern, FAO says, that “many of these countries will not be able to finance in 1995-96 the additional cost of cereal imports.”

The wheat bill of 11 Arab wheat-importing countries, as estimated by IWC, would be up at least 20 per cent by this spring - totalling US$6 billion, compared to $5 billion in 1995. The worst hit in terms of balance-of-payments deficits would be the three largest importers, Egypt, Algeria and Morocco. Egypt and Algeria could also face heightened political instability if basic food supplies were jeopardized.

Richard Woodhams, vice executive director of IWC, says much of the price rise has nothing to do with production. He cites cutoffs in government subsidies to wheat producers, especially in the United States and European Union, and hikes in shipping costs, which alone added US$30 a ton to the price. The Final Act of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT), which took effect in January 1995, provided for the phasing out of subsidies paid to domestic producers. And, Woodhams says, rising demand and falling supplies made producers more than happy to comply.

The effect of this change in the demand-supply rates has already been staggering. The price of American Reed winter wheat jumped 70 per cent to US$210 a ton last April when Washington lifted subsidies of up to 45 per cent - or almost US$100 a ton.

Last year's drought in North Africa left some Arab countries in a vulnerable position. Morocco's wheat harvest plunged from 9.4 million tons in 1994 to 1.6 million last year, and plans to buy 2.8 million tons in 1995-96. Egypt, which lacked reserves, was forced to buy 700 000 tons of wheat in 1995 - at a free market price that had reached US$200 a ton.

Saudi Arabia, until recently one of the world's top 10 wheat-exporting countries, expects its 1995-96 wheat production to just cover its domestic needs, but this is by choice. With oil prices falling, the Saudi government decided to relinquish the subsidies with which it had encouraged wheat production. The U.S. Agricultural Trade Office in Riyadh said the area sown to wheat fell from 581 000 hectares in 1994 to 465 000 ha in 1995. The newspaper Al-Quds reported from Dubai last 7 September the Saudi government is expected to cut the subsidized price at which it buys wheat from Saudi farmers from the 1995 rate of 2 000 riyals (about US$533) a ton to 1 500 SRIs (about US$400). The indications are that within two to three years, Saudi production will stabilize at about 1.5 million tons annually - enough to cover local demand and provide surplus for strategic stocks.

For a low-income, food-deficit country like Yemen, the cost of wheat imports is putting a severe strain on hard currency reserves. According to government figures, Yemen spent US$423 million for wheat during the first nine months of 1995, compared to US$400 million for the whole of 1994 - and each US$1 paid out was subsidized by the equivalent of 9 cents in Yemen's currency, the rial.

The overall consumption of wheat in the developing countries has been growing at the rate of 5 per cent a year since the 1960s. In the Arab world, the per capita consumption of wheat has jumped from 100 kilograms a decade ago to 142 kg today. Aggregate production increases of 2 per cent annually can hardly keep pace with population growth of 3.5 per cent annually. IWC put total Arab wheat imports in 1994-95 at 21.1 million tons compared to 18.4 million tons in 1992-93. Imports in 1995-96 are expected to exceed 22 million tons.

Overall, Arab countries paid US$33 billion in 1994 to import basic food commodities, including wheat. Given the expected price rises due to the dismantling of trade barriers and the projected population rise from 240 million at present to 295 million by the year 2000, keeping food imports at the current per capita level will cost the Arab world US$50 billion a year.

Although forecasts agree the cost of wheat will continue to rise, estimates vary as to how drastic the rise will be. The Economist Intelligence Unit said late last year that 1996 prices could reach record highs as the world wheat supply drops to crisis levels due to drastic reductions in production by the United States, Canada, EU countries, Argentina and Australia, which together harvest almost 90 per cent of the world's wheat. In the case of the United States, Canada and EU trade factors are at work; for Argentina and Australia, there is fear of continuing drought. The Organization of Economic Cooperation and Development (OECD) said it expects the United States and Canada to withdraw support they paid to farmers to take large areas out of wheat but predicted only gradual price rises until the year 2000.

As a further strain on supplies, a sharp rise in demand is expected in the second half of the 1990s in Russia, which had its worst harvest in decades in 1995, and China is expected to import almost 10 million tons of wheat due to water shortages (see Ceres No. 155, pp. 26-35).

As a result of rising demand and falling supply, both IWC and OECD warn that world strategic stocks could drop to 92 million tons this year, the lowest in 20 years. In EU countries alone, OECD said stocks collapse from 33 million tons two years ago to only 3 million tons in 1995.

Medhat Makar, an Egyptian journalist, is editor of the Arabic edition of Ceres.