Demand Factors

According to the estimates of the United Nations, the population explosion that has occurred mainly in the developing countries after the Second World War will maintain its peak level during the period of 1990 to 2020. The world population increases annually by from 90 to 100 million during this period, and the world population will reach to 8050 million by 2020, from 5300 million in 1990. The population in the developing countries will increase at the annual rate of 1.7%, from 4080 million to 6660 million, during the same period. Population in Asia will increase at the annual rate of 1.64 % from 2900 million to 4500 million. The world population will double to 10,000 million by 2050. Grain (rice, wheat, barley, rye, corn, oats, sorghum and millet) will be the main source of the direct and indirect calorie intake for the exploding global population in the early 21st Century.26 The indirect calorie intake is from consumption of animal and fish meat produced by feeding feed grain to animals and fish. Population explosion will occur only in the developing countries, and the population there will be about 80% of the world total population in early 21st century. Both direct and indirect calorie intake, and thus grain demand or need, in the developing countries will increase very rapidly during the period from 1990 to 2020 as the population explosion occurs there, and their economies will grow relatively faster, especially in Asia.

Grain demand increases because of increase in income as well as because of population explosion. When per capita income increases in the developing countries, the immediate result is an increase in direct grain demand as food. The importance of animal protein in the food consumption pattern will increase as per capita income increases in the developing countries. This will lead to a rapid increase in the demand for feed grain for animals. According to the World Bank statis-tics,34 the per capita GNP in Asian developing countries has grown significantly. It had grown at annual rates of 3.0% to 6.4% during 1980 and 1993, while for other developing countries as a whole it had experienced negative growth during the same period. The average per capita GNP growth throughout all developing countries was approximately 1% per year during the period from 1980 to 1993. The total GNP has grown at around 3.5% per year. This rapid per capita income increase, especially in Asia, brought about significant increases in the demand for grain, which is the staple diet of the people in the developing countries, and also rapid increases in the demand for animal protein in Asia, especially in China, resulting in explosive increases in the demand for feed grain.

Let's now investigate the actual situation for the rapid increase in grain demand within China. China had 22% of the world's total population in 1990, and thus she is a significant influence on future food demand. According to the UN estimates, although the Chinese population growth rate has been relatively low (an annual rate of 0.9%) compared to the other developing countries, due to "the One Child Only Policy", the population increased from 680 million to 1.2 billion during the period of 1958-92, and will continue to increase to 1.5 billion by 2020. This rapid population increase will cause a rapid increase in China's grain need. Economic reforms started in 1978, which allow free decision by individual agricultural households, brought about a rapid increase in grain yield and production in China in the early years. According to the FAO database, the grain supply per person increased quickly from

230 kg in 1961 to 354 kg in 1995. However, it has remained static since 1985 due to the rapid population growth, reduction of cultivated area and slowdown in the increase rate of grain yield, as previously mentioned. Although the five year moving average of annual increase rates of grain yield has been increasing at an annual rate of over 5% during the period 19611984, it fell to between 0.3%-3% afterward until 1992. This trend is likely to continue in the future.

The per capita GNP in China has seen the very high growth rate of 8.2% per year from 1980 to 1993, and an explosive growth rate of around 10% from 1992-95. This high economic growth in China will be maintained in the future, as China has planned her economic growth rate at 7-8% until 2010, as agreed at the People's National Congress on March 5, 1996. This recent rapid income increase brought about a rapid increase in demand for meats, mainly pork, which is the most popular meat among Chinese, at an annual rate of 10%. One kilogram of pork production needs 4 kilograms of feed grain. The grain prices have rapidly risen through the explosion in the demand for feed grain. Corn prices doubled within one year in 1995. The domestic free market rice price increased 3.2 times between January, 1993 to June, 1995, and it has became more expensive than the export price of the low grade 35% Thai rice which is almost equivalent to the domestically available rice in China since May, 19 94.32 The Peking government prohibited the export of corn in November, 1994, and soy beans from April 1995, to ease the domestic shortage. Grain exports from China (including soy beans) fell to almost nil in 1994 and 1995, as shown in Figure 1.4, and the net imports rose to 15 million tons annually. Actually, the import of a large net volume of grain into China is not a recent phenomenon, but it has been 10-20 million tons annually since 1977, except in 1985, 86, 92 and 93, according to the FAO data as shown in the same figure. China banned corn export again in late 1997. According to a recent publication of the USDA,32 the Peking government was forced to consider the long term demand and supply balance of food in China for foreign and domestic reasons in 1994 and 95, and conducted research within some ministries and universities. Based on the research results, the government decided to change its food policy from a long held food self-sufficiency policy to an 88-95% self-sufficiency policy. China consumed 112 million tons of wheat, 109 million tons of corn and 129 million tons of rice in 1995. An enormous amount of grain totaling 42 million tons annually (including 15.5 million tons of white rice) needs to be imported if the self-sufficiency rate is only 88%. Since the world trade markets in wheat and corn are thick, meaning that the total trading volume is large compared to the global total production, the markets can manage the large import by China. But a catastrophic increase in the world rice trade price and resultant confusion can be expected, for the world rice trade market is thin, meaning that only 4% (15 million tons) of the world total production is traded.

It can be concluded that the rapid increase in demand for grain by the developing countries which has occurred from the eighties until now, especially in China and other Asian countries, has had the effect of reducing the global grain stock ratio. This rapid increase will continue into the early 21st century, as population explosion and relatively fast economic growth in the developing countries will continue in the long run.

Prospects of World Grain Supply and Demand for the Year 2020

As shown in the above analysis, the world grain stock as a trend will remain at dangerously low levels into the early 21st century, and the grain prices will remain at high levels. The reasons for this are the transformation of the European and American agricultural policies after the late eighties, the restrictions on natural resources and agricultural technology improvement, and rapid increase in the need for feed and food grain, principally in China and Asia, due to the population explosion and high economic growth.

Supply and demand of grain in 2020 is projected in Table 1.2 for the world, groups of countries classified by income levels, China, India and Japan, based on assumptions according to the above analyses of long term supply and demand of grain in the world. Regarding the assumptions for demand, the production conversion ratio from grain to meats and eggs for each region and country is estimated based on the supply and demand balance data of the FAO for 1984-86 and on expected long term increase in feed grain use in the livestock sector. Increase in the demand for feed grain is estimated by projected population growth rate, GDP growth rate and income elasticity of demand for meats and eggs. Medium estimates of the UN are used for the population and population growth rate. The year 1993 is used as the base year. The FAO statistics were used to determine demand for meats, eggs and grain in 1993. Regarding supply, the growth rates of grain production, listed in the same table, are determined so as to reflect the recent decline in the growth rates of grain production mentioned above.

There are two ways to make a long term forecast of grain supply and demand. One is forecasting demand and supply independently, and analyzing their impact on grain price afterwards. I, in this paper, and Lester Brown have used this method. The other method projects supply and demand, incorporating the effect of the difference between supply and demand on the product price. This method is used by the World Bank, FAO, IFPRI and the Japanese Ministry of Agriculture, Forestry and Fishery.35-38 Lester Brown, the Ministry of Agriculture, Forestry and Fishery and I forecast a significant global grain shortfall in 2020 and/or 2030 and a considerable grain price rise, and others forecast that the world grain prices will decrease by 10 to 30 percent in the early 21st century. I think the reasons for the totally different forecasts are basically differences in the assumptions for the projections, and thus critical evaluation of the assumptions is very important. I judge the assumptions made by the World Bank, FAO and IFPRI to be too optimistic and contrary to the recent reality. The assumptions for these future surplus projections are: no limitation in arable land and water, positive price response in planted areas of grain, and considerable yield growth of grain in the future supported by technological improvements in agricultural production.

According to my projection, there will be an enormous grain shortfall of 320 million tons in developing Asian countries in 2020. The breakdowns are 170 million tons for

Fig. 1.4. Chinese cereal quanitites traded: net import, import, and export. Data source: FAO and USDA estimates for recent years.

Fig. 1.4. Chinese cereal quanitites traded: net import, import, and export. Data source: FAO and USDA estimates for recent years.

China, 15 million tons for India, 33 million tons for Japan and 417 million tons throughout the world. Although the high-income countries such as the United States and the EU export 172 million tons, that is far below the projected deficit in year 2020. This shortfall is significant, especially when one considers that the total world grain trade volume was 230 million tons in 1993. The reasons for my projection of such a significant grain shortfall are: The population explosion and high economic growth in developing countries, principally in China and Asia, will bring about a fast increase in consumption of animal protein, which will lead to an explosive increase in demand for feed grain; and, increase in grain supply will be restricted by limitations in natural resources and in the improvement of agricultural technology in the developing countries, and by continuation of the agricultural policy transformation in Europe and America into the early 21st century. The projection by Brown of a significant future shortfall is for similar reasons, with an emphasis on land shortage in China.

The estimated significant grain shortfall, by Brown and me, would bring about a rise in the prices of grain in the world trade market. According to my forecast, assuming the long term price elasticity of the world grain supply and demand to be 0.15 (ratios between rates of change in supply and demand against the price change rate), the international grain trade price will increase by 50% compared to its 1993 level by 2020. This increase in the grain trade price will lead to a considerable increase in the domestic price of rice and other grain. This will cause significant difficulties to the huge hungry in the developing countries, who now number more than 0.8 billion, more than 0.5 billion of which concentrate in Asia,39and it will likely be larger in the year 2020.

A significant global shortfall of grain is forecast for the year 2020. China and Japan will be important players in the long term world demand and supply of food, especially rice. Japan was forced to open her long self-sufficient rice market by accepting minimum access rice import ,under American pressure at the Uruguay Round negotiation in December, 1993. She will accept tariffication of rice import in April 1999. I think these concessions will lead to a gradual increase of Japanese rice import,

Demand

1993

2020

Population (millions)

Per capita demand for animal and chicken meat, and eggs (kg)

Total demand for cereals (million tons)

Per capita demand for animal and chicken meat, and eggs (kg)

Total demand for cereals (million tons)

World

5522

39.50

1830

58.4

3269

Low and medium income countries

4289

23.90

1072

58.4

2342

Asian developing countries

3058

20.70

730

54.1

1473

China

1185

34.50

366

91.3

777

India

885

3.96

173

6.4

298

High income countires (a)

1228

93.10

767

100.0

47.80

52.8

Japan

47.80

52.8

Supply

1993

2020

Production (million tons)

Production (million tons)

Estimated deficits (million tons)

World

1804

2852

417

Low and medium income countries

930

1752

590

Asian developing countries

675

1153

320

China

340

610

167

India

167

283

15

High income countries (a)

870

1100

-1 72

Japan

11

9

33

Assumptions 1993-2020

Annual Growth Rates (%)

Feed grains/ animal and chicken meat, and eggs conversion rate (FAO food balance)

Population

Per capita demand for animal and chicken meat, and eggs

(%)

Income elasticity of demand for animal and chicken meat, and eggs

World

0.0141

0.01458

0.034

0.0171

0.68

3.00

Low and medium income countries

0.0164

0.03354

0.06

0.0237

0.7

2.40

Asian developing countries

0.0147

0.03628

0.06

0.0200

0.35

1.80

China

0.089

0.03667

0.07

0.0152

0.6

3.00

India

0.0152

0.01794

0.06

0.0120

0.4

2.00

High income countries (a)

0.0045

0.00262

0.022

0.0087

0.15

5.88

Japan

0.0014

0.00373

0.02

-0.0081

0.2

3.30

Note: a; US, former USSR, Eastern and western Europe, Japan, Oceania

Note: a; US, former USSR, Eastern and western Europe, Japan, Oceania to end up with large amounts of rice import and disappearance of the rice sector on the Japanese volcanic archipelago. Huge external benefits to Japanese people associated with self-sufficient rice production and consumption will be lost. In addition to this and more importantly, the Japanese must face a very thin, unstable and unreliable international rice trade market. Only 4 percent (16 million tons of milled rice) of world total rice production is traded. In Japan and other Asian countries, rice supplies 25 to 80 percent energy intake of the people, and thus rice is political goods in the sense that it must be supplied with certainty and at stable price. Since disappearance of the rice sector in Japan is so great a loss in external benefits and political stability, I think Japan should not have accepted minimum access and should not accept tariffication. On the other hand, large and continuous Japanese rice imports will raise and destabilize the rice price considerably throughout Asia, which will result in a crisis for the huge Asian hungry. Large Japanese rice imports will also cause environmental destruction in Asia.40

The Japanese self-sufficiency ratio for grain is forecast to decrease from 28% in 1993 to 21% in 2020, as shown in Table 1.2, if the current Japanese agricultural policy is maintained. The Japanese feel insecure with the current self-sufficiency level of 28 percent; according to a recent opinion poll, 83 percent of Japanese think Japan should maintain rice self-sufficiency even it is very expensive. The decline of self-sufficiency ratio for grain to 21 percent will increase the Japanese sense of food insecurity very much. The import of agricultural, forestry and fishery products by Japan increased much faster than the European countries' import after the Second World War, and it caused serious euphor-ization problems for inland waters and nearby seas in Japan. It also caused severe environmental destruction abroad, as symbolized by Japanese shrimp import and tropical timber and wood imports. I believe Japan imports too much agricultural, forestry and fishery products, for of the following reasons: Serious environmental problems in Japan as well as in developing countries caused by Japanese import; the crisis to the huge poor in Asian developing countries in the case of rice import; and the serious concerns by Japanese about loss of food security and of external values derived from the primary industries. We should reform Japan's agricultural, forestry and fishery policy and their system, emphasizing more domestic production of the agricultural, forestry and fishery products, including rice, which will lead us to a higher self-sufficiency ratio for these products, using less environmentally destructive technology incorporating cyclical use of fertility among crops, animals and humans. This reform will lower domestic and foreign environmental destruction by Japan's import of primary commodities, maintain external values of the primary sector and rural society and increase food security level in Asian developing countries.41

I think China will be a large importer of grain, including rice, in the near future considering her fast economic growth, large population growth, natural resource limitations and deterioration of agricultural resource base. If China continues her past growth pattern in the future, and it is likely now for China to follow it, the size of her rice import will be enormous and it will have devastating effects on Asian rice price, the Asian hungry and the Asian natural environment.

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