Worldwatch Vital Signs Brief 96-1

Worldwatch Vital Signs Brief 96-1

Thursday, January 25, 1996


Lester R. Brown, President, Worldwatch Institute

After falling for three consecutive years, world carryover stocks of grain in 1996 have dropped to 48 days of world consumption, the lowest level on record. As stocks have fallen, prices of wheat, rice, corn, and other grains have risen by one half or more since late 1994.

In some extreme cases, such as in the corn-deficit provinces of China, corn prices have more than doubled since early 1994. Within Europe, prices of barley, the leading food grain, have nearly doubled over the last year. In recent weeks, wheat has been trading in commodity futures markets at the highest level in 15 years.

Steep rises in grain prices could lead to widespread political instability. Among the urban poor, those already spending 70 percent of their income on food merely to survive, a doubling of grain prices quickly becomes life threatening. Food scarcity on the scale now unfolding exacerbates ethnic and regional conflicts within societies. It not only threatens the lives of millions of the world's poor, but also the political stability on which future economic progress depends.

This brief elaborates on a key trend in Vital Signs 1996, a book that will be published in May 1996 by the Worldwatch Institute and W. W. Norton & Company.

The rebuilding of stocks to restore a minimal measure of food security poses an immediate challenge to the international community. When stocks dropped to the previous record low of 55 days of consumption in 1973--and grain prices doubled-- it took 3 years of all-out production, planting fence row to fence row, to rebuild stocks to a secure level. Rebuilding grain stocks in the late nineties may be far more difficult, given the declining response of grain yields to additional fertilizer use.

The most immediate reason for the sharp stock decline in 1996 was the weather- reduced 1995 harvest. A cold, wet spring in the U.S. midwest delayed planting of the U.S. corn crop beyond the point when maximum yields could be attained.

This was followed by crop-withering summer heat waves that reduced harvests across the northern tier of industrial countries. A mid summer heat wave in Chicago, on the northern edge of the corn belt, raised temperatures to 100-106 degrees Fahrenheit for several days in a row, claiming over 600 lives. This intense, record-setting heat, part of a record-setting year for the world as a whole, further reduced the U.S. corn harvest. Intense heat also reduced grain harvests in Northern Europe, the Ukraine, and Russia.

With the reduced 1995 grain harvest dropping to 1,685 million tons, some 65 million tons below grain consumption of 1,750 million tons, carryover stocks dropped from 296 million tons in 1995 to 231 million tons in 1996. The drop in carryover stocks, the world's most sensitive food security indicator, from 61 days of world consumption to 48 days has left the world vulnerable to future harvest shortfalls.

The world grain market is being converted from a buyers market to a sellers market. Instead of exporters competing with each other for markets that never seem quite large enough, importing countries are competing with each other for exportable supplies that are never sufficient.

As prices climb, a politics of food scarcity is beginning to emerge. Within China, some provinces have banned grain exports to other provinces to prevent runaway rises in prices. In early May, Vietnam (the world's third ranking rice exporter), restricted rice exports in order to control domestic rice prices.

In December of 1995, the European Union, a leading exporter of grain, imposed an export tax on wheat of $32 per ton in an effort to discourage exports and to arrest the rise in bread prices. It followed this in early January 1996, with an export tax on barley, the principal feedgrain, because of a similar fear of rising prices of meat, milk, eggs, and cheese. While this helps Europe control food prices internally, it means that prices will rise even higher in the rest of the world.

The decline in world grain stocks to the all-time low of 48 days of consumption in 1996 leaves the world vulnerable to a crop shortfall in any major food-producing region. Another summer of record-setting heat waves in the U.S. midwest could quickly lead to chaos in world grain markets, with prices going off the top of the chart.

Reducing this risk to a more acceptable level means rebuilding stocks to at least 60 days of consumption. The experience of the last 35 years shows that whenever grain stocks drop below 60 days, prices start climbing, becoming highly volatile.

Rebuilding stocks to 60 days of consumption to help stabilize grain prices will not be easy. The first need is to eliminate the 1995 crop shortfall. Just increasing production enough to satisfy the same consumption level as in 1995 would take a 65-million-ton jump in production, an increase from 1,685 million tons to 1,750 million tons. Providing for 90 million additional people in 1996 will require an additional 28 million tons of grain. Rebuilding grain stocks from 48 days of world consumption to 60 days, given world grain consumption of 4.8 million tons per day, would require a further gain of 58 million tons in the 1996 harvest.

Altogether, eliminating the deficit from last year (65 million tons), covering the growth in world population in 1996 (28 million tons), and rebuilding stocks to 60 days of consumption (58 million tons) adds up to a need to expand the 1996 harvest by 151 million tons, or 9 percent. Raising the 1995 harvest of 1,685 million tons to 1,836 million tons is not impossible, but given the lack of growth in the world grain harvest since 1990, it will take an extraordinary effort by governments plus exceptional growing conditions.

Some of the needed increase can come from returning cropland idled under commodity programs. The decision to return to use the 7.5 percent of the U.S. cornland that was set aside in 1995, roughly 2 million hectares, and assuming a yield of 8 tons per hectare, will expand the world grain harvest by 16 million tons.

The European Union is reducing its set-aside land from roughly 12 percent of its cropland in 1995 to 10 percent in 1996. If this increase in planted area raises the European Union grain harvest of 180 million tons by 2 percent, it can add another 4 million tons to the global harvest. This, combined with returning the corn set- aside land in the United States, could add 20 million tons to the 1996 world grain harvest.

Good weather in all the major grain-producing regions could add another 65 million tons, with much of this coming in the United States. This gain, combined with that from the return to use of set-aside land, could boost the harvest by 85 million tons. Beyond that, it is difficult to visualize the land productivity gains that would yield the additional 66 million tons needed to rebuild stocks to 60 days of consumption.

Farmers face a more limited number of options for expanding production in response to higher grain prices in the late nineties. In many countries, including the United States, using more fertilizer has little effect on grain yields. In earlier times, rising prices led to investment in new irrigation wells. But with water tables falling in the major food-producing regions, this avenue is not very promising either.

Yet another area of additional investment in times past when prices rose was in the expansion of fishing fleets. But to invest more in fishing capacity in the late nineties, when every major oceanic fishery is being fished at or beyond capacity, would simply hasten the collapse of fisheries.

Another trend making it difficult to rebuild grain stocks is the soaring growth in the demand for grain occurring in Asia as the region industrializes. In China, which has just completed four consecutive years of double-digit economic growth, the growth in grain consumption is fast outstripping the capacity of farmers to expand production. In marketing year 1994, China had net grain exports of 8 million tons. In 1995, it had net imports of 16 million tons, emerging overnight as the world's second ranking grain importer, trailing only Japan.

Excluding Japan, the countries of Asia, containing nearly 3 billion people, achieved an average rate of economic growth in 1995 of 8.7 percent. Subtracting out population growth of 1.7 percent for the region, income per person rose by 7 percent. In 1996, the region is expected to again grow by 8 percent or more.

This translates into rapidly rising consumption of pork, poultry, beef, and eggs. Hundreds of new feed mills are being built throughout the region to mix feed for the region's growing herds of cattle and pigs and flocks of chickens. China's pork consumption has nearly doubled in six years. India's broiler industry is growing by 15 percent per year.

Higher incomes also translate into new breweries to satisfy the growing thirst for beer in Asia. China alone now has some 800 breweries in operation with many more under construction. Grain use for feed and in breweries in Asia is growing by leaps and bounds.

The rapid industrialization that is driving this record Asian growth in demand for grain is also consuming vast areas of cropland for the construction of factories, making it more difficult to expand grain production. The diversion of irrigation water to cities is shrinking the irrigated area in water-scarce parts of the region.

One of the new challenges facing farmers as they struggle to boost production is more extreme weather events, including heat waves even more intense than those that reduced harvests in 1995. With the 10 hottest years on record all occurring since 1979, and with 1995 the hottest year on record, the prospect of a further rise in global temperature in the years immediately ahead, as greenhouse gases accumulate in the atmosphere, is all too real.

Rebuilding stocks to a more secure level in 1996 will take a major effort by governments everywhere. If stocks cannot be rebuilt in 1996, it may be even more difficult in 1997 when there will be yet another 90 million people to be fed.

Without a concerted effort by the international community to rebuild stocks, food security could deteriorate further and grain prices could continue to increase, driving up food prices everywhere. This analysis suggests that the European Union should reconsider its decision to hold out 10 percent of its cropland in 1996, given the precariousness of the world grain balance. If this 10 percent were brought back into use, it could add another 18 million tons to the 1996 harvest.

Over the longer term, the United States can bring back into use part of the 36 million acres (over 14 million hectares) of land that is now in the Conservation Reserve Program (CRP), land held out of production under 10-year contracts. Part of this land is so highly erodible that it should be left in grass for grazing cattle, its only sustainable use. The other part, perhaps half of the total, can be farmed sustainably with the appropriate management practices. Bringing 18 million acres of this CRP land, mostly wheat land, back into use over the next few years could add perhaps 1.5 tons per acre or 27 million tons of grain, enough to cover world population growth for nearly one year.

Rebuilding depleted stocks in the late nineties will be far more difficult than in the mid seventies. Farmers can no longer expect any help from the world's fishermen in expanding the world food supply; continuing topsoil losses from erosion have reduced further the inherent productivity of perhaps a third of the world's cropland since the seventies; efforts to expand production are complicated by record losses of cropland to industrialization in Asia; crops are not as responsive to additional applications of fertilizer as they once were; in the nineties, irrigation water losses are taking a toll on output as aquifers are depleted and as water is diverted to cities; annual population growth is now nearly 90 million, up from 73 million in the mid seventies; and with the prospect of a continuing rise in global temperature, farmers face increasingly intense, crop-stressing heat waves.

Restoring food security now depends on investing more in agricultural research, soil conservation, cropland protection, and water efficiency, and other steps to expand food production. Beyond agriculture, achieving a stable balance between food and people may now depend heavily on population policies that can dramatically slow population growth in the next few years, much as Japan did in the early fifties when it cut its population growth in half in 7 years. Unless political leaders respond quickly to this deterioration in food security, it is likely to deteriorate further.

World Grain Production, 1950-95

Year              Total           Per Capita
                   (million tons) (kilograms)

1950                631                247
1951                645                249
1952                704                267
1953                717                268
1954                709                260
1955                759                273
1956                794                280
1957                794                271
1958                784                288
1959                849                278
1960                847                279
1961                822                267
1962                864                276
1963                865                270
1964                921                281
1965                917                274
1966              1,005                294
1967              1,029                295
1968              1,069                301
1969              1,078                297
1970              1,096                296
1971              1,194                316
1972              1,156                299
1973              1,272                323
1974              1,220                304
1975              1,250                306
1976              1,363                328
1977              1,337                316
1978              1,467                341
1979              1,428                326
1980              1,447                325
1981              1,499                331
1982              1,550                336
1983              1,486                317
1984              1,649                346
1985              1,664                343
1986              1,683                341
1987              1,612                321
1988              1,564                306
1989              1,685                324
1990              1,780                336
1991              1,696                315
1992              1,776                316
1993              1,703                307
1994              1,745                309     
1995              1,685                294     

SOURCES: USDA, World Grain Database (unpublished printouts) (Washington, D.C.: 1991); USDA, "Production, Supply, and Demand View" (electronic database), Washington, D.C., November 1994; USDA, "World Agricultural Supply and Demand Estimates," Washington, D.C., January 1996.

World Grain Carryover Stocks, 1961-96* Year Stocks Consumption (million tons) (days use) 1961 203 90 1962 182 81 1963 190 81 1964 193 82 1965 194 77 1966 159 61 1967 190 71 1968 213 77 1969 244 86 1970 228 76 1971 193 62 1972 217 68 1973 180 55 1974 192 56 1975 200 60 1976 220 65 1977 280 78 1978 278 77 1979 328 84 1980 315 81 1981 288 71 1982 309 77 1983 357 87 1984 304 72 1985 366 85 1986 435 100 1987 465 104 1988 409 90 1989 316 70 1990 301 66 1991 342 73 1992 317 69 1993 351 76 1994 313 65 1995 296 61 1996 (est.) 231 48

*Data are for year when new harvest begins.

SOURCES: USDA, Grain: World Market and Trade, Washington, D.C., January 1996; USDA, "Production, Supply, and Demand View" (electronic database), Washington, D.C., November 1994.

World Grain Production

World Grain Production Per Person

World Grain Carryover Stocks

World Grain Carryover as Days of Consumption

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