WORLD AGRICULTURAL OUTLOOK

WORLD AGRICULTURAL OUTLOOK FEBRUARY 21 FAPRI Food and Agricultural Policy Research Institute CENTER FOR AGRICULTURAL AND RURAL DEVELOPMENT IOWA STATE UNIVERSITY AMES, IOWA 511-17 TELEPHONE: 515.294.7519 FAX: 515.294.6336

FAPRI - Iowa State University Bruce Babcock, CARD Director John Beghin, FAPRI Director Frank Fuller, Technical Director Jay Fabiosa, International Livestock Analyst Samarendu Mohanty, Grains Consultant Stephane de Cara, International Crops Analyst Holger Matthey, International Oilseeds Analyst Cheng Fang, International Oilseeds Analyst Phillip Kaus, U.S. Market, Policy and Sugar Analyst Chad Hart, U.S. Policy and Insurance Analyst Karen Kovarik, System Support Specialist

Table of Contents World Agricultural Outlook, Briefing Presentation 5 Major Factors Affecting World Agriculture 6 Outlook for U.S. Agricultural Exports 8 International Grains 1 International Oilseeds 14 International Livestock 18 Additional Charts and Tables 23 Asia 24 European Union 28 Wheat Outlook 32 Rice Outlook 36 Coarse Grains Outlook 38 Oilseeds Outlook 42 Cotton Outlook 46 Sugar Outlook 48 Livestock and Poultry Outlook 5 Dairy Outlook 58 Tables Country-specific baseline tables may be 63 obtained at http://www.fapri.iastate.edu/

FAPRI 21 World Ag Outlook, page 4 Abbreviations and Acronyms BSE CEECs CSF cwt DEIP EU FMD FOB FSU GATT GDP ha kg mha mmt mt NAFTA NFD OTMS ROW SMP tmt TRQ U.K. WMP WTO bovine spongiform encephalopathy Central and Eastern European Countries classical swine fever hundredweight Dairy Export Incentive Program European Union foot-and-mouth disease freight on board Former Soviet Union General Agreement on Tariffs and Trade gross domestic product hectare kilogram million hectares million metric tons metric ton North American Free Trade Agreement nonfat dry milk over-thirty-month scheme Rest of World skim milk powder thousand metric tons tariff rate quota United Kingdom whole milk powder World Trade Organization

World Agriculture Outlook Briefing Presentation Charts and Bullets

Major Factors Affecting World Agriculture FAPRI 21 World Ag Outlook, page 6 World GDP and population are projected to grow, respectively, an average of 3.2 and 1.2 percent annually over the next decade, stimulating demand for agricultural products. Economic recovery is solidified in most Asian countries, Russia, and Brazil within the projection period. NAFTA member countries are expected to exhibit solid economic growth, and their agricultural trade will deepen. Mexico is projected to be a major importer of meat products and feed. The Euro is projected to appreciate vis-à-vis the U.S. dollar, reaching.879 euro/dollar by 21. Nevertheless, increasing world prices allow the EU to export grains without subsidy throughout the baseline. The Japanese yen loses value relative to the U.S. dollar in 21, but recovers in subsequent years. Currencies of all major exporting countries appreciate relative to the U.S. dollar, except the Brazilian real, which depreciates more than 4 percent annually. Current U.S. farm policy maintains the soybean loan rate above market prices until 27/8. The support for U.S. producers exerts downward pressure on world prices at the expense of foreign competitors. The BSE crisis has sharply decreased European beef demand. Continuation of the OTMS in the U.K. and introduction of animal destruction schemes in the rest of the EU moderate the short-run decline in beef prices. Beef demand is expected to recover over the next three years.

Real GDP Growth Rates Recovery In Crisis Countries Percent 7 6 5 Percent 15 1 5 4 3-5 2 1-1 -15 199 1993 1996 1999 22 25 28 211 World Developed Developing -2 199 1993 1996 1999 22 25 28 211 Russia Thailand Korea Brazil Indonesia Growth In NAFTA Countries Exchange Rate Projections Percent 8 6 4 2 Euro per U.S. $ 1.2 1..8.6 Yen per U.S. $ 16 14 12 1 8-2 -4-6.4.2 6 4 2-8 199 1993 1996 1999 22 25 28 211. 199 1993 1996 1999 22 25 28 211 U.S. Mexico Canada page 7 EU Japan

Outlook for U.S. Agricultural Exports FAPRI 21 World Ag Outlook, page 8 U.S. grain and feed exports are projected to increase 25.9 percent over the outlook period, with feed grains and feed products accounting for 78.5 percent of the total 26.9 mmt increase. Animals and animal product exports are anticipated to increase 22.2 percent, and oilseed and oilseed product exports are projected to rise a modest 14.7 percent. With rising international commodity prices and an increase in the volume of U.S. agricultural exports, the value of U.S. exports is projected to increase to $72.1 billion by 21/11. Growth in high-value exports is projected to account for 59 percent of the total growth in the value of U.S. agricultural exports. Increases in the value of animal and animal product exports constitute more than 4 percent of the growth in high-value exports. Despite a 19 mmt increase in U.S. corn exports, strong competition from the EU in wheat markets and from Brazil and Argentina in soybean markets produces a gradual decline in U.S. share of total crop trade. Steady growth in U.S. meat product exports is expected to raise the U.S. share of global meat trade to nearly 3 percent by 21. World meat trade increases by 28 percent over the next decade, with U.S. exporters capturing 42 percent of the growth in trade.

Quantity of U.S. Agricultural Exports Value of U.S. Agricultural Exports 25 2 15 Billion Dollars 8 7 6 5 4 1 5 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Animals and Animal Products Grains and Feeds Oilseeds and Products Cotton Other Products 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Animals and Animal Products Grains and Feeds Oilseeds and Products Cotton Other Products World Crop Trade and U.S. Market Share World Meat Trade and U.S. Market Share 35 Percent 6 14 Percent 35 3 5 12 3 25 4 1 25 2 15 3 8 6 2 15 1 2 4 1 5 1 2 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 1995 1997 1999 21 23 25 27 29 U.S. Other Exporters U.S. Market Share page 9 U.S. Other Exporters U.S. Market Share

FAPRI 21 World Ag Outlook, page 1 International Grains: Food The wheat stocks-to-use ratio dropped below 2 percent in 2/1. Rising demand in developing countries and a draw down of stocks in the EU are projected to further lower the world stocks-to-use ratio, putting upward pressure on international wheat prices. The FOB Gulf price for wheat is projected to rise an average of 2.7 percent annually over the projection period, reaching $159/mt by 21/11. With the weak euro and rising international wheat prices, the EU is expected to export wheat without subsidy throughout the projection period, increasing total exports by more than 11 mmt. U.S. net exports are projected to increase 1.4 mmt by 21/11. Wheat net exports from Argentina, Australia, and Canada grow 2.1, 3.4, and 1.2 mmt, respectively, over the same period. Strong growth in rice imports in the Philippines, Indonesia, Brazil, and other non-asian developing countries increases rice trade by 6.4 mmt over the next decade. India, Thailand, and Vietnam capture nearly 9 percent of the increase in rice exports. Chinese rice exports are expected to decline slightly, while wheat imports increase more than four-fold to 5.65 mmt. Chinese corn imports are also expected to increase rapidly after 24/5 as a consequence of strong domestic demand and declining crop area.

World Wheat Stock-to-Use Ratio vs. Price Wheat Net Exporters Dollars per MT 22 2 18 16 14 12 Percent 28 26 24 22 2 18 16 14 12 12 1 8 6 4 2 1 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 U.S. FOB Gulf Price Stock-to-Use Ratio 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Argentina Australia Canada EU U.S. Major Asian Rice Exporters Chinese Grain Imports 25 2 15 1 5-5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 2 15 1 5-5 -1-15 -2 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 China India Pakistan Taiwan Thailand Vietnam page 11 Wheat Corn Barley Rice

FAPRI 21 World Ag Outlook, page 12 International Grains: Feed World corn consumption is projected to increase 1.4 percent annually, drawing down stocks slightly and putting upward pressure on international corn prices. The FOB Gulf price for corn is projected to rise 2.8 percent annually, reaching $118.53/mt by 21/11. Growing demand for livestock feed drives up corn imports into developing countries by 39 percent over the outlook period. More than 9 percent of the growth in corn trade is supplied by the United States. China s decline in corn net exports and eventual switch to a net importer accounts for nearly 6 percent of the growth in developing-country corn imports. Growth in imports by other Far East Asian countries makes up an additional 29 percent of the developing-country total. Barley trade is projected to increase 2.4 mmt by 21/11, with nearly 7 percent of the growth in imports occurring in China. The EU is expected to meet the increased demand for barley imports. The recent BSE crisis in the EU is expected to temporarily shift meat production and consumption away from beef and in favor of poultry. The change in production mix will produce a small increase in feed grain and oilseed meal use in the EU in the short run. The ban on animal protein meal in the EU increased the consumption of soybean meal by 1 mmt in 2/1. A similar increase is projected for 21/2.

World Corn Stock-to-Use Ratio vs. Price Corn Net Imports by Major Regions Dollars per MT 18 16 14 12 1 8 Percent 22 2 18 16 14 12 9 8 7 6 5 4 3 2 1 6 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 FOB Gulf Price Stock-to-Use Ratio Developing Other Developing Asia Developed Russia and Other FSU Far East Asian Corn Imports European Union Grain Feed Use 18 16 14 12 1 8 6 4 2-2 -4 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 15 13 11 9 7 5 3 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Thailand Indonesia Malaysia South Korea page 13 Corn Barley Wheat Soymeal

FAPRI 21 World Ag Outlook, page 14 International Oilseeds The Rotterdam soybean price declined slightly to $25/mt in 2/1, and it is projected to decrease another 3.5 percent in 21/2 before beginning to rise gradually. The soybean oil price fell 11.5 percent in 2/1, but it is projected to increase 2.3 percent annually over the baseline. Soybean area in major producing countries is projected to rise again in 21/2 before declining in response to continued low prices. Soybean area resumes growth as prices increase in the latter half of the outlook. Argentine soybean area is expected to increase from 9.7 mha in 2/1 to 11.3 mha by 21/11. Over the same period, Brazilian soybean area expands by 28 percent to 17.2 mha. Policies favoring soybean imports and domestic crush boost China s net imports of soybeans from 7.6 mmt to 16.3 mmt by 21/11. China s soybean oil imports are projected to double during the baseline, but soybean meal net imports decline substantially. World soybean trade is expected to grow by 47.6 percent during the projection period. With a 1.2 mmt increase in exports, Brazil captures 51 percent of the growth in soybean trade. The United States and Argentina share the remaining growth roughly equally.

Soybean and Products Rotterdam Prices Soybean Area Harvested Dollars per MT 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Soybean Soymeal Soybean Oil Million Hectares 8 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Argentina Brazil China U.S. Chinese Soybean and Products Imports Major Soybean Exporters 2 15 7 6 5 1 4 5 3 2 1-5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Soybean Soybean Meal Soybean Oil page 15 United States Argentina Brazil

FAPRI 21 World Ag Outlook, page 16 International Oilseeds (continued) Soybean meal trade grew nearly 7 percent in 2/1 to 33.1 mmt. Expanding livestock production in several Asian and developing countries is expected to stimulate continued growth in soybean meal trade at a rate of 1 percent annually from 23/4 onward. Exports from Argentina and Brazil are projected to continue to dominate international soybean meal trade. The United States is anticipated to capture 2 percent of the market. Argentina is projected to supply more than half of the world s soybean oil exports throughout the baseline. The United States is expected to increase its market share from 1 to 13 percent by 21/11. Growth in total oilseed area is projected to be moderate until oilseed prices substantially recover in 24/5. Some recovery in rapeseed area and continued increase in soybean area lead to a 2.5 percent expansion in oilseed area in 21/2. Total oilseed area is projected to increase by 13 mha during the baseline, with more than half of the growth occurring in South American soybean area. Stable income growth around the globe contributes to a gradual recovery in vegetable oil prices beginning in 21/2. Soybean oil prices are projected to increase 25 percent from 2/1 to 21/11, with annual growth of 2.6 percent from 24/5 onward.

Major Soy Meal Exporters Major Soy Oil Exporters 4 35 3 25 2 15 1 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 United States Argentina Brazil India 8 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 U.S. Argentina Brazil EU Oilseeds Area Harvested of Major Producers World Vegetable Oil Prices Million Hectares 16 Dollars per MT 8 14 7 12 6 5 1 4 8 3 6 2 4 1 2 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Soybean Oil, FOB Gulf Rapeseed Oil, Hamburg Soybean Rapeseed Sunflower Peanuts Palm Oil page 17 Sunflower Oil, Rotterdam Palm Oil, Rotterdam

FAPRI 21 World Ag Outlook, page 18 International Livestock The fed steer price in the U.S. is expected to increase 3.27 percent annually over the next three years as herds build, peaking at $76.64/cwt in 23. U.S. pork prices recovered in 2, but a buildup in market hog inventories is expected to push prices down to $34.54/cwt in 22. U.S. broiler production expands 2.8 percent annually, which is sufficient to hold average broiler prices at $57.45/cwt. Beef trade rises 3 percent over the baseline, with the largest increase in imports occurring in Japan, Russia, Taiwan, and South Korea. Mexican beef imports surge to 547 tmt in 23 as domestic cattle herds rebuild and consumption rises steadily. As U.S. beef prices rise over the next three years, Brazil, Australia, and New Zealand expand beef exports by 272, 11, and 96 tmt. In the latter half of the baseline, the United States and Argentina are expected to increase their share of beef trade, while the EU recovers some exports lost during the BSE crisis. As a consequence of the recent BSE crisis, the EU has implemented a Purchase for Destruction Scheme, which is projected to reduce EU beef production by 1.4 percent in 21. Annual beef consumption in the EU declined 5.8 percent in 2, and it is expected to decline another 8.1 percent in 21. Beef production and consumption are projected to recover by 24.

World Meat Prices Major Beef Importing Countries Dollars per cwt 8 7 3,5 3, 2,5 6 5 2, 1,5 4 1, 3 2 1995 1997 1999 21 23 25 27 29 Beef Pork Poultry 5 1995 1997 1999 21 23 25 27 29 Japan Russia Mexico South Korea Other FSU Taiwan Philippines Hong Kong Beef Export Market Share EU Beef Supply and Utilization Percent 5 8, 2, 4 3 2 1 7,5 7, 1,6 1,2 8 6,5 4-1 Australia Brazil New Zealand EU Argentina Canada China U.S. 6, 1995 1997 1999 21 23 25 27 29 1995/2 21/25 26/21 page 19 Production Consumption Export Stock

FAPRI 21 World Ag Outlook, page 2 International Livestock (continued) In response to the resurgence of BSE, EU consumers are eating less beef and more of other meats, particularly poultry. Poultry consumption per capita is anticipated to increase to 16.3 kg in 22. World pork import demand increases by 32 percent in the next decade, with the greatest growth occurring in Russia, Mexico, Japan, and the Philippines. The United States and Canada increase their share of the international pork trade, expanding net exports by 395 and 328 tmt respectively. Despite losing market share, the EU increases its pork exports by 27 tmt over the baseline. China s pork consumption grows in excess of production, causing China to become a net importer in 25. Chinese pork net imports reach 32 tmt in 21. U.S. broiler consumption is expected to increase 24 percent over the baseline, reaching 43 kg per person by 21. Substantial growth in poultry consumption is also projected for Australia, Mexico, Hong Kong, South Korea, and Taiwan. With the exception of Hong Kong, the bulk of the increase in poultry consumption is supplied by domestic production. Broiler trade is projected to increase 86 tmt by 21. The United States and Brazil respectively supply 37 and 45 percent of the increase in broiler import demand.

EU Per Capita Meat Consumption Major Pork Importing Countries Kg Per Person 5 2,5 4 2, 3 1,5 2 1, 1 5 1995 1997 1999 21 23 25 27 29 Beef Pork Poutlry 1995 1997 1999 21 23 25 27 29 Japan Russia Hong Hong Mexico Argentina South Korea Pork Export Market Share Per Capita Poultry Consumption Percent 5 4 3 2 1 Kilograms 6 5 4 3 2-1 1 EU Canada U.S. Poland China Brazil Hungary 1995/2 21/25 26/21 page 21 Australia China EU Hong Kong 1995/2 21/25 26/21 Mexico Korea Taiwan U.S.

Additional Charts and Tables For further detailed tables visit our web site at http://www.fapri.iastate.edu/

FAPRI 21 World Ag Outlook, page 24 Asia: Crop Wheat imports in Asian countries are expected to increase by more than 14 mmt, 4 percent of which is due to the increase in Chinese wheat imports, mainly driven by income growth and higher food consumption. India and Pakistan are likely to remain growth markets for wheat. In each of these two countries, wheat imports are projected to rise by more than 3 mmt. As a result of increasing feed use due to livestock growth, China is projected to become a net corn importer by 25/6, with Chinese corn imports reaching nearly 7 mmt by 21/11. Japan corn imports decline slightly and steadily over the outlook period. The Asian market is likely to grow rapidly for soybeans and soybean products. This is particularly true for China and India because of their strong income and population growth. In 21/11, China s soybean imports are projected to reach 16.33 mmt, maintaining China s status as the second largest soybean importer, behind the EU. China and India are expected to import 1.18 mmt and 1.1 mmt of soybean oil, respectively, by the end of the decade. These two countries will be the world s two largest soybean oil importers. Japan, South Korea, and Taiwan remain large importers of soybeans for their domestic crushing industry. Total soybean imports for these three countries are expected to increase from 8.8 mmt in 2/1 to 9.23 mmt in 21/11.

India Grain Imports Asian Wheat Imports 4 3 2 1-1 -2-3 -4-5 -6 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Wheat Corn Rice 18 16 14 12 1 8 6 4 2-2 -4 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 China India High-Income East Asia Other Asia High Income East Asia: Hong Kong, South Korea, Singapore Other Asia excluding China and India Chinese Grain Imports Asian Soybean and Products Imports 2 15 1 5-5 3 25 2 15 1 5-1 -5-15 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11-2 Soybean Soybean Meal Soybean Oil 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Note: includes China, Taiwan, South Korea, India and Japan Wheat Corn Barley Rice page 25

FAPRI 21 World Ag Outlook, page 26 East Asia and Russia: Livestock Driven by the high cost of production, Japan s share of meat imports to consumption increases from 18 percent in the 198s, to 38 percent in the 199s, to 5 percent at the end of the next decade. Increasing beef imports, imports of non-muscle pork products, and a new poultry import quota raise Taiwan s average meat imports by 183 percent from the average of the 199s to the average for the next decade. An FMD outbreak in 2 closed South Korea s access to Japan s pork import market. South Korea s liberalization of beef imports in 21 contributes to the growing share of imports in total consumption, rising from 16 percent in the 199s to 24 percent at the end of the next decade. Russia s high feedgrain prices limit production recovery in the short run, and structural and market inefficiencies make long-run recovery uncertain, raising meat imports by 25 percent in the next decade.

Japanese Meat Production and Imports Taiwanese Meat Production and Imports (Imports) 3, (Production) 2, (Imports) 3 (Production) 1,4 2,5 2, 1,5 1, 1,6 1,2 8 25 2 15 1 1,2 1, 8 6 4 5 4 5 2 199 1992 1994 1996 1998 2 22 24 26 28 21 1995 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 Beef Import Pork Import Poultry Import Beef Production Pork Production Poultry Production Beef Import Pork Import Poultry Import Pork Production Poultry Production South Korean Meat Production and Imports Russian Meat Production and Imports (Imports) 7 6 5 4 3 2 1 (Production) 199 1992 1994 1996 1998 2 22 24 26 28 21 Beef Import Pork Import Poultry Import Beef Production Pork Production Poultry Production 1,4 1,2 1, 8 6 4 2 2,5 2, 1,5 1, page 27 (Imports) 5 (Production) 199 1992 1994 1996 1998 2 22 24 26 28 21 Beef Net Import Pork Net Import Broiler Net Import Beef Production Pork Production Broiler Production 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5

FAPRI 21 World Ag Outlook, page 28 European Union: Crop EU grain area remains stable until 29 and then rises at the end of the projection period. The decrease in the gap between oilseed and grain compensatory payments results in a slight increase in wheat area. Oilseed area decreases after 21/2. Since the EU wheat price remains below the world price, the EU is able to increase its exports by more than 11 mmt without being constrained by WTO export subsidy commitments. As a result, EU share of wheat trade rises from 13.2 to 22.8 percent over the next decade. Because of growing domestic demand, EU corn imports are likely to increase slightly from 2 to 2.6 mmt. The EU is expected to remain a small net corn importer throughout the outlook period. EU barley exports are projected to increase steadily throughout the baseline. As with wheat, the EU is expected to export barley without subsidies. Restrictions on the use of animal protein meal in the EU are estimated to result in additional imports of 9 tmt of soybeans and 3 tmt of soy meal in 2/1. By 21/11 the EU is expected to import 17.5 mmt of soybeans and 16.5 mmt of soy meal.

European Union Area Harvested European Union Grain Feed Use 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Oilseeds Coarse Grains Wheat European Union Grain Net Exports 5 45 4 35 3 25 2 15 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Corn Barley Wheat European Union Soybean and Products Imports 3 25 2 15 1 5 4 35 3 25 2 15 1 5-5 -5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Corn Barley Wheat Soybean Soybean Meal Soybean Oil page 29

FAPRI 21 World Ag Outlook, page 3 European Union: Livestock Agenda 2 reforms reduce beef intervention prices by 2 percent, replace public intervention purchases with private storage aid at the end of 22, and drop crop intervention prices by 15 percent. With the exception of Austria, Finland, and Sweden, BSE outbreaks are reported in the rest of the European Union, particularly France and Germany, which account for 43 percent of total cattle stock in the EU. Beef production drops by 13 percent between 1999 and 22. There is a temporary slight recovery in 23 to 25 before production declines the rest of the decade with lower cattle numbers coming out of the dairy sector. The EU s beef export dropped by 31 percent in 2 due to the combined effect of low intervention stocks in the first ten months and a unilateral import restriction imposed by third countries. Concerns over BSE will keep exports below the GATT limit. Pork and poultry exports are slightly lower at the opening of the decade, with more domestic use reducing exportable surplus. With lower feedgrain prices following Agenda 2 reforms, EU meat exports recover in the outer years. Strong export and domestic demand for SMP reduced EU stocks by 43 percent and raised domestic SMP prices by 8 percent in 2. The SMP market in the EU is expected to remain tight throughout the baseline, keeping prices well above intervention levels. With butter stocks in excess of 3 tmt, EU butter prices come close to intervention levels during the implementation of Berlin Accord reforms in 25-27.

EU Beef Supply and Utilization EU Pork Supply and Utilization 8, 2, 25, 1,6 1,4 7,5 1,6 2, 1,2 1,2 15, 1, 7, 8 8 1, 6 6,5 4 5, 4 2 6, 1995 1997 1999 21 23 25 27 29 1995 1997 1999 21 23 25 27 29 Production Consumption Export Stock Production Consumption Export EU Broiler Supply and Utilization EU Dairy Product and Intervention Prices 8, 8 Euros / 1 Kg 5 7, 6, 7 6 4 5, 4, 5 4 3 3, 2, 3 2 2 1, 1995 1997 1999 21 23 25 27 29 Production Consumption Export 1 1 page 31 199 1992 1994 1996 1998 2 22 24 26 28 21 Butter Cheese NFD WMP Bu. Intervn. NFD Intervn.

FAPRI 21 World Ag Outlook, page 32 Wheat Outlook An increase in wheat price tends to reverse the downward trend in world wheat area since the 1996/97 record level. The projected increase in world wheat area amounts to more than 4 mha in the next two years, mainly driven by the U.S., China, Russia, and Ukraine. Growth in both yields and area results in an expected increase in world wheat production by nearly 9 mmt over the next decade. A quarter of this increase is due to the increase in EU wheat production. Increasing demand in developing countries pushes wheat prices up by a third. The stock-to-use ratio falls from 18 percent down to 14 percent by 28/9 and then rises to 16 percent by 21/11, following a reduction in EU set-aside requirements from 1 to 5 percent. World wheat trade is projected to increase by nearly 21 percent or 19 mmt by 21/11. China s increase in imports accounts for a quarter of this expansion. India is projected to import more than 2 mmt by 21/11. Import growth in Latin America, the Middle East, and Africa remains slight but steady. Droughts in two consecutive years in Iran maintain wheat imports at a high level in 2/1. Recovery leads to a fall of nearly 3 mmt in Iranian wheat imports by 21/2, followed by a steady but slow increase to meet domestic demand over the remainder of the outlook period.

World Wheat Area Harvested, Production, and Consumption World Wheat Stock-to-Use Ratio vs. Price Million Hectares Dollars per MT Percent 8 235 22 28 7 6 23 2 26 24 5 225 18 22 4 22 16 2 18 3 215 14 16 2 1 21 12 14 12 25 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Production Consumption Area Harvested 1 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 U.S. FOB Gulf Price Stock-to-Use Ratio Wheat Net Imports by Major Regions Iran Wheat Net Imports 4 8 3 2 6 1 4-1 -2 2-3 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Asia Latin America Africa and Middle East Transition Economies 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 page 33

FAPRI 21 World Ag Outlook, page 34 Wheat Outlook (continued) Despite appreciation of the euro, the European wheat price remains lower than world price. Thus, the EU is expected to expand its exports by nearly 12 mmt and capture half of the world wheat trade growth. Canada remains the second-largest wheat exporter, behind the United States, until 27/8 but is overtaken by the EU beyond this date. Australian wheat production growth over the outlook period is expected to be 28.6 percent, the highest rate among major competitors. Coupled with a rather slow increase in domestic consumption, this enables Australia to raise its exports by more than 3 mmt over the outlook period. Argentine exports are expected to reach more than 14 mmt by 21/11. In a growing trade context, U.S. exports are expected to grow slower than those of other competitors. As a result, the U.S. market share falls from 31 percent to 27 percent.

Wild Card Players in Wheat Market EU Wheat Net Exports 18 16 14 12 1 8 6 4 2-2 -4 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Wheat Net Exports by Other Big Three China India 3 25 2 15 1 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 World Wheat Trade and U.S. Market Share 3 25 2 15 1 12 1 8 6 4 Percent 45 4 35 3 25 2 15 1 5 2 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Argentina Australia Canada page 35 World Wheat Trade U.S. Market Share

FAPRI 21 World Ag Outlook, page 36 Rice Outlook Continued urbanization and competition from other cash crops diminish world rice area over the outlook period, with China contributing most to this decline. Decline in per capita consumption allows Asian countries to capture most of the expected increase in rice trade. A projected 25 percent increase in Thai exports strengthens Thailand s position as the world s largest rice exporter. Vietnam and India benefit the most from the remaining increase in rice trade, capturing respectively 13.3 and 21.2 percent of the world rice trade. World rice trade is expected to increase by more than 6 mmt over the outlook period. The recent decline in world rice trade is projected to be recouped by 23/24. Trade grows at a rather slower pace beyond this date, increasing by another 2 mmt. Japanese and South Korean rice areas are projected to decline steadily to comply with the WTO minimum import access commitment. Indonesia remains the largest rice importer. Increasing domestic demand prevents Indonesia from achieving self-sufficiency. China expands its net export position in the first few years, but, as domestic demand rises, its exports decline in the second half of the projection period. International rice prices are expected to rise throughout the baseline due to the recovery in Asian countries. By the end of the period, rice price is expected to return to 1998/99 levels.

World Rice Stock-to-Use Ratio vs. Price Major Asian Rice Exporters Dollars per MT 4 Percent 18 25 35 3 25 2 17 16 15 14 13 12 11 2 15 1 5 15 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11-5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 FOB Bangkok Price Stock-to-Use Ratio China India Pakistan Taiwan Thailand Vietnam Major Asian Rice Importers Major Non-Asian Rice Exporters Million Hectares 8 7 6 5 4 3 2 1 4.5 4. 3.5 3. 2.5 2. 1.5 1..5-1. 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Japan Indonesia Philippines South Korea page 37 U.S. Argentina Uruguay

FAPRI 21 World Ag Outlook, page 38 Coarse Grain Outlook World coarse grain area increases slightly in the next decade, mostly driven by increases in corn and barley area, while sorghum area declines. As they recover from recent crises, developing Asian countries remain the fastest-growing market for corn in the next decade. Taiwan s corn imports steadily rise due to expanding poultry production and rebuilding hog production. Corn trade is projected to rise by 3 percent over the next decade. An increase in imports in developing countries accounts for more than 9 percent of the increase in world corn trade. India is expected to remain a net corn importer throughout the outlook period. By 21/11, the estimated corn imports total more than.6 mmt. Eastern European countries expand corn exports due to faster growth in corn production relative to consumption. Throughout the outlook period, they are expected to become a major corn competitor, with market share rising from to 5.6 percent. Despite a slight decline in its market share, Argentina continues to be a strong competitor for U.S. corn, expanding exports from 8.5 to 1 mmt.

Corn Net Imports by Major Regions China Coarse Grain Net Trade 9 8 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Developing Other Developing Asia Developed Russia and Other FSU 15 1 5-5 -1-15 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Corn Barley Corn Net Exports by Competitors World Corn Trade and U.S. Market Share 2 15 1 5 1 9 8 7 6 5 4 3 2 1 Percent 1 9 8 7 6 5 4 3 2 1-5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Argentina Eastern Europe South Africa page 39 World Corn Trade U.S. Market Share

FAPRI 21 World Ag Outlook, page 4 Coarse Grain Outlook (continued) China remains a declining net exporter of corn for the next four years and becomes a net importer for the second half of the projection period, importing nearly 7 mmt by 21/11. The United States captures more than 9 percent of the projected increase in corn imports. U.S. market share is thus expected to rise from 79 to 82 percent. Barley imports are expected to expand by almost 2.5 mmt. More than 7 percent of this increase comes from China and Saudi Arabia. The EU captures most of the barley trade growth by expanding its exports to more than 13 mmt by 21/11, increasing its market share from 61 to 66 percent, while Australian and Canadian market shares decline very slightly. World sorghum trade is projected to grow by almost 2 mmt over the next decade. This expected increase mainly comes from growth in Mexican imports and is partially offset by a decline in Japanese imports.

World Corn Stock-to-Use Ratio vs. Price Sorghum Net Imports Dollars per MT 18 16 Percent 22 2 9 8 7 14 12 1 8 18 16 14 12 6 5 4 3 2 1 6 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 FOB Gulf Price Stock-to-Use Ratio Japan Mexico Sorghum Net Exports Barley Net Exports by Major Countries 1 9 8 7 6 5 4 3 2 1 2 18 16 14 12 1 8 6 4 2 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Argentina Australia U.S. page 41 European Union Canada Australia

FAPRI 21 World Ag Outlook, page 42 Oilseeds Outlook Major oilseeds area harvested decreased by 1 mha in 2/1 to 127 mha. The total area is projected to increase to 14 mha harvested by 21/11. Soybean area of major producers increased to a record 7 mha in 2/1 and is projected to increase again in 21/2 before declining slightly for two years. After 24/5 the soybean area is expected to increase steadily to 77 mha by 21/11, with 8 percent of this expansion expected in South America. Argentina and Brazil are expected to continue the expansion of their soybean areas throughout the entire projection period. The soybean areas are projected to grow from the current 9.7 to 11.3 mha in Argentina and from 13.4 to 17.2 mha in Brazil. Argentina s soybean production is expected to reach 3 mmt in 21/11 and Brazil is projected to produce close to 5 mmt of soybeans by 21/11. Equalization of cereal and oilseed compensatory payments abolishes crop-specific payments for oilseeds by 22/3. As a result, the EU oilseed area is projected to decline by 6 percent until 21/11. Current year Rotterdam soybean prices fell again compared to 1999/ to $25 per mt. This price is projected to go down an additional 3.5 percent next year and then increase throughout the projection period to $244 per mt by 21/11.

Oilseeds Area Harvested of Major Producers Vegetable Oil Use of Major Consumers Million Hectares 16 14 12 1 8 6 4 2 8 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Soybean Rapeseed Sunflower Peanuts Palm Oil 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Soy Oil Sunflower Oil Rapeseed Oil Palm Kernel Oil Peanut Oil Palm Oil Soybean and Products Rotterdam Prices Soybean Area Harvested Dollars per MT 7 6 5 4 3 2 1 Million Hectares 8 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Soybean Soymeal Soybean Oil 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 Argentina Brazil China U.S. page 43

FAPRI 21 World Ag Outlook, page 44 Oilseeds Outlook (continued) Current soy meal prices increased by 1 percent from last year while soy oil prices decreased for the third consecutive year. Soy meal is not expected to maintain its current strength. Soy oil prices are projected to start a recovery next year. The ban on animal protein meal in the EU increased the consumption of soy meal by 1 mmt in 2/1. A similar consumption increase is expected for next year. The EU soybean net imports are projected to increase from 15 mmt in 1999/ to 16.6 mmt in 21/2. Due to the strong expansion of South American soybean exports, the U.S. share of world soybean trade is expected to decline from 63 percent in the current year to 5 percent in 21/11. Because of strong domestic demand and its grain self-sufficiency policy, China is emerging as the secondlargest importer of soybeans, behind the EU, and the largest importer of rapeseed. Chinese soybean net imports are projected to increase to 16.33 mmt in 21/11. Chinese soy oil net imports are projected to increase from.6 mmt to 1.18 mmt during that period. Because Argentina and Brazil are expected to focus on soybean exports, the U.S. share in soy meal is projected to decline only slightly from its current 2 percent, and the soy oil export share is anticipated to grow from 1 to 13 percent by 21/11. Korean soybean imports are projected to rise by 5 percent over the baseline, while China is projected to become a small net exporter of soybean meal by 21/11 because of it s policy favoring raw soybean imports.

Major Soybean Exporters Major Soy Meal Exporters 7 6 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 United States Argentina Brazil 4 35 3 25 2 15 1 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 United States Argentina Brazil India Major Soy Oil Exporters Chinese Soybean and Products Imports 8 2 7 6 5 15 1 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 5-5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/211 U.S. Argentina Brazil EU page 45 Soybean Soybean Meal Soybean Oil

FAPRI 21 World Ag Outlook, page 46 Cotton Outlook The cotton A-Index is projected to close out the 2/1 marketing year at $1,435, a significant rebound from last year s 15-year low of $1,165. Despite gradual strengthening, world cotton prices remain at the lower end of the historical range throughout the baseline. Brazilian cotton area rebounds to.89 mha in 2/1 and grows to 1.59 mha by 21/11. With new area sown to cotton in the Mato Grosso region, Brazilian production surges to 1.19 mmt by the end of the projection period, most of which is consumed domestically. China is expected to reduce cotton stocks to 3.28 mmt in 2/1 and to continue liquidation until stocks bottom out at 1.56 mmt in 25/6. China returns to a net import position in 2/1, importing 68 tmt of cotton. As domestic stocks are depleted, China s cotton imports grow rapidly, reaching 423 tmt in 21/2 and 77 tmt in 21/11. World cotton consumption remains flat in 2/1 at 2 mmt. Consumption growth in the first half of the projection period is in excess of 1 percent annually, but it drops below 1 percent in the latter half of the baseline. The greatest growth in cotton consumption occurs in Australia, India, Pakistan, and Brazil, countries with substantial domestic cotton production. Australian cotton area remains flat in 2/1 at.47 mha, but it is projected to grow to.6 mha by 21/11. This growth in area is accompanied by a 45 percent increase in yields.

World Cotton Stock-to-Use Ratio vs. Price Chinese Cotton Supply and Utilization Percent 6 Dollars per MT 2,5 6 5 4 3 2 1 2, 1,5 1, 5 5 4 3 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 ROW U.S. China A-Index -1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Production Consumption Net Imports Ending Stocks World Cotton Consumption World Cotton Trade 25 8 7 2 15 6 5 4 1 3 5 2 1 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Non Producers Producers Total Consumption U.S. Exports Non U.S. Exports Total Imports page 47

FAPRI 21 World Ag Outlook, page 48 Sugar Outlook World harvested area for sugar-producing crops increases 5 percent, with a 6 percent and 3 percent growth in sugarcane and sugar beet harvested area respectively. After a predicted 23 percent decline in world trade for 2/1, rising income and population growth in developing countries help return trade to 1999/ levels by the end of the projection period. Low world sugar price the last two years resulted in an 8 percent decline in sugar production in 2/1. This has helped stimulate a modest price recovery in 2/1. By the end of the projection period, price is expected to recover steadily, to nearly 11 cents per pound. The Stocks-to-Use ratio has been increasing for several years. It peaked in 1999/ at 29 percent and is projected to decline to 2 percent by 21/11. Australia, Brazil, the EU, and Mexico capture most of the growth in world sugar trade. Declining per capita consumption, increased production, and NAFTA allow Mexico to expand exports from 54 tmt to 1212 tmt by the end of the projection period. Asia remains the largest importing region. Countries such as China, Indonesia, Japan, Malaysia, and South Korea continue to be large importers, accounting for 31 percent of world trade by 21/11. The United States is projected to increase its imports by around 75 percent, from 1.5 to just over 2.5 mmt.

World Sugar Price and Stock-to-Use Ratio World Sugarcane and Sugar Beet Area Harvested Percent 35 Dollars per MT 35 Million Hectares 3 3 3 25 25 2 15 1 25 2 15 1 2 15 1 5 5 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 Stock-to-Use Ratio FOB Caribbean Price 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 29/1 Sugar Beet Sugarcane Major Sugar Importers Major Sugar Exporters 16 3 14 25 12 1 8 2 15 6 1 4 2 5 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 1989/9 1992/93 1995/96 1998/99 21/2 24/5 27/8 21/11 South Korea Japan Indonesia Former Soviet Union United States page 49 Australia Brazil Cuba EU Thailand

FAPRI 21 World Ag Outlook, page 5 Livestock Outlook Rising per capita incomes (for example, at 6 percent in Asia), increasing population, and continuing urbanization boost world meat demand. Productivity improvements and product innovations driven by adoption of new technologies and favorable structural transformation expand production potential. World beef, pork, and poultry import demand increase annually by 2.71, 3.38, and 1.82 percent, respectively. World price of beef increases by 3.27 annually in the next three years, peak price of pork increases by.5 to 2.1 percent, while price of poultry sustains an increase of.36 percent. Higher prices induce growth in world meat production by.92 percent for beef, 1.49 percent for pork, and 2.51 percent for poultry. Low-cost producers gain export market share, including the United States, Argentina, Canada, and Brazil. Shocks from disease outbreaks in major importing and exporting countries FMD in South Korea, Japan, Brazil, and Argentina; CSF in UK; and BSE in most of the European Union impact the world meat market.

World Beef Production and Trade World Pork Production and Trade 9, 5, 9, 5, 8, 7, 4, 8, 7, 4, 6, 3, 6, 3, 5, 4, 2, 5, 4, 2, 3, 1995 1997 1999 21 23 25 27 29 1, 3, 1995 1997 1999 21 23 25 27 29 1, Production Trade Production Trade World Broiler Production and Trade World Meat Prices 9, 5, Dollars per cwt 8 8, 7, 4, 7 6 6, 3, 5 5, 4, 2, 4 3 3, 1995 1997 1999 21 23 25 27 29 Production Trade 1, 2 page 51 1995 1997 1999 21 23 25 27 29 Beef Pork Poultry

FAPRI 21 World Ag Outlook, page 52 Beef Outlook Driven by economic and population growth (for example, in Japan, Russia, Mexico, South Korea, Taiwan, Philippines, and Hong Kong) and market liberalization, world beef import demand increases by 3 percent in the next decade. Canada is retaining more cattle for domestic slaughter with its additional slaughter capacity, cutting in half the annual average of its live cattle export to the United States compared to its peak level of 1.15 million head in 1996. Australia s live cattle export to Asian countries, including Indonesia, Philippines, and Malaysia, doubles in the next decade, reaching 1.34 million head in 21. Despite reported FMD cases from illegally imported cattle, Argentina s net beef exports grow by 3.55 percent in the first half of the decade, accelerating to 6.33 percent in the second half, reaching 566 tmt in 21. Low-cost producers such as Brazil, Canada, and the United States gain export market share. EU share drops due to BSE concerns. Australia loses slightly, but makes significant growth in live cattle export. Argentina regains lost market share.

Major Beef Importing Countries Eastern Europe Beef Production and Consumption 3,5 3, 2,5 2, 1,5 1, 5 1, 9, 8, 7, 6, 5, 4, 3, 2, 1995 1997 1999 21 23 25 27 29 Japan Russia Mexico South Korea Other FSU Taiwan Philippines Hong Kong 1, 1995 1997 1999 21 23 25 27 29 Production Consumption Live Cattle and Beef Export Beef Export Market Share Thousand Head 1,6 1,4 1,2 1, 8 6 5 4 3 Percent 5 4 3 2 6 2 1 4 1 2 199 1992 1994 1996 1998 2 22 24 26 28 21-1 Australia Brazil New Zealand EU Argentina Canada China U.S. Australia-Live Canada-Live Argentina-Net Beef page 53 1995/2 21/25 26/21

FAPRI 21 World Ag Outlook, page 54 Pork Outlook World pork import demand increases by 39 percent in the next decade, driven by economic and population growth in Asia, FSU, South America, and Central and Eastern European Countries. Slight recovery at the end of the decade provides more exportable surplus of pork from the CEECs. Canadian live swine export to the U.S. is 2 percent lower than its peak of 4.14 million head in 1999 as a result of additional slaughter capacity and increased pork exports to the Asian market. Its net exports reach 1.2 mmt in 21. China s pork consumption grows and exceeds production, resulting in a net import of 32 tmt in 21. Low feedgrain prices and improvement in productivity enable the United States and Canada to gain export market share. Brazil s exports are constrained by sanitary issues. The EU, Poland, and China lose export market share.

Major Pork Importing Countries China Pork Supply and Utilization 2,5 2, 1,5 1, 5 4, 35, 3, 25, 2, 15, 1, 5, 3 25 2 15 1 5 1995 1997 1999 21 23 25 27 29 Japan Russia Hong Hong Mexico Argentina South Korea 199 1992 1994 1996 1998 2 22 24 26 28 21 Production Consumption Export Import Canadian Pork and Swine Export Pork Export Market Share, Head 4,5 4, 3,5 3, 2,5 2, 1,5 Percent 5 4 3 2 1 1, 5-1 199 1992 1994 1996 1998 2 22 24 26 28 21 Pork Swine page 55 EU Canada U.S. Poland China Brazil Hungary 1995/2 21/25 26/21

FAPRI 21 World Ag Outlook, page 56 Poultry Outlook World poultry imports increase by 2 percent in the next decade, driven by strong demand in Japan, China, Russia, and Hong Kong. Availability of improved technology raises production in many countries, alleviating the impact of the shift to poultry consumption on trade and prices. Demand complementation between China and the United States drives China s imports to 859 tmt in 21. Cheap poultry exports and currency devaluation fuel Brazil s gain in export market share from 18 to 26 percent. The U.S. s share is stable, then declines slightly at the close of the decade. The EU and Thailand lose market share.

Major Poultry Importing Countries Per Capita Poultry Consumption 3,5 3, 2,5 2, Kilograms 6 5 4 3 1,5 1, 5 1995 1997 1999 21 23 25 27 29 Japan China Russia Hong Kong Saudi Arabia Mexico 2 1 Australia China EU Hong Kong 1995/2 21/25 26/21 Mexico Korea Taiwan U.S. China Poultry Supply and Utilization Poultry Export Market Share 6, 5, 4, 3, 2, 1, 1,4 1,2 1, 8 6 4 2 Percent 7 6 5 4 3 2 1 199 1992 1994 1996 1998 2 22 24 26 28 21 Production Consumption Export Import page 57 U.S. Brazil EU Thailand Hungary 1995/2 21/25 26/21

FAPRI 21 World Ag Outlook, page 58 Dairy Outlook A reduction in U.S. exports coupled with strong import demand pushed up international prices for NFD and WMP by 44.5 and 22.4 percent respectively in 2. Powder prices are projected to decline 4 to 5 percent in 21. From 22 onwards, growing international demand for dairy products causes prices to rise 1.7 to 2.1 percent annually. Despite a.7 percent decline in total cow inventories, milk production in modeled countries grows 9.7 percent from 2 to 21, implying a 1 percent annual increase in average productivity per cow. Total fluid milk consumption rises 7.3 percent over the projection period, absorbing roughly one-quarter of the increase in total milk production. Economic recovery in Eastern Europe, Brazil, and Asia, along with stable growth in developed countries, spurs a 1 to 2 percent annual increase in per capita cheese consumption in most countries. Total output of cheese is projected to rise 2.5 mmt. Growth in U.S. cheese consumption is met by domestic production. U.S. cheese imports are expected to remain constrained by TRQs. Butter production is projected to increase 18.8 percent from 2 to 21, with 84 percent of that growth occurring in India. Total production of NFD and WMP grows at similar rates, rising 18.1 and 2.2 percent, respectively.

FOB Northern European Dairy Product Prices Annual Growth in Milk Production and Total World Output U.S. Dollar per MT 2,6 2,4 2,2 2, 1,8 1,6 1,4 1,2 7, 6, 5, 4, 3, 2, 1, -1, 44 43 42 41 4 39 38 37 36 1, 199 1992 1994 1996 1998 2 22 24 26 28 21 WMP Cheese Butter NFD -2, 1994 1996 1998 2 22 24 26 28 21 N. America S. America Europe India Oceania Total 35 Per Capita Cheese Consumption for Selected Countries Dairy Product Output for Modeled Countries Kg per Person 18 16 14 12 1 8 6 4 2 U.S. EU Australia Argentina New Zealand Czech Republic Hungary Poland Brazil Japan Russia Mexico Ukraine 1991/1995 1996/2 21/25 26/21 3, 25, 2, 15, 1, 5, 199 1992 1994 1996 1998 2 22 24 26 28 21 Butter Cheese NFD WMP page 59

FAPRI 21 World Ag Outlook, page 6 Dairy Product Trade Russian butter imports declined to 37 tmt in 2. As the Russian economy strengthens, butter imports recover modestly, reaching 79 tmt by 21. Butter imports by countries in the Rest of World grow 35 tmt over the baseline. Roughly 9 percent of butter exports are supplied by Australia, New Zealand, and the EU in 2. Moderate growth in EU and New Zealand exports keeps the share of the major three exporters above 9 percent throughout the baseline. Milk quotas constrain domestic cheese production, causing Hungary to become a net importer of up to 25 tmt by 21. Russian cheese imports rise to 144 tmt by 21. Cheese exports from Australia and New Zealand grow an average of 3 percent annually, allowing these countries to capture 75 percent of the total growth in trade. Following implementation of Berlin Accord reforms, EU unsubsidized cheese exports grow 35 tmt. Greater profitability in cheese markets prompt significant declines in Australian and Canadian NFD exports. Polish NFD exports increase 35 tmt over the projection period. U.S. NFD exports are limited to DEIP maximums despite elimination of market support in 22. A 53 percent increase in domestic WMP production keeps Brazilian WMP imports to a modest 7 percent growth, while Brazilian NFD imports rise 64 percent. WMP net exports from Argentina and New Zealand both grow in excess of 6 tmt. Australian WMP exports grow a modest 1 percent annually, while EU exports stagnate.