FEED Yearbook May 5, 2001 April 2001 FDS-2001 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- FEED YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the FEED YEARBOOK--tables and graphics are not included. Printed copies of this Yearbook will be available from the USDA order desk. Call, tool-free, 1-800-999-6779 and ask for stock # ERS-FDS-2001, $21. ERS- NASS accepts MasterCard and Visa. ---------------------------------------------------------------------------- Summary Increased Domestic Use Boosts U.S. Feed Grain Disappearance in 2000/01 Total feed grain use is projected at 271.5 million tons in 2000/01, up 1 percent from the previous year, and a record. Feed grain exports are largely unchanged from 1999/2000, with higher corn and barley offsetting lower sorghum. Domestic use is forecast to rise 2 percent from a year earlier to a record 215 million tons. Feed and residual use of the four feed grains plus wheat is expected to be down slightly from last year, but an increase in grain consuming animal units is expected to keep feed demand strong. The grain used per grain consuming animal unit in 2000/01 is down 2 percent from 1999/2000's 1.9 tons. Corn is expected to represent 89 percent of feed and residual use, up from 87 percent in 1999/2000. U.S. 2000/01 ending stocks of corn are projected to increase nearly 14 percent as production exceeds total use. Domestic disappearance is expected to set another record, but corn exports are little changed as higher exports for Argentina, Brazil, and South Africa offset reduced shipments from China and Eastern Europe. Corn prices are projected to range between $1.80 and $1.90 per bushel, compared with $1.82 in 1999/2000. Food, seed, and industrial (FSI) use of corn is expected to rise 3 percent from a year earlier and represent 20 percent of total corn use, the same as in 1999/2000. Corn used for high fructose corn syrup and ethanol will post the largest increases. The Department of Energy reported record ethanol production for September 2000-February 2001. Corn used for ethanol in 2000/01 is forecast at a record 615 million bushels, up 9 percent from last year. The sorghum supply is down 19 percent from a year earlier in 2000/01 because of a smaller crop. All uses of sorghum are expected to be down due to lower supplies. The largest decrease will occur in feed and residual use, which is projected to drop 54 million bushels to 230 million. Food, seed, and industrial use is expected to decline 20 million bushels, while sorghum exports drop 41 million bushels from the 256 million the year before. The sorghum price is expected to average 97 percent of the corn price, up from 86 percent in 1999/2000, and stronger than the historical relationship of around 92-93 percent. Barley supply in 2000/01 is forecast up 2 percent as larger production offsets a 21-percent drop in beginning stocks. Total use has rebounded from last year, led by export gains. Barley prices received by farmers in 2000/01 are about the same as a year ago. The average spread between malting and feed barley in June 2000-March 2001 is down to 73 cents per bushel from last year’s 81 cents. Oats supplies in 2000/01 are expected to be up 3 percent from 1999/2000. Total use also will be up 2 percent with almost all use categories higher than last year. Prices received by farmers for oats in 2000/01 are expected to average about the same as in 1999/2000. According to the March 31 Prospective Plantings report, growers intend to plant 76.7 million acres of corn in 2001, down 4 percent from last year. Sorghum growers indicated they intend to expand plantings 2 percent to 9.4 million acres. However, barley growers intend to seed 9 percent fewer acres than the 5.8 million acres a year ago. Farmers intend to harvest 2.2 million acres of oats for grain in 2001, down 5 percent from 2000. Hay production in 2000 decreased 5 percent from 1999, and stocks on December 1, 2000, were also down 5 percent from a year earlier. Hay prices are up in 2000/01, following declines in 1999/2000. Farmers in March indicated they planned to harvest 64 million acres of hay in 2001, up from 60 million acres in 2000. World coarse grain production is expected to decline 2 percent in 2000/01, with most of the decline in corn. Producers responded to generally low world prices by planting less area, and drought in several major foreign countries reduced area and yields. Global coarse grains beginning stocks were also down. World coarse grain consumption is expected to decline slightly, with a large drop in Eastern Europe offsetting growth in several other regions. However, consumption is forecast to remain much larger than production, dropping world ending stocks 22 million tons to 143 million. Global coarse grain trade is expected to decline despite relatively low prevailing prices. Feed Grain Supply and Use ABUNDANT FEED GRAIN SUPPLIES AND LOW PRICES SPUR LARGER USE IN 2000/01 Total feed grain disappearance in 2000/01 is forecast up 1 percent from last year. Domestic use is expected to rise 2 percent. U.S. feed grain production in 2000 is estimated at 274 million metric tons, up 4 percent from the year before but down 3 percent from 1994's record 283.2 million. However, beginning stocks of feed grains are down 5 percent from 1999/2000 to 49 million tons, leaving 2000/01 supplies up 3 percent. Total feed grain disappearance will rise because of record-large feed and residual use and expanding food, seed, and industrial (FSI) use. Total use is projected at a record 271.5 million tons in 2000/01, up 1 percent from the previous year. Feed grain exports are little changed as larger corn and barley exports are offset by reduced sorghum shipments. Corn’s share of total use is forecast at 92 percent, up from 91 percent in 1999/2000. Corn accounted for 92 percent of total production in 2000, reflecting gains in corn production relative to the other feed grains. Acreage of the other feed grains is trending down, and their yield growth has been more subdued compared with corn. The United States Department of Agriculture’s (USDA) Prospective Plantings report for 2001 indicates that as of early March, farmers intended to plant less corn, barley, and oats than last year, and oats will be the lowest on record. Producers are getting better returns from other crops and, in some areas, they have enrolled land in the Conservation Reserve Program, which puts the acreage into conserving uses for 10 years. LARGER BEGINNING STOCKS BOOST CORN SUPPLY IN 2000/01; DOMESTIC USE RECORD HIGH U.S. ending stocks of corn are projected to increase nearly 14 percent as gains in supply outstrip gains in use in 2000/01. Domestic disappearance is expected to set another record because of large supplies and low prices. Corn exports are expected to show little change as increased exports by Argentina, Brazil, and South Africa offset reduced China shipments. Corn Crop Reaches 9.97 Billion Bushels U.S. corn production in 2000 was 9,968 million bushels, up 6 percent from 1999 and the second highest on record. Planted area totaled 79.5 million acres, up 3 percent from the year before. Corn harvested area also increased 3 percent from the 70.5 million acres in 1999. The average yield was 137.1 bushels per acre, up 3.3 bushels from 1999. Planting started early and proceeded rapidly in 2000 and was complete before the end of May, compared with the previous 5-year average of 90 percent. During the early summer, timely rains fell throughout most of the Corn Belt and maintained adequate moisture for early plant growth and development. Cooler-than-normal temperatures during the summer, and some isolated areas of excess moisture, slowed crop development in the Great Lakes region. However, serious moisture shortages developed in the western Corn Belt and Southeast during July and August. The crop matured early in most areas, following the early planting pattern, and dried down rapidly during September and October. The dry weather not only lowered grain weights significantly, but also weakened corn stalks in the heart of the Corn Belt, and strong winds caused widespread lodging, thus reducing yield potential and increasing loss. Harvest finished well ahead of the average pace in early November. However, farmers in the Great Lakes region struggled with a slower harvest as wet, cool weather slowed crop maturity and dry down. Frost damaged only minimal acres in the Great Lakes region, and the rest of the Corn Belt harvested their crop frost-free. The 2000 Corn Objective Yield survey indicated record stalk counts in five of the seven objective yield States (Illinois, Indiana, Iowa, Minnesota, Nebraska, Ohio, and Wisconsin). Ear counts declined during the season, but remained near record levels or above average. Stocks To Increase as Supply Outstrips Gains in Use Beginning stocks of corn for 2000/01 were down 4 percent from a year earlier to 1,718 million bushels. In spite of this decline, the larger crop raised the total corn supply 4 percent from the year before to 11.7 billion bushels. This is the largest supply since 12 billion bushels in 1987/88. The increase is not expected to be outpaced by gains in use, and ending stocks are projected to increase nearly 14 percent to 1,951 million bushels. The ratio of stocks to use is projected at 20 percent, compared with 18 percent in 1999/2000 and the low of 5 percent reached in 1995/96, when prices soared to record highs. Total Disappearance Expected To Be Highest Ever Total disappearance of corn is projected at 9,745 million bushels in 2000/01, up 2 percent from 1999/2000. Exports are expected to be up slightly while domestic use is forecast up 3 percent to a record high. Domestic use is expected to reach 7.8 billion bushels, the fourth consecutive record high, as both feed and residual use and FSI use expand. FSI use is forecast to rise 3 percent to a record 1,970 million bushels in 2000/01, led by gains in ethanol and high fructose corn syrup. U.S. economic growth and very attractive corn prices for processors underlie the continued expansion in industrial use. Feed and residual use of corn is forecast to rise 3 percent to 5,825 million bushels, also a record, as large animal inventories, particularly cattle on feed, increased pig crop, and broilers, and low feed grain prices keep feed demand high. Corn Prices Projected To Remain Low The season-average farm price of corn in 2000/01 is forecast at $1.80- $1.90 per bushel. The midpoint of this range would be slightly higher than last year’s $1.82 season-average price. Weak prices over the last year have reflected fundamental developments in the corn market and low prices for virtually all commodities. Corn prices began a descent during the later stages of the 1999/2000 marketing year in response to favorable crop production prospects and continued downward and hit a low in August. Average farm prices then rose modestly, roughly in line with normal seasonal patterns. End users have benefited from the low prices. The benchmark Central Illinois cash price of corn declined to under $1.50 per bushel in August 2000. During the main harvest period (September-November), prices averaged $1.78 per bushel, unchanged from 1999, even though September 2000 was 23 cents below last year. In December 2000-March 2001, Central Illinois prices have averaged $1.97, down from $1.98 a year earlier. Corn Plantings Likely To Decrease in 2001 In early March, corn growers indicated they intended to plant 76.7 million acres of corn in 2001, down 4 percent from last year, according to the Prospective Plantings report. Actual plantings could change because of market conditions and weather effects. Expected acreage is down in almost all areas of the United States. Plantings are down throughout the Corn Belt due mostly to the high cost of inputs and more attractive prospects for other crops. Farmers’ intentions shifted away from corn in Texas and Louisiana as planting was hampered by frequent rains during the spring. Dry soils and lack of water reserves in the Southeast reduced intended corn plantings. The only region where farmers intend to plant more corn is in the Northeast where cool wet weather last spring prevented many corn acres from being planted. Numerous winter storms somewhat replenished soil moisture supplies in most of last summer's drought-stricken Great Plains and western Corn Belt. Fieldwork was delayed in parts of the southern Great Plains and interior Mississippi Delta, as soils remained nearly saturated through most of the winter. Farmers intend to plant 24 percent of their acreage with varieties developed using biotechnology, down 1 percentage point from 2000. If these intentions are realized, 16 percent of the acreage will be planted with varieties containing bacillus thuringiensis (Bt), down from 18 percent in 2000. Seven percent of the acreage will be planted with herbicide resistant varieties developed using biotechnology if intentions are realized, up 1 point from 2000. Stacked gene varieties, those containing both insect and herbicide resistance from biotechnology, will be planted on 1 percent of the acreage, equal to last year. SORGHUM PRODUCTION AND USE DECREASE The sorghum supply is down 19 percent from a year earlier in 2000/01 because of a smaller crop. All uses of sorghum are expected to be down due to tight supplies and stronger prices. Sorghum production in 2000 was 470 million bushels, down 21 percent from 1999, reflecting decreases in harvested acreage and yields. Production was the lowest since 1995. Harvested acres totaled 7.7 million, down from the 8.5 million in 1999. Average grain yield, at 60.9 bushels per acre, was 8.8 bushels below the 1999 average yield and the lowest since 1995. Silage production is estimated to have totaled 2.86 million tons, a decrease of 23 percent from 1999. Area cut for silage is 265,000 acres, 17 percent less than the previous year. Silage yields averaged 10.8 tons per acre, down 0.8 ton per acre from a year earlier. Kansas continues to lead the Nation in sorghum planted and harvested acres and production for both grain and silage. Sorghum Disappearance Forecast To Decrease 22 Percent All uses of sorghum are expected to decrease in 2000/01 because of the smaller supply. Total use is forecast at 480 million bushels, down from 595 million in 1999/2000. Ending stocks of sorghum are projected at 55 million bushels, down from 65 million in 1999/2000 and the lowest in 4 years. The largest decrease will occur in feed and residual use, which is projected to slip 54 million to 230 million bushels. FSI use of sorghum is forecast to decrease 20 million bushels to 35 million. Most of this use is for fuel alcohol (ethanol), and the plants switched to more corn when sorghum prices rose sharply due to the small crop. Exports of sorghum are forecast at 215 million bushels in 2000/01, down from 256 million the year before. However, exports remained relatively strong due to shipments to Mexico. In the first half of the 2000/01 marketing year, export prices (fob Gulf ports) averaged 106 percent of the corn price, up from 93 percent last year. Farm Prices Stronger Sorghum prices received by farmers are forecast at $1.75-$1.85 per bushel in 2000/01. The sorghum price is expected to average 97 percent of the corn price, up from 86 percent in 1999/2000, and stronger than the historical relationship of around 92-93 percent. Sorghum Acreage Expected To Increase in 2001 Since the mid-1980s, there has been a downward trend in sorghum acres, but it has followed a choppy path. Sorghum plantings periodically spike when adverse weather creates problems for other crops. For example, in 1992, sorghum acreage rose more than 2 million acres, largely reflecting the replanting of failed cotton land in Texas. Similarly, in 1996, plantings increased 3.7 million acres when sorghum was planted on failed wheat acres in Kansas and Texas and on failed cotton acres in Texas. In 1999, sorghum acreage was down in Texas, mainly due to an increase in cotton planted acreage. According to the Prospective Plantings report, growers intend to plant 9.4 million acres in 2001, up 2 percent from 2000 and the first increase since 1996. Sorghum acreage is expected to increase in 11 States and decrease in 6 States. Most Plains States reported increases, with Kansas and Nebraska reporting acreage up 100,000 acres and 50,000 acres, respectively. Texas expects a reduction of 100,000 acres. While trending up, yield growth has been much more modest for sorghum than for corn. The long-term (1960-98) linear trend for sorghum shows annual yield increases of about 0.6 bushel per year, compared with about 1.8 bushels for corn. This difference reflects better genetic improvements with corn than for sorghum. Sorghum tends to be grown in drier areas because it is better able to tolerate drought and heat stress than corn, and a smaller share of sorghum acres is irrigated, also limiting the crop’s yield growth. The growing gap between sorghum and corn yields has diminished sorghum’s appeal. Since the 1996 Farm Act introduced more flexibility in planting decisions, both corn and soybeans have become attractive options in many areas in the western and northern tiers of the Corn Belt. New varieties of corn and soybeans are available that do well in what previously would have been considered marginal growing areas because of low moisture or short growing seasons. In addition, crop insurance may have helped to reduce the risk of growing corn, soybeans, or cotton in some of these areas. BARLEY PRODUCTION AND USE INCREASE IN 2000/01 Barley supply in 2000/01 is forecast up 2 percent because of increased production. Total use is up 5 percent because of increased exports. Barley production in 2000 is estimated at 318 million bushels, up from 280 million in 1999 because of higher area and yield. The national yield averaged 61.1 bushels per acre, up from 1999's 59.2 bushels. Planted acres in 2000 were up 13 percent to 5.8 million, and harvested acres were up 10 percent. Despite the increase, harvested acreage in 2000 was second only to 1999's record low. North Dakota remained the top barley producing State, followed by Idaho, Montana, Washington, and Minnesota. These five States produced over three-fourths of the 2000 barley crop. Total Supply and Use Up in 2000/01 Imports are largely unchanged, but beginning stocks are down 21 percent, leaving total supplies for 2000/01 up 2 percent from the 450- million bushels in 1999/2000. Most of the imports will be malting barley, and much is believed to be grown under contract. Feed barley imports are minimal, largely due to increased livestock production in Canada that has boosted local demand for barley. Ending stocks in 2000/01 are expected to be down 8 percent from the 111-million bushels in 1999/2000. Based on quarterly stocks data thus far in the 2000/01 marketing year, barley feed and residual use is expected to drop 8 percent to 125 million bushels. Exports are expected to almost double from the 30 million bushels shipped last year. Food, seed, and industrial uses are unchanged, reflecting a leveling in the consumption of beer. Barley Prices Increase Even with increases in production, barley prices received by farmers in 2000/01 are projected to average between $2.10 and $2.20, compared with $2.13 a year ago and $1.98 in 1998/99. Through March 2000, feed barley prices received by farmers averaged $1.72, up from $1.62 in June 1998-March 1999. Malting barley prices have not gained as much, averaging $2.45 in June 2000-March 2001, versus $2.43 during the same period a year earlier. The spread between malting and feed barley is down from last year’s 81 cents per bushel because of the stronger export demand for feed barley and higher prices. Prospective Plantings On March 1, 2000, growers indicated they intended to seed 5.3 million acres for 2000, down 9 percent from the 5.8-million acres seeded a year ago. North Dakota, with 1.60 million acres, is down 16 percent from last year, and Montana is down 4 percent. Of the 27 barley- producing States, only five plan to increase acreage. OATS SUPPLIES DOWN IN 2000/01 Oats supplies in 2000/01 are expected to be up 3 percent from 1999/2000. Total use also may be up 2 percent, with almost all the increase in feed and residual use compared with last year. Despite lower beginning stocks, oats supplies in the 2000/01 marketing year are up from last year because of increased production and imports. Production in 2000 was 149 million bushels, 3 million above 1999. The increase in production was because of increased yields. Planted acreage, at 4.48 million acres, was down nearly 4 percent from 1999, and harvested acreage was down 5 percent to 2.3 million acres. This is the second lowest production since records were first kept in 1866. Warm, dry weather at the beginning of spring 2000 allowed planting to rapidly advance in the Corn Belt, especially in Iowa, where nearly half of the acreage was seeded by April 1. Seeding progressed well ahead of normal in most of the major oat-producing States through April. In Ohio and Pennsylvania, planting accelerated in late April. By May 1, most of the acreage was seeded in the Corn Belt and progress was gaining momentum in the upper Mississippi Valley. At the end of May, planting was virtually complete across the Corn Belt, but lagged behind the 5-year average in North Dakota and Minnesota. Early planting, warm weather, and timely rain promoted rapid emergence and early growth in the Corn Belt and Great Lakes region. In the upper Mississippi Valley and northern Great Plains, adequate moisture supplies and seasonal temperatures aided rapid germination in late May and by the end of the month, nearly all of the Nation's oat acreage was emerged. Development continued ahead of the 5-year average through June and on July 2, 79 percent of the crop was headed in the eight major oat-producing States, compared with the average of 60 percent. About three-fourths of the acreage was rated good to excellent throughout July. Harvest began early and progressed ahead of the 5-year average, with only brief rain delays. In Iowa and Nebraska, the harvest was nearly complete by the end of July and most of the Nation's remaining oat acreage was harvested by the end of August. Oats are not likely to challenge corn for more acreage because of their lower yield per acre and low price. In 2000, average oats yields were 64.2 bushels per acre, while corn yields were 137.1 bushels per acre. Gross returns per acre of oats in 2000 will likely be around $71, in contrast to corn’s gross returns of $247-$260. Variable cash expenses are much higher for corn than oats, but in 1999 the value of production, less operating costs, were $77.21 per acre for corn, compared with $20.69 for oats. (See the ERS Cost and Returns Briefing Room at http://www.ers.usda.gov/data/costsandreturns.) Oats Imports Strengthen Imports in 2000/01 are expected to total 110 million bushels, up from 99 million in 1999/2000. The United States imports oats primarily from Canada, with lesser amounts from Finland and Sweden. All three countries tend to have cooler summers that are conducive to production of the heavy white oats favored by the food processing industry and many horse enthusiasts. As a result, imports are forecast to comprise about 33 percent of the U.S. oats supply in 2000/01. Total use of oats in 2000/01 is expected to equal 255 million bushels, up 5 million from a year earlier. Ending stocks are forecast up 6 percent from the 76 million in 1999/2000. Food use is expected to remain near the 1999/2000 level. Feed and residual use in 1999/2000 is expected to be up 3 percent from the 180 million bushels used in 1999/2000. Prices Down From Last Year Prices received by farmers for oats in 2000/01 are expected to average about $1.10, compared with $1.12 in 1999/2000. Average prices from June 1999 through March 2000 were $1.13, compared with $1.14 during the same period last year. Prospective Plantings On the first of March, farmers indicated they intended to harvest for grain 2.32 million acres in 2001, down 5 percent from 2000. If intentions are realized, planted and harvested acres would be the lowest on record, breaking the previous record lows set last year. Lower acreage intentions in the Corn Belt, Northeast, and the Carolinas will more than offset acreage increases in the Western States. In Nebraska and Texas, acres harvested for grain are expected to rebound from last year's drought-reduced levels. LDPs SUPPORT FEED GRAIN FARMERS’ INCOME The 1996 Farm Act contained key policy tools to assist farmers when market prices are low. The key provisions are the ‘ nonrecourse marketing assistance loans’ and ‘ loan deficiency payments’ (LDPs). Producers that entered into Production Flexibility Contracts with USDA are eligible to participate in these programs. For the 1996-2002 crops, producers who participate in the Production Flexibility Contract (PFC) program receive PFC payments that are not linked to market prices. The 1996 Farm Act appropriated a fixed amount of money to be paid among participating producers each crop year. The determination of eligible bushels for each producer remained the same as in the earlier program, that is, contract acres times program yield times 0.85. The program yield for 2000/01 corn is 102.6 bushels per acre. In 1996, the only sign-up for the 1996-2002 crops, 98.3 percent of the eligible base of 82.1 million acres was enrolled. However, land that was in the Conservation Reserve Program and new farmers buying farms already in the program are allowed to sign up. Payment bushels on the 2000/01 crop total about 7.1 billion bushels, or the equivalent of 72 percent of 2000 corn production. The PFC payment rate for the 2000/01 crop was $0.334 per bushel. In 2000, with grain prices especially low, Congress enacted an emergency payment to PFC contract holders equal to the 1999 supplemental PFC payment rate of $0.363 per bushel. Nonrecourse marketing assistance loans provide interim financing to eligible producers of feed grains and other commodities covered by the program. Producers pledge their feed grains as collateral and obtain a loan equivalent to the loan rate established in their county by the Farm Service Agency of USDA. The loan proceeds can cover short term cash needs. As of April 25, 2001, feed grain producers had outstanding loans on 1,381 million bushels of 2000-crop feed grains. The value of the outstanding loans totaled $2.5 billion, yielding an average loan value of $1.84 per bushel for corn, $1.68 per bushel for sorghum, $1.60 for barley, and $1.12 for oats. The loans may be forfeited to the Commodity Credit Corporation at maturity or repaid at the loan repayment rate at or before maturity. The loan repayment rate may actually be less than the loan rate (plus interest) if the local price--called the posted county price (PCP)-- falls below the local loan rate. The PCP--calculated each day the Federal Government is open--is based on terminal market prices and a fixed differential to each county, largely reflecting transportation and other marketing factors. When a farmer repays the loan at a PCP that is lower than the loan rate, the difference between the loan rate and the PCP is called a ‘ marketing loan gain.’ If the PCP is under the county loan rate on the day the producer repays the loan, accrued interest on the loan is waived. If the PCP is below the county loan rate, eligible producers may opt for an LDP in lieu of securing a loan. They can place the crop under loan or opt for an LDP through March for barley and oats and May for corn and sorghum of the following year of harvest. The LDP rate is the amount by which the county loan rate exceeds the PCP on the date the application is made. Feed grains cannot be placed under loan once an LDP is paid. If producers take their LDPs and immediately sell their crop and if the PCP accurately reflects local prices, they effectively receive a per-unit revenue equal to the loan rate, partly from the market and partly from the government. After an LDP is accepted, the farmer can sell the crop and avoid storage expense or hold it in the expectation of a price rally later in the marketing season. For the 2000/01 corn crop, producers have already received about $2,388 million in LDPs and marketing loan gains (MLGs), and these payments are likely to exceed $2.6 billion for the crop year. Thus, average gross returns for corn in 2000/01, including market returns, LDP’s, and MLG’s, is expected to total about $2.12 per bushel. Sorghum producers have received $82 million in LDPs and MLGs and are forecast to receive over $85 million. Average per-bushel returns for sorghum, including government payments, may total about $1.98. LDPs and MLGs for barley and oats are forecast to total about $70 million and $45 million respectively. Average prices with government payments included are about $2.37 per bushel for barley and $1.40 for oats. HAY PRODUCTION INCREASES, PRICES DECLINE Hay production in 2000 decreased 5 percent from 1999, and stocks on December 1, 2000, were down 5 percent from a year earlier. Hay prices are stronger in 2000/01, following declines in 1999/2000. Stocks of all hay on farms on December 1, 2000, were down 5 percent from 1999's revised 109 million tons. Stocks decreases occurred in 23 of the 48 contiguous States. The drought conditions in the Southern States, from Louisiana to Florida, and the Great Plains States, played a major role in their stocks decreases from a year earlier. Colorado, Wyoming, and Mississippi had the largest percentage of stocks decreases, down 39, 38, and 37 percent, respectively, from December 1999. The States along the Ohio Valley, and eastward, all saw increases in stocks as hay production rebounded from the 1999 drought. Hay stocks in Pennsylvania were up 65 percent, and 118 percent in West Virginia. Roughage consuming animal units (RCAUs) in 2000/01 are estimated to be down 1 percent from 1999/2000. Hay stocks on farms on December 1, 2000, were 1.4 tons per RCAU, down 4 percent from the year earlier. Hay production in 2000 totaled 152 million tons, down 5 percent from the revised 1999 total. Acreage harvested, at 59.9 million acres, is down 5 percent from 1999. The average yield, at 2.54 tons per acre, was up 0.01 ton from the previous year. Texas retained its position as the top producer of all hay, with 8.88 million tons, despite dropping 32 percent from 1999's 13.1 million tons due to drought. California, South Dakota, and Minnesota ranked second, third, and fourth, respectively, in all hay production. Alfalfa hay production in 2000 totaled 80.3 million tons, down 5 percent from the 1999 total. Harvested acreage, at 23.1 million acres, is down 4 percent from the previous year. Yields averaged 3.48 tons per acre, down slightly from 3.51 tons per acre in 1999. California continues to lead in alfalfa hay production. Minnesota replaced South Dakota as the second leading producer. Growers seeded 3,065,000 acres of alfalfa and alfalfa mixtures during 2000. This is down 11 percent from the 1999 seeded acreage of 3,436,000 acres. The newly seeded acres of alfalfa and alfalfa mixtures will normally be harvested for dry hay for the first time in the year following the planting. The newly seeded acres in 1999 were the equivalent of 15 percent of the acres of alfalfa and alfalfa mixtures harvested for hay in 2000. Production of all other hay in 2000 totaled 71.8 million tons, down 5 percent from the 1999 total, the decrease in harvested acres caused the decreased production. Area for harvest, at 36.8 million acres, is 6 percent below a year earlier. Average yield, at 1.95 tons per acre, is up from 1.92 tons per acre in 1999. The forage estimate program is new for 2000. The purpose is to measure annual production of forage crops not reported as hay, with an emphasis on total alfalfa production. Acres, production, and yield are reported for haylage and greenchop together, and for total forage production. Forage combines haylage and greenchop production with hay production on a dry-weight basis (13 percent moisture). Alfalfa production is reported both as hay and combined with other forage crops. This report includes eight forage-producing States (Michigan, Minnesota, New York, Pennsylvania, Vermont, Washington, West Virginia, and Wisconsin). Over one-third of the haylage and greenchop produced by the eight reporting States was in Wisconsin. Corn silage production for 2000 is estimated at 98.5 million tons, 3 percent above the 1999 level and the largest production since 1985. Silage yield increased to 16.8 tons per acre, up 1.0 ton from a year earlier. Farmers harvested 5.87 million acres for silage, a 3-percent decline. Sorghum for silage production is estimated at 2.86 million tons, a decrease of 23 percent from 1999. Area cut for silage was down 17 percent and yield was down 7 percent. Total corn and sorghum silage production per roughage consuming animal unit is 1.29 tons, up from 1.26 tons in 1999. All hay prices received by farmers during May 2000-March 2001 averaged $85 per ton, up from $77 in May 1999-March 2000. In the 1999/2000 hay marketing year, prices received by farmers for all hay weighted by marketings were $77 per ton, down from a record high of $100 in 1997/98. Alfalfa hay prices received by farmers in 2000/01 will be up from 1999/2000. In the first 11 months of the 2000/01 marketing year, alfalfa hay prices averaged $90 per ton, 12 percent above the simple average of $80 for the same months in 1999/2000. In the 1999/2000 marketing year, the weighted average for alfalfa hay prices was $80.20 per ton, down from $88 in 1998/99 and $107 in 1997/98. Hay other than alfalfa in 1999/2000 had a weighted average price of $66.80 per ton, down from $71.80 in 1998/99 and $75.70 in 1997/98. In the first 11 months of 2000/01, the simple average price was up 4 percent from the same months in 1999/2000. Prospective Harvested Acreage Farmers in March indicated they planned to harvest 63.8 million acres of hay in 2001, up 7 percent from the 59.9 million acres harvested in 2000. Increases are intended in 26 States across the Nation. The greatest increase in acreage is planned in the Great Plains where 2000 acreage was down due to dry conditions. Producers in Texas and Montana intend to increase harvested hay acreage by 1.78 million acres and 500,000 acres, respectively. Sixteen States report no expected changes in acreage. Feed and Residual Use FEED DEMAND TO WEAKEN Feed and residual use is expected to be down from last year because of a decline in wheat feeding. Increased hog numbers, poultry, and egg production is forecast to offset reduced beef and milk production, keeping feed demand relatively strong. Feed and residual use of the four feed grains plus wheat in September- August 2000/01 is expected to be down marginally from the 166.1 million tons used in September 1999-August 2000. Corn is expected to represent 89 percent of feed and residual use in 2000/01, up from 87 percent in 1999/2000, largely because of reduced sorghum supplies. The index of grain consuming animal units (GCAUs) for 2000/01 is expected to be up 1 percent from 1999/2000's 89 million. The grain used per grain consuming animal unit in 2000/01 is down 2 percent from 1999/2000's 1.9 tons. In the index components, GCAUs for dairy cows, cattle on feed, hogs, broilers, turkeys, and layers are up from the previous year. Dairy cows on January 1, 2001, totaled 9.2 million head, up 13,000 head from 2000. Dairy cow numbers are expected to decline as the year progresses, however, because of weak milk prices. But with increased production per cow, milk production in 2001 is expected to be about 167.1 billion pounds, down from 167.7 billion in 2000. Thus, feed use by the dairy industry will continue relatively strong. The number of cattle on feed on January 1, 2000, totaled 14.2 million head, up from 14.0 million the previous year. The calf crop in 2000 was down 175,000 head from 1999. Feeder cattle supplies outside feedlots were down 4 percent on January 1. Cattle on feed on April 1 were up 3 percent but placements during March were down 17 percent from a year earlier. Feeder cattle supplies outside feedlots on April 1 were down nearly 2 percent from a year earlier. Thus, placements of cattle on feed in 2001 are likely to be down from 2000 and feed needs in the second half of the calendar year would be less. Broiler production in 2001 is expected to increase 1 percent from 2000, the smallest increase since 1982, when production also increased 1 percent from a year earlier. Cumulative placements (an indication of future flock size) in the broiler hatchery supply flocks have been decreasing in 2001 and by next fall, cumulative placements will be 5 percent lower a year earlier. Broiler prices were down 2 cents per pound in 2000 compared with 1999 but are expected to rise 2 to 3 cents in 2001. With increased energy costs and plentiful supplies of other meats, producers are cutting back production increases. Egg producers are expected to produce 7.1 billion dozen eggs in 2001, up 1 percent from 2000. Egg prices were 5 percent higher in 2000 than in 1999, but low grain prices have encouraged producers to continue increasing production. In 2001, turkey production is forecast at 5.6 billion pounds, up 4 percent from the 5.4 billion produced in 2000. Overall, feed demand by the poultry sector is expected to remain strong but not expand as much as in prior years. Pork production in 2001 is expected to be up 1 percent from the 19 billion pounds produced in 2000. Hog farmers responding to the March 1 survey of hog producers indicated that they intended to increase the number of sows farrowing in March-May 2001 by 1 percent relative to the prior year, and in June-August 2001 by 1 percent. The forecast increase in pork production suggests feed needs for the pork sector will be stronger in 2000/01. Food, Seed, and Industrial Use of Corn FOOD, SEED, AND INDUSTRIAL USES OF CORN TO INCREASE IN 2000/01. Food, seed, and industrial (FSI) use of corn is expected to rise 3 percent from a year earlier in 2000/01. Corn used for high fructose corn syrup (HFCS) and ethanol will post the largest increases. Corn FSI use in 2000/01 is expected to total 1,970 million bushels, up from 1,913 million in 1999/2000. FSI use would represent 20 percent of total corn use, the same as in 1999/2000 and 1998/99. Corn use in 2000/01 is expected to be up for HFCS, starch, and alcohol, but glucose and dextrose use, cereals and other products, and seed are projected to be down. Corn used for HFCS in 2000/01 is projected at 550 million bushels, up 2 percent from 1999/2000. HFCS is primarily used in soft drinks. Although sales have expanded as companies add soft drink machines, the rate of growth has slowed recently as consumers use more bottled water and other beverage alternatives. Mexico continues as an important customer for HFCS. In 2000/01, corn used to make glucose and dextrose is forecast to decrease 1 percent from the 222 million bushels used in 1999/2000, which was up 1 percent from the year before. In the first 6 months of the marketing year, corn used to produce glucose and dextrose was essentially the same as last year. In 2000/01, corn used in starch production is expected to be up nearly 2 percent from the 251 million bushels used in 1999/2000, even though use was down 1 percent in the first half of the marketing year. Starch use normally increases when the economy is strong because starch is used in a myriad of products, including wallboard and paper. Corn used to make ethanol for all of 2000/01 is estimated to be up 9 percent from the 566 million bushels used in 1999/2000. Monthly ethanol production reported by the Department of Energy was record- high at 116,000 barrels in February 2001. During the winter oxygenate season, ethanol was the preferred oxygenate to blend because high natural gas prices slowed production of methyl tertiary butyl ethylene (MTBE), an oxygenate that competes with ethanol. Some of the MTBE plants that were shut down have reopened as natural gas prices declined. However, many localities would prefer ethanol-blended gasoline to reduce the risk of MTBE in ground water supplies. As a result, ethanol stocks are not large even with increased production. This ethanol production reflects higher use of capacity and the new plants that have been added in the last year to take advantage of various State-level ethanol production incentives. Also, the low corn prices have encouraged additional production. Beverage and manufacturing alcohol production in 2000/01 is expected to use 130 million bushels of corn, about unchanged from the estimated 129.7 million bushels used in 1999/2000. World Coarse Grain Outlook Global Coarse Grain Production Down in 2000/01, Consumption Stagnating World coarse grain production is expected to decline 2 percent in 2000/01, with most of the decline in corn. Area declined partly in response to generally low world prices, and yields were reduced by drought in several major foreign countries. Global coarse grains beginning stocks were also down. World coarse grain consumption is expected to decline slightly, with a large drop in Eastern Europe offsetting growth in several other regions. However, consumption is forecast to remain much larger than production, dropping world ending stocks 22 million tons to 143 million. Foreign Coarse Grain Production To Decline for a Fourth Straight Year Foreign coarse grain production is expected to drop to 583 million tons in 2000/01, the lowest since 1989/90. Generally low world prices discouraged corn area, and drought reduced coarse grain area and yields in several major growing regions. China’s coarse grain production in 2000/01 dropped 24 million tons to an estimated 114 million, with most of the reduction in corn. Area declined 7 percent as reduced support prices made corn less attractive than alternatives such as oilseeds or vegetables. Drought struck some major corn growing regions in Northeast China and the North China Plain, reducing area and yields. Coarse grain production fell to the lowest level since 1992/93. However, beginning stocks were ample, limiting corn price increases. Eastern Europe’s coarse grain production was devastated by severe prolonged drought centered in the major crop areas along the Danube. Barley was damaged and corn devastated. The region’s coarse grain area dropped to a record low, and average yields were the lowest in 30 years. Coarse grain production dropped 18 million tons to 37 million. Poland was not hurt as much as the rest of the region. Coarse grain production in Sub-Saharan Africa is expected to drop 5 million tons in 2000/01. Drought reduced South Africa’s corn production by 3 million tons. Political instability reduced production in several other countries, including Zimbabwe. North Africa’s coarse grain production was reduced by a second year of drought. Egypt’s corn is the largest part of the region’s production, is irrigated, and is relatively immune to drought. However, barley production across much of the rest of the region is grown on rainfed, marginal land. North Africa’s barley area plummeted to the lowest on record, as much of the planted area was not harvested. Barley production plunged to the lowest since 1961/62. The region’s coarse grain production declined by almost 2 million tons. Coarse grain production declined in Canada and Mexico by about 2 million tons each. Mexico increased corn area, but failed to match the previous year’s record yield. Canada’s corn yields were slashed by a cold wet season in Ontario. Canada’s barley crop increased slightly. Parts of the Middle East suffered from a second consecutive year of drought. The region produced 14 million tons for the second consecutive year, down from 18 million averaged over the previous 5 years. South Asia also produced nearly the same amount of coarse grains as the previous year. Although area declined as producers turned away from coarse grains grown as subsistence food crops, average yields increased enough to be offsetting. Coarse grain production in 2000/01 increased in South America, the European Union (EU), the former Soviet Union, and the United States. However, the increases were not large enough to offset declines in the rest of the world. Coarse grains production in the former Soviet Union (including the Baltics) is estimated up nearly 10 million tons in 2000/01. Rebounding yields in Russia and Ukraine more than offset reduced yields in Kazakhstan. Barley production in the region increased by nearly 4 million tons, corn by more than 2 million, oats by nearly 2 million, and rye by more than 1 million. South America’s coarse grain production is forecast up by over 7 million tons in 2000/01. Brazil is expected to harvest a record corn crop, as generally favorable growing conditions produce a record yield on expanded area. Corn prices in Brazil encouraged increased area because the main corn crop was being planted right after the previous year’s ‘ winter’ corn crop was heavily damaged by frost. The increase in Brazil more than offsets a small decline in Argentina’s corn crop. Corn area in Argentina declined as other crops appeared more profitable, but generally favorable growing conditions are expected to boost yields slightly, limiting the production decline. EU coarse grains production is estimated up 5 million tons in 2000/01. Although barley area was nearly unchanged, yields are estimated record high, led by a recovery in Spain. EU barley production increased by almost 3 million tons. EU corn area continues to expand, but estimated yields did not, limiting the corn production increase to just over 1 million tons. Favorable yields in Northern Europe boosted oats production. 2000/01 Beginning Stocks Down From a Year Ago, But Still Very Large Global coarse grains beginning stocks in 2000/01 are estimated at 165 million tons, down 5 million from the previous year. However, this year and last year are the only times global coarse grains stocks have been this high since 1988/89. Moreover, foreign coarse grains beginning stocks are down only 3 million tons from the previous years’ record high. China is estimated to have had the world’s largest coarse grains stocks. The EU and Canada are also reported to have started 2000/01 with larger-than-average coarse grains stocks. Large foreign stocks and a near-record U.S. corn crop provided the basis for ample global coarse grains supplies in 2000/01 despite drought-induced production declines in several regions around the world. Global Coarse Grain Consumption Forecast Down Slightly in 2000/01 World coarse grain consumption in 2000/01 is forecast at nearly 880 million tons, down slightly from the previous year’s record level. Foreign coarse grain consumption is projected down 1 percent, enough to more than offset the U.S. increase. Many countries are suffering from weak economic performance, limiting income growth and the increases in meat consumption associated with higher incomes. Feed demand depends on the demand for meat. Regions with slight declines in forecast coarse grain use include North Africa, Sub-Saharan Africa, Mexico, Oceania, South Asia, and most of the rest of Asia except China. Japan, the world’s largest meat and feed grain importer, is mired in economic stagnation. South Korea is increasing meat imports under World Trade Organization (WTO) rules and this has reduced beef feeding, dropping import demand for feed grains. Taiwan’s feed grain imports and consumption are gradually recovering from the outbreak of foot and mouth disease, but remain below pre-outbreak levels. The largest drop in coarse grain consumption in 2000/01 is forecast for Eastern Europe, down nearly 9 million tons, or 17 percent. The prolonged drought has triggered an extension of liquidation of animals for feeding. It will likely take a number of years before demand in some of the countries in the region recovers. Coarse grain consumption in the Middle East is projected down slightly in 2000/01. Drought has reduced supplies in Iran, and although imports are forecast up slightly, while stocks decline, the largest adjustment is expected in consumption. In Saudi Arabia, Rift Valley disease is decimating sheep flocks, reducing feed demand for barley, though corn imports for poultry continue to expand. The EU, the former Soviet Union, South America, and China are expected to increase coarse grain consumption in 2000/01. EU consumption of each type of coarse grain is projected up. A weak currency, the low price of coarse grains relative to other feeds (except feed wheat), large stocks, increasing poultry production, and increased grain production are expected to boost consumption. Increased production is expected to boost use in the former Soviet Union, though a slow recovery in animal numbers is expected to limit the increase. Increased coarse grain production is also expected to boost consumption in South America, especially in Brazil where dynamic poultry exports add to increasing domestic demand for meat. In China, corn stocks were large enough to allow continued growth in the feed-livestock sector even though production dropped significantly. Imports for feeding are not expected to increase, and corn exports continued to be subsidized. Meat demand growth is expected to continue as incomes in China grow as the economy expands. China’s consumption increase is expected to be concentrated in corn. Sorghum feed use is expected to decline because of reduced production. Barley imports for beer production are expected to increase modestly, but barley feed consumption is expected to drop. Global Coarse Grain Stocks To Plummet in 2000/01 World coarse grain stocks are projected to drop 22 million tons in 2000/01, while U.S. stocks increase. Foreign coarse grain stocks are forecast down 27 million tons, a drop of almost 25 percent. However, although down sharply from high beginning levels, forecast global ending coarse grain stocks are not exceptionally tight compared with recent years. In 8 of the last 20 years, world coarse grain stocks were lower than the 142 million forecast for 2000/01. China is expected to have the largest drop in coarse grain stocks, down 21 million tons. However, China’s grain stocks are reportedly still very large. Eastern Europe’s coarse grain ending stocks are forecast down more than 5 million tons to minimal levels. Little or no coarse grain reserves are expected to be left as stocks are drawn down to maintain some feed-livestock sector. Stocks are also expected to reach historically low levels in North Africa, following 2 years of drought. Stocks are forecast down less dramatically, but still noticeably in the EU, Canada, and Sub-Saharan Africa. Partly offsetting the general decline in foreign coarse grain stocks are increased stocks forecast for Latin America, mostly because of the record corn crop in Brazil; and increased stocks in the former Soviet Union, where pipeline stocks and minimal reserves are being re- established after 2 years of very tight supplies. Global barley stocks are forecast down 7 percent in 2000/01, with declines in most countries except the former Soviet Union. The largest decline is in the EU, which accounts for about 45 percent of global barley stocks. Corn stocks are expected to drop much more than for other coarse grains because China’s stock reduction is nearly all corn. The size of China’s corn stocks is put into perspective by comparing it with the world’s third largest producer, Brazil. Corn ending stocks in Brazil are forecast to increase by more than 5 times in 2000/01, but still only amount to about one-tenth the reduced level of China’s corn stocks at the end of the year. World Coarse Grain Outlook U.S. Corn Exports Decline as Global Coarse Grain Trade Shrinks in 2000/01 U.S. corn exports for the October-September trade year are forecast at 49 million tons, down slightly in 2000/01. Global coarse grain trade is expected to decline despite relatively low prevailing prices. Although reduced competition is expected from China, Eastern Europe, and the EU, this is offset by increased exports by Argentina, Brazil, and South Africa. Global Coarse Grain Trade Forecast Down 3 Percent in 2000/01 World coarse grain trade is projected down in 2000/01 because several importers are reducing imports significantly, while no importer is expected to increase imports in a big way. The former Soviet Union’s coarse grain imports in 2000/01 are forecast down 1.7 million tons because production is rebounding from drought, reducing the need to import. Also, less aid is flowing to the region, as the needs are not so great. Imports by the Middle East are expected to decline by 1.6 million tons. The largest part of the decline is in barley to Saudi Arabia, where livestock diseases and better pasture conditions have reduced the demand for feed grains. Turkey is forecast to import less partly because of increased production, and partly because severe economic problems and an unfavorable exchange rate will limit demand. Syria is expected to reduce imports despite a second year of drought- reduced production because animal feeding is declining. Brazil is expected to reduce feed grain imports by 1.3 million tons because of record corn production. South Korea’s coarse grain imports are forecast down 1.0 million tons, with the decline largely caused by a reduction in cattle feeding as meat imports increase. Weak economies are contributing to small reductions in coarse grain imports for some countries like Japan, Colombia, and Israel. Several countries are increasing coarse grain imports modestly as feed livestock sectors grow, or because of a shortfall in production, but none of the increases are large. For example, China is expected to boost coarse grain imports 0.3 million tons, mostly malting barley, despite a 23-million-ton drop in corn production. Eastern Europe’s coarse grain imports are forecast up less than 0.4 million tons, despite a drop in production of over 17 million. Even Canada is expected to increase coarse grain imports by only about 0.2 million tons, even though corn production dropped by 2.3 million. The lack of strong import growth in any market during 2000/01 underpins the decline in world coarse grain trade to 101 million tons, down 3 million tons from a year earlier. Large Southern Hemisphere Supplies Maintain Stiff Competition for Corn Exports in 2000/01 During the first half of the international (October/September) coarse grain marketing year, Southern Hemisphere shipments are up from the previous year’s harvest. Both Argentina and South Africa had large corn crops in 1999/2000, and much of the increased marketing from those crops fell into the October 2000-September 2001 period. While production in both Argentina and South Africa is forecast to decline in 2000/01, the reduction in Argentina is small. The decline in Argentina’s corn production is less than the drop in Brazil’s forecast imports. Record-high corn production in Brazil and Brazil’s emergence in 2000/01 as a major corn exporter, instead of an importer, means that net exports from the Southern Hemisphere are up significantly in 2000/01. Reduced 2000/01 corn exports are forecast for China, offsetting most of the increase from the Southern Hemisphere. Sharply reduced production increased corn prices in China, but Government (including Provincial) stocks were reportedly straining storage capacity, and export subsidies were maintained, resulting in strong corn shipments during the first months of 2000/01. As the year progresses, high internal corn prices are expected to slow the pace of China’s exports. China’s corn exports are forecast at 6 million tons, down almost 4 million from a year ago. Eastern Europe’s corn exports are also forecast down because of drought, dropping 2 million tons from the previous year. World barley trade is expected to decline in 2000/01, so although large, EU barley exports are forecast down almost 1 million tons from last year’s record. Although purchases by the largest importer, Saudi Arabia, are forecast down, other importers in North Africa and the Middle East, especially those suffering from a second year of drought, are maintaining strong demand for feed barley. Feed barley prices have remained generally above comparable corn prices. Relatively high barley prices have encouraged increased exports from Australia, Canada, and the United States. Global sorghum trade is also expected to decline in 2000/01. The major exporters, the United States, Sudan, Argentina, and Australia are all expected to harvest smaller crops in 2000/01. Sorghum prices have increased compared with corn prices, providing an incentive for some importers to switch. World rye trade is dominated by the EU, which has not provided as much subsidized rye as a year ago, so world trade is down. On the other hand, the EU Commission has awarded more subsidies for oats, boosting world trade prospects. U.S. Corn Exports in 2000/01 Forecast to Nearly Match Previous Year U.S. 2000/01 October/September corn exports are forecast at 49.0 million tons, down slightly from 49.4 million exported a year earlier. Shipments during the first months of the year have dropped, but are expected to increase in the latter half. According to U.S. Export Sales, as of March 29 (through the first 7 months of the local marketing year), corn shipments were 26.7 million tons, down 2.2 million from a year ago, while outstanding sales were 6.3 million, down 0.9 million. U.S. commitments to the largest market, Japan, are down 15 percent and to South Korea are down 33 percent. The issue of genetically modified corn not approved for all uses has disrupted trade to these countries (see special article), but testing protocols have been established and exports are expected to increase. As China’s and South Africa’s export pace slows, U.S. corn exports are expected to increase. Export commitments to other Asian markets, especially Malaysia and the Philippines are also down significantly but could increase as competition from China drops off. Purchases by Middle Eastern countries have been fairly strong, especially by Israel, but Iran has turned to other sources for most of its purchases. North Africa’s purchases of U.S. corn have remained at near last year’s strong pace, with an increase in Algeria offsetting smaller shipments to Egypt and Morocco. Corn shipments to Sub-Saharan Africa are down because of last year’s increased production in South Africa. U.S. corn export shipments are up to the Western Hemisphere, boosted by increased exports to Mexico and Canada. Canada had reduced corn production, so shipments are expected to remain robust. Mexico is importing more corn and less sorghum, but the switch to corn is limited by the deliberate pace at which the Government of Mexico has authorized additional corn import quotas and licenses. Exports to the rest of Latin America have declined. Chile and Peru are buying more from Argentina, while Colombia’s corn imports have dropped because of economic problems. U.S. sorghum exports are forecast at 5.3 million tons, down 1.0 million from the previous year. Demand for U.S. sorghum has been strong enough to boost export quotes above comparable corn prices, but U.S. supplies are severely limited by the small crop. U.S. barley exports are forecast up almost 20 percent to 1 million tons (October/September). U.S. sales of feed barley to Saudi Arabia have added to the routine shipment of mostly malting barley to Mexico and Japan. Increased U.S. production and world prices for feed barley above corn prices have boosted U.S. barley exports. Total U.S. coarse grain exports in 2000/01 are forecast down 3 percent to 54.8 million tons. Special Article The New WTO Agricultural Trade Negotiations: Background and Issues for the U.S. Coarse Grain Market Linwood Hoffman and Erik Dohlman -----1/ 1/----- Agricultural economists, U.S. Department of Agriculture, Economic Research Service, Market and Trade Economics Division. ----- Abstract: New WTO negotiations are underway on agricultural trade, continuing the process of multilateral agricultural trade reform initiated by the 1994 Uruguay Round Agreement on Agriculture (URAA). The URAA implemented a process of agricultural trade liberalization by obtaining commitments from member countries to gradually reduce import barriers, export subsidies, and certain types of domestic support programs. Due in part to the continued presence of trade-distorting policies, however, coarse grain trade has expanded only slowly since the URAA was signed. In the recently initiated agricultural trade negotiations, increased market access, reduced domestic support, and an elimination of export subsidies will therefore be a continued focal point of discussions. In addition, the possibility of a ‘ zero for zero’ agreement for barley and malt trade, new disciplines on state trading enterprises, tighter disciplines on use of government- sponsored export credit programs, trade in products developed through new technologies, and export taxes are important issues surrounding the new negotiations. As the world’s leading coarse grain producer and exporter, the United States stands to gain from further liberalization of the coarse grain market. Keywords: Coarse grains, trade policy, WTO, tariffs, tariff-rate quota, export subsidy, domestic support, export credit program, state trading enterprise, WTO accession, and biotechnology. Introduction New WTO agricultural trade negotiations aimed at continuing the process of multilateral agricultural trade reform initiated by the Uruguay Round are currently underway. 2/----- 2/----- WTO member countries submitted proposals setting out negotiating objectives during 2000 and early 2001, representing. ‘ Phase One’ of the negotiations, which concluded in March 2001. ‘ Phase Two’ now commences with a more in-depth examination of the proposals. A WTO Ministerial will be held on November 9-13, 2001, in Doha, Qatar. ----- As the leading producer and exporter of coarse grains, the United States has a large stake in the outcome of these negotiations. In recent years, exports have accounted for about one-fifth of U.S. coarse grain disappearance, and these exports comprise about 11 percent of total U.S. agricultural export earnings. Although trade impediments in the world coarse grain market are typically lower than those on other commodities--such as wheat or rice--tariffs, tariff-rate quotas (TRQs), export subsidies, and domestic support programs are still a source of trade distortions (see USDA, 1996, for a glossary of terms). Among the coarse grains, trade distortions appear to be most significant in the barley, oats, and rye sector. For example, export subsidies are mostly used for barley, oats, and rye, with the EU accounting for the largest share of these expenditures. Among coarse grains, expenditures on URAA-limited domestic support programs have also been used mostly for barley, particularly in the EU and Japan. Import tariffs on barley are low for many countries, but for some countries they are higher for processed barley malt--a situation known as tariff escalation. In addition to trade distortions in the barley, oats, and rye market, potential barriers to trade in the corn sector remain a concern. High ‘ bound’ (maximum allowable) tariff rates on corn, for example, allow some countries the discretion to considerably raise current applied tariff rates. South Korea has a WTO over-quota tariff binding on corn in excess of 300 percent, while the EU and Japan have a corn over- quota tariff of slightly more than 100 percent AVE (ad valorem equivalent). The administration of import licenses for TRQs, the impact of state trading enterprise (STE) activities on coarse grain trade, export credit guarantees, and market access for products of new technologies, such as genetically modified corn, and export taxes have also emerged as issues. In addition, further liberalization in the world meat market could expand market opportunities for coarse grain producers. This article examines the features of trade in the global and U.S. coarse grain market, discusses major accomplishments of the Uruguay Round, and examines issues relevant to the coarse grain sector that may be addressed in the new agricultural trade negotiations. Global Coarse Grain Trade Coarse grains, feed wheat, and nongrain feedstuffs, such as tapioca, cassava, citrus pulp, and other byproducts are primary sources of energy for livestock, poultry, and hogs. Oilseed meals and other sources of protein are typically used to complement these energy sources. Of global coarse grain supplies, about two-thirds are used as animal feed, with the remainder going to seed, industrial, and food uses. Just over 10 percent of global coarse grain production is traded, and most is destined for feed use. Trade consists primarily of corn (slightly more than seven-tenths of global trade) and barley (nearly two-tenths), followed by sorghum, oats, and rye (table A-1). Income growth and corresponding changes in per capita meat consumption are therefore key factors driving consumption and trade patterns for coarse grains, but trade and domestic policies also play an important role. Trends in Global Coarse Grain Trade and Production Between 1971/72 and 2000/2001, global coarse grain trade rose from 49.3 to 101.0 million metric tons, an annual compound growth rate of 2.42 percent (fig. A-1). -----3/ ----- 3/ Excludes intra-EU trade. ----- Coarse grain trade grew at an annual rate of 8.7 percent during the 1970s, experienced an annual decline of 1.0 percent in the 1980s, and rose only 0.9 percent per year in the 1990s. Since 1980/81, global coarse grain trade fluctuated between 82.7 million metric tons and 104.9 million tons with global import destinations changing dramatically. Western Europe experienced large declines in coarse grain imports in the mid-1980s as did the transition economies in the early 1990s, but partially offsetting these declines was import growth mainly from East Asia, Latin America, Mexico, North Africa, and the Middle East (fig. A-2). Production of global coarse grains reached a high of 908.5 million metric tons in 1996/97, a 47-percent increase since 1971/72, before declining to 857.6 million tons for 2000/01. About three-fourths of global coarse grain is produced in the United States, China, EU, Brazil, India, Canada, Mexico, Argentina, Romania, and Ukraine. The United States, Argentina, EU, China, Australia, and Canada account for more than nine-tenths of global coarse grain exports. Major consuming countries include the United States, China, Brazil, Mexico, India, Russia, Canada, and Japan. Japan, South Korea, Mexico, Saudi Arabia, Taiwan, Egypt, EU, United States, Malaysia, and China account for about two-thirds of global coarse grain imports (table A-2). Trade by End-Use Coarse grain trade is dominated by trade of unprocessed grains for feed use. However, imports for industrial uses, such as starch production, ethanol, and malting, although relatively small, are a growing source of trade. Japan, South Korea, Canada, and Mexico, for example, import coarse grains to produce starch, alcohol, and sweeteners. The largest global malting barley importers are China, the United States, and a few Latin America countries. Growth in China’s economy and population will likely lead to increases in beer production and continued growth of malting barley imports, and U.S. imports from Canada are likely to experience continued growth in the near term. The potential for increased trade of coarse grains for food use is very limited, however. Food use of coarse grains is concentrated in parts of Latin America, Africa, and Asia, but consumption in these areas has generally declined over time as rising incomes have tended to shift demand toward wheat, rice and other foods. NAFTA has led to some increased imports of corn for food by Mexico, along with increased imports for feed and industrial processing, but trade in food-grade corn is usually low except in years of crop failures. Trade in processed coarse grain products is also relatively small compared with trade in grain, but has some growth sectors. Barley malt is the main product that is widely traded, with smaller amounts of trade in products such as corn meal, flour, and sweeteners. Global trade in barley malt grew dramatically from the late 1960s through the mid-1980s, when it stagnated, but growth has resumed somewhat in recent years. A large component of this trade is subsidized, reflecting the dominant position of the EU, the leading malt exporter. Trade in manufactured feeds and pet foods is growing fairly rapidly, and some U.S. feed manufacturers have established plants in overseas markets, which then import coarse grains for local feed manufacturing.-----4/ ----- 4/ Exports of all U.S. feed grain products were 642,460 metric tons in fiscal 2000, up from 478,808 metric tons in fiscal 1990 (USDA, 2001b). ----- Byproducts of corn processing, such as corn gluten feed and meal are also traded. Global trade and U.S. exports of gluten feed and meal are down somewhat from the mid-1990s, but the United States remains the largest exporter of these products, accounting for about 80 percent of the 7.1 million tons exported in 1998. The EU and Japan are leading importers. Impact of Policy Developments and Increased Trade of Meats Trade and domestic agricultural policies have had a major influence on the volume and direction of coarse grain trade in recent decades. For example, to encourage self-sufficiency, the EU’s Common Agricultural Policy (CAP) established common external import barriers while at the same time removing internal barriers to trade. As a result, coarse grain imports by the EU declined significantly between 1981 and 1986 and became minor thereafter (fig. A-2). In the former Soviet Union (FSU), artificially low food prices under the Communist system led to increased coarse grain imports for feed use between 1972 and 1992, but after the breakup of the Soviet Union, grain imports declined rapidly. The North American Free Trade Agreement (NAFTA), on the other hand, has facilitated trade between the United States, Canada, and Mexico and contributed to recent growth in coarse grain trade between these countries (see box, ‘ Impact of NAFTA on U.S. Coarse Grain Trade’ ). In other areas, such as Asia, Africa, and the Middle East, income growth and increased demand for meat and meat products have played a large role in stimulating greater coarse grain imports. World credit constraints and the substitution of meat for coarse grain imports have also influenced coarse grain trade over this time period. In addition to policies and other developments that directly affect coarse grain trade, liberalization of the world meat market (beef, pork, and poultry) could provide indirect benefits to coarse grain producers. Since 1989, Japan’s meat market liberalization has brought significant increases in its meat imports, for example. Although Japan has slightly reduced coarse grain imports, more U.S. corn is being exported in the form of higher value-added beef, pork, and poultry products. In the past, the U.S. coarse grain sector also gained from increased U.S. corn exports to Taiwan, which exported pork to Japan, and from reduced corn export competition from Thailand, which used more corn domestically to produce poultry for export to Japan and the EU (Lin et al., 1995). Since 1985, total U.S. exports of these products have risen from less than 1 billion pounds (4 percent of world exports) to over 9 billion pounds (19 percent) in 1999 (USDA, 2000a). Further liberalization in the world meat market could increase export opportunities and translate into more coarse grain exports, either directly or indirectly. U.S. Trade in the Global Coarse Grain Market The United States is the world’s largest exporter of corn and sorghum, a minor barley exporter, and the largest importer of oats (table A-1). In (fiscal) 2000, the United States exported 56.5 million metric tons of coarse grains, valued at $5.3 billion. These exports represented 10 percent of total U.S. agricultural exports by value. Nearly seven- tenths of U.S. coarse grain exports go to Japan, Mexico, South Korea, Taiwan, and Egypt, while the remainder is dispersed among many countries (table A-3). U.S. Export Trends The volume of U.S. coarse grain exports and the U.S. share of global exports have fluctuated over time. U.S. coarse grain exports experienced their greatest growth in the 1970s, when exports more than tripled, and reached a record high in 1979/80 along with a record market share of 70 percent (fig. A-3). Import growth in this period was largely attributed to the Soviet Union, but strong gains were also registered by Japan, Eastern Europe, and developing countries that experienced growing consumer demand for meat and meat products. In the early 1980s, world coarse grain trade slumped as widespread credit problems and economic difficulties cut import demand at the same time that U.S. prices were supported by high price supports, which contributed to increased market share by competing exporters. U.S. exports began to rebound during the latter part of the 1980s and the U.S. market share made a strong recovery, reflecting a more competitive U.S. farm policy (Lin, Riley, and Evans). However, in the early 1990s, U.S. exports experienced another serious slump mainly due to external developments (fig. A-3). The breakup of the Soviet Union led to a severe drop in its imports, pulling down world trade, while China unexpectedly increased its corn exports. In 1993/94, U.S. market share of global coarse grain exports declined to 46 percent, its lowest level since 1985/86. U.S. market share rose again in the mid-1990s. Key factors boosting U.S. exports were a record-setting U.S. corn harvest, China’s temporary switch from net exporter to net importer, and strength in global import demand despite insignificant imports by the former Soviet Union (FSU). A decline in the U.S. export market share after 1995/96 was due mostly to a decline in corn shipments to China and the East Asian countries, excluding Japan, due to the East Asian financial crisis, China’s re-emergence as a net exporter, and increased competition from Argentina. Outlook for Coarse Grain Trade In the next 10 years (2001-2010), USDA anticipates a 2.6-percent annual compound growth rate for global coarse grain import demand, assuming no new trade agreements in agriculture (USDA, 2001a). U.S. coarse grain exports are anticipated to grow by an annual compound rate of 1.9 percent, leading to a slight decline in market share due to greater export competition from Argentina, Canada, Eastern Europe, and the former Soviet Union. Due to rising incomes, the largest increases in global imports are expected to come from China, North Africa, Southeast Asia, and Latin America. Imports by East Asian countries are expected to be relatively stable as they continue to maintain stable domestic livestock and poultry production, and imports of meat and poultry fulfill the need for rising meat demand. Coarse grain imports for Southeast Asia are expected to recover from the financial crisis and restore import growth. North Africa and the Middle East are also expected to be important sources of growth in coarse grain trade due mostly to rising incomes. Although the Soviet Union was the largest coarse grain importer during the 1980s, the FSU is expected to become a net exporter of barley since domestic demand for livestock feed is expected to increase only gradually. Under this scenario, global coarse grain exports are expected to rise to 131 million metric tons by 2010 and exceed the record of 108 million metric tons set in 1980/81 by the year 2003/04. Accomplishments of the Uruguay Round and Issues for New Agricultural Negotiations The Uruguay Round continued the process of reducing trade barriers achieved in seven previous rounds under the General Agreement on Tariffs and Trade (GATT) and established the WTO as the successor organization to GATT. The URAA also represented the first comprehensive multilateral effort to address agricultural trade issues. Under the URAA, WTO members committed to eliminate non-tariff trade barriers, cut tariff levels on all agricultural products, lower the volume of and expenditures on subsidized exports, and reduce aggregate spending on certain trade-distorting domestic support programs for agriculture. A new process for settling trade disputes was also established, and the agreement contained a ‘ peace’ provision--due to expire in 2003--designed to protect certain subsidy policies from some WTO challenges (WTO). Furthermore, under URAA Article 10.2, member countries agreed to work toward the development of internationally agreed disciplines on export credits, export credit guarantees, or insurance programs (WTO, 1995). The WTO’s ‘Understanding on Article XVII’ also established a working definition of State Trading Enterprises (STEs), created stronger notification requirements for STEs, and established a working party to review countries’ notifications and revise the questionnaire for countries’ STE reports to the GATT (USDA, 1998). The agriculture agreement also recognized the need for special and differential treatment for developing countries, granting them additional time to meet obligations and requiring smaller subsidy and tariff reductions than developed countries. Other special provisions were made for least developed countries and countries that rely on food imports. Finally, the Uruguay Round established a new agreement on the use of sanitary and phytosanitary (SPS) measures. The SPS agreement requires that regulations for food safety and animal and plant health be based on science and that such regulations should not be arbitrary or discriminate between countries with similar conditions. This agreement increases the transparency of countries’ SPS regulations and provides an improved means for settling SPS-related trade disputes (Roberts). If the trading partners demonstrate to each other that either country’s measures achieve the same level of health protection, members should accept the sanitary and phytosanitary measures of others as equivalent. Although the URAA was an important step toward identifying and disciplining trade distortions in agriculture, the impact of the agreement on global coarse grain markets is difficult to separate from other market-related events that occurred during the implementation period--such as the Asian financial crisis and increased exports by (non-WTO member) China. Average global coarse grain exports did rise slightly after the enactment of the URAA (from 92.3 million metric tons in 1990-94 to 94.8 million tons during 1995-2000), but the rate of growth was about the same as global production (fig. A-1). Average U.S. market share rose by 1.5 percentage points during this period, but this gain cannot be attributed solely to the URAA. Recognizing that long-term fundamental reform would require further reductions of agricultural support and protection, Article 20 of the URAA mandated that new negotiations be initiated in 1999, one year before the end of the implementation period. In the new agricultural negotiations, issues important to the U.S. coarse grain industry include those raised in the Uruguay Round, such as increased market access and continued reduction in trade-distorting domestic support and export subsidies. Other issues that could be addressed by the WTO, or in other negotiating arenas, include disciplines on the operational activities of state trading enterprises, the treatment of export credits and credit guarantees as an export subsidy, trade in biotech grains, a ‘zero-for-zero’ -----5 / ----- 5/ Under this proposal, trade-distorting policies such as export subsidies, import restrictions, and export taxes would be eliminated. In addition, domestic support programs would continue to be decoupled from current production and prices, and state-trading enterprises would be required to eliminate exclusive trading rights and operate on market principles. ----- proposal for barley and malt trade, and a curb of export taxes. The following sections discuss URAA accomplishments and key issues pertinent to coarse grains in the new agricultural trade negotiations. In each section, accomplishments are presented first, followed by a discussion of the issues. Further elaboration on many of these subjects can be found in (USDA, 1998) and the ERS WTO website (http://www.ers.usda.gov/briefing/wto/). Continuing Issues Market Access--The URAA required WTO members to reduce and bind existing tariffs and to convert all non-tariff agricultural trade barriers--such as quotas or discretionary import licenses--into tariffs, a process referred to as ‘tariffication.’ In some cases, the new bound (maximum) tariff levels were still prohibitively high, so a tariff-rate quota (TRQ) system was created to maintain pre-URAA import levels and/or assure minimum access import opportunities. The TRQ is a two-tiered tariff system, in which in-quota import quantities are subject to lower, generally non-prohibitive tariffs, but with higher tariffs on over-quota quantities. All bound tariffs (except in- quota rates) are to be reduced by an average of 36 percent (24 percent for developing countries) from ‘base’ period (usually 1986-88) levels to the final bound level by the end of the implementation period (tables A-4, A-5, and A-6). The minimum tariff cut is 15 percent (10 percent for developing countries). The majority of global coarse grain imports are concentrated among a small number of countries that currently maintain very low applied (actual) tariff rates, or have TRQs with low in-quota tariff rates. For example, four countries--Japan, Egypt, Malaysia, and Taiwan-- account for 40 percent of world corn imports and have applied tariffs on corn of zero to one percent (table A-5). Five other countries-- Colombia, EU, Mexico, South Korea, and Venezuela--account for 27 percent of corn imports and have TRQs, but often do not apply the over-quota rate, thus permitting imports equal to or well above quota levels (table A-6). Tariffs--Countries that currently import large quantities of coarse grains generally have low applied tariff rates and/or large quotas. However, in many countries--including some that currently allow low tariff access--maximum allowable (bound) rates on over-quota imports were set at very high levels due to exaggerated estimates of the tariff-equivalent of non-tariff barriers, a process referred to as 'dirty tariffication.' This practice potentially allows tariffs higher than those that existed during the base period. The base period was also a time of high protection for agriculture generally, and many less-developed countries claimed base period tariffs that were much higher than actual rates during that time. Consequently, the actual reduction of base level tariffs to final bound rates was fairly modest. One study estimated that tariffs affecting less than 15 percent of world agricultural trade will be reduced from base period levels by the end of the URAA implementation period (Finger et al., 1996; cited in USDA, 1998). In addition, although applied tariffs are often much lower than bound rates, this creates uncertainties for exporters due to the possibility of sudden tariff increases based on changing domestic supply and demand conditions or policy objectives. Brazil, Peru, Romania, and Turkey, for example, have bound tariffs on corn ranging from 55 to 240 percent, but much lower applied tariffs ranging from 10 percent to 50 percent (table A-5). In the past 2 years, Turkey has changed its applied tariff on corn several times. For example, in July 2000, it was raised from 30 percent to 50 percent, but as of February 16, 2001, it was lowered from 50 percent to 25 percent (USDA, 2001c). On April 25, 2001, the Turkish Ministry of Agriculture announced that Turkey would lower the applied tariff for corn to 10 percent in the near future. Very low tariffs on unprocessed coarse grain imports are also accompanied in many cases by higher tariffs on processed products (tariff escalation) in order to protect domestic processors. Japan, Turkey, and non-WTO members Russia and Saudi Arabia impose higher applied tariffs on barley malt than barley, for example (tables A-7 and A-8). Trade patterns in coarse grains and products may not reflect nations’ comparative advantage due to other market access policies, such as regional trading arrangements that give preferential access to a group member or differential tariffs for substitute commodities. Brazil’s MERCOSUR partners (Argentina, Uruguay, and Paraguay) can export corn to Brazil duty-free, whereas non-MERCOSUR imports are subject to an 11-percent tariff. However, some Brazilian poultry or pork companies that export do not have to pay the tariff on non-MERCOSUR corn imports if they use a ‘drawback,’ which could increase the price competitiveness of U.S. corn for these selected buyers (USDA, 2000f). In addition, because coarse grains and other feeds are fairly substitutable, these products tend to be fairly price responsive, and any differences in tariff levels can therefore change the mix of coarse grains imported. The Philippines, for example, has a higher tariff (35 percent on in-quota and 65 percent on over-quota) on corn imports than other feed substitutes such as sorghum and feed wheat. When sorghum and feed wheat tariffs were further dropped--from 15 to 10 percent--this encouraged increased imports of these corn substitutes. Food wheat has a still lower tariff at 3 percent and some feed wheat imports were reportedly declared as food wheat (USDA, 2000b). Tariff-Rate Quotas (TRQs)--By replacing non-tariff barriers with TRQs, the URAA objective was to increase the transparency of protection in agriculture, to ensure that historical trade levels were maintained, and to expand trade through minimum access commitments. The URAA required minimum access opportunities in cases where imports had been less than 5 percent of domestic consumption during the base period (1986-88), and required that minimum access quotas rise to that percentage of consumption by the end of the implementation period. In cases where imports exceeded 5 percent of consumption, countries had to maintain existing access opportunities. Although several of the larger U.S. corn importers have TRQs, very few were required to increase their quota level over the commitment period because they already met or exceeded the minimum access requirements (table A-5). Nevertheless, the URAA was expected to create new access commitments for about 1 million metric tons in coarse grains by 2004 (USDA, 2000d). New access commitments by Japan (increase a zero-duty quota for industrial use corn by 450,000 metric tons and increase a tariff-rate quota for barley by 51,000 tons), South Korea (establish a tariff-rate quota for barley and barley products other than malting barley and barley malt which will grow to 23,582 tons), South Africa (establish a tariff-rate quota for corn of 260,000 tons), and the Philippines (establish a tariff-rate quota for corn that increases to 216,940 tons at the close of the implementation period) were expected to provide most of the increased trade opportunities. For example, the Philippines was required to replace a ban on corn imports with a TRQ having a final quota level of 217,000 metric tons. Philippine corn imports subsequently rose from zero during 1991-93 to 500,000 tons in 1999, well above its quota level. Recently, India established a TRQ for corn with a quota of 350,000 tons, an in-quota tariff of 15 percent and an over-quota tariff of 50 percent. India imported virtually no corn between 1989 and 1997, but imported over 200,000 tons of corn in 1999, including the first ever commercial imports of 85,000 tons from the United States (USDA, 2000c; 2000i). Despite some increased access opportunities created by the establishment of TRQs, a number of complications related to the administration of TRQs have emerged. One issue is the practice of allocating the quota to suppliers based on the historical distribution of trade. This practice can perpetuate past patterns of trade into the future despite changing market conditions. Some countries have also assigned import rights to state trading enterprises or producer associations. These organizations may lack the incentive to increase market access, resulting in quota ‘underfill,’ or may bias the quota distribution to favored suppliers. In Venezuela, for example, there have been some claims that licenses for in-quota imports have not been issued with the same degree of transparency as in the past (USDA, 2000e). Other measures may also interfere with the TRQ system. For example, Colombia and Venezuela maintain a system of import licenses for corn and sorghum, sometimes referred to as absorption agreements. Venezuela’s system requires importers to purchase 1 ton of domestically produced sorghum for every 2 tons of corn they wish to import. The import licenses for corn are used as a mechanism to ensure that domestically produced sorghum is absorbed by the feed industry. The Government can enforce these restrictions by withholding phytosanitary permits (USDA, 2000e). Another potential hindrance to trade are the special emergency measures (agricultural ‘safeguards’ ) that WTO members can use to protect domestic producers from a sudden drop in prices or a surge in imports. Some countries have used these provisions to restrict imports of sensitive products during the URAA implementation period, but they have been used only sparingly on coarse grains and products, and their use is subject to strictly defined conditions. Special safeguards are permitted only on products converted from non-tariff restrictions to TRQs and only on imports exceeding minimum access quota levels. The country imposing the safeguard also has to reserve the right to do so in its schedule of commitments on agriculture. About 20 countries have reserved this right for coarse grains. While the URAA provided for some increased market access, there is potential for additional and more stable access if high bound tariff rates are reduced, tariff quotas are increased, or if out-of-quota duties are substantially reduced. This is especially true for some of the projected growth markets such as Latin America and Southeast Asia. The current U.S. objective on market access is to reduce tariff levels and tariff escalation among countries and to ensure market access opportunities for all products in all markets. Continued reduction of bound tariffs seems possible because of the often high tariff levels established through the UR negotiations. Additional U.S. objectives include expanding quota levels in countries with TRQs, improving TRQ administration, and eliminating the transitional special agricultural safeguard as defined in Article 5 of the Agreement on Agriculture (WTO, 2000b). Export Subsidies--Export subsidies are among the most trade-distorting of government policies because they allow subsidizing countries to displace competitive producers in world markets. The URAA began the process of reducing the use of export subsidies in agricultural trade by prohibiting their use on agricultural products unless the specific commodity is listed under the WTO member’s schedule of export subsidy reduction commitments. Of the 140 member countries, 25 countries that had export subsidies in the base period agreed to reduce the volume and value of subsidized exports on specific commodities by a set percentage over a period of time (table A-4). The remaining countries and commodities are bound at zero subsidies. Of the 25 countries making commitments, 12 notified the WTO of commitments to reduce export subsidies on coarse grains. The EU, a major global exporter of barley, oats, and rye, is the largest subsidizer of global coarse grains, accounting for 96 to 100 percent of all subsidized coarse grain exports between 1995 and 1997. The EU’s export subsidies for coarse grains totaled $397 million for 1995, $493 million for 1996, and $310 million for 1997. South Africa’s coarse grain export subsidies amounted to $11.5 million in 1995, but it eliminated export subsidies in 1997. Coarse grain subsidies by Hungary totaled $4.9 million in 1995 and $3.4 million in 1997, and Slovakia had expenditures of $0.7 million in 1997 (table A-9). The United States used the Export Enhancement Program (EEP) to subsidize coarse grain (mostly barley) and barley malt exports between 1985/86 and 1994/95. Coarse grain subsidies under EEP peaked in FY 1987 when about 3.5 million tons (with a bonus value of $143 million) of coarse grain exports were assisted. However, since 1994/95, EEP has not been used for coarse grains, excluding the $1.2 million barley export subsidy made in 1997. All countries have remained within their commitment levels other than Hungary in 1995, when its actual subsidy was 282 percent of its commitment level. However, Hungary received a waiver that year under WTO Article XXVIII consultations. As the largest user of coarse grain export subsidies, the EU could face the greatest challenge conforming to URAA subsidy limitations, particularly those on the volume (rather than value) of subsidized exports. Although the EU has not exceeded its commitment level on export subsidy expenditures for coarse grains, it has rolled over unused volumes from previous years and applied them to subsequent years. In 1998, the EU subsidized 14.8 million tons of coarse grain exports, about 2.8 million tons above its original 1998 commitment level. However, this rollover is no longer possible in 2000/01, when the commitment level is 9.97 million metric tons. However, the recent depreciation of the EU currency and its Agenda 2000 reforms--which reduced the intervention (support) prices for grains--have lowered the per unit subsidy needed to match world prices (Leetmaa and Bernstein, 1999). During 2000, the EU exported barley without subsidies because of a depreciating currency. Whether the EU will need to provide subsidies on future coarse grain exports depends largely on exchange rate developments. A current U.S. objective for the negotiations is the complete elimination of export subsidies, including both budgetary outlays and quantity commitments (WTO, 2000b). Some countries are opposed to such an approach, while others have focused on ways to prevent members from circumventing commitments through state trading enterprises or the use of subsidized export credits. Domestic Support--Domestic policies that support prices or subsidize production may encourage excess production and distort trade flows by causing a decline in imports in some markets and/or increasing the use of export subsidies. The URAA distinguished between policies that are considered production distorting (‘amber box’) and non-distorting (‘green box’), and required WTO member countries to annually report and reduce amber-box support provided to domestic agricultural producers. The total value of support related to policies in the amber box is referred to as the ‘aggregate measurement of support’ (AMS). Countries agreed to keep their AMS from exceeding limits specified by the URAA for 1995-2000. These limits declined from 97 percent of the 1986-88 base support level in 1995 to 80 percent of the base level in 2000 and beyond until a new agreement is reached (87 percent of the base level for developing countries by 2004). Amber box policies subject to reduction include price supports, marketing loans, direct payments based on current production or price levels, input subsidies, and certain subsidized loan programs. If support for a specific crop is equal to or less than 5 percent of its production value (10 percent for developing countries), it is not counted toward the AMS limits. This ‘de minimis’ exemption provides some flexibility to a country in the design of its domestic support policies for specific commodities. But much more flexibility for commodity support is provided by the use of the aggregate support measure concept, since the reduction commitments do not apply to specific commodities, only to the total value of support for a country. Direct producer payments under certain production-limiting programs (referred to as ‘blue box’ policies) are exempt from reduction (not included in the current AMS) as long as they satisfy specific criteria. Specifically, the program must be production limiting, with payments based on fixed area and yield, or on 85 percent or less of the base level of production or fixed number of livestock. Support from policies with minimal impacts on trade or production (green box policies) is also excluded from the AMS. Examples of these policies include public stockholding, natural disaster relief, marketing and promotion, inspection, extension services, pest and disease control, and research. They also include payments to producers that are minimally distorting to production, such as certain forms of decoupled income support not tied to production, like the United States' production flexibility payments, assistance to help producers make structural adjustments, and direct payments under environmental and regional assistance programs. Currently, 31 WTO member countries have AMS reduction commitments (WTO, 1999b). In 1997--the most recent year with comparable data--the EU, Japan, and the United States accounted for about 90 percent of total AMS notifications.------6/ ------ 6/ WTO AMS notifications for 1998 are now available for the EU and Japan, but the United States has not made its notification since 1997. ------ However, the coarse grain contribution to the AMS for each of these countries was relatively low (table A-10). For example, in 1997 the EU’s coarse grain (mostly barley and corn) non-exempt amber box payments totaled $4.6 billion, or 5.2 percent of its commitment level. Barley was the only coarse grain receiving amber box support in Japan, and represented just 0.5 percent of its $39.7 billion AMS commitment level that year. Although U.S. coarse grain (mostly corn) ‘amber box’ expenditures totaled $155 million in 1997, they were excluded from the AMS calculation due to the de minimis exemption. Of these three countries, the EU and Japan have come closest to their AMS limits. In 1997, AMS outlays equaled about 66 percent of URAA limits for Japan, about 63 percent for the EU, and about 29 percent for the United States. Other smaller countries such as South Korea, Norway, Switzerland, Iceland, Israel, and Slovenia have come closer to their AMS limits during this time period. Countries have stayed within their AMS commitment limits for two main reasons. First, reductions are being made from a base period (1986-88) which was characterized by high levels of domestic support. Second, several countries such as the EU, United States, Japan, South Korea, Switzerland, Norway, Iceland, Israel, and Slovenia have ‘re- instrumented’ policies to meet these commitment levels. Commodity prices were also relatively high during 1995-97, so fewer domestic subsidies were needed during that period. When AMS levels are reported for more recent years, some countries are likely to be much closer to their commitment ceilings. In the EU, policy changes since the base period have resulted in an increase of compensatory payments, which are classified as exempt blue box payments, since support is tied to production limitations based on a fixed area and yields. These payments for EU corn and other cereals averaged about $13 billion between 1995 and 1997. In contrast, the intervention market price support provided for EU coarse grains is counted as amber box payments and totaled about $4.4 billion in 1995, $4.9 billion in 1996, and $4.6 billion in 1997. In coming years, the EU’s Agenda 2000 reforms are expected to reduce the level of the EU’s amber box price supports and increase the level of blue box income supports, continuing a policy direction which began with the MacSharry CAP reforms in 1992 (Leetmaa and Bernstein, 1999). This assumes the blue box will continue to be available to the EU, which relied on it heavily. One of the issues for the current round of negotiations is whether the blue box will be continued. The major domestic support policies affecting the U.S. coarse grain sector are provided for in the Federal Agriculture Improvement and Reform (FAIR) Act of 1996. Previously, the Food, Agriculture, Conservation, and Trade (FACT) Act of 1990 provided for deficiency payments. Feed grain deficiency payments were computed to be about $3.5 billion in 1995.-----7/ ----- 7/ The FACT ACT of 1990 provided much less than this in actual payments, $149 million for crop year 1995, but the URAA defined a special measure of deficiency payments for measuring the AMS and the blue box--one in which the ‘price-related payment’ could be recalculated using the current administered target price minus the fixed 1986-88 reference (market price) as the payment rate. ----- These payments were classified as blue box payments because the United States used acreage base restrictions and the acreage reduction program as the basis for ‘production limitations’ in qualifying for the blue box since deficiency payments could be received only if the restrictions and occasional acreage reductions were satisfied. After 1996, deficiency payments for feed grains were replaced by (potential) marketing loan gains or loan deficiency payments, classified as amber box. Marketing loan benefits were not made during 1996 due to relatively strong prices, but feed grains did receive ‘ amber box’ interest subsidies of $29.6 million related to participation in the Commodity Credit Corporation’s (CCC) commodity loan program. In 1997, $52 million in interest subsidies and $103 million in marketing loan gains (mostly to corn producers) were made, but payments in both years were excluded from the AMS because of the de minimis exemption. Crop and revenue insurance premiums subsidized by the Government are considered amber box non-commodity-specific support policies, but these subsidies have also been excluded from the AMS because of the de minimis exemption. Feed grains are also eligible for production flexibility contract payments, which are classified as green box, since payments are not tied to current production or price, but are based on historical acreage and yields. Coarse grain producers received about $3 billion of these payments in 1999. Because of declining farm incomes and weather-related disasters, the U.S. Congress also provided supplemental emergency assistance payments to recipients of production flexibility payments in 1998, 1999, and 2000. Some countries have begun to shift away from amber-box policies and toward more green-box policies, which presumably reduces distortions to production and trade. Negotiations appear likely to focus on continued reduction of the AMS. The current U.S. objective on agricultural domestic support is to substantially reduce trade- distorting domestic support in a manner that corrects the disproportionate levels of support used by some WTO members. Specifically, the United States proposes that each country with current AMS commitments further reduce their AMS from final bound levels to a new level equal to a fixed percentage of the members’ value of total agricultural production in a fixed base period, and that the fixed percentage be the same for all members. The U.S. proposal also suggests simplifying the domestic support disciplines into two categories; exempt support, with minimal trade-distorting effects on production, and non-exempt support subject to a reduction commitment (WTO, 2000b). Other Issues State Trading Enterprises (STEs)--STE activities affect trade by influencing domestic and international prices (Ackerman and Dixit, 1999). A particular concern with STEs is that their lack of price transparency can be used to mask export subsidies or import barriers, and can therefore be used to circumvent URAA commitments on market access and export subsidies. STEs may also benefit from advantages unavailable to commercial firms that compete against them. Several factors influence the tariff/subsidy equivalents associated with STEs, including their degree of control over the domestic market, their policy objectives, the extent of their international market power, and their range of authorities and government support. State trading is also an issue that pertains to countries seeking WTO accession, such as China, Taiwan, Russia, and Vietnam, which use STEs extensively. In 1995 and 1996, more than 30 WTO countries reported nearly 100 STE’s involved in their agriculture sectors. STEs are generally not as significant for coarse grains as they are for wheat, rice, and sugar, but state traders are important in the world barley market (Ackerman and Dixit, 1999). The Canadian Wheat Board and Australia’s Barley Board (ABB), for instance, maintain global export market shares of about 10 and 20 percent, respectively (table A-1). The Australian Barley Board (ABB) regulates both domestic and export markets (i.e., single-desk exporting powers). Although it was recommended that domestic and export powers by the board be phased out, thus far only Victoria has decided to do so beginning July 1, 2001 (USDA, 2001d). Victoria’s domestic market was already deregulated. Smaller exporters such as Turkey and Russia also use STEs to exercise some control over their exports. On the import side, Saudi Arabia’s STE, the Grain Silos and Flour Milling Organization (GSFMO), accounted for an average of about a third of world barley imports during 1996/97-1998/99. China and Japan, which also manage imports with STEs, held world barley import shares of 11 and 10 percent, respectively. Saudi Arabia permitted private traders to import barley for the first time in 1998. In 1999, Japan began allocating a portion of its barley and wheat import quotas under a system known as Simultaneous Buy and Sell (SBS). Previously the Food Agency, an arm of the Ministry of Agriculture, Forestry, and Fisheries, acted as the importer for barley and feed wheat for Japan’s livestock feed industry. Under the SBS system, Japan’s feed mills can directly negotiate with specific exporting firms to arrange a shipment. The Food Agency determines which proposed contracts will be allowed under the SBS portion of the quota, but the new system increases the flexibility of the private firms in filling import needs. Corn trade has also been affected by some STEs. South Africa, for example, had a maize marketing board but it was terminated in 1997. China’s National Cereals, Oils and Foodstuffs Import and Export Corporation (COFCO) managed imports, and COFCO and the Jilian Grain Group are the only authorized exporters of corn. As part of its WTO accession agreement with the United States, China agreed to initially reserve 25 percent of TRQ imports for the private sector, rising to 40 percent by the end of the implementation period. China also agreed to allow out-of-quota trade through entities other than STEs when it becomes a WTO member. Discussions on STEs are likely to revolve around strengthening WTO rules governing these enterprises and imposing additional disciplines on their exclusive authorities and the policies they implement. The current U.S. proposal regarding state trading enterprises calls for termination of exclusive import and export rights possessed by an STE, elimination of government funds or guarantees to support single-desk exporters, and promotion of increased transparency in STE operations. Export Credit Guarantees and Export Credits--A potential issue related to the new negotiations in agriculture is the ongoing discussion on export credit guarantees and export credits being conducted in the Organization for Economic Cooperation and Development (OECD). Some U.S. competitors have argued that export credits and credit guarantees should be treated as an export subsidy. While negotiations to discipline government-sponsored credit and credit guarantee programs are ongoing in the OECD, some WTO members are calling for additional negotiations to take place in the WTO. Export credit programs are used extensively by the United States and other countries. In fiscal 1999, about $3 billion in U.S. export sales were conducted under these types of programs. U.S. credit guarantees are used for a portion of U.S. coarse grain exports, typically around 10 percent but as high as 20 percent in some years. Under the URAA, Article 10.2, member countries agreed to work on disciplines for the use of government-sponsored export credit programs in agriculture (USDA, 1999b). These negotiations have been conducted in the OECD, and the United States prefers that negotiations continue in this forum since much of the work has already been completed there. The United States also takes the position that all WTO members offering such credits and export credit guarantees be included in any agreement. Food Aid--Some countries may raise the issue of food aid disciplines in the negotiations as well. U.S. agricultural commodities are provided to countries in need of food assistance through direct donations and concessional programs. Food aid may be provided through three programs: Public Law 480 Program, Food for Progress Program, and the Section 416(b) Program. Typically only a small portion of total U.S. coarse grain exports are distributed through food aid and concessional programs. For example, planned U.S. food aid for fiscal year 2000 included 51,790 metric tons of barley and 954,900 metric tons of corn, about 2 percent of total U.S. coarse grain exports for fiscal 2000. The U.S. proposal, in part, calls for a renewal to the commitment of food aid as expressed in the Uruguay Round’s ‘ Decision on Measures Concerning the Possible Negative Effects of the Reform Program on Least Developed and Net Food-Importing Developing Countries’ and for a continuation of the WTO disciplines on food aid contained in Article 10.4 of the Uruguay Round Agreement on Agriculture. Country Accession to WTO--Improved/increased market access or subsidy reduction may be the primary interest of many WTO members, but they will also have in interest in the implications of potential entrants into the WTO. While most of the world’s major trading partners are members of the WTO, several key countries, including China, Taiwan, Russia, and Vietnam are not yet members and are therefore not subject to its disciplines. A U.S.-China agreement signed on November 15, 1999, and the subsequent decision by the United States to grant permanent normal trading relations (PNTR) to China in October 2000 represented a major step toward China’s joining the World Trade Organization (Colby, Price, and Tuan). However, the PNTR takes effect only when China joins the WTO, just as China’s agreed-to TRQs take effect only after it joins the WTO. China is the third largest exporter of corn with a global export market share of about 7 percent, and is a consistent importer of barley and rye. However, China is expected to increase its net imports of coarse grains with this agreement, which could provide an opportunity for U.S. corn exporters. Presently, China has an applied tariff of 114 percent on all corn imports and these imports are managed by its state trading agency, COFCO. Terms of the bilateral agreement include the establishment of a TRQ for corn, with an initial quota of 4.5 million tons, rising to 7.2 million tons within 5 years.-----8/ ----- 8/ The TRQ is not a minimum purchase requirement, but the agreement does require China to establish access opportunities for the full quota amount. The agreement also introduces private trade and increased transparency of the import process to maximize the likelihood that quotas will fill. ----- Within-quota imports would be subject to a low duty (1 percent), while over-quota duties would be high--77 percent at the beginning of implementation and declining to 65 percent within 5 years. Non-state trade companies would initially be allocated 25 percent of the quota, rising gradually to 40 percent within 5 years. With China’s accession to the WTO, its net corn imports are projected to increase by an average annual $497 million beyond USDA’s baseline estimates for the period 2000 to 2009 (Colby, Price, and Tuan). Trade in Genetically Engineered Commodities--Foreign regulations and labeling initiatives that govern products from genetically engineered organisms have created concerns among U.S. coarse grain producers and companies about the loss of corn exports, and potential loss in exports of processed byproducts such as corn gluten feed and meal (Lin, Chambers, and Harwood).-----9/ ----- 9/ About 25 percent of U.S. corn acreage was planted to genetically engineered varieties in 2000 (USDA, 2000j). ----- U.S. corn exports to the EU, for example, have recently declined about $200 million per year because of an EU moratorium on approvals for new corn varieties being grown in the United States. The quantity of U.S. corn exports destined for the EU subsequently declined from over 3 million tons in fiscal year (FY) 1994/95 to less than 150,000 tons in FY 1999/2000. The value of U.S. corn byproduct exports to the EU totaled $403 million in FY 1999 and $394 in FY 2000, about 5 million metric tons in each year. The EU recently adopted labeling regulations for foods containing biotech ingredients and is currently drafting feed labeling regulations. Japan has finalized its biotech labeling regulation and began its implementation in April 2001. South Korea has implemented biotech labeling regulations for unprocessed foods (such as corn or soybeans) in March 2001 and plans to implement biotech labeling for processed foods in July 2001. In addition, mandatory labeling policies for some bioengineered foods were implemented by Indonesia in 2000, were adopted by Australia and New Zealand, and are being proposed by Taiwan and other countries. In this climate, science-based risk assessments--as already required under the WTO’s SPS rules--and a uniform set of rules and standards for all countries could facilitate world trade of genetically engineered organisms. The current U.S. proposal on this issue calls for a focus on disciplines to ensure that processes regarding trade in products developed through new technologies are transparent, predictable, and timely. ‘Zero for Zero’--The International Barley and Malt Coalition for Free Trade, which includes barley producer organizations, malting companies, and malting industry representatives from Canada and the United States, is proposing an accelerated ‘zero-for-zero’ trade liberalization for barley and malt. It should be noted that this is an industry and not a government proposal. A ‘zero for zero’ strategy was successfully used in the Uruguay Round to bring about complete elimination of tariffs on selected industrial goods, and some members explored this approach for the global oilseed market, but no agreement could be reached. By allowing market forces to determine production and trade flows, a ‘zero-for- zero’ agreement could increase the market share of competitive barley producers, mainly because the EU would have to eliminate high levels of domestic support and export subsidies for these products. Export Taxes--Discussions during the new agricultural trade negotiations could include consideration of a ban on export taxes, which have been used by some countries to generate government revenue and redistribute income. Export taxes restrict the availability of a commodity on the global market and consequently tend to raise global prices. Argentina once taxed the export of corn and sorghum to subsidize its manufacturing sector. Although this policy has been abandoned, it tended to discourage domestic production of corn or sorghum and reallocate resources into the manufacturing sector. Argentine producers responded by maintaining a low-input agriculture. Another example is the EU’s temporary tax on barley exports during its 1995/96 marketing year. By taxing exports, the EU’s goal was to control tight internal supplies, ease prices for domestic grain users, and encourage the rebuilding of government-owned intervention stocks. The U.S. goal for the new agricultural trade negotiations is to prohibit the use of export taxes, including differential export taxes, for competitive advantage or supply management purposes (WTO, 2000b). Conclusions Although the URAA was an important step toward identifying and disciplining trade distortions in agriculture, the agreement’s impact on the global coarse grain market so far appears to be limited. Since the agreement, global coarse grain trade has risen slightly but well below growth in global production. However, it is difficult to separate the impact of the URAA from other market-related events that occurred during the implementation period--such as the Asian financial crisis and increased exports by (non-WTO member) China. In the new WTO agricultural negotiations, improved market access and more market-oriented trade depend largely on progress in issues addressed during the Uruguay Round. These include increased market access by further lowering bound tariff rates, expanding quotas for products with TRQs and improving TRQ administration, continued reduction in export subsidies and domestic support. Additional issues could include a ‘zero for zero’ proposal for barley and malt, tighter disciplines on state trading enterprises, and improved market access opportunities for genetically engineered coarse grains and products. Market opportunities for coarse grain producers could also be enhanced by further liberalization of the global meat market. Progress on these issues could expand the market opportunities for the U.S. coarse grain sector. Box: Impact of NAFTA on U.S. Coarse Grain Trade Under WTO rules, a nation is normally required to extend trade concessions between two trading partners to all other WTO members. Exceptions are permitted so long as two or more countries agree to substantially remove barriers on all trade and refrain from violating other WTO commitments. The North American Free Trade Agreement (NAFTA) is an example of such an agreement. NAFTA was established on January 1, 1994, when the United States and Mexico agreed to eliminate, over a 15-year period, all tariffs, quotas, and import licenses acting as barriers to agricultural trade between the two nations. NAFTA also incorporated the agricultural trade liberalizing provisions agreed to by the United States and Canada in the 1989 Canada-U.S. Free Trade Agreement (CFTA). Provisions of the agreement affecting trade in coarse grains are discussed by Link (1997). For most grains and grain products, the impact of NAFTA on U.S.-Canadian and U.S.-Mexican trade is small compared to the influence of other factors, but Canadian and Mexican markets have grown in importance to U.S. grain and feed traders (Link and Zahniser, 1999). In 1998, the most important U.S. grain and feed export to both countries was corn. Recent growth of U.S. corn exports to Mexico is due mostly to agricultural policy reforms in Mexico and a severe drought in 1995. U.S. corn exports to Mexico averaged $521 million per year after the NAFTA agreement, in contrast to $400 million in 1990 and just $35 million in 1993. A major change under NAFTA was Mexico's replacement of a corn import licensing scheme with a tariff-rate quota (TRQ), which will be eliminated in 2008. This reform gave the United States greater access to the Mexican corn market. However, it should be noted that, even prior to NAFTA, the Mexican Government usually allowed enough corn to be imported to meet domestic demand. After NAFTA, Mexico has allowed imports of U.S. corn to surpass the TRQ without applying the high over-quota tariff, except in 1997. However, more recently the Mexican Government required that over-quota tariffs had to be charged. Traditionally, the Government of Mexico has waived the enforcement of the over-quota tariff for corn because local production has been insufficient to meet demand and it has preferred to reduce inflationary threats through corn imports. NAFTA’s effect on U.S.-Canadian corn trade has not been dramatic, although corn trade became duty-free between the two countries only in 1998. U.S. corn exports to Canada averaged $115 million during 1995-99, versus $66 million during 1990-94. However, in November 2000, Canada imposed provisional countervailing and antidumping duties on U.S. corn imports to western Canada amounting to $1.58 per bushel, claiming that U.S. loan deficiency payments and other programs injured domestic corn producers. U.S. corn exports to western Canada averaged over 300,000 tons per year during the last 4 years, but reportedly have ceased since this action was taken (USDA, 2000k). However, in a judgment released on March 7, 2001, the Canadian International Trade Tribunal (CITT) found no evidence that subsidized U.S. corn caused injury to western Canada’s corn producers and therefore overturned the $1.58 per bushel provisional duty on U.S. corn imports to western Canada. Provisional duties collected since November will be refunded (USDA, 2001e). U.S. corn imports from Canada averaged $31 million during 1995-99, nearly unchanged from 1992 and 1993 levels. NAFTA’s impact on sorghum trade between the United States, Canada, and Mexico was positive because it immediately removed all tariffs. It is likely that sorghum would have been less price-competitive with Mexico’s corn imports and declined further. U.S. sorghum exports to Mexico dropped during 1995-97, a period in which many Mexican livestock producers switched to corn, but since then U.S. sorghum exports to Mexico have rebounded. The rise in U.S. sorghum exports is due to the size of the Mexican corn and sorghum crops and the administration of Mexico’s corn quota. For example, Mexico’s feed compounders have purchased more U.S. sorghum instead of corn because there is no tariff on sorghum and corn imports require an application to the Mexican Government for the compounders’ share of corn quota, within- or over-quota, a process characterized by delays and uncertainty. Reduced tariffs in Canada help U.S. sorghum compete for that market, but potential growth is limited by transportation costs. The impact of NAFTA on U.S. and Canadian barley trade has been minor. The U.S. routinely imports significant amounts of malting barley from Canada, reflecting a trend that began in the late 1980s. There has been a small positive impact on U.S. barley exports to Mexico due to NAFTA. NAFTA removed Mexico’s barley tariffs and licenses and installed a TRQ with an annual 5-percent growth rate. Oats trade between the United States and Canada has not been affected by NAFTA. U.S. tariffs on oats from Canada and other sources were already at zero. The United States is the largest global importer of oats, and Canada is the largest global exporter to the United States. References Ackerman, Karen, and Praveen Dixit. An Introduction to State Trading in Agriculture. Agricultural Economic Report No. 783. U.S. Department of Agriculture, Economic Research Service. October 1999. Colby, Hunter, J. Michael Price, and Francis C. Tuan. ‘China’s WTO Accession Would Boost U.S. Ag Exports and Farm Income.’ Agricultural Outlook, AGO-269, March, 2000. pp. 11-16. Leetmaa, Susan, and Jason Bernstein. ‘An Analysis of Agenda 2000,’ The European Union’s Common Agricultural Policy: Pressures for Change, International Agriculture and Trade Reports, Situation and Outlook Series, U.S. Department of Agriculture, Economic Research Service. WRS-99-2. October 1999. pp. 14-20. Lin, William, Peter Riley, and Sam Evans. Feed Grains: Background for 1995 Farm Legislation. U.S. Department of Agriculture, Economic Research Service. Agricultural Economic Report Number 714. April 1995. Lin, William, William Chambers, and Joy Harwood. ‘Biotechnology: U.S. Grain Handlers Look Ahead,’ Agricultural Outlook. U.S. Department of Agriculture, Economic Research Service. AGO-270. April 2000. pp. 29- 34. Link, John. Report Coordinator. ‘Commodity-by-Commodity Assessment of NAFTA,’ NAFTA Situation and Outlook Series. U.S. Department of Agriculture, Economic Research Service. WRS-97-2. September 1997. Link, John and Steven Zahniser. Report Coordinators. NAFTA. International Agriculture and Trade Reports, U.S. Department of Agriculture, Economic Research Service. WRS-99-1. August 1999. Roberts, Donna. ‘Implementation of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures,’ Agriculture in the WTO, International Agriculture and Trade Reports, Situation and Outlook Series, U.S. Department of Agriculture, Economic Research Service. WRS--98-4, December 1998. Shane, Mathew D. ‘Evolving Patterns of Feed Grain Trade.’ Feed: Situation and Outlook Yearbook. U.S. Department of Agriculture, Economic Research Service. FDS-2000. April 2000. pp. 23-26. United Nations Food and Agriculture Organization (FAO) website, October 2000. http://apps.fao.org/page/collections?subset=agriculture United States Trade Representative. ‘Preparations for the 1999 Ministerial Conference: Negotiations on Agriculture.’ USTR website http://ustr.gov/new/gc4.html 1999. U.S. Department of Agriculture, Economic Research Service. Data Access Retrieval and Tabling System. U.S. trade data from the Bureau of the Census. U.S. Department of Agriculture, Economic Research Service. ‘A Glossary of Trade Terms,’ Agricultural Outlook. AO-236. December 1996. pp. 24-25. U.S. Department of Agriculture, Economic Research Service. Agriculture in the WTO. International Agriculture and Trade Reports, Situation and Outlook Series, WRS-98-4. December 1998. U.S. Department of Agriculture, Foreign Agricultural Service. Fact Sheet: WTO and Agriculture, What’s at Stake for Corn? October 1999a. (http://www.fas.usda.gov/info/factsheets/wto/corn.pdf) U.S. Department of Agriculture, Foreign Agriculture Service. Backgrounder: International Negotiations on Export Credit Programs. November 1999b) (http://www.fas.usda.gov/info/factsheets/ec- backgrounder.html). U.S. Department of Agriculture, Economic Research Service. PS&D View. (http://www.econ.ag.gov/prodsrvs/dp-sm.htm) January, 2000a. U.S. Department of Agriculture, Foreign Agricultural Service. Philippines Grain and Feed Annual-2000. Global Agriculture Information Network (GAIN) Report #RP0007, January 28, 2000b. U.S. Department of Agriculture, Foreign Agricultural Service. India: Grain and Feed Annual Report 2000. FAS GAIN Report #IN0010, February 20, 2000c. U.S. Department of Agriculture, Foreign Agricultural Service. Feed Grains. March 3, 2000d. (http:www.fas.usda.gov/itp/policy/gatt/fgrains.html) U.S. Department of Agriculture, Foreign Agricultural Service. Venezuela Grain and Feed Annual 2000. Global Agriculture Information Network (GAIN) Report #VE0018, March 15, 2000e. U.S. Department of Agriculture, Foreign Agricultural Service. Brazil Grain and Feed Annual 2000. Global Agriculture Information Network (GAIN) Report #BR0610, March 23, 2000f. U.S. Department of Agriculture, Foreign Agricultural Service. European Union Grain and Feed Annual 2000. Global Agriculture Information Network (GAIN) Report #E20035, March 31, 2000g. U.S. Department of Agriculture, Economic Research Service. Foreign Agricultural Trade of The United States. Various calendar year supplements. May 2000h. U.S. Department of Agriculture, Foreign Agricultural Service. India: Grain and Feed -- GOI establishes TRQ for corn. FAS GAIN Report #IN0032, June 14, 2000i. U.S. Department of Agriculture, National Agricultural Statistics Service. Acreage. Agricultural Statistics Board. June 30, 2000j. p. 28. U.S. Department of Agriculture, Foreign Agricultural Service. Canada Grain and Feed: Corn Imports from U.S. into Western Canada End, 2000. Global Agriculture Information Network (GAIN) Report #CA0192, December 5, 2000k. U.S. Department of Agriculture. USDA Agricultural Baseline Projections to 2009. Office of the Chief Economist, Interagency Agricultural Projections Committee, Staff Report WAOB-2001-1. February 2001a. U.S. Department of Agriculture. Outlook for U.S. Agricultural Trade, AES-29, February 22, 2001b. U.S. Department of Agriculture, Foreign Agricultural Service. Turkey: Grain and Feed Annual. (GAIN) Report #TU1012, March 1, 2001c. U.S. Department of Agriculture, Foreign Agricultural Service. Australia Grain and Feed Annual 2001. Global Agriculture Information Network (GAIN) Report #AS1008, March 5, 2001d. U.S. Department of Agriculture, Foreign Agricultural Service. Canada Grain and Feed: CITT Overturns Duty On U.S. Corn Imports Into Canada. Global Agriculture Information Network (GAIN) Report #CA1039, March 8, 2001e. U.S. Department of Agriculture, Foreign Agricultural Service. Grains: World Markets and Trade. Circular Series. FG 04-01. April, 2001f. World Trade Organization. The Results of the Uruguay Round of Multilateral Trade Negotiations. The Legal Texts. Geneva, Switzerland. 1995. World Trade Organization. Secretariat, Tariff and Other Quotas: Background Paper by the Secretariat, September 9, 1997. World Trade Organization. ‘Agriculture--Fairer Markets for Farmers,’ (http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm3_e.htm). World Trade Organization. Secretariat, Export Subsidies: Background Paper by the Secretariat--Revision. August 11, 1999a. World Trade Organization. Secretariat, Domestic Support-Background Paper by the Secretariat: Revision. September 23, 1999b. World Trade Organization. Secretariat, Export Subsidies: Background Paper by the Secretariat. Document number G/AG/NG/S/5. May 11, 2000a. World Trade Organization. Committee on Agriculture, Proposal for Comprehensive Long-Term Agricultural Trade Reform: Submission from the United States (G/AG/NG/W/15). June 23, 2000b. Special Article StarLink: Impacts on the U.S. Corn Market and World Trade William Lin, Gregory K. Price, and Edward Allen-----1/ ----- 1/ Agricultural economists, U.S. Department of Agriculture, Economic Research Service, Market and Trade Economics Division. ----- Abstract: StarLink has disrupted the U.S. corn market since some shipments destined for food uses or export markets tested positive and were rerouted to approved animal feed and non-food industrial uses. The potential (upper-bound) volume of marketed StarLink-commingled corn from the 2000 crop located in areas near wet and dry millers prior to October 1, 2000, is estimated at 124 million bushels. The actual volume of commingled corn may differ from the potential volume estimated in this study. Price differentials between StarLink-free and StarLink corn existed during the early stage of the incident. However, at present, the price differentials are small or nonexistent. The zero tolerance for unapproved biotech varieties adopted by buyers in major export markets (mainly Japan) raises the question of whether the grain industry can segregate grain supplies. Restrictions imposed on the use of StarLink corn in some major U.S. export markets, such as Japan and South Korea, appear to have had a negative impact on U.S. corn exports. The zero tolerance for StarLink and disputes over testing protocol have also disrupted corn shipments destined for these export markets. Keywords: StarLink, corn, commingled corn, market disruptions, trade effects. Introduction On September 18, 2000, a news headline reported that some taco shells sold in retail stores contained a protein from StarLink corn, a Bt corn variety that was approved only for feed and industrial uses but not for human consumption. Ever since, this discovery of StarLink corn in food has had repercussions throughout the grain handling and processing sectors as well as in global grain trade. StarLink corn was developed by Aventis CropScience (Aventis), a multinational firm based in France. According to Aventis, StarLink corn was grown on less than 1 percent of the total U.S. corn acreage in 2000 (about 362,000 acres), with 40 percent of the acreage concentrated in Iowa. StarLink corn contains the Cry9C protein, which is toxic to European corn borers and certain other insect pests. The Environmental Protection Agency (EPA) did not approve the protein for human consumption due to lingering questions about Cry9C’s potential to cause allergic reactions. A testing lab indicated that it found the presence of the Cry9C protein in a sample of Taco Bell taco shells. Kraft Foods, Inc., the company that produced the taco shells, recalled all of its taco shells after further testing by the Food and Drug Administration confirmed the initial results. The incident led to the recall of nearly 300 food products--including more than 70 types of corn chips, more than 80 kinds of taco shells, and nearly 100 food products served in restaurants--by several food manufacturers and caused major disruptions in domestic and export markets. Recently, StarLink was found in more corn products, including corn dogs, corn bread, polenta, and hush puppies. However, the U.S. grain handling industry quickly became more knowledgeable in addressing the issues. Over time, the government approved more destinations for channeling StarLink-commingled corn to feed and non-food industrial uses, thus opening more market outlets for delivery. Price differentials between StarLink and ‘ StarLink- free’ corn that existed in the early stage of the incident eroded quickly. Many grain companies currently do not discount StarLink corn prices paid to producers because Aventis will pay the cost of diverting the grain to approved uses. Thus, at present, the price differential between StarLink-free and StarLink-commingled corn is small or nonexistent. The StarLink incident illustrates the complexity of isolating crop varieties within the existing grain marketing system and preventing unwanted commingling. -----2/ -----2/ Commingling is defined as the combination or mixing of StarLink and cross-pollinated corn from the buffer zone (a 660-foot strip area between StarLink and other hybrid varieties required by a contract between Aventis and producers) with other varieties during harvest, storage, handling, and distribution of the grain. ----- The potential commingling of StarLink with other corn varieties was exacerbated by three factors: (1) some of the corn grown on the buffer zone was probably cross-pollinated with StarLink corn, -----3/ ----- 3/ The likelihood of the cross-pollination between StarLink and conventional corn had been recognized by Aventis. In a company brochure entitled ‘ 2000 U.S. Edition,’ Aventis stated that ‘ the use of StarLink hybrids and any corn grown within 660 feet of StarLink hybrids is currently limited to domestic animal feed, industrial non- food, or seed production uses’ (Harl). ----- (2) a portion of StarLink corn (including that grown on the buffer zone) had entered the marketplace prior to an effort to contain StarLink-commingled corn, and (3) some elevators did not know that they were receiving StarLink-commingled corn. The commingled corn may have come from either the 1999 or 2000 corn crop because StarLink was grown in 1999 but was not detected. To contain the extent of commingling, Aventis reached an agreement with the U.S. Department of Agriculture (USDA) on September 29, 2000, to launch a buyback program, offering producers a 25-cents-per-bushel premium above the posted county price to ensure that StarLink corn (both the 2000 and 1999 crops remaining on farms) was fed to farmers’ own animals, sold to feed outlets, or sold to the Commodity Credit Corporation (CCC), with the expenses (including extra transportation charges) to be reimbursed by Aventis.-----4/ ----- 4/ As of April 19, 2001, CCC had purchased 221,000 bushels of StarLink and commingled corn from producers. All the purchased corn was channeled to feed users, such as feedlots. ----- This program, however, did not address the 1999- and 2000-crop StarLink corn that had already been delivered to local elevators. The main purpose of this article is to attempt to assess the magnitude of the impacts of the StarLink incident on the U.S. corn market and global corn trade. Specifically, the objectives are: (1) to examine the disruptions caused by the incident in the domestic and export corn markets, (2) to estimate the potential (upper-bound) volume of StarLink-commingled corn from the 2000 crop that was produced and marketed near wet and dry milling facilities, and (3) to estimate the impact of StarLink on global corn trade and U.S. corn exports. Disruptions in the Domestic Corn Market The StarLink incident has disrupted the U.S. corn market since some shipments destined for food uses or export markets tested positive and thus had to be rerouted to approved uses. The disruption to food producers and exporters can be kept to a minimum by directly channeling a large portion of the commingled corn to feed use, which accounts for about 60 percent of U.S. corn disappearance (USDA, ERS). Alternatively, commingled corn can be channeled to certain non-food industrial users, such as dry-mill ethanol plants where the byproduct feeds produced are typically consumed domestically. Dry-mill alcohol fuel use accounts for about 2 percent of U.S. corn disappearance. Food processors (including wet and dry millers) are testing inbound corn delivered to their facilities. The most frequently used test is the protein-based enzyme-linked immunosorbent assay (ELISA) test, which determines whether the Cry9C protein found in StarLink is present in the sample. The test takes about 10 minutes to perform and indicates the presence or absence of the StarLink-specific protein with a ‘ yes’ or ‘ no’ response. Presently, the detection sensitivity reported by the test kit manufacturers ranges from 0.25 percent (1 kernel in 400) to 0.125 percent (1 kernel in 800), which is achievable with newer test kits. These tests cost around $4 each.5/----- ----- 5/ Some elevators and processors did not incur testing costs because Aventis provided them with test kits free of charge. ----- Elevators also face the problem of conflicting StarLink test results, in part, because of the small size of test samples--up to three 800- kernel sub-samples per test. Some elevators even use a more sophisticated, DNA-based technique, called the polymerase chain reaction (PCR) test, which can detect specific foreign genetic material inserted into corn’s DNA. The cost of the test ranges from $200 to $450 and takes 2 to 10 days to obtain the results, which disrupts the rapid turnover of grain elevator operations. However, the 10-day upper limit is uncommon. Only one test is required per barge shipment. When corn shipments are rejected by processors, arrangements must be made to alter grain flow patterns by hauling the grain away from processing facilities or export ports to feed or non-food industrial users. Rerouted shipments of rejected corn impose extra transportation costs on grain elevators. Compensation by Aventis for any extra transportation costs is possible if the expenses are documented (Harl et al.). In most cases, rerouting of the rejected grain involves shipment to destinations not far away from the originally intended destination. Demurrage adds an extra cost for grain elevators. Furthermore, grain elevators may face difficulties if processors and exporters no longer accept commingled corn. The zero tolerance for unapproved biotech varieties adopted by buyers in major export markets (mainly Japan) raises the question of whether the grain industry can segregate grain supplies. Segregation poses logistical problems for grain transportation. Corn is commonly transported to export elevators in unit trains of up to 100 cars (or by barge). If effectively maintaining crop segregation makes it necessary to shift transportation away from unit trains to individual railcars, transportation costs could increase significantly. One industry source suggests that if the threshold for biotech content was 1 percent or lower, transportation costs could potentially double (Lin et al.). The cost of segregating non-biotech corn was recently estimated to be around 22 cents per bushel (from country elevators to export ports) if segregation follows the handling process for high-oil corn, which typically meets a tolerance level of about 5 percent in Japanese markets (Lin et al.). A recent sale of segregated non-biotech corn to South Korea suggests a lower cost of segregation at 18 cents per bushel. The zero tolerance for StarLink corn is likely to raise the cost of segregation beyond that incurred with segregating non- biotech corn. Potential price discounts for StarLink corn are another disruption in the corn market. The USDA-Aventis buyback program guarantees farmers market outlets for their StarLink corn by offering a 25-cents-per- bushel premium above the posted county price to divert the StarLink corn to feed or non-food industrial uses. However, price discounts or differentials may arise at the grain-handler level. Aside from additional transportation that may be needed to channel the commingled corn to approved uses, the value of StarLink corn could be discounted by buyers upon rejection by food processors or exporters. According to trade sources, price differentials between StarLink and StarLink-free corn under the identity preservation (IP) program ranged between 7 and 12 cents per bushel and in some rare instances, reached as high as 15 to 20 cents during the early stage of the incident.------6/ ----- 6/ IP refers to a handling process by which crops are kept separate to avoid commingling during harvest, loading and unloading, storage, and shipping. This supply chain system thus requires that equipment (such as combines and augers), transportation, and storage facilities be cleaned. In the context of StarLink, this process is designed to meet the zero tolerance requirement. ----- Compensation by Aventis for any market losses (besides any extra transportation costs) is possible if they are documented (Harl et al.). Price discounts for StarLink corn reportedly were widespread, especially in the Southeastern poultry market and export markets. However, trade volume for StarLink-free corn in the domestic market was very thin, especially in those areas commanding higher premiums. Premiums for StarLink-free corn eroded quickly for several reasons. First, the U.S. grain handling industry became more knowledgeable in addressing the issues. As more destinations for channeling were approved by the government, StarLink corn found more market outlets for delivery. Second, several agreements involving the Federal and State governments paved the way to channel StarLink corn to approved uses, including the Aventis-USDA agreement on the buyback program in late September 2000, the Aventis-Iowa State Attorney General agreement reached in mid-October 2000, to extend compensation coverage to grain elevators, and the agreement made by the U.S. and Japanese Governments in November 2000 to resolve trade-related issues. Finally, premiums for StarLink-free corn were also reduced as more exporters were willing to market their StarLink-free corn under the IP program, increasing the StarLink-free corn’s exportable supplies. At present, the price differentials are small or nonexistent. Many grain companies do not discount StarLink corn prices paid to producers because Aventis will pay the cost of diverting the grain to approved uses. Estimating the Potential Volume of StarLink-Commingled Corn This section discusses the estimation of the potential volume of StarLink-commingled corn from the 2000 crop that was produced and marketed near wet- and dry-milling facilities.-----7/ ----- 7/ This study does not estimate the potential volume of StarLink- commingled corn from the 1999 crop due to a lack of detailed data on StarLink acreage and marketing in that crop year. ---- The assumptions of the scenario analysis and the data sources will be discussed first, and then the results of the estimation for both wet- and dry-milling facilities will be presented. The results from this scenario analysis are only one of many possible outcomes, which vary depending on the assumptions and procedures used. The findings from this study are not intended to reflect the actual or most likely volume of commingled corn, but should be interpreted as an upper-bound estimate. Scenario Development The Aventis-USDA StarLink buyback program, announced on September 29, 2000, aimed to contain StarLink and commingled corn at the farm gate. That is, the program covered corn that had been harvested but not marketed, as well as corn that had yet to be harvested. The buyback program, however, did not address commingled corn that had already been marketed.-----8/ ----- 8/ The issue of losses resulting from commingled corn in the grain handling system was addressed later by Aventis’ agreement to settle those claims on a case-by-case basis. The volume of marketed StarLink- commingled corn in 2000 depended on the percent of corn harvested by October 1 that year. For example, the percentage ranged from 27 percent to 37 percent in Iowa regions where food processors are located. In contrast, the percentage ranged from 54 percent to 88 percent in Nebraska. The 2000 corn crop was harvested earlier than normal due to warm spring weather. ----- As a result, the potential for commingling StarLink with other varieties existed in areas near wet- and dry-milling facilities.----- 9/ ----- 9/ There are two different processes that convert corn into food products for human consumption. The wet-milling process tempers and soaks corn in steep water to soften and swell the kernels, which aids in the separation of starch, solubles, gluten, and hulls. The Cry9C protein is retained in gluten meal and feed, but not in starch, oil, or corn syrup, which are intended for human food consumption, as concluded in a recent EPA white paper. In contrast, corn dry milling is basically a grinding procedure. Corn is degerminated by tempering it with steam heat or spraying it with warm water for oil extraction, and the remaining corn is ground and sieved into many fractions. The dry-milling process does not remove proteins from its products intended for human consumption. As a result, theCry9C protein can be detected in dry-mill products, including corn meals, corn flour, and corn grits. ----- To determine the potential volume of StarLink-commingled corn from the 2000 crop in areas near wet- and dry-milling facilities, this study analyzes county-level production and marketing data to identify local ‘hot spots.’ Hot spots are defined as areas where large StarLink acres were planted or significant amounts of commingled corn were marketed near wet- and dry-milling plants. A high concentration of StarLink acreage may have contributed to significant commingling. Moreover, commingling may have occurred in areas with large corn production even though StarLink acreage was relatively small. The potential for commingling could be greater in certain locations where the proportion of the corn crop harvested by October 1, 2000, was higher than in other areas. For example, States in the South harvest their crop in August, thus potentially moving corn (StarLink and other varieties) into the grain handling system before the buyback program began. Data and Methodology The locations of corn wet- and dry-milling facilities were obtained from the Corn Refiners Association and the Grain and Milling Annual (Sosland Publishing Co.), respectively. Based on the geographic information, 2000 county-level data on harvested corn acreage and yields were gathered from the USDA’s National Agricultural Statistics Service (USDA, NASS website). The potential volume of StarLink- commingled corn is estimated at the ‘greater-county’ area level, which is defined as the county in which one or more wet or dry millers are located as well as the adjacent counties within the same State. Greater-county area production is the sum of corn production in the specified counties. Multi-county corn production that had been harvested and marketed (including StarLink and other varieties) prior to October 1, 2000, was estimated by multiplying the greater-county corn production by the estimated percent harvested in the area (USDA, NASS website) and by the estimated percentage marketed up to that date in 1999/00 (State-level data), which is the latest available USDA data on the distribution of corn sales (USDA, Ag Prices). The volume of marketed StarLink corn by county (including the corn grown on the buffer zone) was obtained from Aventis’ survey of StarLink producers. The acreage, production, and marketing data employed in this analysis are provided in table B-1. For illustrative purposes, Linn County, Iowa, is used as an example to show how the volumes of 2000-crop corn (3.9 million bushels) and StarLink (324,400) sold by October 1, 2000, were estimated for a greater-county area. The counties that surround Linn County are Buchanan, Delaware, Benton, Jones, Cedar, Johnson, and Iowa Counties. The 2000 harvested acreage in the greater Linn County area (1.1 million acres) consisted of 136,100 acres in Linn County and 978,700 acres in the other counties. Corn production in each county was computed by multiplying the county’s 2000-crop harvested acreage by its average corn yield that year. Much of the estimated volume of corn in the greater Linn County area (161 million bushels) came from the surrounding counties (141.7 million bushels), while only 19.3 million bushels were produced in Linn County itself. To calculate the estimated volume of corn sold by October 1, 2000, in this greater- county area, the regional production was multiplied by the estimated percent harvested in the area prior to that date, which was about 27 percent. Then, that value was multiplied by the estimated share of corn sold up to that date (9 percent) based on 1999/00 marketing year sales data. The 324,400 bushels of marketed StarLink and buffer-zone corn were obtained from Aventis. We assumed that the StarLink corn marketed prior to October 1, 2000, in a greater-county area was commingled with conventional corn from the area sold before that date. The volume of potentially commingled conventional corn (excluding StarLink and buffer-zone corn) in a given area was calculated as the difference between the total volume of corn marketed and the volume of StarLink corn sold by October 1, 2000 (table B-2). For example, in the greater Linn County area, the 3.6 million bushels of potentially commingled corn was calculated by subtracting the 324,400 bushels of marketed StarLink from the 3.9 million bushels of total corn sold by October 1, 2000 (table B-1). A commingling ratio--the estimated volume of the potentially commingled corn relative to the volume of marketed StarLink corn--was computed for each greater-county area where one or more processing facilities are located. Results This section presents, for illustrative purposes, the possible results in terms of the potential commingling of StarLink with conventional corn in areas near wet- and dry-milling facilities if the assumptions of the scenario analysis hold. The analysis identified seven greater- county areas across the States that had StarLink sales prior to October 1, 2000, that were estimated to be greater than 100,000 bushels. The greater-county area around Nebraska’s Butler County marketed the largest amount of StarLink at 528,000 bushels (table B- 1). Other regions with large volumes of marketed StarLink corn include the greater Linn (Iowa), Lancaster, Washington, and Saline (Nebraska), Castro (Texas), and Atchison (Kansas) county areas. This analysis identifies a number of hot-spot areas near processing facilities where large volumes of potentially commingled corn existed prior to October 1, 2000. Not surprisingly, most of the hot spots are in the Midwest (especially Iowa and Illinois) and other neighboring States, such as Nebraska, Tennessee, and Kentucky (table B-2). Overall, the potential volume of marketed commingled corn from the 2000 crop located in areas near wet and dry millers prior to October 1, 2000, is estimated at 123.8 million bushels, or about 1.2 percent of the 2000 crop. The actual volume of commingled corn may differ from the potential volume estimated in this study. In Iowa, where 40 percent of the StarLink corn was grown (Harl et al.) and seven wet millers and one dry miller are located, the volume of potentially commingled corn was found to be large in a few greater- county areas--Linn (3.6 mil. bu), Clinton (2.3 mil. bu.), and Mahaska (2.6 mil. bu.). In Iowa alone, the volume of potentially commingled corn in the greater-county areas is estimated to have reached 11.4 million bushels, which is nearly 20 percent larger than the 9.6 million bushels of U.S. StarLink and buffer-zone corn marketed in the U.S. prior to October 1, 2000 (Aventis). Other greater-county areas with large amounts of potentially commingled corn include regions in Illinois (Macon, Kankakee, Vermilion, and Tazewell), Tennessee (Madison), Nebraska (Butler, Saline, and Lancaster), Kentucky (Henderson and Christian), and Texas (Castro). This county-level scenario analysis does not address the risk of commingling StarLink corn with other varieties outside of these counties. Furthermore, the scenario analysis does not address possible intrastate and interstate corn shipments beyond the surrounding counties because of a lack of information about current grain flow patterns. These shipments could compound the risk of commingling StarLink corn with other varieties in the grain handling system. However, some elevators can directly unload corn onto vessels, which lowers the risk of commingling. The 123.8 million bushels of the commingled corn identified above applies only to the 2000 crop and refers to the potential volume of commingled corn that could have been marketed near wet and dry millers. Alternatively, the volume of commingled corn could be estimated at grain handling facilities. In a separate study, Aventis estimated that the commingled corn from the 1999 and 2000 crops exceeded 430 million bushels (Wichtrich). Most of this estimated volume of commingled corn came from the 1999 crop, which entered the grain handling system undetected throughout the entire marketing year. According to an Aventis spokesperson, the estimate was derived from information that the company gained from individual grain handlers’ reports on the positive detection of Cry9C protein in their grain supplies. Those grain handlers contacted Aventis for assistance in directing the corn to approved animal feed and nonfood industrial uses. Effects of StarLink on Global Grain Trade and U.S. Corn Exports Restrictions imposed on the use of StarLink corn in some major U.S. export markets, such as Japan and South Korea, appear to have had a negative impact on U.S. corn exports. The zero tolerance for StarLink and disputes over testing protocol have at times disrupted corn shipments destined for these export markets. Disruptions in U.S. Corn Exports There is evidence that the presence of StarLink in U.S. corn exports temporarily disrupted shipments to Japan during the first half of the 2000/01 marketing year. The first wave of disruptions occurred during late October and early November 2000 before the U.S. and Japanese Governments reached an agreement to address StarLink-related trade issues (fig. B-1).-----10/ ----- 10/ According to this agreement made in November 2000, USDA will test for StarLink in U.S. corn shipments destined for Japan, and shipments will take place if the corn is certified by USDA as StarLink-free. ----- The disruption continued over the next few months as disputes over StarLink testing results arose. U.S. corn exports to Japan from September 1 to the week ending December 28, 2000, totaled 4.5 million metric tons (mmt), 11/----- ----- 11/ One metric ton equals 39.4 bushels of corn. ----- down about 11 percent from a year earlier (table B-3). This 11-percent decline persisted through mid-March 2001, but narrowed to about 7 percent by mid-April 2001. Outstanding sales of U.S. corn to Japan at the end of calendar year 2000 were down about 21 percent from a year earlier. By mid-April 2001, the gap had widened to 44 percent. Accumulated U.S. corn exports and outstanding sales to Japan together were down 2.2 mmt from a year earlier on April 12, 2001. While market forces (e.g., larger than anticipated corn crops and exports from Argentina and Brazil) probably accounted for a large portion of the decrease in U.S. corn exports to Japan (as well as South Korea), the StarLink incident also appeared to be an important factor. Trade Effects The markets most affected by Starlink have been the non-feed corn markets in Japan and South Korea. Import statistics from South Korea and Japan show a dramatic decline in the U.S. share of corn imports that are not purchased for feed use. From November 2000 through February 2001 (4 months), Japan’s imports of U.S. corn for starch manufacturing dropped 27 percent from a year earlier, a decline of over 0.3 million tons. Meanwhile, imports for starch from non-U.S. origins, mostly South Africa, increased from zero to over 0.2 million tons. U.S. corn exports to Japan in the ‘NES’ category (not for feed, starch, seed, or popcorn, so likely including some food uses) were down 11 percent during the same period, a drop of over 75,000 tons. Meanwhile, shipments from non-U.S. origins to Japan for the NES category more than tripled. Only 2 months of import data are available from South Korea (November and December 2000), but they show the same pattern. Non-feed corn imports from the United States were down 27 percent, while shipments from non-U.S. origins were 10 times greater than their year-earlier levels. Competing exporters’ trade data give similar results. As of April 16, 2001, Argentina reported corn sales to Japan at 0.65 million tons during the current marketing year, more than double the previous year. Sales to South Korea were up even more, reaching 0.8 million tons--an increase from 0.25 million a year earlier. Japanese buyers have purchased additional corn for food processing from South Africa--more than 300,000 tons over the past few months.--- --12/ ----- 12/ Japanese buyers pay a large price premium for South African corn, due, in part, to its high starch content. Preferences of Japanese buyers for StarLink-free corn have also contributed to the price differentials. ----- Most of this corn is from the large crop harvested last year. Some food processors in Japan and South Korea have turned to Brazil to source corn because of concerns over StarLink-commingled corn from the United States. Brazil’s record corn crop and the devaluation of its currency have made the country more competitive in the world market. Finally, larger than anticipated corn exports from China have also contributed to the decline in U.S. corn exports. Despite a drought- reduced crop, China’s Government has continued to subsidize exports (a decision not related to StarLink), thereby reducing its large stocks. Most of the reduction in U.S. corn exports is due to increased competition from the large back-to-back crops in Argentina, the record Brazilian crop, and the decision by China to continue to subsidize exports. The net effect of the StarLink incident on U.S. corn exports has been reduced somewhat as additional U.S. corn is diverted to other markets, including Mexico, Algeria, and Israel (table B-3).-----13/ ----- 13/ Much of Mexico’s imports are not for feed. ----- As of the week ending April 12, 2001, cumulative weekly U.S. corn exports and outstanding sales together to those specific markets were up about 1.5 mmt from a year ago. Conclusions The large volume of StarLink-commingled corn that was produced and marketed near dry- and wet-milling facilities presents an unprecedented challenge to the U.S. grain handling industry. To the extent that the commingled corn can be channeled into approved uses, disruptions in the U.S. corn market can be kept to a minimum. The large volume of potentially commingled corn in grain elevators suggests that the grain industry would have to continue its efforts to channel the commingled corn to approved uses. Segregating U.S. corn into StarLink-free and StarLink-commingled corn presents another challenge for the grain industry. Testing for the presence of the Cry9C protein in a specific lot of corn may yield different results when different samples are drawn for the test. Many recognize the importance of proper sampling procedures and knowledge of the issues at hand in determining the proper number and size of samples. More importantly, the zero-tolerance allowance adopted by buyers in Japan and South Korea (only for food use) compounds the difficulties because corn shipments will be rejected even if any traces of the StarLink-specific protein are found. Also, segregation to meet zero tolerance (because StarLink is an unapproved variety in some countries, such as Japan) is nearly impossible and would involve much greater expenses than segregating non-biotech corn. Restrictions imposed on the use of Starlink corn in major U.S. export markets, such as Japan and South Korea, appear to have had a negative impact on U.S. corn exports. The zero tolerance for StarLink and disputes over testing results have also disrupted corn shipments destined for these export markets. References Aventis CropScience. ‘Bushels of StarLink Corn Moved Off-Farm By Grower Prior to Start of Program,’ Data provided to the U.S. Department of Agriculture on October 17, 2000. Corn Refiners Association. Personal Communication. October 2000. Environmental Protection Agency. ‘White Paper on the Possible Presence of Cry9C Protein in Processed Human Foods Made From Food Fractions Produced Through the Wet Milling of Corn,’ http://www.epa.gov/oppbppd1/biopesticides/otherdocs/wetmill18.PDF, 2001. Harl, Neil E., Roger G. Ginder, Charles R. Hurburgh, and Steve Moline. ‘The StarLinkTM Situation,’ Iowa State University Grain Quality Initiative website. http://www.iowagrain.org, Rev. 3/13/01. Lin, William, William Chambers, and Joy Harwood. ‘Biotechnology: U.S. Grain Handlers Look Ahead,’ Agricultural Outlook, AGO-270, ERS-USDA, April 2000. Sosland Publishing Co. Grain and Milling Annual, 1999. U.S. Department of Agriculture, Economic Research Service. Feed Situation and Outlook Yearbook, FDS-2000, April 2000. _________________________, Foreign Agricultural Service. U.S. Export Sales. Selected issues. 2000 & 2001. _________________________, National Agricultural Statistics Service, Agricultural Prices: 1999 Summary, Pr 1-3(00)a, July 2000. _________________________, National Agricultural Statistics Service. NASS website. http://www.usda.gov/nass. Wichtrich, John A. Speech presented at the North American Millers Association meeting in San Antonio, Texas, March 18, 2001. END_OF_FILE