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Posts Tagged ‘AMIS

Ten reliable rice years

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The AMIS prices panel as we find it in 2014 January. Weekly international rice prices (top) are for Thai rice, which have been on a plateau from 2012 Jan to around 2013 April, after which they declined. Rice futures prices (60-day average) have also been on a very gentle upward slope (middle) since 2012 Jan after pronounced swings to that point from 2010 Jan. Rice price volatility was dampened during the last quarter of 2011 until third quarter 2013 (compared to the previous two years) and has moved slowly lower over three years (bottom). Charts: FAO-AMIS

The AMIS prices panel as we find it in 2014 January. Weekly international rice prices (top) are for Thai rice, which have been on a plateau from 2012 Jan to around 2013 April, after which they declined. Rice futures prices (60-day average) have also been on a very gentle upward slope (middle) since 2012 Jan after pronounced swings to that point from 2010 Jan. Rice price volatility was dampened during the last quarter of 2011 until third quarter 2013 (compared to the previous two years) and has moved slowly lower over three years (bottom). Charts: FAO-AMIS

International grains traders rarely consider the historicity of what they deal with day in and day out. Wheat up today, maize down tomorrow, soy futures worth considering for next month, milk powder positions to be liquidated, and so on. Hold what you can profit from only so long as there is profit to be made, and futures are nothing but bets you’ve studied carefully.

But even for the hard-boiled traders, the last decade of rice has made them turn to look back and consider the curiosities of the market. Inventories of rice, all over the world, have been growing slowly and steadily for close to a decade. Now that trend, which since 2003 has been one of the longest unbroken trends in world agriculture, is ending. The change is being attributed, in the commodity exchanges and grain trading floors, to what is called a ‘downgrade’ of supplies of rice in India by the International Grains Council.

The first such forecast decline in world rice stocks, of about one million tons, means that the IGC is estimating world rice inventories at the close of 2013-14 to be 108 million tons. The curious aspect is that India is expecting a bumper rice harvest for 2013-14, and although IGC says world inventories will drop slightly (the end of the trend), there is also a reduced estimate for world consumption of rice, which is another curiosity.

According to the traders Thailand, the top rice exporter for years, has been stockpiling rice “at prices some 40%-50% above the market” and thereby prompting credit rating agencies like Moody’s to claim that the cost of the Thai programme was “threatening the country’s sovereign debt rating”.

This is plain rubbish. Traders and commodity exchanges do not grow rice to feed their families and sell if there is a small surplus to sell. The finance bots in predatory agencies like Standard and Poor’s, Moody’s and Fitch – considered the three largest by the scale of their work – don’t know the difference between a cauliflower and millet and can grow neither. Thai, Indian and African small farmers could not care less whether credit rating agencies exist and our governments should learn what true sovereignty means from our small farmers.

The FAO and IGC food price indexes and their sub-indices. For FAO the chart shows the FAO Food price Index and the cereals, oils and fats and dairy sub-indices over the last five years. For IGC the lower chart shows the IGC Grains and Oilseeds Index, also over the last five years, with the wheat, maize and rice sub-indices. The IGC rice sub-index has also recorded a plateau from 2012 January onwards with a more pronounced decline setting in from 2013 August. Charts: FAO-AMIS

The FAO and IGC food price indexes and their sub-indices. For FAO the chart shows the FAO Food price Index and the cereals, oils and fats and dairy sub-indices over the last five years. For IGC the lower chart shows the IGC Grains and Oilseeds Index, also over the last five years, with the wheat, maize and rice sub-indices. The IGC rice sub-index has also recorded a plateau from 2012 January onwards with a more pronounced decline setting in from 2013 August. Charts: FAO-AMIS

The odd tale of rice was given a late twist by two cyclones. One is Cyclone Phailin which struck the eastern Indian coast in the first week of October 2013. And he other is Typhoon Haiyan, which struck the Philippines in early November 2013. Vietnam is to supply 500,000 tons of rice to the Philippines, which has sought the supplies to boost state reserves depleted by the relief operations after Typhoon Haiyan.

The FAO’s Rice Market Monitor for 2013 November said: “Although accounting for much of the worsening in the global outlook, Asia is still expected to sustain growth in world rice production in 2013. According to the latest forecasts, the region is to harvest 672.7 million tonnes (448.6 million tonnes, milled), 1.2% more than in 2012. Foremost among countries responsible for the increase are India, Indonesia, Thailand, Myanmar and Bangladesh. By contrast, drought in China’s central and eastern provinces exacted a heavy toll on the intermediate and late rice crops, which may bring about the first production decline in the country since 2003.”

I find the FAO Rice Market Monitor more detailed than what the IGC puts out (although IGC’s public offerings are but a distillation of what subscribers to the information service obtain). The FAO Monitor has also added that given a poor delivery record so far, Thailand appears unlikely to boost its exports beyond the relatively low level of last year. And that expectations have improved for India, which may replicate the 2012 record performance, with Australia, Cambodia, China (Mainland), Egypt, Pakistan, Paraguay and the USA also forecast to export more.

Indexing food prices the FAO way

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The FAO food price index for 2013 October which includes the calculation and measurement changes. Spot the differences? I can't.

The FAO food price index for 2013 October which includes the calculation and measurement changes. Spot the differences? I can’t.

Why has the Food and Agriculture Organisation (FAO) changed the way it calculates the monthly FAO Food Price Index? But hold on, let us scrutinise first what the FAO Food Price Index is for 2013 October.

The FAO has said: “The FAO Food Price Index rose slightly in October, averaging 205.8 points. This was 2.7 points, or 1.3% above September, but still 11 points, or 5.3% below its October 2012 value. The slight increase was largely driven by a surge in sugar prices, although prices of the other commodity groups were also up.”

The usual blue pair.

The usual blue pair.

In substance, this sort of commentary for the FAO monthly food price index barely differs from the standard tedious template, in tone and tenor, that FAO has applied throughout 2013. The tone has been, as we begin to close 2013, that food prices have not moved very much through the year, and the tenor has been that food price volatility is being reined in.

Based on the evidence provided by real prices I experience in India – real markets (or bazaars or mandis) in which real vendors sell actual produce to real household buyers – I have no idea what the FAO Food Price Index is talking about. Nor do tens of millions of urban and rural households all over the world when they try and correlate the numbers of the FAO index to what they must confront every time they make a food purchase.

This is because of what the FAO Food Price Index measures which, I wearily point out, is a criticism levelled time and again. Why call it a food price index when it is in fact a food exporters’ and importers’ price indication?

Impressive equations, but where's the connection with the local markets you and me buy our veggies from?

Impressive equations, but where’s the connection with the local markets you and me buy our veggies from?

Now, with a change in its calculations, the FAO index includes the following 23 commodities: wheat (10 price quotations monitored and reported by the International Grains Council), maize (1 quotation) and rice (16 quotations) for cereals; butter, whole milk powder, skimmed milk powder (2 quotations for each) and cheese (1 quotation) for the dairy group; poultry (13 quotations), pig (6 quotations), bovine (7 quotations) and ovine (1 quotation) for the meat dairy group; sugar (1 quotation); the oils group consists of one oil price quotation for soybean, sunflower, rapeseed, groundnut, cotton seed, copra, palm kernel, palm, linseed and castor. This construction, thus, includes the use of 73 price series.

The FAO has said: “The Index, which is a measure of the monthly change in international prices of five major food commodity groups (including 73 price quotations), has undergone some changes in the way it is calculated, although the new approach did not significantly alter the values in the series.” (See the Food Outlook released in 2013 November.)

Perhaps. We will not know for another few months. If a change was needed that made sense to consuming households, then FAO should have ensured the index reflected what households pay for the food the buy in the markets near their homes. If the FAO must serve multiple audiences, then it must devise food price indexes for these audiences separately (but the IGC already serves the food traders, and FAO’s own Agricultural Market Information System already serves the policymakers and the major international blocs).

The problem with following the FAO food price index

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Not a man who has any time for the FAO Food Price Index. A vegetable vendor in Bangalore's Russell Market.

Not a man who has any time for the FAO Food Price Index. A vegetable vendor in Bangalore’s Russell Market.

Can a cultivator tilling a five acre plot of land in Senegal use the FAO Food Price Index? Can a vegetable vendor on the streets of Jakarta, Indonesia, use the index? Can a corner shop in Quetta, Pakistan, follow the index? Can commodity traders in the world’s most active agricultural commodities and futures exchanges use the index? My answers to these questions are: no. no. no and yes.

Why should it be this way? It shouldn’t, especially since FAO also keeps track of consumer price indices in many countries. But let’s look at why it is this way.

Our familiar pair, but who can use them?

Our familiar pair, but who can use them?

Here is what the new update to the FAO Food Price Index has said, in two words, “remaining steady” (this is the 2013 February 07 update). I quote:

“The FAO Food Price Index averaged 210 in January 2013, unchanged from the slightly revised December value. Following three months of consecutive declines, the Index stabilised in January, as a rebound in oils/fats prices offset a decline for cereals and sugar. Dairy and meat values remained generally steady.”

Concerning cereals, the update said that the cereal sub-index averaged 247 in 2013 January, down nearly 3 points from 2012 December. Now here’s an odd sentence: “The values of the monthly index have been falling since October, mostly on improved crop conditions”. We’ve read news about drought conditions all over the place, in the USA, in Australia, in Central Asia and the former Soviet Union, about unseasonal conditions in South America, for well over three months, so this sentence makes little sense. The cereals explanation added: “Large exports of feed wheat have weighed negatively on maize quotations in spite of tight availabilities”.

Now, let’s see what the FAO Agricultural Market Information System (AMIS) has said in its 2013 February Market Monitor (pdf):

“Wheat production in 2012 fell to below the 2011 record. Early prospects for 2013 point to a larger crop in spite of a possible decline in the US production. Maize production fell well below 2011 in spite of upward adjustments to the estimates in China and North America – utilisation in 2012/13 exceeding 2011/12, contrary to earlier expectations, mostly on larger feed use in China, Russia and the US. Rice production prospects for 2012 little changed, with large declines in Brazil and India dampening world growth to less than 1% – utilisation in 2012/13 still anticipated to increase by 7 million tonnes.”

Here we have what sounds like two different FAO voices speaking – the Food Price Index voice, which sees broad stability, and the AMIS voice, which sees declining production and more utilisation (as the food economists like to call it). True, the Food Price Index reflects what has occurred in the last month, and is not a forecast, but, as we see below, it is based on quotations, and not what households and small vendors actually pay for food, and there lies the rub.

Because, the FAO Food Price Index consists of the average of five commodity group price indices weighted with the average export shares of each of the groups for 2002-2004. There are in total 55 commodity quotations “considered by FAO commodity specialists as representing the international prices of the food commodities”. For the cereals sub-index, it is compiled from the International Grains Council (IGC) wheat price index, itself an average of nine different wheat price quotations, and one maize export quotation; there are three rice components containing average prices of 16 rice quotations. Fascinating yes, but relevant to those in Senegal, Jakarta and Quetta who see 60% of their monthly income being used to buy food? I don’t think so.

The AMIS has charts for daily quotations of export prices, which reveal more than the FAO Food Price INdex

The AMIS has charts for daily quotations of export prices, which reveal more than the FAO Food Price INdex

“The FAO food price index is a trade weighted Laspeyres index of international quotations expressed in US dollar prices for 55 food commodities,” explained FAO’s 2009 ‘State of Agricultural Commodity Markets, High food prices and the food crisis – experiences and lessons learned’. You see why no local translation is possible for the many hundreds of millions under the food inflation hammer.

Why the international trade and export quotations numbers dominate is revealed, in a roundabout way, by a regular paragraph in the AMIS Market Monitor. The monthly pronouncement has this to say about investment flows (that is, money chasing foodgrain), for 2013 February: “Managed money was a significant seller of wheat, maize and soybeans as futures prices attained early January lows prior to USDA stocks report”. Pay attention to that term, ‘managed money’, which means funds run by banks and big investment agencies. “Managed money reversed its position in wheat from long (bullish) to short (bearish) but maintains long positions in maize and soybeans.” Now the confusion should clear somewhat. The index helps traders and exchanges deal better with volumes of grain (and dairy and meat and edible oil). AMIS helps them with a great deal more sophistication.

And what do the primary beneficiaries of the index have to say about the FAO Food Price Index being so benign at the start of 2013? “With corn and soybean prices down sharply from drought-driven record highs reached last summer and holding ‘significant’ risk for further declines, grain farmers should consider hedging their 2013 crops earlier than normal,” is an abstract from a report by the CME Group, a company that advises investors about all kinds of commodities, including agricultural. This tells us why the FAO Food Price Index cannot serve those struggling with soaring food bills in small town Asia and Africa.

AMIS for us, we hope, but wheat and maize look scarce

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Welcome tables from the FAO AMIS, with USDA, IGC and FAO forecasts for major crops. Note the declines in production

The UN Food and Agriculture Organisation’s (FAO) Agricultural Market Information System (AMIS for short, although whether it Francophonically proves to be an ‘ami’ of the cereal trader or the food consuming household we shall know in the months to come) has released its Market Monitor Number 3 which is for 2012 November.

Here, in a bland paragraph that tells us nothing about the travails of households budgeting for their evening bread, ‘roti‘, or rice, the AMIS Market Monitor has said: “World supply and demand situation continues to tighten for wheat and maize but rice and soybeans have eased.”

Here’s the rest of the snapshot paragraph: “In recent weeks, unfavourable weather conditions affecting some winter wheat growing areas in the northern hemisphere and maize and soybeans in the southern hemisphere have become a concern. In addition, contradictory reports about possible export restrictions by Ukraine also influenced the market.”

Two familiar blues and a new green. The IGC Commodity Price Indices chart in the company of the FAO’s Food Price and Food Commodity Price Indices charts.

What I find useful is that the tables provided now include the USDA estimates and the IGC estimates. And moreover, in a generous display of collegial latitude (perhaps the AMIS has its good points after all) the Monitor has included the IGC index chart alongside the FAO index chart.

But as the World Food Programme (WFP) tirelessly warns, From Africa and Asia to Latin America and the Near East, there are 870 million people in the world who do not get enough food to lead a normal, active life (see the WFP’s hunger map here in Englishen français, en español. What does that do to households who are not the primary audience of the AMIS?

This report from IRIN has said that now in Pakistan, more than half of households are food insecure, according to the last major national nutrition survey. The prices of staple grains like wheat and rice have been stable but are “significantly higher” than 2011, according to the World Food Programme’s (WFP) October 2012 Global Food Security Update. A 25% rise in fuel prices has also pushed up the price of food, as it becomes increasingly expensive to transport. WFP says rising food prices in international markets recently may also lead to price hikes in Pakistan. Clearly, we need to find a way to filter the AMIS outputs (or screen its inputs) so that the Monitors are more directly useful to houseolds and their struggle to find enough healthy food at affordable prices.

Moorosi Nchejana is one of 40 farmers in the village of Mabalane in Lesotho’s Mohale’s Hoek district who participated in a pilot programme by the UN’s Food and Agriculture Organization to strengthen farmers’ capacity to adapt to climate change (June 2012). Photo: IRIN / Mujahid Safodien