Despite rhetoric, China positions for rising corn imports

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Reuters / China says it will remain self-sufficient in corn. Thing is, most analysts think that it will struggle to meet that goal, and the government’s actions seem to show that it agrees.

Despite the rhetoric, the government has been positioning itself for an increasing corn shortfall, approving Argentina and Ukraine as new suppliers and opening the door to substitutes. Given China’s growing demand for meat, and thus feed for animals, it could just be bowing to the inevitable.

If imports of corn substitutes are added, China is already pushing up against its target of growing 95 per cent of the corn it uses.

With that target China would import 10 million tonnes of corn, three million tonnes more than expected this year. But analysts expect it to blow well past that to become the world’s biggest importer of the grain before the end of the decade.

The shift will support higher output in countries like the United States, Argentina and Ukraine, boosting international prices that hit the lowest in more than three years on Tuesday.

“Growth of demand is largely driven by the livestock sector, increasing corn imports is inevitable,” said Jiang Changyun, research director at the Industrial Development Research Institute, a think-tank under the powerful planning body, the National Development and Reform Commission (NDRC).

Jiang said a 90 per cent target would be acceptable. This would see China import 20 million tonnes, topping the 14.9 million current No. 1 Japan bought in 2012.

Despite the pressure on supply, policy-makers are unwilling to modify or abandon the 95 per cent target. Food security remains a highly political issue in the world’s most populous country, where many still remember devastating famine in the late 1950s and early 1960s and the ruling Communist Party is keen to maintain stability amidst an ever-widening wealth gap.

China’s Agriculture Minister Han Changfu last month reaffirmed Beijing’s determination to stick to its long-established target.

Yet demand for corn is growing at a pace that cannot be met by local production, recent import data shows.

China is estimated by the U.S. Department of Agriculture to import seven million tonnes of corn in the 2013-14 season, up from just three million tonnes in the prior year. It is also bringing in record volumes of substitutes such as sorghum and distillers dried grains (DDGS).

Some four million tonnes of DDGS could be imported this year to plug demand from feed mills, says the China National Grains and Oils Information Center, surging past record imports of three million tonnes in 2010.

Sorghum orders for 2013-14 are expected to reach 1.5 million tonnes, estimates Fan Zhenyu, an executive at the country’s top corn trader, COFCO. This is about 15 per cent of the harvest in top grower the United States.

“If we include substitute products, the absolute volume of our feed raw material imports is 10 million tonnes. Given this trend, the self-sufficiency ratio could be 93 per cent by 2018 and 90 per cent by 2020,” Fan told a corn conference last month.

DDGS and sorghum are free of the fixed volume of quotas that limit corn imports. Also, DDGS is not subject to the 13 per cent value-added tax levied on other farm products and the government dropped an anti-dumping investigation into U.S. DDGS imports last June after lobbying by the feed industry.

Meanwhile the first of this year’s large sorghum orders has arrived in China, unhindered by regulatory issues that often plague new imports.

Yet supply of corn alternatives will be limited. The U.S. sorghum harvest is only 10 million tonnes in a bumper year. DDGS is highly dependent on ethanol production, which looks set to drop if the U.S. reduces the amount of the biofuel required in gasoline.

To widen its options, Beijing has approved two new corn suppliers this year. Argentina’s exports to China may reach one million tonnes next year while Ukraine recently shipped 120,000 tonnes of the grain to China in exchange for loans.

Brazilian agriculture officials said in September they expect China to approve corn imports sometime this year.

But the United States is likely to remain China’s dominant corn supplier.

Driving corn demand is China’s meat consumption, set to increase 20 per cent over the next 10 years, according to an OECD-FAO Agricultural Outlook published in June.

Less heralded but accounting for about a third of total corn use is an expanding processing sector, which makes byproducts like starch, glucose and alcohol and according to the State Council’s Research Office exports much of its value-added output.

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