January 5, 2011

Productivity growth in China's grain sector is likely to erode in coming years, and corn is poised for rising imports, Standard Chartered said in a research note Tuesday (Jan 4).

Changes in China's grain production, even by small percentages, bring large shifts in volumes and values in the global food trade.

While genetically modified grains may relieve some of the tightness in supply once mass production is underway, imports are still likely to remain the solution for China's grain demand.

"We are concerned that China's grain market will be hurt by the inability to combine land quickly enough, by an increasingly old labour force and by ever-worsening water scarcity in northern China," the Standard Chartered economist said.

"It's likely that amount of agricultural land will continue to decline, despite official statistics," he added. China insists that it maintains 120 million hectares or more of arable land.

It's also likely that most of the productivity gains from fertiliser use have already been achieved, and the pace of farm consolidation is slow, he said.

However, technological improvements, specialisation, government research spending and greater freedom for farmers to decide what to grow have contributed to higher productivity in some areas, particularly vegetable and fruits, which require less land and labour.