January 31, 2005

 

 

China's corn exports expected to double 

 

Corn exports from China will experience a boost this year, as the government plans to implement more policies to encourage overseas sales, state media reports, citing an expert at the National Grain and Oils Information Center.

 

Exports of corn from China are forecast to more than double to 5 million tons in the marketing year ending September 2005, the China Daily reports, citing forecasts by an unnamed expert at the center.

 

The center predicts that China's corn output will rise 14% to 131.7 million metric tons in 2005, due to planted area expansions of 6 percent to 25.6 million hectares.

 

In 2004, China exported 2.32 million tons of corn, a dramatic slump from exports of 16.4 million tons in the previous year. But that decline was blamed on government delay in issuing export quotas until after the end of the 2004 marketing year.

 

An expert from the China National Grain and Oils Information Centre said the government is considering more policies to boost exports in the wake of recent tax rebate increase.

 

The expert, who wished to remain anonymous, said the government had increased the base price for calculating a rebate of a 13 percent value added tax to RMB1,100/ton (US$133) , from the former base price of RMB860/ton (US$104).

 

In China, the value on which the 13 percent is refunded is not based on actual FOB (free-on-board) prices but on fixed prices set by the government, which are usually lower than the FOB prices.

 

The policy change meant exporters tax rebates would be increased by US$3.77 per ton.

 

But this does not mean corn suppliers would cut their export prices as they made little from exports, the expert said.

 

In order to encourage exports and increase farmers' incomes, the government may introduce more measures to support corn exports, including increasing export quotas and waiving railway construction funds in corn transportation, he said.

 

"The exemption of construction funds will help lower delivery costs from production bases to ports by 30 per cent, for example RMB23/ton (US$2.78) in Jilin and RMB30/ton (US$3.61) in Heilongiang," he said.

 

Under World Trade Organization rules, China is allowed a "yellow box policy" in giving out farm subsidies of up to 8.5 percent of the country's total agricultural production. Presently, the percentage ranges only from 3.3 to 3.5.

 

China already grants an export rebate to corn producers, but this refund is calculated at a fixed price for grain, which is usually lower than the actual free-on-board rate.

 

Exporters did not even use up the export quota of 4.4 million tons provided by the government in 2004.

 

The China National Grain and Oils Information Centre predicted China's corn harvest to rise 14 percent to 131.7 million tons in 2004 from 2003, after the area sown with the crop expanded 6 percent to 25.6 million hectares.

 

China's demand for corn is projected at 126 million tons for the crop year through September 2005, which means this marketing year will be the first time in five years that production exceeds demand.

 

The situation means China must increase its exports to an extent, but this is impossible without government support, said analysts.

 

The increased global corn harvest has put pressure on Chinese corn prices, said Xu Lihua, an analyst from COFCO (China National Cereals, Oil and Foodstuffs Import and Export Corp) Futures.

 

Total global corn output in the marketing year is projected to be 700.5 million tons, a year-on-year rise of 12.7 percent, according to the US Department of Agriculture.

 

Ample supplies in the major corn-exporting countries like the United States and Argentina will make it difficult for Chinese exports to expand their market share, Xu said.

 

Chinese corn is likely to lose its competitive edge over corn from the US and Argentina owing to the expected drops in international marine freight costs, she added.

 

Japan and South Korea the are main export destinations of Chinese corn. But if freight costs continue to fall, US shipments will be cheaper.

 

At the same time, Chinese farmers are still holding on to about 50-70 percent of their unsold corn in the main producing areas of Northeast China awaiting higher prices.

 

At the beginning of this year, corn exports reached 202,310 tons by January 25, mostly to Japan, South Korea and the Philippines.