February 11, 2008

China's grain traders expect Beijing to soften stance on imports after snowstorm

Some of China's grain traders said that Beijing will be forced to tap global markets for corn and wheat imports at the wake of the worst winter the country had seen.

However, some observers also pointed that the melting snow could in fact boost grain production this year in water-short China.

Uncertainty over the impact of the snowstorm is fueling debates in China whether the country will bend its self-sufficiency policy given rising demand for meat and dairy products.

Jing Ulrich, China equities chairman of JPMorgan, said that unless the country drastically increases agricultural yields, it will have to import more feedgrain.

China has been a net exporter of corn, rice and wheat in 2007. Yet, worries over surging food inflation prompted the government to remove import taxes, raise export taxes and impose export quotas on grains and flour in late December.

China is the world's biggest importer of soy, which it uses mainly for animal feed. Ulrich further pointed that the country could become a net importer of corn as early as 2008 as demand heightens.

Previously, in efforts to promote self-sufficiency, Beijing has scrapped a 2,000-year-old tax on grain output, provided farmers with more subsidized fertilizer and seeds, better transport and storage facilities and a shift to more market-orientated pricing. The grain harvest has risen for the last four years.

Despite these measures, grain consumption is still rapidly outpacing production, and many experts see it inevitable that China will become a net importer at some point in the next few years.