February 28, 2005

China to become net corn importer as feed demand outstrips supply

With feed demand for a growing livestock sector seen to overtake China's domestic supplies of corn, the Asian giant is projected to become a net corn importer in 2007/08.

However, China continues to export corn throughout the projection period of 2005-2014, although in declining amounts, due to regional supply and demand differences. Northern China runs a corn surplus, while Southern China is corn deficit.

Corn is the favoured crop in Northeast China as the proximity to South Korea and other Asian markets provides a nearby source of demand. Various government measures - including waiver of certain transportation construction taxes, as well as a rebate of the value-added tax on exported corn - keep corn exports competitively priced in international markets.

Currently, high ocean freight rates raise the delivered cost of US corn to Asian markets, another factor that keeps Chinese corn competitive. Shipments of corn from Northeast China to the country's southern markets are limited by China's high internal transportation costs.

China experienced a large buildup of corn stocks in the mid- to late-1990s due to a combination of favorable weather and local self-sufficiency policies that boosted grain production to record levels. In the last half decade, China's corn consumption exceeded production, and stocks have declined sharply.

Since a continued drop in stocks is unsustainable, China is projected to increase imports and reduce exports, and to become a net corn importer. This comes as livestock production (and thus feed demand) continues to increase in response to income growth and rising meat demand.