May 30, 2012

China's fast-rising grain demand has prompted the country to search for more sources outside its main import market, the US.

Recently China began importing corn from Ukraine, and the ratio of wheat shipped in from Australia is rising. In addition to stabilising the procurement of grain, such moves by China have political considerations - correcting an excessive dependence on grain imports from the US, with which it is increasingly locked in fierce competition.

In 2011, China produced a combined 510 million tonnes of the three main cereal grains - rice, corn and wheat. Of those, production of rice (200 million tonnes) and wheat (118 million tonnes) rose 2% from the previous year. Corn output grew 8% to 192 million tonnes.

According to a Chinese research institute, corn production is projected this year to outstrip rice for the first time, making it the grain the country grows the most.

The reason is that as the nature of Chinese consumption changes, pork demand is soaring, causing an increase in demand for corn as hog feed.

However, "despite bumper crops within China, supply is not keeping pace with demand growth," reported a researcher at the Chinese Academy of Agricultural Sciences. For that reason, imports have also started to grow rapidly.

Corn imports for December 2011 reached 560,000 tonnes, 37 times as much as in the same month a year earlier. For the three months ended February 2012, the total was 1.84 million tonnes, 100 times from the same period a year earlier and more than the total imported during all of 2011.

For now, this reliance on the US will continue, but Beijing is working to diversify supply sources. In February, it agreed to inspection procedures with Argentina and has prepared an environment that will enable regular corn imports from the South American country. Meanwhile, in April, China imported its first 50,000 tonnes of corn from Ukraine.

The trend can be seen with wheat. Wheat import volume in 2011 was 1.24 million tonnes, of which 51% came from Australia and 35% from the US.

Demand for wheat as a substitute feed for corn grew in the first two months this year, with imports tripling from the same period in 2011 to 580,000 tonnes. However, the percentage coming from Australia jumped to 75%, while just 10% was from the US.

The US and China are contending for dominance in the South China Sea and the Indian Ocean, and issues such as commerce and exchange rates of the yuan have also caused friction. If an emergency were to break out over the Taiwan Strait and the US were to cut off food supplies, the Chinese economy would take a massive hit.

Among the reasons for diversifying import sources is to better ensure stable procurement of feed from Argentina, which is cheaper than produce from the US, and also that diversification is seen as a necessity from a security standpoint.