Removal of export tax rebate to control China's corn price rise

The rise of China's corn prices are likely to slow down in the near term by the pending removal of the export tax rebate on commodities such as cornstarch and ethanol.

But the policy's influence is expected to be limited given the market is mainly dominated by domestic demand and supply, and the country's export of corn and corn-based products is not big, said analysts.

China's State Council, or cabinet, has approved the scrapping of export tax rebates on 406 products, effective July 15, the Ministry of Finance (MoF) said on Tuesday (June 22).

China's cornstarch and ethanol has been enjoying a 5% export tax rebate since June 2009. The removal of export tax rebate for cornstarch and ethanol will be another measure to hold back domestic corn prices, following previous policies of preventing speculation on agricultural products as well as increase of supply by the government.

Corn prices at major production and sales regions in China rose RMB150 (US$22) to RMB200 (US$29.3) per tonne in the past five months, and the current prices are about RMB350 (US$51.35) per tonne higher than a year earlier, said Wu Qiujuan, senior analyst with the broker Xinhu Futures.

The new policy is expected to affect China's corn sector only marginally, as exports of corn and corn products account for a small part of the total output, while domestic demand for corn has been growing substantially in recent years on the fast development of the livestock breeding industry.

In 2009, the country only exported 289,800 tonnes of cornstarch.

However, the removal of tax rebate will curb China's exports of grain and grain products, and hence help guarantee the security of domestic grain supply, said market participants.