July 31, 2007

 

China to keep corn processing options open despite earlier curbs

 

 

Although China has said it would cool the corn processing industry and those using corn as a feedstock to produce ethanol, such plants would still be needed to absorb excess production and prevent prices sliding in bumper harvests, a senior government official said on Monday ( July 30).

 

Xiong Bilin, deputy director with the National Development and Reform Commission (NDRC), told Reuters that grain availability would determine whether the plants make a shift away from corn processing.

 

This is a change from the set timeline earlier announced where it was expected that all ethanol producing plants would shift to non-grain based crops in five years. Xiong said the earlier statement referred to a gradual change. Grain-based fuel ethanol plants could still help to support grain prices in some cases, he said.

 

China has four authorised fuel ethanol plants, which together consume about 2 percent of the country's total corn production last year.

 

High corn prices have raised concerns over whether ethanol demand for corn would exceed the country's corn production ability. Food security concerns have also promoted China to announce a series of measures to curb the fast-growing corn processing industry, such as banning approvals for new plants and encouraging those already in operation to shift to non-grain based feedstocks such as cassava and sweet potato.

Last week, Chinese President Hu Jintao said that China would have to rely on itself to secure grain supplies.

 

Playing down the gravity of the statement, Xiong said the remark was just to voice concerns over grain security and to emphasize that grain consumption has to be determined by the country's situation.

 

Ethanol plants can still serve a valuable function of soaking up surplus corn production, he noted. Exporting surplus corn would not be the right direction to go as subsidies would have to be offered. 

 

China's corn production is likely to exceed expectations of 149 million tonnes to reach 150 million to 160 million tonnes this year, an increase of 5million tonnes over last year.

 

The feed industry would only consume about 100 million tonnes, Xiong added. The corn production increase also comes at a time of falling feed demand caused by pig diseases.

 

When grain supply is tighter, ethanol producers can shift to non-grain feedstocks as they have that flexibility, he said.

 

Moreover, currently, neither China's policy nor its plants are ready to fully shift to non-grain feedstocks for ethanol. The is something that would have to take time, industry officials said.

 

Ethanol plants that have shifted to alternative crops have reported trouble finding raw materials. For example, the Tianguan Group, in Henan, has faced difficulties obtaining sweet potatos and cassava locally as farmers do not grow it due to the lack of government subsidies.