September 4, 2006

China's grain demand to help Australia grains industry grow

Production of feedgrain in Australia likely would expand in coming years, except for wheat which might have peaked - underpinned in part by demand from China, according to a report issued Monday (Sep 4) by Westpac Banking Corp.

Chinese grain production has been falling as land is lost to urbanisation and desertification, it said.

Moreover, the urbanisation, evident throughout Asia, would see demand fall for wheat for human consumption as increasingly affluent consumers turn to animal protein and dairy products, Westpac said in a quarterly review of primary industries.

As most livestock is fed grain, so Chinese demand for feed grains, such as barley, oats and sorghum, would rise as China increases domestic production, it said.

With wheat stocks in China falling to an estimated 20 million tonnes this year from 100 million tonnes in 1999, the rise in demand for feedgrain would push China into being a net importer, partly sourcing it from Australia, it said.

"We don't expect to see the same lift in demand for cereal grains for human consumption and thus expect the expansion of the Australian grains industry to be led by coarse grains and oilseed production," the bank said.

Indeed, Westpac said wheat production might not return to the peak production of 26 million tonnes produced in the 2003-04 crop year, but coarse grains production likely would increase a little each year.