September 22, 2010

 

China may become a regular corn importer

China's major foray into the global corn market this year could turn into a regular event as it looks to head off the threat of animal feed price inflation, which Beijing worries could send household food bills soaring.

 

With feed demand in the world's second-biggest corn consumer rising by nearly 8% a year over the past decade, and farmland under pressure from growing urbanisation and other crops, it seems only a matter of time before China will have to abandon its policy of self-sufficiency in corn.

 

The country's purchase of an estimated 1.5 million tonnes this year will be its largest in 15 years and account for 1.7% of global corn trade.

 

"We think corn will follow soy, and imports will become a normal practice whenever there is a need," said an executive with a major feed mill in the southern province of Guangdong.

 

A growing taste for meat has spurred a nearly 8% annual increase in animal feed production in the last decade, and the industry is still in a high-growth phase, said Liu Xiaoyu, general manager of the feed department of COFCO Co Ltd, China's top grains trader.

 

Liu, who is also vice chairman of China's Feed Industry Association, expects China to become the world's top feed producer within two years, overtaking the US, and to reach output of 250 million tonnes by 2020, from around 150 million tonnes this year.

 

To ensure supplies for animal feed production, Beijing has squeezed the corn processing industry, which consumes about 42 million tonnes of corn a year, restricting its expansion in products ranging from corn starch to ethanol.

 

Still, industry experts expect demand for food additives to fuel annual growth of 5%-10% in the next five years, and corn use by this sector could easily jump to 60 million tonnes when profits are good and plants run at full capacity.

 

"Curbs have not reduced the inner strength of the corn processing industry but only delayed the timing of the country shifting to imports," said Fei Zhonghai, assistant to the general manager of COFCO Agri-Trading & Logistics.

 

Regular imports could cut costs for feed mills and breeders and ease worries about securing supplies when prices rise, Fei added.

 

Record corn prices this year also drove up other food prices, including those of pork and eggs, which Beijing is keen to control because of worries about inflation and public anger.

 

While demand races ahead, supply struggles to grow. Corn planting acreage has risen a mere 1.35% a year over the past 10 years, said Liu.

 

Beijing offers billions of dollars of subsidies to farmers every year and buys their crops whenever prices are falling, but growth is still stunted by urbanisation and competition from food grains such as wheat and rice.

 

The government is considering revising its trade policy on corn, used mainly for feed, to differentiate it from trade in grains intended for human consumption, according to an expert advising on the matter.

 

That could lead to a relaxation of corn imports in two to three years, he said. Currently imports are subject to government quotas, although these can be rapidly increased if necessary.

 

Government grain officials have constantly expressed concerns that large imports by the world's most populous country could cause global grain prices to spike and threaten food security.

 

China's self-sufficient grains policy helped the country, home to 20% of the world's population, escape the world rice crisis in 2007/08 and recent volatility in the world wheat market.

 

China may never let its corn supply become as dependent on imports as it has soy.

 

"For corn, imports will always serve as a supplement. If one day China relies on that level of imports, it will be a disaster not only for China, but for the world market," said COFCO's Liu.