December 17, 2009

Cheap imported grains force China to look at quotas

China will implement tariff quotas on seven types of imports including wheat and corn.

This policy was announced by China's Ministry of Finance on Tuesday (Dec 15). Domestic prices for wheat and corn are less competitive than those from overseas and the policy can ease the impact of low cost imports on the domestic market.

Wheat prices in Hebei, a major wheat-growing area, range between RMB1.06 and 1.08/500g, almost doubling the US prices.

Since joining the World Trade Organisation, China has been implementing import quota on certain agricultural products. Industry expert, Jiao Shanwei, notes that such a policy prevents cheap foreign grains from flowing into the domestic market and manipulating prices.

In May, the National Development and Reform Commission issued a plan to implement minimum purchase prices for wheat, which reinforced the escalation of wheat price.

Even though China enjoyed bumper harvest for six years, the government kept increasing the minimum purchase prices of wheat, and implemented the temporary storing of corn so as to steadily raise grain prices.

As China prolonged its temporary storage policy this year and the major corn-growing area suffered drought and rainstorms in succession, prices are approaching a 10-year high.