December 18, 2007

 

China removes tax rebates on corn, wheat exports

 

 

China, the world's biggest grain consumer, will eliminate tax incentives wheat and corn exports as a securing measure to assure domestic supplies and control rising food prices.

 

The tax incentives on exports of crops including wheat, rice, soy, corn, barley and oats, as well as flour milled from these grains, will be eliminated from December 20, according to the central government today.

 

China's food costs were up 18.2 percent last month, the highest in 11 years. The government has sold corn, wheat and vegetable oil from state reserves and asked local authorities to boost emergency stockpiles. The decision may increase demand for US corn and boost prices of the commodity in Chicago, said analysts including Chen Baomin.

 

An analyst at Jilin Grain Group Co., one of the country's two authorised corn exporters said the move would help US dominate the Asian market as China is not expected to ship corn next year after the decision on tax rebates.

 

Exporters who sign sales contracts before December 20 and register with the tax authorities before December 31 may continue to receive the incentives if their products are shipped before February 29, 2008, the statement said.

 

The move may be bullish for soy as China has exported half a million tonnes of soy and soy powder this year, according to the firm. Soy meal was not included in the statement.

 

According to Jilin, the market should not be taken by surprise by this decision as China already controls exports of major grains including corn and wheat by issuing quotas.

 

China shipped 4.9 million tonnes of corn and 1.2 million tonnes of rice overseas in the first 11 months of this year, up 85 percent and 7 percent respectively, preliminary customs data show. In January to October, exports of wheat more than tripled to 1.8 million tonnes and shipments of soy rose 29 percent to 376,000 tonnes, according to data compiled by Bloomberg.

 

Domestic grain prices will probably be "depressed by the psychological effects'' of the news even as the export amount is relatively small compared with the overall market, said Zhao Qiang, research manager at Tianqi Futures Co. in Harbin.

 

Chu Jiaquan, general manager at the Dalian office of Marubeni Corp., a Japanese grain trader expresses a different view, saying China still enjoys significant price advantages, thus, the complete elimination of all future exports of secondary products such as grains and flour will not be necessary.

 

But in terms of major grains, there's now little hope of any Chinese exports, he said.