December 23, 2010

 

Chinese state grain firms buy less for reserves

Official grain purchases for stockpiles by Chinese state-owned enterprises in the January-November period fell 66% from a year earlier due to sharply higher grain prices, even as their profit and revenue grew.

 

The remarks made by State Administration of Grain Deputy Director Ren Zhengxiao underscore a dilemma for the government as an agricultural price rally threatens the country's food reserves even as it boosts the corporate bottom line.

 

The government has sought to roll back sharply higher agricultural commodity prices as market pressures contributed to the highest inflation levels in 28 months, risking mounting public concern ahead of the consumption-heavy Lunar New Year in February.

 

State-owned grain enterprises earned a combined profit of RMB4 billion (US$600 million) in the first 11 months of this year, Ren said. Of these companies, state grain trading firms made a combined profit of RMB3.6 billion (US$541 million).

 

"We can see this year's operating situation for state-owned grain enterprises is more stable," he said. "Due to the domestic economy's recovery, a good grain harvest and the government's grain floor price and other policies, there won't be large changes in the grain-trading situation."

 

Still, inflationary pressure and unfavourable weather have impacted grain trading, he added.

 

As grain prices rose, state-owned grain enterprises made far fewer market-supportive policy purchases for official stockpiles, Ren said. Policy purchases accounted for less than a third of total purchases from January to November.

 

Grain stockpiles are an essential part of China's policy of defending its 95% self-sufficiency in grains. But accelerating food price inflation now threatens to draw down massive food reserves, said to be the largest in the world, and lead the country to greater dependence on imported grains.

 

In the first 11 months, grain state-owned enterprises bought 109.6 million tonnes of grains, 46% of total grain purchases.

 

Meanwhile, the state companies sold a lot more grain, releasing 170.1 million tonnes of grain stockpiled from previous years, up 23.2 million tonnes compared with the same period in 2009.

 

Ren estimated that by the end of the year, state-owned grain enterprises would have achieved a 'higher' level of profit. However, he noted that profit levels began to decline in early October.

 

In the first 11 months, revenue at grain state-owned enterprises rose 14.5% on-year, with expenditures down 6%.