December 31, 2007

China's tax on grain exports takes effect Jan 1, 2008

Grain exports from China starting Jan 1, 2008 would be subjected to taxes up to 20 percent as the country strives to ensure domestic supply amid rising grain demand from trading partners. 

Wheat exports would be subjected to a 20-percent tax while corn and rice would be subjected to 5 percent. The taxes would be applicable until the end of 2008, according to a statement by the Finance Ministry.

Taxes on wheat powder are 25 percent, and taxes on soy powder and rice powder are 10 percent.

In previous months, the government has sought to contain rising inflation by releasing its grain reserves and canceling export tax rebates.

Food prices rose 18.2 percent in November, while the consumer price index rose to an 11-year high of 6.9 percent.

Higher wheat prices worldwide, coupled with record freight charges have prompted neighbouring countries such as South Korea and Japan to import more wheat from China instead of the US, its traditional supplier.

China's wheat exports more than doubled in the first 11 months of 2007 to 2.1 million tonnes.

Corn exports for first 11 months also rose 87 percent to 4.9 million tonnes over the same period last year, while soy shipments were up 24 percent to 401,299 tonnes. 

China's move may also fuel further price increases on the Chicago Board of Trade, where wheat and soy futures are already up more than 70 percent this year.

With the implementation of the taxes, South Korea would likely rely more on South American countries such as Brazil and Argentina for grain supplies, especially corn.