February 4, 2015

 

China relooks into national stockpile policy for grains

 

 

China's policy of stockpiling grains is being challenged by overflowing inventories and an escalation of cheaper imports, problems which the programme is a cause of.

 

The policy is meant to be a protectionist measure to raise farmers' incomes through the government's purchase of grains at costlier prices. In 2014, it was reported that national stockpiler, Sinograin, bought a record 125 million tonnes.

 

However, production spiraled out of control due possibly to a frenzy for profits, said Chen Xiwen, the head of the Communist Party's rural policy group. He advised that China should observe the market closely and determine an output-demand balance.

 

The policy also induced local prices to spike drastically, with corn at 40% higher than international prices. Thus, downstream industries shunned from more expensive crops in government stockpiles in favour of cheap imports.

 

The complications had prompted the government to terminate stockpile policies for cotton and soybean in 2014. In the place of those programmes are direct subsidies to help farmers recover losses resulting from the differences between target and market prices.

 

The government is still retaining policies for rapeseed and other grains.

 

According to Chen, China will also grant more autonomy to the local market in deciding farm prices.

 

"We will... let the market play a leading role in the formation of prices and give correct market information to farmers, so they can produce based on the needs of the market," he explained.

 

Currently, Chinese corn stocks are expected to swell past 120 million tonnes in 2014/15 following three years of bumper purchases.

 

This trend could only burden China further with tightening storage spaces in the country, said Chen. He added that the government will maintain a stringent control on grain and cotton imports in order to prevent oversupply.

 

Hence, imports might likely plunge this year.

 

More shipments would be allowed in again once China is able to sell off a significant portion of its stockpiles.