June 29, 2011


China poses difficulties for global grain database


A global grain database unveiled last week will struggle to raise transparency in food commodity markets as China and other emerging countries prove reluctant to reveal their actual supply needs in key staples.


The Group of 20 leading economies launched a scheme to gather figures on supply and demand of staple grains as part of measures to tackle food price volatility agreed at a first-ever meeting of G20 farm ministers.


The data initiative - to lead to monthly reports on production, consumption and stocks of wheat, maize (corn), rice and soy as of June 2012 - could be a welcome addition to a market eager for more clues about fundamentals, analysts say.


But it is unlikely to shed new light on the agricultural inventories of emerging giants China and India, or some import-dependent Arab countries, who will be reluctant to show their cards to sellers looking for a keen price.


And like the rest of the G20 declaration, observers stress there is not enough detail on how the programme would be organised and funded to avoid being yet another laudable but ineffective pledge to improve the global food system.


"China knows full well that the day when their stock levels are published every month, they will be scrutinised in minute detail and that could make the market react violently," said Francois Luguenot, a market analyst.


"If over time, in five or 10 years the Chinese change their way of operating, why not. But for the moment what they would have to lose in disclosing their stocks is far above what they would gain in opening up."


The vast and growing food needs of China make its every move a subject of intense interest for grain markets, with talk of corn imports regularly fuelling trading at the Chicago Board of Trade, the world's leading grain futures exchange.


Uncertainty over Chinese supply and demand has fed traders' caution over official grain data for 2010, published more than half a year after harvests, and a steep revision to corn demand and stocks as estimated by the USDA in its last world grain report.


China, India and Russia would not only wish to protect politically sensitive food policy from market forces but also face the difficulty of surveying extensive territories.


"For China, in particular, the numbers which we assume for stocks are very notional ... and I would doubt whether China itself is able to accurately quantify stocks to the degree that the new initiative would like," said Amy Reynolds, senior economist with the International Grains Council (IGC).


The IGC, whose monthly world reports are a reference point for the grain trade, was designated by the G20 to help with the future database, the Agricultural Market Information System (AMIS), but it acknowledges limits in its coverage.


"It is a sad fact that most of the estimates which are put together by organisations such as ourselves are based on a very limited amount of information," Reynolds said.


French farm minister Bruno Le Maire, who orchestrated last week's initiative on behalf of G20 president France, says China and India would get support in data from more experienced partners like the US.


Some analysts welcomed the prospect of at least a modest improvement in data reliability, including in western countries, and the EU's executive has already promised to publish more regular farm data as of later this year.


"It won't be a bad thing, it's still progress but now we have to see what will be there," a French grain trader said. "We may end up with slightly more precise data but as precise as we may have in Europe is idle fancy."


The example of the Joint Oil Data Initiative, or JODI, set up nearly a decade ago shows the scope for getting better data, albeit with familiar gaps like Chinese stocks.


Others caution that pooling of farm data will depend on cooperation from private trading houses, as well as the use made of the data by AMIS experts under the aegis of the United Nations' Food and Agriculture Organisation, which has been criticised for its inefficiency and is being reformed.


AMIS will incorporate a high-level "Rapid Response Forum", billed by Le Maire as "a UN Security Council for agriculture", that is supposed to use the data to pre-empt food crises, but again observers say details are too sketchy at this stage.


The objective of reducing volatility may be misconceived as extra data could prompt more market reactions.


"The creation of a database is a step towards market transparency but that won't stop volatility," Benoit Labouille, director of French consultancy Offre & Demande Agricole. "We're going to have two reports a month including with the USDA's, with variations before, during and after their publication."

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