November 25, 2003

 

 

Taiwan Temporarily Imports of Mainland China Corn, Soymeal

 

On Nov. 18, Taiwan announced it will temporarily allow the entry of PRC corn and soybean meal until Jan. 31, 2004. Due to relatively high prices of Chinese soybean meal and limited availability of PRC corn for export, the actual amount of imports is expected to be relatively small, but may impact long-term decision making on any permanent changes to the current import restrictions, according to the U.S. Department of Agriculture's Foreign Agriculture Service's agricultural attache, dated Nov. 19, but released Monday.

 

Taiwan Allows the Temporary Entry of PRC Corn and Soybean Meal

 

In an announcement dated Nov. 18, the Taiwan Bureau of Foreign Trade (BOFT) temporarily suspended the ban on PRC corn and soybean meal imports, effective immediately through Jan. 31, 2003. This is the second time in last two years that Taiwan will permit the entry of PRC corn and the first time it has allowed the entry of PRC soybean meal. Before these products can enter Taiwan, importers must apply to the BOFT for a special import permit. In addition, all imports will be subject to Taiwan's normal import inspection regulations and quarantine requirements. For these products, the lack of formal contacts between Taiwan regulatory agencies and their PRC counterparts is not expected to significantly affect imports from Mainland China. Taiwan allowed the entry of PRC corn from Oct. 25 - Dec. 31.

 

The opening to PRC corn and soybean meal was result of lobbying by Taiwan hog farmers anxious to reduce the impact of high prices. In recent months, record ocean freight costs from the U.S. resulted in sharply higher C&F corn prices to Taiwan, creating an apparent opportunity for PRC exporters to take

advantage of lower North Asia shipping costs. Local soy meal prices are up because of sharply higher world soy prices caused by increased PRC demand (apparently not recognized in Taiwan's analysis.) The hog farmers were strongly encouraged to approach Taiwan's Council of Agriculture (COA) by two major feed millers with strong links to China's COFCO and Jilin Grain Group. COA apparently acted despite the strong opposition of Taiwan's the feed milling and vegetable oil manufacturers industries. With a presidential election five months away, COA had little interest in questioning the request, as the opposition parties could make political points by portraying the government as not responding to the needs of farmers. As the supervisory agency for agriculture, once COA made the decision on Nov. 13 to instruct BOFT to temporarily open the market, it became just a matter of the bureaucracy carrying out procedures. However, a more permanent action on opening the market to PRC products would presumably involve more complex review procedures.

 

PRC products normally have the advantages of short delivery periods and small shipping volumes that make it possible for small Taiwan firms to import independently of Taiwan's major buying groups. If carried out on a large scale, PRC imports could undermine Taiwan's long-standing group purchasing schemes, which rely on Panamax shipments to reduce costs. On the other hand, PRC suppliers tend to let quality decline after securing market share and often cancel contacts on short notice (the trade indicates that one Panamax shipment to South Korea was cancelled earlier this month and China has stopped contracting for deliveries in February and beyond). Finally, China has short supplies of both corn and soybean meal, which is pushing up prices. The apparent use of export subsidies to support PRC corn exports is a wild card in the mix.

 

Short Run Impact

 

In the short-term, high PRC soybean meal and corn prices and the brief window for imports should hold trade down, with trade unlikely to exceed 100,000 tons in Taiwan's 4.7 million ton corn market. Soybean meal imports will likely be very small, probably well below 5,000 tons. Indications are that Taiwan feedmillers have already bought U.S. corn heavily for the months of December-January.

 

The PRC does not seem to have a price advantage in either product. For example, PRC corn prices were $147 a ton FOB Dalian in October 2003 plus $15 a ton for delivery to Taiwan. In November 2003, U.S. prices averaged around $115 a ton plus $45 delivery to Taiwan. Despite this apparent price parity, BOFT was convinced by the data presented by COA that PRC corn is $9-14 a ton less expensive than U.S. corn. PRC soymeal prices are currently around $400 per ton, well above local prices of NTD12,000 (U.S.$350) per ton.

 

Long-Run Impact

 

Although Taiwan has not decided to open the market permanently, it seems increasingly willing to consider the import of PRC corn and soybean meal. The pressure to liberalize is being driven by deepening links between some Taiwan firms and the Mainland, increasing stress on Taiwan's livestock industry caused by imports and an ongoing expansion in China's oilseed crushing sector anxious to export soybean meal. In addition, if PRC corn or soybean meal prices fall, the pressure to open trade will also sharply increase.

 

If Taiwan liberalizes trade, Chinese products will likely have a major impact on future U.S. exports to Taiwan. U.S. exports in 2003 and 2004 will likely be supported by the 2003 Goodwill Mission's Letters of Intent (see below), but exports may fall sharply in following years. However, since Taiwan is both a quality and price market and importers are familiar with U.S. corn, Post expects substantial U.S. corn and soybean exports to continue even with liberalization.

 

The September 2003 Taiwan Agricultural Goodwill (Buying) Mission to the U.S. may be the last. If PRC imports result in a breakdown of Taiwan's group buying system, Taiwan importers may no longer be able to sign Letters of Intent on future Goodwill Missions to the U.S. In September 2003, Taiwan importers signed a Letter of Intent to import a total of at least 7.5 million tons of corn and 3.2 million tons of soybeans in 2003 and 2004.

 

The Taiwan authorities have indicated that they will not allow further PRC corn and soybean imports beyond January 31, 2003. However, if PRC imports demonstrate cost effectiveness for Taiwan farmers, this may increase pressure on COA to further open the market in the future, perhaps permanently. Although any final decision would be supposedly made through an interagency process led by the Mainland Affairs Council and involving the BOFT, COA has been given the lead role.