December 21, 2011


China's state purchases hold up farm produce prices


Prices for agricultural products in China seem to be finding their bottom following a series of government stockpiling programmes, though the euro debt crisis is still stoking concerns of shrinking demand and falling prices.


A temporary corn purchase notice, released on December 14 by State Administration of Grain (SAG), National Development and Reform Commission (NDRC) and Agricultural Development Bank of China (ADBC), guides the work to storing corn in a bid to back prices of the commodity.


The country has set the minimum purchase price for this year's new corn at RMB2,000 (US$316)/tonne in Inner Mongolia Autonomous Region and Liaoning province, RMB1,980 (US$312)/tonne in Jilin province and RMB1,960 (US$309)/tonne in Heilongjiang province.


According to the notice, if market prices of newly grown corn drop below the protective prices in the period from December 14, 2011 to April 30, 2012, the state stockpiler China Grain Reserves Corporation will start to purchase for reserves.


Before this, SAG has already initiated a series of policies to prop up a variety of agricultural products, which include protective price for soy  unveiled in late November, for wheat in mid-October, for cotton on September 1 and for rice in early February. All of these protective prices represent a rise over previous years'.


State purchase policies also help prevent futures prices from being volatile and fluctuating. The most active September soy contract on the Dalian Commodity Exchange has been in the range of RMB4,200 (US$663)/tonne to RMB4,300 (US$678)/tonne, while the benchmark May cotton contract on Zhengzhou Commodity Exchange has been in the range of RMB20,000 (US$3,156)/tonne to RMB21,000 (US$3,314)/tonne recently.


Meanwhile, China has put some limits on quotas for importing agricultural products. For many years, import quota for sugar, wheat, corn, rice and cotton have remained at 19.945 million tones, 9.636 million tonnes, 7.2 million tonnes, 5.32 million tonnes and 894,000 tonnes respectively.


China will continue to adopt a tariff-rate quota (TRQ) for import of wheat and other six agricultural products. Cotton imported above the TRQ will trigger a sliding tax rate, and the formula for the tariff has been designed to produce a result that the higher the import price, the lower the tariff rate.


It is estimated that once the international cotton price drops to the level around 80 US Cent/pound, the new Sliding Duty policy will push the import cotton price up and thus produce the effect to protect the nation's cotton price, analysts said.

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