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China’s Corn Rush To Redraw Global Food Landscape

When China abandoned its soybean self-sufficiency quest almost 20 years ago and started importing the oilseed feeding its hunger for livestock, it almost single- handedly transformed the industry. Today, it s poised to do the same for corn.

The world s most populous nation is expected to triple corn purchases next crop year and, by its own admission, become a significant importer by 2015, putting more strain on global food supplies at a time when inflation is gnawing away at economic growth and the population nears seven billion.

China has become the dominant force in the global soybean market since emerging as a buyer in the early 1990s. It is now the world s biggest importer and consumer, taking in some 55 million tonnes, or 60 per cent of annual global trade.

If the soybean scenario is a precedent for corn and traders say all the signs point in that direction benchmark corn prices in the United States, the biggest producer, could in the long term exceed the $8-a-bushel record set in June.

U.S. stockpiles are expected to fall to their lowest levels in 16 years in 2011-12, an ominous sign of how China s rising imports will squeeze supply. Demand for the grain, crucial to fatten the animals that feed the world s growing hunger for meat, shows no sign of abating.

Competition for supplies with Japan, the world s biggest corn importer, will intensify and farmers from as far away as Argentina will start planting more acreage while the amount of corn used to make biofuels could shrink.

Driving this seismic change in the corn industry is a fifth of the world s population, which has developed a voracious appetite for pork, poultry and eggs that China s government is striving to make affordable. For Beijing, high food prices are a potential trigger for social unrest it wants to avoid.

There are shifting diet patterns with growing wealth and the middle class in China together with climate change, land degradation and water scarcity, said Monika Barthwal- Datta, who heads the food security program at the Centre for International Security Studies at the University of Sydney.

Grain stocks and demand are politically charged topics in the world s second-largest economy, and biggest pork consumer, which is particularly conscious about its food security.

Last year, China returned to importing corn in earnest after years of blocking foreign grain, buying a record 1.57 million tonnes, up 18 times from the previous year, because domestic production just couldn t keep up.

C hina is likely to boost

imports to four million tonnes in the 2011-12 crop year beginning October from an estimated 1.3 million this year, a Reuters poll showed.

Risks to food prices

The global tightness in corn supplies comes despite year-on-year bumper harvests in China and the United States, which together account for more than half of the world s production and consumption of corn.

An analyst with the China National Grain and Oils Information Centre, a state-run think-tank, said consumption would continue to dwarf domestic supply as the scope to increase production remained limited. A bad year for farmers could boost China s growing dependence on international markets.

If the weather is not good in some years, the deficit will be bigger, he said.

Because of their market dominance, any changes to the food patterns in the United States or China will have big repercussions for the rest of the world, and grain prices.

China is currently the world s second-biggest corn consumer.

Relentless demand has also driven China s domestic corn prices to an all-time high this month, depleting reserves to less than one month s supply and worrying a government desperate to control food prices, which on average jumped more than 13 per cent in August.

Bigger demand

Official fears about food inflation are largely behind China s drive to transform the hog industry from backyard farms to large, modern complexes that will require more corn to ensure steady pork supplies.

When you are a backyard farm you can replace corn with some cheap feed input like waste but you take longer to rear pigs, said Jean-Yves Chow, a senior industry analyst at Rabobank in Hong Kong. When you turn to the industrialized model you have a feeding program which is more based on corn and soybean meal and it is pretty much fixed.

Rabobank estimates that by 2015, nearly three-quarters of the pigs in China will be reared in commercial farms compared with 63 per cent in 2010. In 2000, farms with more than 50 pigs constituted just 26 per cent of the output.

Going beyond its borders, China s large corn imports could also threaten feed grain supplies for the U.S. ethanol industry, which consumes 40 per cent of the country s corn output.

In drawing up its balance sheet, the U.S. Department of Agriculture has already said that corn for ethanol would drop 100 million bushels in 2011-12 to five billion bushels from its August forecast.

Tightening corn supplies will make for a more competitive environment and could put some plants at risk even though at this point production levels continue to run strong.

If you see rising demand from food and feed sectors then subsidies on ethanol production in the U.S. don t make sense at all, said Barthwal-Datta. Focus on biofuels from food grains is quite a dangerous one.

In the longer term, analysts say higher grain prices will provide a bigger incentive for farmers to boost corn production. Brazil and other South American nations are leading the way with investments and farm expansion.

After transforming global agriculture by quintupling their soybean production since 1980, Brazilian farmers are now on the brink of crop breakthroughs in cotton and corn, long dominated by growers in America.

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