China’s major foray into the global corn market this year could become routine as it strives to fend off the threat of animal feed price inflation, which Beijing worries could send household food bills soaring.
With feed demand in the world’s second-biggest corn consumer rising by nearly eight per cent a year over the past decade, and farmland under pressure from growing urbanization and other crops, it seems only a matter of time before China will have to abandon its policy of self-sufficiency in corn.
The country’s purchase of an estimated 1.5 million tonnes this year will be its largest in 15 years and account for 1.7 per cent of global corn trade.
If China follows the route it took for soy – 10 years ago it blocked imports but is now the world’s largest buyer – that would be a major boost to Chicago Board of Trade corn futures, already at two-year highs on worries about the U. S. crop.
“Over the near term, I don’t expect it to be a big part of what they do, but over a longer period of time I anticipate that they’ll continue to import more, because it’s easier for them to produce the meat in China than it is to import it from somewhere else in the world,” Monsanto executive vice-president Brett Begemann told a conference on Sept. 15.
China had long effectively blocked imports by citing worries about bringing genetically modified corn into its market.
But Beijing, which approved the safety of its first homegrown GMO strain of corn late last year, has returned to importing in earnest this year, largely from the United States.
“We think corn will follow soy, and imports will become a normal practice whenever there is a need,” said an executive with a major feed mill in the southern province of Guangdong.
“Annual imports of one million or two million tonnes, or even higher, would not impinge on the country’s food security, given that monthly consumption is 14 million tonnes,” he said.
NEED FOR FEED
A growing taste for meat has spurred a nearly eight per cent annual increase in animal feed production in the last decade, and the industry is still in a high-growth phase, said Liu Xiaoyu, general manager of the feed department of COFCO Co. Ltd., China’s top grains trader.
Liu, who is also vice-chairman of China’s Feed Industry Association, expects China to become the world’s top feed producer within two years, overtaking the United States, and to reach output of 250 million tonnes by 2020, from around 150 million tonnes this year.
To ensure supplies for animal feed production, Beijing has squeezed the corn-processing industry, which consumes about 42 million tonnes of corn a year, restricting its expansion in products ranging from corn starch to ethanol.
Still, industry experts expect demand for food additives to fuel annual growth of five to 10 per cent in the next five years, and corn use by this sector could easily jump to 60 million tonnes when profits are good and plants run at full capacity.
“Curbs have not reduced the inner strength of the corn-processing industry but only delayed the timing of the country shifting to imports,” said Fei Zhonghai, assistant to the general manager of COFCO Agri-Trading &Logistics.
Regular imports could cut costs for feed mills and breeders and ease worries about securing supplies when prices rise, Fei told a conference in Dalian, a Chinese commodity trading hub.
Record corn prices this year also drove up other food prices, including those of pork and eggs, which Beijing is keen to control because of worries about inflation and public anger.
While demand races ahead, supply struggles to grow. Cornplanting acreage has risen a mere 1.35 per cent a year over the past 10 years, said Liu.
Beijing offers billions of dollars of subsidies to farmers every year and buys their crops whenever prices are falling, but growth is still stunted by urbanization and competition from food grains such as wheat and rice.
FEED GRAIN VERSUS FOOD GRAINS
The government is considering revising its trade policy on corn, used mainly for feed, to differentiate it from trade in grains intended for human consumption, according to an expert advising on the matter.
That could lead to a relaxation of corn imports in two to three years, he said. Currently imports are subject to government quotas, although these can be rapidly increased if necessary.
Government grain officials have constantly expressed concerns that large imports by the world’s most populous country could cause global grain prices to spike and threaten food security.
China’s self-sufficient grains policy helped the country, home to 20 per cent of the world’s population, escape the world rice crisis in 2007-08 and recent volatility in the world wheat market.
China may never let its corn supply become as dependent on imports as it has soy.
“For corn, imports will always serve as a supplement. If one day China relies on that level of imports, it will be a disaster not only for China, but for the world market,” said COFCO’s Liu.