Concerns are growing in the global grain trade over whether China will limit imports of barley and sorghum in an effort to divert buyers to local corn, according to a food and agriculture analyst.
The United States Department of Agriculture estimates China’s domestic stocks this year at 81.46 million tonnes, while the United Nations Food and Agriculture Organisation’s figure sits higher at 95.4 million tonnes.
The stockpile has amassed because China maintains a floor price for corn, to encourage local production (along with other strategic grains like wheat and rice), while also controlling imports with quotas and production targets.
The policy is one of the reasons Australian exports of barley and sorghum to China have soared in recent years.
Over the past five years Australian barley exports to China have grown by 82 per cent, while sorghum exports have soared by just over 2000 per cent.
Food and agriculture market intelligence firm, China Ag’s, director Loren Puette, says exporters of corn substitutes are now wondering if the peak has already been reached.
“I have spoken with malt barley producers in Australia and they are concerned about how long the growth in demand will continue,” Mr Puette said.
“This growth has been great, but now there is concern about when the plateau will be reached.”
The concern has been stoked by agencies like the US Department of Agriculture and the International Grains Council (IGC), two agencies that have warned China’s policies around imports of corn substitutes could change in the future.
“Purchases could potentially be affected by changes to import policies; this follows reports that sorghum imports could potentially be affected by changes to tighter controls,” the IGC said in its latest report.
Mr Puette said the current situation highlights the sensitivities involved with exporting to China.
“Grains hold such importance for food security within China and when shipments do get shut down for contamination, the information that comes out of China has not always been forthcoming, sometimes it can be cryptic, and you don’t find out what actually happened until months down the line.
“There’s asymmetry in the market place, so exporters in Australia don’t have clear indicators on where demand is heading from China, which is somewhat unfortunate.”
James Cook University professor Zhangyue Zhou, an expert on Asian agricultural markets, says there’s a clear need for the Chinese government to improve of its data.
“If people could help the Chinese government understand that regularly publishing information about its stocks is good for itself, but also for the rest of the world, it would be mutually beneficial,” Professor Zhangyue said.
Food security policies are a high priority for the Chinese government, said professor Zhangyue Zhou.
The government encourages the production of key food and livestock feed grains; corn, wheat and rice, with a domestic floor price and restrictions on foreign imports.
“The Chinese government is very cautious about it’s food security, so they build up large stockpiles.”
Professor Zhaneyue does not share the concern that the corn stockpile could pose a threat to Australian exports.
Import quotas for the key grains currently stand at 9.6 million tonnes for wheat, 7.2 million tonnes of corn and 5.3 million tonnes of rice.
Major state-backed players like China National Cereals, Oils and Foodstuffs Corporation (COFCO) get preferential access to the cheaper foreign imports, which are often higher quality.
Mr Puette says this means private companies and smaller feed mills have flocked to imports of cheap foreign feed substitutes like barley and sorghum.
Most of the growth in sorghum and barley trade has occurred at the ports of Guanzhou, Nanjing and Qingdou.
But the policy has also encouraged the expansion of corn, rice and wheat production onto badly degraded land, meaning farmers have had to pump more fertilisers into poor soils to grow the crops, incentivised by the high support price and production targets.
This means that in addition to being more expensive than imported corn and substitutes, some of the grain is also considered too poor for use in the food supply chain, making purchases of foreign substitutes more attractive.
Professor Zhangyue said the Chinese government must consider a more flexible approach to food security, and suggests a system similar to Australia’s cyclone categories.
He said the government’s buffer stocks of key strategic grains should change according to the risk, so food security during peacetime has a lower priority than it would during emergencies.
“The Chinese government could devise a number of different food security plans and manage the policies according to the prevailing situation.
“Doing this would save a lot of money while at the same time allowing it to remain prepared for any food security emergencies.”
Professor Zhangyue pointed to the buffer stocks of India, which sit around 50 million tonnes as a better approach.
“If China could distinguish between higher level food security management and lower levels, it would save a lot of resources, which could be put to better use.”
(Source – http://www.abc.net.au/news/2015-09-30/chinese-corn-stockpile-blows-out/6812122)