How to view the sharp increase in China's grain imports in recent years

Over the past few years, China's grain imports, especially rice imports, have increased substantially, and China has now become one of the world's top two rice importing countries, while China's rice exports have remained at a relatively low level; correspondingly, China's domestic paddy rice output has increased and inventories have remained high, creating a two-way squeeze on China's rice market. After three consecutive years of accumulation, this situation has made the current contradiction particularly prominent.

Looking back at the history of changes in China's grain import and export volumes, before 2012 China's rice imports generally changed little, with annual imports generally between 250,000 tons and 750,000 tons (see Figure 1). In 2012, China's imports grew sharply (an increase of about 3 times year on year), reaching 2.368 million tons, and afterward remained at a relatively high level. In 2014, imports reached a historic high of 2.58 million tons, close to total corn imports that year. Based on currently available data, rice imports this year will still continue to increase somewhat on the basis of the previous year.

In addition, China's corn and wheat imports have also remained at relatively high levels in recent years, while rice and corn exports have declined steadily. In 2014, corn and wheat imports were 2.6 million tons and 3 million tons respectively, and China's total grain imports for the year reached 19.51 million tons. In the same year, rice exports were 419,000 tons and corn exports were 20,000 tons, with total grain exports of only 710,000 tons, and net grain imports for the year were 18.8 million tons.

Reasons for the sharp increase in grain imports in recent years

In recent years, China's grain imports, mainly rice, have increased substantially, driven both by differences in quality and by the constantly changing price gap between domestic and international markets, with the latter being the main factor. Taking 2013 as an example, China imported 2.27 million tons of rice, of which 1.5451 million tons were imported from Vietnam (68%), 579,600 tons from Pakistan (26%), and 175,400 tons from Thailand (8%). Vietnam's rice exports are mainly early indica rice (white rice), whose quality is far inferior to Thailand's (although Vietnam is also continuously improving its rice quality). Thailand's main rice export varieties are parboiled rice at 33% (Africa and the Middle East), jasmine rice at 22% (Asia), and white rice at 22% (the Middle East). In 2013, the price of Vietnamese rice with 5% broken grains was USD 393 per ton, 20.4% lower than the USD 494 per ton for Thai rice of the same grade. In 2013, China imported far more rice from Vietnam than from Thailand, indicating that price played the leading role.

Comparing China's rice import costs over the past decade with japonica rice prices in Guangdong (see Figure 2), it can be found that in the several years before 2010, wholesale japonica rice prices in Guangdong were lower than the landed cost of China's rice imports. Starting in 2011, this reversed from being 644 yuan per ton lower the previous year to 807 yuan higher. During the three years from 2012 to 2014, Guangdong wholesale japonica rice prices were 1,600 to 2,700 yuan higher than the cost of imported rice, and rice imports in these three years were all around 2.5 million tons. At present, the C&F quotations for rice with 5% broken grains are about USD 360 per ton for Vietnam and about USD 414 per ton for Thailand, and the price gap between imported rice and Guangdong rice remains above 1,000 yuan.

When measuring the correlation and causal relationship between the price gap between Guangdong wholesale japonica rice prices and China's imported rice costs and China's rice import volume, the correlation coefficient between the two is as high as 0.94, indicating that the two are highly correlated. At the same time, the price gap has a guiding effect on import volume, which shows that the price factor is the most important reason driving import volume.

The supply and demand elasticities of grain products are both relatively small, so slight changes in supply and demand quantities can cause relatively large fluctuations in market prices. In addition, global rice exports are highly concentrated, which gives rice the prominent characteristic of large rises and falls, and this also allows high and low changes in the two markets, domestic and international, to be completed in a relatively short period of time. In July 2008, Thai rice prices rose to a historic high of USD 1,000 per ton, then fell to USD 550 per ton by January 2009, a decline of 45%. During this period, domestic wholesale japonica rice prices fell from 1.67 yuan per jin to 1.60 yuan, a decline of 4.2%; Guangdong wholesale japonica rice prices rose from 1.68 yuan per jin to 1.75 yuan. In 2011, Vietnamese rice prices rose from USD 421 per ton the previous year to USD 513 per ton, an increase of 21.9%, while Thai rice rose 11.8%. During this period, Guangdong wholesale japonica rice prices rose from 2.01 yuan per jin to 2.62 yuan, an increase of 30.3%. It was precisely because of these two wide fluctuations in domestic and international market prices that domestic rice prices have remained higher than the international market since 2011.

Then, is the fact that China's rice prices are higher than international prices caused by China's minimum purchase price policy? In 2011, Thai and Vietnamese rice prices rose continuously, and China also raised the minimum purchase price of japonica rice from 105 yuan to 128 yuan, an increase of 21.9%. Objectively speaking, the increase in the minimum purchase price provided bottom support for China's rice prices, but this policy is not implemented only in China. The Thai government implements a series of price support policies such as a paddy price support scheme, a price insurance scheme, and a rice mortgage policy, while the Vietnamese government implements a paddy purchase price policy. The essence and basis of the policies of the two countries are consistent with the minimum purchase price policy implemented in China. Therefore, it can be said that the global rice market operates on a market basis built on widespread global price support, and the price support levels of various countries are basically formulated according to supply and demand relationships. In the long run, supply and demand relationships still dominate changes in global rice prices.