Summer Grain Harvest Bumper, Imports Surge, Calls to Scrap Temporary Storage Grow Louder

While China's domestic summer grain harvest marks the 12th consecutive year of bumper harvests, on the other hand grain imports have grown substantially.

According to data released by the General Administration of Customs: from January to June this year, a total of 16.293 million tons of grain was imported, up 66.5% year-on-year, of which net imports were 16.050 million tons, up 68.3% year-on-year.

In terms of specific categories, apart from wheat, whose import volume fell year-on-year, imports of corn, rice, barley and sorghum all rose substantially, with sorghum imports in particular increasing 1.6-fold year-on-year.

“The reason sorghum imports have surged is that on the one hand sorghum has no import quota restrictions, while corn and wheat both have quota restrictions.” Zhang Zhixian, director of information research at China Grain Network, told the China Business Journal reporter, “Because corn quota restrictions make the price gap between domestic and international markets fairly large, and since sorghum can substitute for corn, imports have surged.”

According to forecasts by the United States Department of Agriculture, China's sorghum imports in 2015 will be 9 million tons, an increase of more than 3 million tons relative to 578 million tons in 2014.

“To hold the bottom line of food security, namely that ‘grain grown can be sold and grain eaten can be bought’, the state has long supported prices and purchased for storage; it has now gradually liberalized storage policy and let agricultural product prices return to the market, which may have stimulated the surge in imports of some agricultural products.” Said an official from the grain system of a certain province in northwest China.

The quota system was intended to smooth the impact of the corn import “price inversion” on domestic corn producers, yet it triggered a surge in sorghum imports.

This situation of “pressing down the gourd only to have the ladle float up” has, to some extent, pushed the price-support storage policy to an awkward crossroads.

Behind the Import Surge

“Behind the import surge, if we carefully analyze the agricultural product import data we can find that imports of some agricultural products have continued to increase this year, but wheat and corn imports have remained stable throughout. This is mainly because China has quota restrictions on imports of both wheat and corn, and most of these quotas are in the hands of state-owned enterprises.” Zhang Zhixian said.

In fact, this situation had already begun to emerge in 2014. Under quota management, total imports of the three major staple grains - wheat, rice and corn - were 8.184 million tons, down 26.1% year-on-year, but over the same period barley imports were 5.413 million tons, up 131.8% year-on-year, and sorghum imports were 5.776 million tons, up 4.4-fold year-on-year.

After import quota restrictions were imposed on the three major staple grains - wheat, rice and corn - in 2014, the contradiction of high domestic grain inventories and relatively great phased supply pressure was alleviated to some extent.

“But because corn has a relatively high government price-support price domestically and cannot be imported internationally due to the lack of quota, most feed enterprises, in order to save costs, prefer to import sorghum, barley and other products that have no quota restrictions and are low-priced as feed sources.” Zhang Zhixian said.

Since the launch of temporary corn storage, the storage purchase price has shown a steady upward trend, rising from about 1,500 yuan/ton in 2008 to more than 2,200 yuan/ton in 2014. At present the international landed price of corn is about 1,600 yuan/ton, while the domestic corn price is as high as 2,480 yuan/ton, a price gap of about 800 yuan/ton between the two.

“The storage policy means there is no market price for domestic agricultural products, only a government-set price, so whether it is wheat, corn or sorghum, prices are almost mostly related to policies promulgated by the government.” An agricultural analyst told the reporter.

⟧ Statistics from the China Corn Network show that in 2015 the cost for farmers in the northeast production area to grow corn was above 10,000 yuan/hectare, a sharp year-on-year increase of 1,000 to 2,000 yuan per hectare; under the pressure of rising grain-growing costs year after year, the greatest supporting force for farmers to remain steadfast in corn planting still comes from the government's price-support purchasing.

But against the backdrop of price inversion, the consequence of corn output still remaining high is high inventories. In 2012 the state purchased more than 30 million tons for temporary storage, in 2013 it purchased more than 70 million tons, and in 2014 it purchased more than 80 million tons for storage. Industry estimates put China's corn inventories at more than 100 million tons currently, while total annual corn output is only 200 million tons.

Under this current situation, calls to scrap the temporary storage policy are growing louder and louder.

A recent clear signal came from a document recently published by the Ministry of Agriculture, the “Summary of Replies to Recommendation No. 1480 of the Third Session of the Twelfth National People's Congress” (hereinafter referred to as the “Summary of Replies”). It states: for varieties such as corn, soybeans, cotton and oilrapeseed that have high demand elasticity, long industrial chains and a high degree of linkage with domestic and international markets, attention should be paid to giving play to the decisive role of the market in forming prices, guiding production and adjusting supply and demand through market price signals, and promoting the sustained and healthy development of the industry.

The market therefore expects that China's corn storage policy will continue, but the scale of government storage purchases will gradually shrink, and the government's minimum purchase price will also decline.

“China is currently already adjusting its storage policy; it has already scrapped storage purchases for cotton and soybeans and simultaneously launched pilot reforms for target price subsidies, and corn may also have its storage policy scrapped in the not-too-distant future.” Said Ma Wenfeng, an analyst at Beijing Orient Agribusiness Consultants.