International grain prices keep falling, and expanded grain imports are purely a market behavior

China's grain imports grew considerably this year. Data released by the General Administration of Customs show that this year grain imports, led by wheat, accelerated sharply, with grain imports surging 80.7% year on year in the first seven months. This has aroused concerns at home and abroad about China's food security. In response, experts pointed out that China has ample grain reserves, and the growth in grain imports is because international market prices are lower than domestic market prices, not because the grain shortfall has widened.

Grain imports up 80% year on year

Since the start of this year, China's grain imports, especially wheat imports, have clearly accelerated. Data released by the General Administration of Customs show that in the first seven months of this year, China's grain imports, including wheat, rice and corn, grew 80% from the same period last year. According to other statistics, in July China imported 1.56 million tons of grain and grain flour, 260,000 tons more than the previous month.

China is a major grain-producing country, so why does it still need to import large amounts of grain? In response, the General Administration of Customs analyzed that, first, domestic demand is strong; second, agricultural product prices on the international market are at a low level.

It is reported that since November last year, the domestic market price of wheat has been higher than the post-tax landed import price for 9 consecutive months. At present, the international wheat FOB price plus various fees after arriving in China is about 10% cheaper than the domestic wheat market price.

Since 2010, China's grain prices began to exceed international market FOB prices. The price gap at home and abroad has led domestic enterprises to increase grain imports. Experts pointed out that importing an appropriate amount of grain according to market price gaps can help adjust domestic surpluses and shortages and also conforms to the general trend of the internationalization of agricultural product trade.

“In addition to the factor of inverted domestic and international grain prices, the increased demand for variety adjustment is also a very important reason.” Cheng Guoqiang, a researcher on grain trade issues at the Development Research Center of the State Council, pointed out that as Chinese people's living standards improve, in recent years the demand for importing an appropriate amount of “strong-gluten and weak-gluten” wheat from abroad to meet the needs of processing bread, cakes and high-quality foods has clearly risen.

Summer grain harvests have increased for years and reserves are ample

In fact, China's grain harvest is currently abundant and its granaries are full. In 2013, China's grain production achieved ten consecutive increases, with annual grain output, including grains and soybeans, exceeding 600 million tons and hitting another record high. In 2014, China's summer grain achieved an “eleventh consecutive increase.” According to data from the National Bureau of Statistics, the total national summer grain output in 2014 was 136.6 million tons, an increase of 4.75 million tons, or 3.6%, over the previous year.

Looking at grain inventories, Ren Zhengxiao, head of the State Administration of Grain, revealed that as of the end of 2013, China had 19,000 various types of grain storage enterprises spread across urban and rural areas, with a total storage capacity of more than 300 million tons, 100 times more than at the founding of New China.

“At present, domestic corn and rice inventories are at their highest levels in history, with some individual varieties reaching 60%-70% of storage capacity. The grain in the granaries is enough to feed the entire nation for more than half a year. Such inventory reserves show that China's overall food security situation is in a relatively good period.” Cheng Guoqiang said.

Shi Yan, deputy director of the Xinhu Futures Research Institute, believes that simply linking the sharp increase in grain imports with worries about food security is rather exaggerated. The government's grain inventories are currently relatively ample, and the short-term issue the government is considering may not be food security, but how to let the market absorb the reserves.

Grain purchase and storage policy needs adjustment

The purchase and storage system, originally established to protect farmers' interests, after being implemented for almost 10 years, while stabilizing the market and raising farmers' enthusiasm for growing grain, has also created the legacy problems of today's increased grain inventories and large domestic and overseas grain price gaps.

Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, explained that the original intention of the purchase and storage policy was based on the fact that domestic wheat prices at the time were lower than foreign prices, farmers' enthusiasm for growing grain was not high, and, if grain prices had no government regulation, market and farmers' expectations could not be guaranteed, making it very easy to trigger selling off at low prices and holding back sales at high prices.

One of the problems with the purchase and storage system is that it has raised domestic grain prices and increased grain inventories. According to reports, last year Sinograin purchased nearly 90 million tons of grain, but because large amounts of grain bought through market support purchases were priced too high to sell, grain processing enterprises lacked interest, and it could only be piled up in warehouses, putting Sinograin's storage capacity under strain.

With grain imports expanding on one side and domestic inventories difficult to digest on the other, this new dilemma urgently needs to be resolved by management. Industry insiders pointed out that the reform of agricultural protection policies should be accelerated, the grain purchase and storage policy should be adjusted as soon as possible, and the grain price mechanism should be straightened out. Ni Hongxing, director of the Trade Promotion Center of the Ministry of Agriculture, said that current grain inventories are already difficult to digest, and as the domestic and international price gap further widens, the temporary purchase and storage policy will be difficult to sustain and will be adjusted in the future, strengthening the role of enterprises.

Relevant experts suggested that to resolve the inversion of domestic and international grain prices, on the one hand, a mechanism in which grain prices are determined by the market should be formed, the state should no longer intervene in grain prices, and a target price system for agricultural products should be gradually established to promote balance between the domestic and international markets. On the other hand, by promoting the construction of agricultural production infrastructure, progress in agricultural science and technology, and expansion of the scale of agricultural operations, the pace of rising domestic agricultural production costs should be slowed as much as possible to maintain the comparative advantages of domestic rice and wheat production.