Why does China still import corn when domestic grain cannot be sold?

In the previous episode on national food security, it was mentioned that China's grain production has increased for eleven consecutive years. Although the problem of structural shortage exists, it is an indisputable fact that China's overall grain output is currently oversupplied and the pressure to reduce inventory is relatively high. In major grain-producing areas, cheap grain hurts farmers, and grain cannot be sold. Yet under such circumstances, China is a net importer of corn, which the general public finds truly baffling.

In fact, the reasons for this situation are as follows: first, China's corn output has already become oversupplied, and the corn produced domestically can no longer be fully absorbed on its own, so pressure to reduce inventory has emerged; second, the landed price of imported corn has a price advantage over domestic corn, and grain-using enterprises choose imported corn out of cost considerations; third, the development of downstream corn industries is insufficient, and some enterprises are controlled by foreign capital, resulting in insufficient absorption of corn.

Let us first discuss the issue of corn output. According to the 2015 statistics on grain sown area and grain output released by the National Bureau of Statistics, corn has already become China's largest grain crop by sown area and the highest in total output, having fully surpassed rice. In 2015, China's corn sown area was 38.117 million hectares, and total output was 224.58 million tons, accounting for 36.14% of national grain output. On March 28, 2016, the National Development and Reform Commission, the Ministry of Finance, the National Grain Administration and other departments held a media briefing and officially announced that in 2016 the three northeastern provinces and one region would cancel the temporary corn purchase and storage policy and adjust it to a new mechanism of "market-based purchase" plus "subsidies." This marked China's entry into the era of destocking grain.

The second point is that imported corn has a price advantage over domestic corn, and grain-using enterprises are more willing to choose imported corn. As is well known, in order to increase farmers' enthusiasm for growing grain and protect the benefits of grain growing, the state has continuously raised the temporary storage purchase price of corn. However, international corn prices have fallen in the past two years, causing domestic corn prices to be higher than foreign corn prices. Although corn prices have been declining since last year, the current landed duty-paid price of imported corn is 1666 yuan/ton, while the average domestic corn price is 1841 yuan/ton. The price advantage of imported corn still exists.

The third point is that the development of downstream corn industries lags, and demand is insufficient, resulting in excess corn output. Corn deep processing first starts with starch, along with some by-products such as germ oil and protein powder, and then further processing begins from corn starch. However, China's corn deep processing, due to market support policies and the lag in policy formulation (current deep processing policies were formulated based on the national conditions and supply-demand situation of many years ago), has led to serious insufficiency in enterprise capacity utilization. In the Northeast region, the capacity utilization rate of corn deep processing even reaches only 50%. Then there is the breeding industry, which is greatly affected by changes in demand due to price fluctuations in meat products.

The above reasons have led to China's corn currently indeed being in a state of overcapacity, so many people say that with so much grain,

First, it is basically impossible for China's corn to be exported, because as mentioned above, domestic corn has absolutely no price competitiveness compared with imported corn. Then why does the state still import corn? This brings up the issue of the corn import quota. The corn import quota itself is actually intended to reduce the volume of corn imports, because grain-using enterprises need to apply in advance for the amount of imported corn, and the state can thereby control the volume of corn imports. The high domestic corn price and the generally low quality of corn, which cannot meet the demand of some grain-using enterprises for high-standard corn, are the main reasons for corn imports. So how much corn does China actually import? In 2016, China's corn import quota was 7.2 million tons, and combined with the corn purchase and storage and auction situation in previous years, China's current domestic corn reserves are around 270 million tons. By comparison, the import volume is truly negligible.

In fact, the state has made tremendous efforts to safeguard the development of the corn industry so that it does not become the next soybean industry.