China to Buy Grain
Beijing goes to market
21 March, 2005
Ever since the People's Republic was found in 1949, China's Communist leadership has seen food self-sufficiency as a prime matter of national security.
That is now about to change.
As well as oil, metals and semi-finished goods, China will become a significant purchaser of farm products, notably grain.
Markets
This will be good news for markets and producers in countries like the United States, Canada and Australia.
The Beijing government is acknowledging that it does not make sense to go on pursuing self-sufficiency in grain - particularly wheat - when production has been hit by loss of farmland to industry, desertification, and water shortages.
China is also set to become a growing importer of soya beans following a big deal with Brazil.
It will focus on more intensely farmed crops, and go into world markets to provide the wheat that is the staple diet in the north of the country, where water shortages are especially acute.
Stocks
China's grain stocks were estimated at 280 million tonnes at the start of this century.
Now they are reckoned to total 160 million tons.
So there has been a draw-down of at least 100 million tons to compensate for poor harvests between 2000 and 2003.
Needing to maintain a reserve, the government will have no choice but to buy on world markets.
Demand
Demand is high, at some 75 million tons a year.
China feeds 22 per cent of the world's population with only 7 per cent of the globe's arable land.
Smaller fields and heavy use of labour compared to Western agriculture boost domestic prices.
Grain prices have risen by a third in a year, causing the government concern on the inflation front - 85 per cent of the country's consumer price inflation is reckoned to be caused by food increases.
Lower cost imports could put a brake on this - and, having joined the World Trade Organisation, the mainland will be obliged to open domestic markets to foreign producers in due course.
Tensions
But raising import volumes threatens to provoke tensions in the countryside.
Rural incomes have risen by more than 10 per cent this year, but farmers still feel that they are losing out to manufacturing in the faster growing coastal development zones.
They also complain that money allocated for the countryside is diverted into development projects round towns, rather than going into agriculture.
The government is stressing the need to balance economic growth so that the manufacturing sector does not get all the cream.
But that will require a sensitive balancing act - to satisfy the farmers while not increasing the chances of a hard landing in the main industrial sectors.
http://www.earlywarning.com/articles/2005_03_21_china_grain_march
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