The Wall Street Journal-20080130-China-s Demand for Corn Grows
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China's Demand for Corn Grows
Full Text (597 words)BEIJING -- China is unlikely to become a net importer of corn this year despite increasing domestic demand for the grain, a senior government official said.
Tight government controls on industrial use of corn as well as on the export of the commodity, along with high international prices, will prevent the country from being a net importer this year, said Xu Xiaoqing, deputy director of the Department for Rural Economic Development Research under the State Council's Development Research Center.
"The decrease in corn exports will help rein in the fast rise in domestic [food] prices," Mr. Xu said in an interview. But he said China could become a net corn importer after this year, with domestic consumption rising.
Industrial use of corn to make products such as ethanol and starch accounts for 26% of the country's total consumption, while feed-meal demand accounts for 72%. The rest is direct consumption.
Amid rising prices of the commodity, China imposed strict controls on expansion in the corn-processing industry in late 2006. It also has discouraged the use of ethanol as fuel.
Ethanol consumption is expected to fall below 5% of China's total consumption in 2008, compared with 6% in 2006, he said.
China's corn output totaled 148 million tons in 2007, up 2.1% from 145 million tons in 2006, according to estimates from China National Grain and Oils Information Center.
Rising production costs, a result of surging crude-oil prices, pushed up grain prices last year and will continue to support prices at these high levels in 2008, Mr. Xu said.
The prices of feed meal, fertilizer and agricultural equipment rose 11%, 9.7% and 1.2%, respectively, in December from a year earlier, according to data from the central bank.
Since December, China has taken a number of measures to curb grain exports, including canceling grain export-tax rebates and setting quotas for grain-flour exports.
China has been a net exporter of grains in the past few years, with export of wheat, barley, corn and rice totaling 7.19 million tons last year.
However, disincentives for exports are unlikely to have much impact on China's trade structure in 2008, as rising global grain prices will make it profitable to export grains even without tax rebates.
"The policies can only help to prevent a surge in grain exports," Mr. Xu said.
The rising trend in grain prices is unavoidable as China's own consumption is rising by around five million tons annually, while land and water are limited, making it difficult to produce substantially more, Mr. Xu said.
China's grain output totaled 501.5 million metric tons in 2007, up 0.7% from a year earlier, marking the fourth-straight year of production growth. However, incremental gains have lagged behind demand growth.
China expects to see a sharp increase in government spending on agriculture this year, Mr. Xu said.
Total state investment in agriculture was 391.7 billion yuan ($54.44 billion) in 2007, and that will increase by at least 100 billion yuan this year, he said. That would include increased spending on agricultural infrastructure such as irrigation projects.
The government also will raise the minimum purchase prices of wheat and increase subsidies to grain farmers to encourage production in 2008, the National Development and Reform Council, China's top policy- making body, said last week.
China's direct subsidies to farmers have been low compared with those in developed countries due to the large number of people living in rural areas. For example, a Chinese farmer gets only 80 yuan in subsidies from the government a year, while a farmer in the European Union gets around 18,000 yuan, Mr. Xu said.
