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ECONOMY-CHINA: Staring At Grain Imports

Antoaneta Bezlova

BEIJING, Feb 25 2008 (IPS) - With global food prices on an upward spiral, China is facing renewed fears that its growing demand for grain to feed the world’s largest population may lead to imports from international markets, driving prices higher and spurring further food inflation.

The resurging "threat of China’s food security" may have induced more fatigue than alarm if it was not coming at a time of unprecedented scarcity of arable land, which is increasingly being converted to grow biofuels, and because of fresh challenges posed by global warming.

With its natural constraints – it has to feed a fifth of the world’s population with less than one-seventh of the global farmland – and its surging demand, China finds itself in the middle of a raucous debate about the future of global food security.

Since United States environmentalist Lester Brown stirred public imagination in 1995 with his apocalyptic predictions of China’s rising food hunger, the country has fought recurrent accusations that its demand may prove catastrophic by swamping world grain markets and causing food shortages in impoverished developing countries.

Delivering bumper harvests and shunning large imports have so far been the preferred ways for Chinese officials to demonstrate the country’s determination to continue with its long-term policy of self-sufficiency. The trend of increased annual harvests has run uninterrupted since 2004, clocking in more than 500 million tons of grain in 2007, including rice, wheat, corn and soybean.

"China is not a precipitator of the mounting increase in global wheat prices, but an important stabilising factor for it," Ding Shengjun, an official with the State Administration of Grain said in Beijing last week, responding to speculations that grain may follow the upward trajectory of oil. China’s unquenchable thirst for oil has been one of the main factors behind the surge of oil towards the sensitive 100 US dollars a barrel mark.


"The trend in China – year-on-year grain output increases, a balanced supply-demand market, improved reserves and mild structural grain price increases – is in sharp contrast with the global downturn in grain output and reserves," Ding said.

He went on to suggest that Beijing has tolerated small quantities of grain imports to diversity its domestic food supply while remaining largely self-sufficient.

Nevertheless, Chinese analysts have grown uneasy about the country’s increasing dependence on imports to satisfy demand for soybeans. Driven by its growing demand for meat in recent years, the country has emerged as the world’s biggest importer of soybeans and vegetable oil.

Before 1995 China was a net exporter of soybeans but in 2007 China imported more than 30 million tonnes of the commodity, which it uses mainly for animal feed. The demand reflects the country’s dietary changes resulting from greater prosperity in cities and towns where people these days consume more meat.

But the Chinese diet’s shift towards more meat has also boosted grain consumption, raising expectations that the country may be soon forced to import corn too. It takes four kilograms of grain to produce one kilogram of meat.

"I believe there is an ongoing soybean crisis, which is now affecting China’s entire food security and may even prove dangerous to the equilibrium of the whole economy," says agricultural market watcher Liu Chaoyang.

"Because of the country’s excessive dependence on imports for soybeans, China’s self-sufficiency rate is no longer the mandated 95 per cent but somewhere around 90 per cent."

To promote self-sufficiency, Beijing has done away with a policy spanning two thousands years of collecting grain tax from the peasants and has resolved to provide farmers with more subsidised fertilisers and seeds.

Reacting to rising global prices and inflation worries at home, China also raised export taxes and imposed export quotas on a range of grains and flour in December. Nevertheless, China’s inflation – driven by food prices surges, is running at its highest in 11 years. China’s consumer prices in January surged 7.1 percent from a year earlier.

The food situation has been exacerbated by devastating snowstorms in January that have killed farm animals and damaged crops across a large part of the country. Partly because of the storms, China’s food prices in 2008 have risen 18 percent, higher than the 13 percent increase of grain commodities in Indonesia and Pakistan, and well above the 10 per cent increase in South America and other developing countries.

The scourge of high prices and natural disasters occurs at a time of rapid loss of arable land, prompting some Chinese analysts to speak of the "global scramble for farmland".

While Beijing is said to control the amount of cropland taken over to produce biofuels, in the last decade the country has lost 5.5 percent of its arable land to desertification and industrial expansion.

"Nearly 14 years have passed since Lester Brown raised the alarm on China’s land constraints but his warning has not lost its validity," says Song Yanming, member of the China National Association of Grain Sector.

Analysts warn that although China has managed to maintain a balance of supply and demand in three of its main grain commodities – wheat, rice and corn, the increasing imports of soybeans can at any moment disrupt its fragile equilibrium.

Some agricultural experts have even suggested that China should use its ample foreign exchange reserves, which stand at more than 1.5 trillion US dollars, to buy soybeans on the international market and raise the domestic soybean reserves to 50 million tonnes – an equivalent to a year of China’s national soybean consumption.

"We can’t allow the soybean crisis to become the Archimedes point that would pry the Chinese economy," Wan Xiaoxi, an agricultural analyst with China Southern Fund, wrote in the China Business News.

 
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