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Corn Price and Supply Remain Worry for Beijing

27 April 2011

CHINA - Beijing's top food security concern is the price and supply of corn as the country's demand for feed grain and corn-related industrial products continues to rise, analysts say.

According to South China Morning Post, wheat, rice and corn are the three most important grain categories in terms of mainland food security, but the government is increasingly concerned about the country's growing dependence on imports of corn, analysts said. "China's net import of corn could exceed 20 million tonnes in three years," said Liu Xiaobo, a Shanghai-based food analyst from Everbright Securities. "Most of the corn imports come from the United States, which is expected to increase its domestic consumption of corn for ethanol production and the same applies for corn-export countries in South America like Brazil.

"So, China can't assume it will always be able to buy enough corn from the international market," he said.

According to data from research institute Cngrain.com, the mainland will need to import one million tonnes of corn in 2010-11, down from 1.5 million tonnes the previous year. Corn consumption is expected to grow from 158.8 million tonnes to 163 million tonnes, while corn production should increase from 155.5 million tonnes to 165.8 million tonnes.

Rabobank's Shanghai-based grain analyst Lief Chiang said that more than 60 per cent of corn on the mainland is used for animal feed.

He expected corn supply would continue to be tight because of the limited availability of arable land, for which livestock is given priority to meet strong consumer demand.

Short- and long-term government measures are in the pipeline to intervene in the corn market, both on the supply and demand side. Earlier this month, the Ministry of Finance announced a temporary suspension of value-added tax deductions for corn purchases by processors, which would be effective until June 30.

Beijing also asked banks to stop lending to companies that buy corn for non-feed processing, excluding state stockpiling agencies, state news agency Xinhua reported. The most common non-feed processing products that are made from corn include starch, ethanol and sweeteners.

The announcements boosted seed, fertiliser and feed-processing-related securities on the mainland, Liu said.

The government also aims to consolidate the seed industry by reducing the number of companies from 8,700 to around 100 in 10 years, the Ministry of Agriculture said on its website earlier this week.

Liu urged investors to monitor local government policies on the transfer and merging of arable land.

Local governments, such as those in Heilongjiang and Xinjiang, are expected to try to expand collective farming by working with certain non-state-owned companies.

Chen Shuwei, the deputy general manager of Beijing Orient Agribusiness Consultant, said irrigation projects in the drought-stricken northern region, where more arable land is available, could present new investment opportunities.

TheCropSite News Desk



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