Grain Conference Reveals Struggles

A National Grain Work Conference was held on January 20. The Grain Bureau chief, Nie Chengbang, noted that there is still downward pressure on prices since domestic prices are still above international prices and China had a big harvest this year. In this situation, Nie said China has to prevent excessive imported grain from flooding into the domestic market. Li Guoyang, from the Academy of Social Sciences, told the meeting that China can't restrict soybean trade because of its WTO commitments, but "corn requires more caution."

Nie noted that the government had supported prices by announcing three rounds of temporary state reserve increases totaling 50.5 mmt. Most recently [on Jan. 12] a fourth round of 8 mmt procurement was announced [3 mmt northeastern soybeans and 8 mmt of southern rice].

A January 12 article lists the four rounds of procurement:
Oct. 20, 16.5 mmt
Dec. 1, 14 mmt
Dec. 24, 10 mmt (corn)
Jan. 12, 8 mmt

The National Grain and Oils Information center's Jan 8 report estimated that the government's soybean reserve procurment will total 36% of this year's production. Officials warned against cheap imported beans being purchased at support prices for State reserves.

At the grain conference, Grain Bureau chief Nie said that the government needs to keep increasing the grain procurement price to keep up with rising production costs. Nie and Li note that China is in a delicate balancing act of keeping grain prices up to preserve production incentives without raising prices so much that they have an impact on consumer food costs. Chinese authorities are worried about a potential grain shortage if low profits erode production incentives.

The conference drew attention to surging vegetable oil imports, which totaled 7.4 mmt in November 2008. Domestic oil crushers face serious woes due to high soybean price supports. Domestic beans are said to cost 3600 yuan/mt, compared with 3000 yuan/mt for imports. Foreign-invested soybean crushers are accused of increasing "monopoly power" as they take advantage of lower-cost imported soybeans to sell oil and soymeal at lower prices than domestic crushers. Mr. Li notes that policies have traditionally focused on farmers, but they now need to pay attention to the interests of processors.