Sunday, March 20, 2016

China Rice Smuggling Estimated at 2 million tons

Despite a series of anti-smuggling campaigns, China's smuggled rice imports reached 2 million metric tons (mmt) during 2015, according to estimates by a Chinese grain industry newspaper.

China's Grain and Oils News deduced the smuggled volume by comparing export statistics from Vietnam and Burma which far exceed China's officially-reported imports of rice from those countries. The article doesn't explain why exporters selling to smugglers would report the sales to customs officials. There seem to be several typographical errors in the article, but the estimate of 2 mmt seems to be in line with reality.

Adding the estimated 2 mmt of smuggled rice to official imports of 3.35 mmt recorded by customs statistics brings China's total imports to 5.35 mmt. Subtracting China's rice exports of 280,000 metric tons still leaves the net import volume--smuggled and legal--at over 5 million metric tons.

Grain and Oils News asserts that the imports have a severe impact on the Chinese rice market even though the 5 mmt of rice is equal to only 4 percent of the country's annual rice consumption. The article also raises concern that the 4-percent share of imports is close to infringing on national "food security." The article worries that the government can no longer control the market by buying and selling reserves.

The government has purchased over 30 mmt of rice to support prices each of the last three years at the same time imports of rice have been increasing. The government has had difficulty selling off the reserves due to downward pressure on prices exerted by imports. During 2015, the Chinese government offered 88 mmt of rice reserves for auction, but only 5 mmt found buyers.

China's rice market is actually not as large as production statistics make it appear because most rice produced is kept on farms for farmers' own use. According to Grain Bureau statistics for the 2014/15 market year, only 86.5 mmt of rough rice was purchased by all types of enterprises (see table), less than half of the National Bureau of Statistics' 206.5-mmt estimate of rice production (the difference reflects rice used by farmers themselves and possibly an overestimate of production by the Statistics Bureau). Of the 86.5 mmt rice purchased, 32.3 mmt was stockpiled in reserves under the minimum price program, so it has not entered the market. Deducting the rice stored in reserves and adding the 5 mmt of old rice auctioned during 2015 leaves 59.2 mmt of Chinese rice that actually entered the market, about a fourth of the crop.

China rice purchased by all types of enterprises (2014/15):
Type of rice Million metric tons
Early indica rice 8.5
Middle-late indica rice 38.2
Japonica rice 39.8
Total rice purchased: 86.5
- purchased for reserves -32.3
+ auctioned from reserves 5.0
Purchased for consumption 59.2
Milled equivalent (x .65) 38.5
Estimated imports (milled) 5.0

That means imported rice has more than 4 percent of the commercial rice market in China. Assuming a milling rate of 65%, the 59.2 mmt of rough rice equals 38.2 mmt of milled domestic rice that entered the market. Compared with this number, the estimated 5-mmt of imported rice is 13 percent of the rice traded commercially in the Chinese market. That's a lot more than the 4% share estimated by Grain and Oils News.

The numbers are similar for 2015/16. Although the statistics bureau reported a larger rice crop of 208.25 mmt for 2015/16, the latest procurement numbers reported by the Grain Bureau on February 15, 2016 showed that volume of rice procured was down about 1 mmt from the previous year.

Grain and Oils News concluded that smuggling of rice into China is still "rampant" despite over two years of anti-smuggling programs. A "green wind" program targeting smuggling of agricultural products launched in 2014 has seized 210,000 metric tons of smuggled rice, which Grain and Oils News notes is only 10 percent of annual smuggling volume. A "five major campaigns" initiative was deployed in 2015, and this year there is a new program ("sword over the door to the country"). A sweep of markets by customs officials and police in Chongqing, Kunming, Changsha, and Guiyang during March 2016 claims to have broken up seven rice-smuggling gangs.

The paper calls for more crackdowns on smuggling to protect the income of Chinese farmers, preserve national food security, and to restore "order" to the Chinese rice market. What more can China do to crack down on smuggling than it has done over the last two-plus years? The main recommendation by Grain and Oils News is to implement a strict traceability system in China's rice industry, but the source of rice is already commonly faked. The final recommendation is to raise the productivity of Chinese rice to make it more competitive.

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