Thursday, March 10, 2022

Feed Company Exec Pleads for Corn Quota Reform

A Chinese feed industry executive pleaded for more access to imported corn at this week's National Peoples Congress. Chinese industry's swelling need for feed grain is putting pressure on the 20-year-old tariff rate quota system that Chinese authorities view as a necessary "firewall" to protect their farmers from import competition. 

Liu Hanyuan, chairman of the board for feed manufacturer Tongwei Group, told reporters at the National Peoples Congress that he is making recommendations to ensure feed supplies to ensure the healthy, sustained development of China's livestock industry.

Mr. Liu recommended improving the tariff rate quota (TRQ) mechanism for importing feed grains by giving feed and livestock companies import quotas in proportion to their annual production. The quota for corn--established when China joined the World Trade Organization in 2001--allows up to 7.2 million metric tons to be imported at a low tariff of 1 percent each year. The tariff for imports without a share of the quota is a prohibitive 65 percent. The quota is doled out to companies that apply to government authorities each September for a share of the following year's quota. The process of dividing up the quota among the applicants is opaque. 

The 7.2-million-ton corn import quota has been unchanged since it was established, but demand for corn has been rising rapidly. Liu said feed use of grain is having a greater and greater impact on national grain supply and demand, and imports of corn were nearly four times the quota during 2021. No one has explained how corn imports exceeded the quota by such a wide margin.

According to the article, the quota amounts received by big feed and livestock company have not been adjusted, and there was not enough low-priced imported grain to satisfy their needs. The article commented that each company has a "huge gap" between use of corn and the actual amount available. Lack of access to corn limits the development of large companies and threatens the survival of small and medium companies, the article said.

Reporters from the communist party-owned Beijing News reporting Mr. Liu's comments said food use of grain is expected to shrink 2 percent by 2025 and there could be an 80-million-ton surplus of rice and wheat by then. The reporters commented further that the imbalances between feed and food grains needs to be addressed to avoid waste via degradation of old grain stocks held in warehouses for too long. 

A list posted on the National Development and Reform Commission's web site last November (it has now disappeared) showed that 1,165 companies applied for a share of the 2022 corn import quota. That was 143 more than the previous year and the largest number of applicants since the Commission started posting the lists in 2015. More companies applied for corn TRQ than for wheat, rice, or cotton TRQs. 

Compiled from lists of applicants posted by National Development and Reform Commission.

Mr. Liu's company, Tongwei Group, had 21 branches in 10 provinces that applied for this year's corn import quota (each branch of a company must apply separately). Twins (Shuangbao) Feed Group was the top applicant for corn TRQ, with over 70 of its branches applying. Other top feed companies like New Hope, Haid, Dabeinong, Thai company CP Group, and COFCO also had 20-30 applicants each. Poultry and hog conglomerate Wens Foodstuff had 52 applicants and hog-farming giant Muyuan had 35 applicants. 

Besides feed companies the applicants for corn import quota included dozens of companies that said their products were starch, corn sweeteners, ethanol, distillers grains, amino acids, monosodium glutamate, and citric acid.

Dividing the 7.2-million-ton corn quota equally among the 1,165 applicants would give each applicant 1,175 metric tons. That would amount to less than half a percent of the average corn processing capacity reported by applicants of 280,000 metric tons.

Last September, Economy Daily--another party-owned media outlet--called the tariff rate quotas a "firewall" necessary to protect Chinese grain producers from competitive pressure. Economy Daily acknowledged that Chinese grain prices are not internationally competitive and warned that a surge of imported grains would weaken production incentives, threatening "grain industry security." 

The Economy Daily author fretted that "a few countries hope our country will expand grain import quotas," and warned that "a few people inside the country" also have this view. That would probably include the 1,165 applicants for this year's corn import quota. Economy Daily insisted that China must maintain its strategic focus and keep the current grain import policy unchanged in order to keep domestic grain production stable. "Import quotas are global quotas" and "cannot be adjusted for a single country," the article intoned. Economy Daily insisted that China "continually improves the management methods for wheat, corn and rice import quotas" to fully utilize quotas. 

Economy Daily explained that the next step is to diversify import channels and to strengthen the capacity to manage global grain supply chains in order to ensure that China can buy and transport grain.

The Economy Daily author advocated use of trade remedy measures by assessing duties on "excessive imports" to ensure "reasonable room for profit" in the domestic grain sector. However, the author warned that trade remedies must be used with caution since they can attract accusations of trade protectionism. 

1 comment:

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