Grain Pain Wearing Off

Experts do not expect last year’s trade deficit in grain to persist through 2005


FOOD TRADE: Bean is one product whose rising imports contribute to China’s trade deficit in agriculture

The latest issue of Banyuetan (China Comment), a biweekly official magazine, has an article by Zhu Ming, President of the Chinese Academy of Agricultural Engineering, on China’s trade deficit in agriculture. According to the article, this deficit is estimated at $5.5 billion in 2004. In the three years after its entry into the World Trade Organization (WTO), China changed from an exporter of agricultural produce to a net importer.

The article has aroused much attention. During the eight years before 2004, China’s annual average trade surplus for agricultural produce was $4.3 billion.

Customs statistics for the first 11 months of 2004 show that imports of agricultural produce grew faster than exports. The figures for exports and imports stood at $20.68 billion and $25.86 billion, respectively, rising 10.5 percent and 54.1 percent, respectively, year on year. The trade deficit hit $5.18 billion, while for the same period in 2003, the trade surplus was $1.94 billion.

The large deficit was caused by abrupt changes in the import and export volumes of three major kinds of agricultural produce. The first was cereal, including rice, wheat, corn and beans. From January to November 2004, China exported 4.31 million tons of cereals, dropping 76.2 percent from the same period of the previous year, while import volumes of cereals stood at 8.95 million tons, soaring 3.7-fold year on year. The cereal trade saw net imports of 4.64 million tons, in sharp contrast to net exports of 16.16 million tons during the first 11 months of 2003.

The other contributors to the overall trade deficit in agriculture were cotton and sugar, which serve as industrial raw materials. During the first 11 months of 2004, the cotton export volume was 11,000 tons, falling 89.9 percent year on year. At the same time, the import volume soared to 1.92 million tons, with a 1.5-fold year-on-year increase.

During the same period, the sugar export volume was 62,000 tons, dropping 36.7 percent compared with the January-November period of 2003. Import volumes stood at 1.18 million tons, rising 68 percent.

SICK BIRDS: Last year’s bird flu scare leads to increase in China’s poultry imports, reversing past trends

The third ingredient in the agricultural trade deficit was poultry. Although in recent years exports of poultry and livestock have maintained fast growth, the trend changed last year. From January to November 2004, exports of poultry were valued at $560 million, declining 24.9 percent year on year, while imports touched $160 million, climbing 62.7 percent over the same period in 2003.

Industry insiders said the large trade deficit was unexpected and triggered by both internal and external factors. Of these, change in domestic demand and supply of agricultural produce was the most important.

Sun Dongsheng, a doctorate holder from the Chinese Academy of Agricultural Sciences, said, “The deficit in the import and export of agricultural produce is directly related to the fact that China’s grain reserve had been the lowest in recent history.” In 2003, China’s grain output was 430.6 million tons, the lowest in 13 years. Grain reserves were also the lowest since 1974 and accounted for less than 30 percent of the year’s consumption, nearly half the average of the past 30 years of 59.4 percent.

Although the decline in grain reserves in 2003 did not endanger China’s grain security, it did affect the domestic demand and supply position, said Zeng Yinchu, an agriculture expert from the Department of Agricultural Economics of Renmin University of China, who has been researching agricultural trade.

These developments in trade gave rise to two “economic signals.” One was the series of measures implemented by the government at the beginning of 2004, to stimulate grain production, including tax reduction and cash subsidy to farmers. Meanwhile, export quotas on the main produce categories were reduced and agricultural imports were actively encouraged.

The second “signal” came with the price hike of agricultural produce in the domestic market, in some cases as high as 30-40 percent.

It was these two “economic signals” that induced governments and enterprises to import a large volume of grain, leading to the growth in cereal import volumes in 2004.

The sharp increase in cotton imports in 2004 was attributed to the surge in demand by domestic textile enterprises, eager to cash in on the opportunities presented by the elimination of quotas on textiles and clothing from the beginning of 2005, said Zeng Yinchu. Despite a good cotton harvest last year, supplies fell short of demand, as textile manufacturers sought to increase their reserves of cotton as raw materials.

The rise in poultry imports was attributed to the outbreak of bird flu early last year.

Experts said the change in demand and supply of agricultural produce in 2004 was transitory and did not expect the large trade deficit in agriculture to continue in 2005.

One encouraging development in this regard is last year’s reversal of the trend of falling grain output for five consecutive years. Grain output exceeded targets, sparking worries of a fall in grain prices. But with the country strengthening support for agriculture and attaching more importance to grain production, the demand and supply of grain in 2005 is expected to be in balance.

The growth in cotton imports with the elimination of textile quotas has started slowing down. Domestic cotton prices are falling and cotton reserve build-up by textile manufacturers is weakening.