May 19, 2014
China''s corn demand to reach 41% by 2023
Due to a healthy demand for corn, China might see a significant 41% growth in corn imports by 2023-24, according to a new report from USDA''s Economic Research Service.
With most imports originating from the US, the development may encourage local farmers to increase production.
Department economists say that while China, the world''s number two producer, will increase corn production due to acreage and yield increases, its consumption will increase at an even faster clip. The country will need to import 866 million bushels, nearly half of this year''s estimated US corn exports of 1.9 billion bushels.
Currently, the USDA has pegged Chinese yields to increase annually by 1.86 bushels per acre over 10 years-in line with projected US yield gains of two bushels per acre and up from earlier projections of 1.2 bushels per acre. Those yields comparatively are far lower than those found in the US at around the same production area. By 2023, the divide between corn production and consumption in China could double if output growth comes exclusively from yield gains. Yield growth at historical rates would result in an even wider gap.
However, ERS economists cautioned that slowing income growth, rising prices and other factors such as livestock disease could temper demand.
An example was the 1.8% fall in Chinese feed production in 2013, which reversed a growth pattern of 8% to 10% in recent years. Weak demand for corn and a record 2013 harvest forced a Chinese corn glut which prompted authorities to launch an aggressive corn-stockpiling programme to prevent prices from falling.
Compounding meat-demand problems were avian influenza, low hog prices, excess capacity and negative publicity over thousands of pig carcasses found floating in a major river of Shanghai.
"China''s demand for corn is expected to resume its strong growth as the effects of these incidents dissipate in futures years," ERS economists say.
Policy changes would be required for a substantial growth for Chinese corn imports. For instance, USDA''s projected corn exports exceed the nation''s annual 7.2 million tonnes tariff rate quota, a figure set when China joined the WTO.
Imports within the quota are subject to a low 1% tariff, and over-quota corn imports are assessed a prohibitive 65% tariff. Bullish USDA projections presume that China would expand the quota or introduce a sliding scale tariff mechanism, as it has done for cotton, to accommodate demand for imported corn.
If China does not adjust tariff rate quotas, robust demand could drive domestic corn prices much higher, bidding land away from other crops to boost corn output, ERS says.
High corn prices could also undermine the competitiveness of domestic corn-using industries, while raising meat prices, slowing corn consumption and prompting a shift to meat imports.
Still, China is expected to acquire more corn.
From 2010-12, the US accounted for 97% of China''s corn imports, and it will remain a key supplier, according to ERS economists. Other countries including Ukraine, Argentina and Brazil will likely expand sales to the country as well.
"As China''s demand for corn imports grows, the US and other exporting countries will need to boost production to prevent world prices from rising sharply," ERS says.
"Sustained growth in corn yields in the US and other countries will be critical to ensuring that corn is available to meet China''s rising demand. US farmers produce higher corn yields than Chinese farms using lesser chemical fertiliser. Thus, meeting Chinese demand with US corn conserves resources."