Friday / July 19.
HomeMarketsChina confronts issue of excess corn stocks

China confronts issue of excess corn stocks

How do you solve a problem like China’s excess corn stocks?

Use it to make translucent film for greenhouses is one answer, its most influential agricultural expert said on Monday, as Beijing casts about for ways to rid itself of unwanted stores of corn and other agricultural commodities built up in recent years.

The end of China’s failed minimum price policy for corn has forced a restructuring of the state-owned agricultural industry, caused corn acreage to drop and revived domestic private trading. But it has left the state with piles of grain of deteriorating quality, purchased at above-market prices.

Chen Xiwen, a leading adviser on land reform and rural economy, said corn stocks now stand at 230m tonnes, down from his estimate of 250m tonnes in August.

“With this many reserves, the government needs to think of ways to work through them over the next two to three years. Annual production of corn now is relatively in line with the demand, so the government needs to create new demand to get rid of the reserve,” Mr Chen said. Other proposals include using the excess grain to make ethanol and corn sweetener.

The unwinding of China’s corn and cotton surplus is being closely watched because the Chinese government has not yet relaxed the minimum price policy on rice or wheat. Beijing views those crops as more politically sensitive, as they are directly consumed by humans. 

At its peak, 88 per cent of the corn harvested in north-east China and Inner Mongolia — the country’s top producers — was purchased by the government, Han Jun, vice-director of the central rural work leading group, told reporters in Beijing last month. He called the high prices for corn under the policy “unsustainable”.

Already, private online trading platforms have sprung up in agriculture-heavy provinces to take advantage of the renewed ability to arbitrage between regions. 

“The removal of the minimum price is allowing the market to work again,” said a senior executive at an international trading firm. “It has unfrozen things.” 

But state planners have also flinched as prices drop. Corn export-dependent Jilin province earlier this year ordered the local branch of Sinograin to buy in bulk as it tries to shore up corn to buoy prices ahead of the planting season. It also encouraged companies to relax restrictions on mould content.

While the private market revives, Beijing has engineered a series of mergers to cut deadwood from state-owned trading and reserves bureaux whose origins date from the earliest years of Communist rule. It has created three state-owned agriculture champions, removing the traditional distinction between grains and cotton businesses. 

In January, China merged its China National Cotton Reserves Corp with China Grain Reserves Corp, or Sinograin, uniting two financially troubled but politically powerful relics of the state-planning era with combined assets of Rmb1.47tn ($213bn). 

That merger followed a move by Cofco, the state grains trader that now controls businesses ranging from wine to meat, to absorb Chinatex, originally formed to import cotton on behalf of Chinese textile mills. In the past two years, Cofco purchased international trading firms Nidera and Noble Agri in an attempt to model itself after the US trading groups that dominate international agricultural trade.

The restructuring has been accompanied by a reshuffle among the top leadership of China’s biggest state-owned commodities businesses. Sinograin’s former head Zhao Shuanglian moved to Cofco a year ago, while current Sinograin head Li Jun is a Cofco veteran.

Long-serving Cofco chairman Ning Gaoning, known overseas as Frank Ning, transferred to Sinochem — a seeds, fertiliser, oil and chemicals giant — early last year. Sinochem recently agreed to provide grains storage, rotation and sales services to Sinograin. 

Additional reporting by Archie Zhang

Twitter: @HornbyLucy

Source link