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China builds rice supplies but prices still high

22-Jun-2004

Although 2004 is now expected to yield a bumper grain harvest in China, with provinces announcing record crop levels, Beijing is taking action to halt the country's fall in per-hectare yield of cropland over recent years, writes Simon Pitman.

Beijing is hoping to raise grain output by adding more sown acreage of hybrid rice, and also a "super hybrid rice".

China's total rice output has been declining since 1999, pushing up prices on the international stage, along with a drop in the per-hectare yield of rice paddies, according to the China Rice Research Institute. In order to ensure food security China needs to sow new crops.

 

Rice remains the basic staple of the Chinese diet. More than 60 per cent of China's population eats some rice daily and rice accounts for 40 per cent of China's total cereals consumption, according to the International Rice Research Institute (IRRI) based in the Philippines.

 

IRRI believes that "super rice" is the answer as it has been successfully used in the Philippines, where it is called "Gloria" rice after President Gloria Macapagal Arroyo who encouraged farmers to plant it.

 

Over the past five years the aggregated sown acreage of new hybrid rice strains totalled 7.47 million hectares in China, with an average 10 per cent rise in yield by using hybrid rice seed rather than ordinary seed.

 

China's sown grain acreage stabilised at around 110 million hectares over a period of about 20 years, from 1978 to 1999. The country's grain production capability rose from 300 million tons to 500 million tons during that time due to increases in per-hectare yields.

 

But the news that China's domestic grain supply is increasing will have little impact on world supplies, still suffering from rising demand from China and poor harvests - notably in wheat, maize and soybeans.

 

Futures contracts for unprocessed rice recently reached a seven-year high, equivalent to $US253 a ton, last month at the Chicago Board of Trade. Prices may rise further if China, the biggest producer and consumer of rice, becomes a net importer of the grain this year.

 

Chinese state newspaper, the English-language China Daily reported that the EU has initiated negotiations with other trading partners, including the US, Pakistan, India and Thailand, on the application of tariff quotas on imports of rice.

 

"The Chinese side will watch the equality and fairness of the application of tariff quota on imports of rice," reported China Daily.

 

Rice imports and exports are the subject of discussions underway between South Korea, China and the United States, with a Korean delegation due to visit Beijing today, according to the Korea Times.

 

A second round of meetings are scheduled with the US in Switzerland, next Tuesday, 22 June 2004. Korean rice trade discussions with a further seven countries, including Thailand and Australia are due to take place later this month.

 

Poor global harvests in the last twelve months plugged together with increasing demand from China have squeezed the price for the major food commodities - wheat, corn and soybean. Moving up the food chain, higher prices for the source have impacted food ingredients suppliers and their food maker clients.

 

But according to investment bank Goldman Sachs, the volatility is slated to continue, marked in particular by uncertainty over Chinese imports that is exacerbating the seasonal volatility normally associated with planting and growing seasons.

 

" With stocks at minimal levels any positive demand or negative supply shocks will likely require price spikes to ration demand," said the bank in new report issued this week.

 

Recent credit tightening measures and moves by the Chinese government to slow the pace of economic growth has led to growing concern over the level of Chinese demand. For example, writes Goldman Sachs, Chinese imports of soybeans more than doubled in 2002/2003 over prior year levels, in large part due to increased feed use for livestock, and this was a significant contributor to the tightening of the soybean market.