The artificial scarcity that China has created in global agricultural commodity markets is going to become more extreme over the next ten years. This ‘hamster like’ behavior as the excellent Dim Sums blog describes it is distorting global agricultural markets, sending inaccurate pricing signals and undermining global food security.
China’s Academy of Agricultural Sciences (CAAS) has just released its first ten-year projections of Chinese commodity supply, demand and stock levels. CAAS projects that carry-in stocks of wheat, rice and corn will rise from 217 Mt in 2014 before plateauing at 300 Mt from 2019 to 2023. Note that although Chinese grain stocks have long been kept secret they are thought to be a good approximation.
CAAS expects wheat stocks to rise from an excessive 80% of consumption in 2014 to 97% in 2023. Rice stocks are expected to rise from a mere 46% of consumption in 2014 to 70% in 2023. Corn stocks-to-use is expected to rise from 30% to 40% between 2014 and 2018 before falling back to 30% in 2023. Finally cotton stocks are likely to close to 130% of consumption through to 2015 before gradually beginning to slide down to 70 percent by 2023 (the decline due to reform of the current cotton price support policy).
Why does China need to hoard so much? China views the financial support of its 700 million farmers as crucial for both its food supply and political stability, previously stating that poor logistics and environmental vulnerability necessitate stockpiling of agricultural commodities. Although as investment continues to go into building infrastructure (roads, railways etc), the less this argument carries weight.
Despite protestations by the Chinese leadership at the recent Plenum that they would let the market play a more “decisive” role in resource allocation it seems that the status-quo is set to continue, it is likely to be several years yet before Beijing risks deviating from its current support program for strategic food crops.
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