China's grain stocks

by Teresa Acklin
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Official stocks figures for 1986-1990 are much larger than analysts estimated.

   The recent release of official figures on grain stocks in China has stimulated great interest, as Chinese officials seldom publish this information.

   In its February Grain Market Report, the International Wheat Council said grain stocks for 1986-90 as reported by Chinese authorities were significantly higher than had been estimated by analysts. In two of the five years reported, 1989 and 1990, stocks even exceeded total production. (see accompanying table.)

   Although more recent stocks figures were not released, the I.W.C. said comments by Chinese authorities suggested further increases in stocks had occurred since 1990.

   "Supporting evidence for a continued build-up of stocks includes the numerous exhortations by the Chinese authorities to farmers to increase their reserves, and a heavy investment program, involving World Bank funds, of storage facilities," the I.W.C. said.

   China typically treats official grain stocks data as a state secret, which raises curiosity over the possible reasons for the release. The I.W.C. indicated the data might have been intended to reassure consumers that recent higher grain prices did not reflect shortages. Dispelling ideas of shortages would prevent either panic buying or excessive holding of supplies by producers.

   Because the stocks figures were higher than anticipated, grain consumption estimates for the same period may have been overstated, the I.W.C. said. Yet, also during this period, China imported significant volumes of wheat.

   The I.W.C. report suggests three possible explanations for this apparent contradiction. China may have imported wheat, despite large grain stocks, because producers were less willing to sell to the state. The I.W.C. noted past government policies had encouraged producers to store large volumes of grain, providing the means for producers to delay marketing in hopes of higher prices later.

   China's well-known logistical problems also could have been a factor, according to the I.W.C. Even though the volume of stocks was adequate, the grain may not have been positioned to meet demand in population centers. Imports might have been the most logistically efficient way to supply China's cities.

   Finally, the report said wheat could have been imported for strategic reasons. If officials expected a change in market conditions, they might have seen importing as an opportunity to procure wheat while it was comparatively cheap and readily available.

   The I.W.C. noted that stocks data should be carefully interpreted, especially because "grain" in this context includes soybeans, pulses and potatoes on a grain equivalent basis. If the stocks data reflect the same proportion as production, only about 90% of the total would consist of cereals stocks.

   Another aspect to consider is the specific points in time that the data reflect. In many cases, the term "stocks" refers to carryover at the end of a marketing year, when stocks are at a seasonal low.

   But the I.W.C. said China's figures probably measured stocks on fann at the end of the calendar year and state-held stocks as of April I . The Apnl date is the beginning of the marketing year for rice, but not for wheat and coarse grains.

   "On the end-of-season criterion, grain carryovers in China would be considerably less than the published figures," the I.W.C. said.

   Even with these caveats, the I.W.C. conceded stocks of wheat and other grains appeared to be much larger than previously thought. Yet, China's need to carry large stocks is not surprising, given its logistics, the report said.

   The I.W.C. also noted that as China continued its move toward a market-oriented grain economy, the carrying costs of huge stocks would assume greater significance. Stocks could be allowed to fall to lower levels so resources could be reallocated to more productive uses.

   Stocks, particularly of maize, also are likely to decline as feed use increases, the I.W.C. said, noting that China could become a net importer.

   Meanwhile, large wheat stocks provide a buffer in years of poor domestic output, alleviating the need to import when marketconditions are unfavorable, the I.W.C. said. Still, the cost and difficulties of moving domestic grain to urban centers mean China will remain a net importer for the time being, the I.W.C. said.

China grain supply and use in million tonnes, grain equivalent

*estimated. Note: total production and stocks figures include cereals, paddy rice, soybeans, pulses and potatoes (grain equivalent); trade figures are cereals only, with milled rice reported on a calendar year and other cereals on a July/June year.
Source: International Wheat Council