Far East Asia Regional Review: China's WTO entry

by Emily Wilson
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There is light at the end of the tunnel for the economies in Far East Asia — many of them still reeling from the economic crisis in Southeast Asia in the late 1990s — and the view is looking even brighter for the flour milling, rice milling and feed grains industries in this region.

While Japan has probably the most stable economy as well as milling and grain industries in the region, observers see positive growth in many other Asian countries, most notably South Korea, Vietnam and Malaysia (see story on page 42). Still, China is viewed as the most promising in terms of potential growth. Its 15-year effort to join the World Trade Organization seems imminent, and reforms of its grain marketing, storage and distribution system are well under way.

"Mainland China will play an important role in the milling and grain industries in this new century due to the large population, low per capita consumption, increasing incomes and early stages of growth," said C.M. Lynn, director of the U.S. Grains Council’s Taiwan office.

In terms of becoming a force in trade, China could be the proverbial 800-pound gorilla, according to a recent report on www.Asiaweek.com.

Citing the U.S. Department of Agriculture’s recent announcement that it may have underestimated China’s grain stores by 300%, Asiaweek.com said that countries like the United States, Australia, Canada and the European Union that have viewed China as a lucrative potential market may instead encounter a new competitor.

China’s WTO entry also has the potential to disrupt Asia, the report said. "Any inroads that China makes (in trade) are going to be to the detriment of countries like Thailand, the Philippines and Indonesia. China will be banging on the doors of potential customers around Asia and the world, offering huge volumes and rock-bottom prices."

Even with more comfortable grain stocks, China still presents great opportunity for exports, according to Morton I. Sosland, World Grain’s editor-in-chief. In a recent editorial in World Grain’s sister publication, Milling & Baking News, Sosland said, "Yes, China’s grain stocks are much larger than had been thought, but the country’s goal of maintaining exceptionally large holdings means that any crop shortfall will still be translated into demand on world markets."

The world’s largest producer and consumer of grain, China is aiming for more than 95% self-suffiency, with grain production increasing by nearly 3% a year, according to Xubo Wu, vice-president of COFCO, China’s national corporation for the import and export of cereals, oils and foodstuffs.

Wu, speaking at the International Grains Council’s annual meeting in London in June, said agriculture is becoming increasingly less important in China’s national economy as the population grows and farmland shrinks. However, China is commited to stabilizing grain production, Wu said, and will encourage the use of technology and more inputs to increase production levels.

Wang Zhengyou, director of Science and Technology of Cereals, Oils and Foods, a journal sponsored by the Academy of Science, under China’s grain administration, said growth in grain consumption in China will be driven primarily by the feed grains sector. "The growth potential for grain in China lies primarily in corn," Zhengyou said. "A comparison of corn production in the United States and China shows that the per unit area yield in China is comparable to that in the United States, with a potential of 220 kilograms per acre, over twice as much as the potential production rate for wheat."

Zhengyou predicted that as of 2005 China’s corn production will reach 160 million tonnes.

China’s feed industry is a relatively new industry, developed mostly in the past 20 years, said Sam Niu, associate director of the U.S. Grains Council’s office in Beijing. The feed processing industry is becoming increasingly privatized, and the two largest feed companies, CP and Hope Group, each have more than 100 feed mills throughout China and are even investing in new feed mills outside China.

Currently, domestic feed capacity outpaces demand, Niu said, as China’s economy has slowed and demand for meat, milk and eggs has dropped. There is increasing unemployment and people are spending their money on housing, medical and retirement, he said.

Ethanol production in China is a growing industry, Niu said, giving a boost to corn processing and corn imports. Of the four new ethanol plants approved in China, two are currently operating and the largest, with 800,000 tonnes capacity, is ready for construction in Jilin City.

Considerable growth also is expected in China’s rice and wheat flour processing industries, Zhengyou added, as they invest in new technologies to improve capacity and quality.

Rice is still the staple food in China, and the level of technology in its rice milling industry has undergone considerable improvement in recent years, Zhengyou said. "Compared with developed countries, however, a significant gap remains in terms of technology, equipment, product mix and level of use of resources," he said.

He added, "If China’s rice processing industry is to break free from current difficulties it must develop more refined and advanced processing and create brand names as well as comprehensive uses. If superior rice products are to achieve high returns in the competition of the market, there must be specialized planting, intensified processing and integrated operations."

China’s rice is difficult to sell on the world market because of its low quality, according to a recent report by the USDA’s Foreign Agricultural Service. Production is down slightly, forecast at 186 million tonnes in 2002, as planting patterns are gradually changing. Farmers that used to plant two rice crops a year are switching to corn, rapeseed or soybeans since the government implemented a policy to reduce low-quality early rice purchases.

Many changes are seen in wheat production in China, as farmers plant higher quality, higher protein wheat. Millers also are relying more and more on direct contracts with farmers rather than going through the inefficient government marketing system, which has difficulty segregating different varieties, the FAS report said.

According to the USDA, wheat production in China in 2001 is estimated at 95 million tonnes, off from about 114 million tonnes in 1999. Several years of drought has taken its toll on China’s wheat industry.

While wheat flour consumption in China has declined in recent years, wheat flour remains one of the main daily food items for China’s residents, and flour processing is an important industry in China, according to Zhengyou.

China’s recent reforms have "brought a wealth of grain-based food products to the people," he said. "Various types of uses, packaging and grades of flour are continually emerging, providing advantageous conditions for the development of flour products in China."

In order to produce higher quality flour and more specialized flour types, China in the late 1980s and early 1990s began importing hundreds of new flour production lines from foreign milling equipment manufacturers.

In the Henan province, one of the four main wheat-producing areas in northern China, the nine major flour production enterprises there all invested in new milling technology. As a result, all strengthened the brand-name awareness for their flour, Zhengyou said.

"Today, Henan’s superior wheat and flours contribute momentum for the continuous development of China’s food product industry," he said.

Zhengyou said China’s grain processing industry must continue to utilize new technology and new equipment and strengthen management. "From now on, technological upgrades must be undertaken, linked to the advanced and refined processing of grain to gradually develop a high value-added, highly technological processing system," he said.