A Growing Issue

by Chris Lyddon
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China and the Middle East/North Africa region are two parts of the world that are developing fast, but the challenges they face and the responses they are producing to those challenges are very different. The International Grains Council’s (IGC) June conference in London heard from experts from both parts of the world.

Jilong Feng, general manager, Dalian Northern International Grain Logistics Co. Ltd, China, examined China’s expanding demand for maize (corn), and how it will be satisfied. Growth in demand has been sustained for a decade with an annual rate of 6%.

“The growth of China’s corn supply satisfies the increasing demand,” he said. “Supply growth over the past decade is mainly from soybean planting areas into corn in China, and improvement of corn yield.”

The driver behind growth is the animal feed sector as maize replaces wheat in rations. He predicted that China’s demand for maize will go on growing over the next 10 to 20 years, albeit at a slowing rate. As Chinese incomes grow, people on lower incomes will be able to afford more meat, milk and eggs. He estimated that about 60% of the total population of China has a per capita income below $400.

“With the constant improvement of income, there will be more and more Chinese people could afford: food, meat and eggs,” he said. “Sixty percent of these people’s potential consumption growth determines China’s corn consumption growth.”

The area planted to maize is expanding, but the space is limited. He pointed out that if China had to grow the 60 million tonnes of soybeans it imports each year, it would have to lose production of 180 million tonnes of maize.

“The yield has the potential to improve,” he said. The current Chinese average maize yield is six tonnes per hectare, while the U.S. average corn yield is nearly 10 tonnes per hectare.

“China’s corn yield has 10% to 15% of the potential growth, is subject to the small-scale production, weather factors and without transgenic technology,” he said.

He explained that China’s maize production is largely small scale with an average planted area of less than one hectare, except for in Heilongjiang province. There is a long-term trend to larger scale.

“China’s agricultural population is numerous,” he said. “The Chinese government, in order to maintain local social stability, ensures national food security. In the long run, it is an unchangeable reality that China’s corn prices will be (at) the high price level.”

He also noted what he called “the disappearance of the demographic dividend in China.”

“Nearly all young people are not willing to go to the land,” he said.

Record stocks

China’s maize stocks have reached a record high. “The acquisition of China temporary reserves was 30.83 million tonnes last year, while the acquisition of China temporary reserves is 69.19 million tonnes this year,” he said.

He explained the government’s temporary reserve policy. “Chinese government sets a price every year. When the market price is below this price, the country will start buying, in order to maintain the high price of domestic corn, so as to preserve the interests of farmers, guarantee the enthusiasm of the farmers,” he said.

China’s maize imports are under a quota system. “The total corn import quota is 7.2 million tonnes each year, including state-owned accounting for 60%, and the private sector accounting for 40%,” he said. “Outside the import quota collects high tariffs.”

China has adopted a zero-tolerance policy on GMOs. “The debate on GM of Chinese people and social public opinion’s attitude does not facilitate the import of GM corn,” he said.

China’s government is not necessarily against biotech crops, but it is increasingly cautious. It creates problems with imports as potential buyers and sellers fear rejections.

“Even if the imported corn price is low, even with the import quota, the seller and the buyer cannot operate,” he said. “This short-term will continue.”

Barriers to imports of maize from areas where no GM varieties are grown, like Ukraine, are small.

Even if the prospect for imports of maize to China is limited in the short term, from a longer term point of view, imports are inevitable.

“A lot of import opportunities in China lie in its corn consecutive production leading to supply cuts, or the country’s strong economic growth which has led to an increased demand, or both,” he said. “Then, imported corn will increase significantly. China’s corn has continuous production (growth) for many years; this is not sustainable.”

Maize imports have been put off by using wheat, driving wheat stocks lower.

“If China’s fuel ethanol processing capacity increases or uses the import processing of corn fuel ethanol, then the whole of Chinese corn patterns of supply and demand and import patterns will be a big change,” he said, explaining the advantages of using imported maize for ethanol, including a reduction in oil imports, high profitability, reduced pollution and a chance to reduce the level of controversy surrounding GM maize.

Middle East/North Africa

Djamal Djouhri, chief executive officer of Al Ghurair Resources from the UAE, explained that the Middle East and North Africa, which includes 24 countries, have a population of 
400 million.

“The region is known for its large population of young people,” he said. “Cereals are a staple of the diet. Wheat is number one.”

Grain imports have risen by 5% a year in the last four years.

“MENA population is expected to reach 460 million by 2020,” he said. “By 2050 it is expected to reach 800 million. To feed that population, grain imports will have to increase.”

He also highlighted the shifting diet toward more meat and more dairy products.

“Food security will be a critical issue for MENA by 2050,” he said. “Water security is the main challenge in the area. Sixty percent of water is sourced from outside national and regional boundaries. The Nile is an example. Arable land is just 5% of the total area.

“It is problematic. We should flip a coin and look at it as a challenge. Doing nothing is not an option.”

The conference attendees also heard from Iraq’s Minister of Trade, Khairullah Hasan Babakir. Iraq is the newest member of the IGC, having rejoined in September.

He explained that the Grain Board of Iraq (GBI) is the biggest and main company among Iraqi ministry of trade companies. “Its main task is to gather wheat and paddy rice crops from Iraqi farmers,” he said. “GBI during the past five years fulfilled marketing about 11 million tonnes of wheat and 480,000 tonnes of paddy rice. These quantities were transported by a huge truck fleet to our silos, which are located all over Iraqi governorates.”

The product is distributed to the population under Iraq’s rationing system.

“Grain Board of Iraq imported during the last five years about 12 million tonnes of wheat from different origins (the U.S., Australia, Canada, Russia and Romania) and 5.2 million tonnes of rice from South America, the U.S., India, Pakistan and Thailand.”

The board plans to keep importing at those levels, he said. During 2013, Grain Board of Iraq concluded eight wheat tenders and 10 rice tenders, and during the period from January up to May 2014 we bought 950,000 tonnes of wheat and 340,000 tonnes of rice from different origins,” he said. “I am pleased to invite you to participate in Grain Board of Iraq tenders.”

Abdalla Elfagehia, Director of Board Affairs, Joint Stock National Company for Flour Mills, Libya, examined the role of what he explained is a large country with a small population in a changing world market.

Libya has an area of 1.76 million square kilometers with a small population (around 6 million inhabitants),” he said. “Ninety-five percent of the Libyan territory is a desert or semi-desert. The arable land in Libya is about 2% of the total area.”

The Libyan economy is completely dependent on oil, he said. About 94% of the GNP comes from oil. “The level of agriculture production (especially grains) does not meet local demand as evidenced by large quantities of grain imported,” he said. “Water is the limiting factor for agriculture in Libya. Surface water is limited. The underground water is the only unrenewable source of water. The rainfall is scarce and infrequent.

“Over exploitation of the fossil ground water resources mostly to meet irrigation demands has already affected the northern aquifers. The increasing pressure on the traditional water resources resulted in sea water intrusion into the coastal aquifers. On the global level it is recommended to build a consensus on the path toward sustainable intensification by means of producing more units of output per units of all inputs. It also involves improving the physical input-output relations and increasing the efficiency of production.”

Chris Lyddon is World Grain’s European editor. He may be contacted at: chris.lyddon@ntlworld.com.