China, the first country impacted by the coronavirus (COVID-19) pandemic, has seen its grain industry return to normal after about two months of fear and anxiety.
However, China’s grain processing and production companies are hoping for the best but preparing for the worst, as there is still much uncertainty regarding the impact on the global grain industry as the virus continues to spread throughout the world.
Information for this article was obtained through interviews with 15 Chinese grain processing companies, including international agribusiness giant COFCO and Wudeli Flour Group, the world’s largest flour miller.
As the food and agricultural industry was designated a “critical infrastructure sector” by the Chinese government during the pandemic, normal operations of the cereal, oils and food industry played an important role in the supplying of foods to meet the people’s needs and helping overcome the crisis.
The COVID-19 outbreak and the national lockdown coincidently happened on the first day of the Chinese New Year’s holiday, when most, if not all, of the grain processing plants are traditionally shut down for one to two weeks so employees can celebrate the national holiday. However, the shortage of employees and the travel ban associated with the lockdown order made the resumption of production very difficult.
With the help and coordination of the central and local governments, the grain processing companies were able to resume production quickly across China except for Hubei Province, the hardest hit region. By Feb. 16, three weeks after the national lockdown, 36 of 37 key grain processing enterprises of “the National Cooperation on Supply Guarantee” had restored production, and 3,415 national emergency grain processing companies resumed production, accounting for 63.4% of the total, according to official information. By early March, the rate of production at these grain processing companies had returned to 100%, with overall capacity at 428,000 tonnes per day for wheat and 433,000 tonnes per day for paddy rice.
The companies’ first concern in restarting production was having enough employees to operate the processing facilities and to keep the transportation system running. Due to the nationwide lockdown, traveling was banned and therefore some employees could not return to the plants on time.
The logistics issues led to the shortage of the raw materials and the shipments of products at the grain processing plants at the beginning of the crisis. Consequently, the grain processing plants’ operating time was significantly affected when production resumed, even though the employees were working overtime. The operation time decreased 10% to 30% during the initial stages of the pandemic and gradually resumed to normalcy after the lockdown was lifted later in March.
China’s grain industry was making every effort during the pandemic to meet the demand of the grain processing plants and food manufacturers while taking extra precautions in the day-to-day business operations to keep employees and customers safe. The companies suspended all company travel that was not business-critical and limited visitors’ access to facilities. Some office employees were working remotely.
The local government worked with the companies to issue the “Critical Industry Employee Authorization to Travel” to help employees return to work. Some companies used company vehicles to pick up employees to protect them from being infected by COVID-19. They also had some employees stay in hotels or dormitories instead of letting them live at home to prevent infection.
The working areas were disinfected every two hours, and all employees were instructed to wear masks, avoid gatherings, maintain social distance, check body temperature twice a day, wash hands with soap and use hand sanitizer frequently. The drivers delivering goods were instructed to remain in their trucks while plant employees unloaded vehicles as a precautionary measure.
Supply and logistics
In response to the insufficient supply of raw grains, the government took urgent steps to avoid disruption and China Grain Reserves Group (CGRC), the only state-owned grain reserves company, played a major role in supplying raw grains by complying with the national instructions of “ensuring supply and stabilizing the market.” CGRC was actively organizing its grain storage depots for distribution in epidemic areas and immediately delivered raw grains from the stocks to processing plants that resumed for continuous production of rice, flour and noodles and meeting the essential food needs of residents during the epidemic period. Sources report that CGRC’s state reserve grain stocks are sufficient to effectively meet market needs. In Hubei Province, the reserve grains at the grain storage depots in 15 cities are full and can meet the supply for 60 million people for at least half a year.
Due to the epidemic prevention and control measures, grain logistics were profoundly impacted. The transportation industry had difficulty resuming operations, and labor costs were increased. To ensure the supply of essential foods, all localities actively called on the transportation administration at an early stage to declare the transportation of grain-based products as emergency goods. With the slight remission of the epidemic, road transport was restored and the impact on processing enterprises was lessened.
Impact on prices
The prices of wheat flour, rice, and cooking oil increased slightly during the pandemic period, but, overall, prices have remained stable. This was attributed to the government’s effort to ensure an adequate supply and taking extremely stiff action against criminal behaviors of hoarding, gouging and profiteering. More importantly, China was able to maintain self-sufficiency in food and the global impact of the crisis to the Chinese grain industry was limited. It’s reported that the repertory of paddy rice and wheat in China is enough for the whole population for one year. The sufficiency of the grain repertory in China significantly mitigated the shortage of raw materials to the grain processing industries and helped keep grain prices stable.
The price of wheat increased slightly to about $350 from $340 per tonne, the price of paddy rice increased to $390 from $350 per tonne, and white rice’s price increased to $700 from $650 per tonne during the beginning of the outbreak and gradually dropped back to normal after the worst of the epidemic had passed.
The grain products price increase was mainly because logistic chains weren’t able to meet the sudden rise in demand. Disruptions in road transport and shipping, restrictions on people’s movement (including migrant workers), lockdown of cities, and quarantine measures had a big impact on agricultural output at the beginning of the lockdown. However, this situation was relieved after the government took essential measures.
The consumption of small packaged flour (5 kg) skyrocketed during the pandemic, and the price increased by $0.43 per bag, which was ascribed to the price increase of the bag.
The bag used to package the wheat flour was made with nonwoven fabric, which was also the raw material for making personal protection masks. The extremely high demand and shortage of supply of the non-woven fabric drove the price high and consequently increased the price of small packaged flour.
Traditionally, around 30% to 35% of wheat flour is used to make noodles and steamed buns, respectively, and bread, cake and cracker account for another 20%. During the pandemic, the consumption pattern of wheat flour changed dramatically.
Noodle and steamed bun flours saw a big increase for family uses, while bread, cake and cracker flour production and consumption decreased for industrial food manufacturing. Sales for steamed bun flour increased by 10% to 20%, while bread, cracker and cake flour decreased by more than 50%. Small packaged (5-kg) flour sales increased by 50% to 200%, which was the result of more people cooking at home.
Dr. Fengcheng Wang is a professor in grain processing at Henan University of Technology, and director of the National Center for Research in Grain Processing Equipment Engineering Technology, as well ICC past president 2015-2016. You can contact him by email at firstname.lastname@example.org.
Ningbo Li, PhD, Research Scientist, The Mennel Milling Company in Fostoria, Ohio, and Adjunct Professor at Henan University of Technology (HAUT) in China. Li has authored and presented several times on the milling industry in both US and China and has been a valued member of Mennel’s R&D program for over three years. He received his Bachelor’s and Master’s Degree in Milling Science from HAUT and his Doctorate (PhD) in AgriEngineering from Kansas State University.
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