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Grain teaser


China needs to take measures to reduce the vulnerability of its overseas grain supply chains

It is a major strategic issue for China to bolster the reliability of its grain supply chains overseas given the large volume of its grain imports, its large share in the global grain trade and its highly concentrated import sources.

In 2021, China imported 4.96 million metric tons of rice, 9.77 million tons of wheat, 28.35 million tons of corn, 12.48 million tons of barley, 9.42 million tons of sorghum, 96.52 million tons of soybeans and 10.39 million tons of edible vegetable oil. China's large volume of grain imports is also reflected by its large share in the total global imports. Its imports of barley, sorghum and soybean in 2020 accounted for 24.6 percent, 70.4 percent and 60.1 percent of the total global imports, respectively. China's cereal imports, mostly animal feeds, mainly come from North America, the Black Sea region and Australia, its soybean imports mainly from North America and South America, and its edible vegetable oil imports mainly from Southeast Asia, the Black Sea region and Canada. With the increase in import volume and higher level of dependence on the international market, it is even more important for China to bolster the reliability of its overseas grain supply chains.

The world's four largest agribusinesses referred to as "the ABCD companies" because of the coincidence of their initials -- Archer Daniels Midland Co, Bunge Ltd, Cargill Inc and Louis Dreyfus Co -- have developed sound industry chains, including purchasing, processing, warehousing and transportation, in the world's major grain producing areas for over a century. Compared with them, Chinese companies are latecomers in the world's major grain exporting regions and have not yet developed whole industry chains. China Oil and Foodstuffs Corporation, China's most internationalized agribusiness with the largest scale in overseas operations in the sector, has so far had only limited influence over the global supply chains in spite of measures taken in recent years. COFCO International has become the largest grain exporter in Argentina, Paraguay and Uruguay, with four grain and oil processing plants, eight grain storage facilities and two wharves with self-owned or rental shares in Argentina. The company has also become the largest soybeans exporter to China in Brazil and one of the top food exporters in the Black Sea region. However, the company has struggled to plan its industry chains in North America, Australia and other key production areas. Apart from COFCO International, the efforts made by other Chinese enterprises in the world's major grain producing areas in the development of industry chains is almost negligible.

The vulnerability of China's overseas grain supply chains is exposed in its logistics chains, from a lack of variety in transportation channels to a lack of independent transport capacity. China mainly relies on ocean transportation for its grain imports. In the event of extreme circumstances, the overseas supply chains of China's grain and oil products will be under threat. In 2020, over 95 percent of sorghum and soybeans imports, as well as about 40 percent of corn imports of China came from North and South America, with the Panama Canal and the Strait of Malacca being major choke points. Over 50 percent of China's corn imports came from Ukraine, with the Turkish Strait, the Suez Canal and the Strait of Malacca being major choke points. The import sources of wheat and barley are mainly Europe and North America in a like manner, with the Panama Canal and the Strait of Malacca being the main choke points. Meanwhile, China's ocean shipping capacity, compared with the nation's mammoth demand for imports, is insufficient. Take soybean imports for instance, 2021 witnessed a total of 970 arriving ships and 1,557 voyages. Among them, 145 ships were owned by China, carrying 15.241 million tons of cargo, which accounted for only 15 percent of the total volume.

Although China imports a large amount of grain and other agricultural products every year, it has little pricing power in the international grain market. Chinese agribusinesses, which are not well organized and integrated, do not have enough influence in the international market. It is necessary to take multiple measures to improve the reliability of China's grain supply chains overseas.

It is important for China to learn from the international experience and develop large agribusinesses with international competitiveness. It is a common practice for international agribusinesses to provide support such as seeds, fertilizers, planting technologies and financial credit to farms in grain production areas to have larger control over grain sources. However, both Chinese State-owned and private enterprises find it difficult to do so, the former facing institutional constraints and the latter restricted by financial strength. The Chinese government should increase its financial support to relevant businesses in their efforts to build up overseas supply chains, and foster a policy environment that is conducive to the global development of capable private agribusinesses to encourage their investment in overseas grain industries.

It is also important to step up coordinated planning of overseas supply chains. The cooperation with major grain-producing countries must be strengthened to establish international bases that can guarantee stable grain supplies. With support from the government and in ways led by the market, the nation can extend industry chains to farms and provide in-depth services to growers in terms of seeds, fertilizers, agricultural machinery and credit. The warehousing and processing capabilities in major grain-producing countries should be built up. It's necessary to open up the logistics channels from the main grain producing areas to the port terminals, and to increase the number and expand the scale of available port terminals through leasing or cooperative construction and transformation, so as to enhance the control over the logistics from the producing area to the port. In addition, it is also important to develop a reliable ocean transportation force to ensure self-reliance in the nation's grain transport under special circumstances.

China can promote strategic cooperation in grain logistics by making full use of mechanisms including the Belt and Road Initiative and BRICS Plus. It is important to bolster the international influence of the agricultural product futures markets in China. More work must be done to refine the structure of agricultural futures, enrich types of products and promote the listing of agricultural production materials in the futures markets. The markets should align with international standards in terms of prices, products and systems to attract more foreign investors. A sound price and transaction information platform should be established to break down information barriers and connect futures and spots markets as well as international and domestic markets.

Ye Xingqing is the director of the rural economy research department at the Development Research Center of the State Council. Cheng Yu is the deputy director of the department. Zhang Xu is an assistant researcher at the department. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn