Canadian agriculture and food product exporters are keeping a close eye on China given that recent signs point to China’s agricultural production lagging behind demand from a rapidly growing economy.
According to Winnipegfreepress.com, Canadian politicians and trade envoys, including Canadian Agriculture Minister Gerry Ritz, are beating a path to China’s doors.
Ritz has been to China three times within the past year in a bid to free up market access for canola and beef and put his stamp of approval on the latest wheat deal.
With a growing population of 1.3 billion, China represents tremendous market potential for Canadian agriculture and food products, the report says, quoting a federal release earlier this month. China is Canada’s third-largest trading partner after the United States and European Union, with two-way trade of over CAD$50 billion (NZ$66.30 billion), including $3.1 billion in agriculture and food.
Canada has had a long trading relationship with China, after the Canadian Wheat Board first agreed to sell wheat into that market 50 years ago. The historic deal, penned at a time when trade with the Communist country was taboo, is credited with saving thousands of people from famine caused by drought.
Although China has been a pretty loyal customer for Canadian grains and oilseeds over the years, its annual purchases of wheat, for example, have been declining. The average for the past 10 years has been 580,000 tonnes, compared with 2.6 million tonnes over the previous decade. Back in the 1980s, it bought as much as 7.1 million tonnes in a year.
These days, the focus is on U.S. corn. Last week, the U.S. Grains Council released estimates from a Shanghai-based analyst indicating China’s corn imports will skyrocket from 1.7 million tonnes this year, to 5.8 million tonnes next year and as much as 15 million tonnes in 2014-2015, according to the report.
As the United States is the world’s largest exporter of corn, it’s only natural to assume those exports will come from there, right?
U.S economist Daryll Ray warns that those assumptions could run into a BRIC wall.
Although it received limited press attention in the West, the BRIC countries (Brazil, Russia, India and China) forged an alliance earlier this year to safeguard their food security by co-ordinating trade within the group. This group of countries overlaps with IBSA (India, Brazil, and South Africa) and together, they provide a counterbalance to the global grain powers.
“These nations represent 42% of the world’s population, 32% of the world’s arable land mass, and 22% of the global GDP,” Ray notes. Their economies are stronger and growing at a more rapid pace than the traditional world powers and they are rapidly growing agricultural powerhouses in their own right. Russia alone accounted for 28% of the global wheat trade last year.
The emerging BRIC economies produce 40% of the world’s wheat, half of its pork and a third of its poultry and beef.
So while Ray agrees that China could move from being a sporadic grain importer to a sizeable and regular customer in the future, he’s not convinced that it will come from traditional suppliers over the long term.
“In addition to securing the use of land resources outside of the country to augment domestic grain supplies, China can use the ‘BRIC arrangement’ to help cover future feed grain needs,” Ray was quoted as saying.
Despite all of the bullishness, the outcome of this sudden and unexpected interest in U.S. corn is uncertain. Unlike their Western counterparts, the BRIC countries aren’t opposed to stockpiling reserves to offset supply shortages and prevent price shocks.
And if China anticipates a need for increased imports in the future, it may be supporting prices now at small volumes in a bid to attract increased production, which tends to pressure prices lower, the report adds.
