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China's farming trade deficit to
widen
BEIJING - China is
expected to maintain a farming trade deficit in
2005 although its growth may be slow, according to
agricultural trade analysts. "Demand for imported
wheat, corn, soybean and cotton is likely to
remain strong this year while exports will improve
a little. This gives us reason to expect a farming
trade deficit in 2005," said Liu Xiaohe, an
agricultural economist with the Chinese Academy of
Agricultural Sciences.
In 2004, China
experienced an unprecedented deficit in
agricultural trade. Ke Bingsheng, director of the
Ministry of Agriculture's Research Center for
Rural Economy, estimated that China's agricultural
trade deficit reached as high as US$5.5 billion in
2004. China's farming industry has seen a sharp
trading reversal ever since the country entered
the World Trade Organization (WTO) in December
2001. According to statistics from the Ministry of
Agriculture, in 2002 China's farming trade reached
$30.58 billion, accumulating a $5.7 billion
surplus. In 2003, the total farming trade
increased by 31.9% to $40.36 billion with a trade
surplus of $2.5 billion. The surging grain price
in the Chinese market and strong demand for cotton
and soybeans have contributed to skyrocketing
imports of farming produce and fewer exports over
the past year, Liu said.
Thanks to steady
reductions in agricultural output over the past
five years, the prices of major agricultural
products in the Chinese market have increased some
30% since late 2003. Internationally, the 2004
harvests of major grain exporters led to a huge
decrease in the market price. This sharp price
contrast has caused soaring imports.
According to Chinese customs statistics,
in the first 11 months of 2004, the country
imported 6.61 million tons of wheat, 671,200 tons
of rice, 1.62 million tons of barley and 2.26
million tons of corn. The import volumes of the
four major grain products increased year-on-year
by 1,780%, 236%, 24.3% and 2,160%. In the same
period, China's cotton imports increased by 160.3%
to 1.84 million tons. Soybean is the only major
agricultural product whose import volume
decreased. The imports of soybeans between January
and November 2004 declined by 6% to 18 million
tons, but in 2003, China's soybean imports had
increased by 83.3% to 20.74 million tons, worth a
total of $5.4 billion.
In the face of
surging prices, the end of textile quotas under
the WTO has stimulated Chinese textile producers
to buy and stockpile cotton out of fear that
prices may increase rapidly after 2005, Liu said.
He also said trade barriers put up by developed
nations against China's farming products,
particularly fruit, seafood and poultry, are
impeding agricultural exports, causing the deficit
to rise.
In 2004 China's summer grain
output, after four years of continuous decline,
rose by 4.8% year-on-year. The annual output of
grain is expected to grow from the previous year's
431 million tons to 455 million tons. The
increased output has led many to expect a decrease
in the cost of agricultural produce this year,
which should help stymie imports. But Lu Feng, a
professor at the China Center for Economic
Research at Peking University, said imports are
unlikely to reduce in 2005 because of strong
demand within China. In the long term, it is
natural that China becomes a net importer of
grain, because of its limited land resources, Lu
told China Daily.
If the exchange rate of
China's currency appreciates in coming years,
which has long been expected by international
investors, the possibility of a larger
agricultural trade deficit will grow, Lu said.
Because the higher price of the yuan will make
foreign grain and cotton cheaper, China will
import more, Lu said. Wen Tiejun, dean of the
School of Rural Development under Renmin
University of China, echoed this opinion. "The
grain price hike between 2003 and 2004 showed a
resumption in growth from the abnormally low price
of the past five years. The price in 2005 is
unlikely to reduce sharply after the harvest this
year," Wen said.
Liu said the state sold a
great deal of its grain and cotton reserves last
year when market prices were high. The move was
meant to depress market prices and reap profits
for the stored grain and cotton. In 2005, state
depositories will buy more grain and cotton to
supplement its stocks, leading to strong demand
for imported grain and cotton, Liu said. The
implementation of China's commitments to the WTO,
which pushed agricultural tariffs down to little
more than 15.4% in 2004 and led import quotas of
grains and cotton to rise to 5% of China's total
output in 2003, will also bolster imports, Liu
added.
Ding Shanshan, an analyst with
China International Futures Co Ltd, said more
cotton is expected to be sold to China because of
the strong demand of domestic textile
manufacturers. It is widely believed that the end
of textile quotas will increase China's exports of
garments and other textile products. China has
long been the world's largest exporter of textile
products. In the first 11 months of 2004, China
exported $103.6 billion in textile goods,
increasing 19.74% year-on-year.
Zhang
Xiaoping, vice president of the China office of
the US Soybean Association, said China's strong
demand for imported soybeans is expected to resume
in 2005 after soybean-oil makers polish off
stockpiles. A Shihua Financial Information report
also indicated China is expected to add 6 million
to 7 million tons to its soybean-processing
capabilities in 2005, making its total processing
capability 70 million tons. This will lead to
further imports of soybeans. On the other hand, it
is impossible for China to increase exports of
seafood and fruit in 2005 because of the remaining
technical trade barriers and a limited growth in
demand, Liu said.
Though most experts
expect that China's farming imports will increase
in 2005 and lead to a larger deficit, they do not
believe it will grow as rapidly as in the past
year. The import volumes of wheat, corn and cotton
have grown too sharply and they are unlikely to
grow as strongly as last year, according to Liu.
He added that in terms of wheat, imports are
mainly used to supplement food reserves.
Therefore, growth in wheat imports will not be
very large.
Ding said that despite the end
of the textile quota, two factors are restricting
the rapid growth of cotton consumption. From this
year, China started imposing a yuan export tariff
on each textile item exported. This measure is
believed to be able to curb the spiraling growth
of low-end textile products. "In addition, many
developed countries are expected to establish new
import barriers against inexpensive Chinese
products after the textile quota is lifted, so the
export growth rate of China's textile products
will not increase as rapidly as people expect,"
Ding said.
As for soybeans, China's
largest agricultural import, import growth will be
restricted because major soybean processors have
built up large stockpiles and some of them even
face capital shortages because of massive imports
in 2003, according to a report released by COFCO
(China National Cereals, Oils and Foodstuffs
Corp).
While imports of agricultural
products are expected to grow, their impact on
China's farm sector and farmers' incomes will not
be large, say economists. Imported grain will
still only account for a small portion of China's
total grain consumption - about 5% - in the long
term, and their impact will be limited, said Lu
from Peking University. He added that the farming
industry has never been totally liberalized within
the WTO, so China can maintain import quotas where
necessary to protect its farmers.
Wen from
Renmin University said imports would affect
farmers' incomes, but the impact of agricultural
imports wouldn't be too large. "The limited land
and huge amounts of surplus labor in China's
countryside means most farmers are kept from
becoming wealthy," Wen said. In 2003, farmers' per
capita income stood at 2,622 yuan (about $317)
while that of urban residents was 8,500 yuan
($1,027). Accounting for more than half of
farmers' incomes are non-agricultural businesses
such as the salaries of migrant workers.
In 2004 increased agricultural output,
rising grain prices and the government's
beneficial policies, including gradually
abolishing the 8.5% agricultural tax within five
years and subsidizing grain plantation, have
increased farmers' incomes by 6%, the highest rate
of growth since 1997. But none of these can play a
long-term role in improving farmers' incomes, Wen
said.
(Asia
Pulse/XIC) |
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