CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 1 Joint Meeting of the 30th Session of the Intergovernmental Group.

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S. 1

Joint Meeting of the 30th Session of the Intergovernmental Group on Grains and the 41st Session of the Intergovernmental Group on Rice

Rome 10-11 February 2004

CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND

IMPLICATIONS FOR WORLD MARKETS

CCP: GR-RI 04/CRS.3

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S. 2

Overview of the presentation

Background Main issues “Cereals” and Sources Food use estimates Feed use estimates Stocks Implications

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S. 3

Background

China in global economy Reasons for FAO’s first revision of China’s

cereal balances (2000) Impacts on world numbers Steady decline in China’s stocks since 1999 Need for more detailed review and analysis FAO cereal balances: GIEWS and FAOSTAT Research inputs and main collaborators

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S. 4

Issues

What do we know about cereal supply and demand in China?

Are domestic cereal supplies adequate to meet demand?

How to determine the “accurate” level of stocks in China and are they falling so massively?

China, a major source of instability in world cereal markets?

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S. 5

Few words about “cereals” in China . . .

Main cereals grown and consumed in China include: wheat, rice, maize, barley, rye, oats, millet and sorghum;

But cereals are referred to as “grains” in China, which also include soybeans and roots crops (mainly sweet potatoes);

Wheat, rice and maize production amounts to roughly 97% of the total cereal output in China;

Wheat (north) and rice (south) are used mostly for food while maize is used primarily as feed.

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S. 6

Basic official sources:

Ministry of Agriculture: collects production and price data based on data supplied by the provinces and counties;

The Chinese National Bureau of Statistics (NBS) - formerly the State Statistical Bureau (SSB) - collects production data based on yield sampling survey; consumption data based on household survey; year-end stocks in per capita term for rural households [“China Rural Household Survey Yearbook”, “China Statistical Yearbook”, “Yearbook of China Prices and Survey of Urban Household Expenses”];

Custom: collects monthly trade data; Ministry of Domestic Trade: collects data on state

purchasing and state reserve and quota price data

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S. 7A simple cereal supply & demand balance: what is “official” and what is not! Total Supply

• Production• Opening stocks• Imports

Total Utilization• Domestic Utilization

• Food use• Feed use• Other use

• Exports• Ending Stocks

official

official

official

Unofficial estimates

Unofficial estimates

Unofficial estimates

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S. 8

FAO/GIEWS NBS * FAO/GIEWS NBS *

( . . . . . . million tonnes . . . . . . ) ( . . . per capita in Kg/year . . . )

1995/96 99 92 82 77

1996/97 100 94 82 77

1997/98 101 92 83 75

1998/99 102 91 82 74

1999/00 102 91 82 73

2000/01 100 91 80 73

2001/02 99 88 78 70

2002/03 98 87 77 69

FAO/GIEWS per capita wheat consumption estimates are above the adjusted NBS figures but both series show a sharp decline

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S. 9

FAO/GIEWS per capita rice consumption estimates are above the adjusted NBS figures and NBS numbers show faster declines

FAO/GIEWS NBS * FAO/GIEWS NBS *

( . . . . . million tonnes .. . . . . . ) ( . . . per capita in kg. . . . )

1995/96 107 104 90 87

1996/97 109 103 90 85

1997/98 110 101 90 83

1998/99 111 100 90 82

1999/00 112 97 90 78

2000/01 112 100 89 80

2001/02 112 98 89 77

2002/03 112 97 88 77

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S. 10

Calculating feed use

Two approaches to estimate feed grain utilization:• supply” or “availability” approach (i.e. the

feed use = total grain production-food use-seed use-waste and other uses).

• “utilization” approach (i.e. the feed use = meat production multiplied by corresponding overall feed conversion factor, which are intended to reflect both the intensity and the technical efficiency of the livestock system).

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S. 11

Low scenario Middle scenario

High scenario

1996 167 207 224

1997 186 216 233

1998 173 207 226

1999 185 212 229

2000 176 194 210

2001 183 202 218

Three different feed requirement scenarios could be considered for the period 1996 to 2001

(million tonnes)

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S. 12

How much grains are available for livestock production?

Based on FAO/GIEWS estimates, total amount of grains used as feed would be in the range of 150-180mt, which would be closer to the grain feed requirements under the low scenario.

Chinese farmers contribute about 70-100mt and the milling enterprises another 40-50mt. In addition, feed use by larger scale livestock producers (and milling companies) need also to be taken into consideration since they purchase feed ingredients and produce their own compound feed.

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S. 13

Stocks in China

Government stocks:• State (central government); • Special Grain Reserves (SAGR) -

established in 1990s • local government stocks; and

“business” stocks held by the State Owned Enterprises (SOE).

On-farm Stocks

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S. 14

The adjusted cereal stock estimates would be higher than FAO’s but . . .

Derived Gov. Stocks

Adjusted On-farmStocks

Adjusted Total Cereal Stocks

FAO/GIEWS Total

Stocks

( . . . . . . . . . million tonnes . . . . . . . . . )

1994/95 120 141 261 350

1995/96 166 140 306 358

1996/97 208 111 319 372

1997/98 233 151 384 368

1998/99 259 210 469 375

1999/00 235 155 390 368

2000/01 250 96 346 318

2001/02 204 105 309 265

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S. 15

300

330

360

390

420

93 94 95 96 97 98 99 00 01 02 03 08

million tonnes

Chart 1: The Widening Gap betweenCereal Production and Utilization

Utilization

Production

* Based on a 3-year moving averageP R O J E C T E D *

China’s cereal production has been falling while utilization seems flat, is the gap real, what about the future?

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S. 16

-100

0

100

200

300

400

500

2000 2002 2004 2006 2008

million tonnes

Chart 2: Cereal Closing Stocks(2000-2008)

95% *

82% *69% *

54% *

37% *26% *

14% *2% *

* Stock-to-use ratio

Can stocks fall to nil?

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S. 17

Wheat imports have started to rise while maize exports are declining as stocks fall sharply . . .

0

5

10

15

20

Wheat Imports Maize Exports

million tonnes

79/8

0

84/8

5

89/9

0

94/9

5

99/0

0

03/0

4

0

50

100

150

200

Wheat Stocks Maize Stocks

million tonnes

79/8

0

84/8

5

89/9

0

94/9

5

99/0

0

03/0

4

Imports and Exports Stocks

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S. 18

Domestic cereal prices have started to increase, but

800

1000

1200

1400

1600

1800

2000

2200

Selected Wholesale Cereal Prices in China, 2000-2003

RMB/tonne

Maize

Wheat

Rice (Early Indica)

Rice (Japonica)

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S. 19

What Next?

It is certain that cereal stocks in China must have fallen substantially in recent years

And that much of the drawdown in world stocks has been due to a sharp decline in China’s cereal stocks

But, we still need to substantiate what may or may not be the real level of stocks in China

As long as FAO does not have reliable and consistent information about the overall level of stocks in China, the Organisation’s assessment of the global cereal market situation will not be reliable

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S. 20

WELCOME TO THE YEAR OF

MONKEY

AND

THANK YOU

A monkey practices acrobatic skills on the horns of a goat in the Changchun Fauna and Flora Garden in the capital of Jilin Province in Northeast China. [China Daily]