China has said it plans to reduce its wheat subsidies and some feel that is the first step towards creating a less trade-distorting system.
According to a Reuters story, Han Jun, deputy director of the Office of Central Rural Work, said China will set more “appropriate” minimum state purchase prices for wheat that better reflect market conditions. Until now, the minimum support price was well above world market conditions.
That sounds similar to a report from the Dim Sums blog on rural China that the deputy director of China’s State Administration of Grain has pronounced that 2017 will be a key year for reform of the grain industry.
Read Also
Working groups established to address challenges in the containerized and bulk movement of commodities
CN is working with the pulse and special crops sector on resolving challenges in shipping those commodities.
The official said China will build on the elimination of corn price supports by investigating improvements in the minimum price programs for wheat and rice.
“The comments seem to endorse moving from a price system that rewards pure volume of production to one that gives farmers incentive to produce the high quality grain that is now demanded in China,” said the Dim Sums report.
The World Trade Organization has agreed to investigate United States allegations that China has been providing illegal subsidies that cost U.S. wheat farmers between $650 and $700 million annually in lost income by thwarting exports to that country. Canada has third party status in the dispute.
“The best news would be if China’s government announced it was going to abide by its WTO commitments,” U.S. Wheat Associates spokesperson Steve Mercer said in an email.
“It would help if there actually were a substantial reduction in the government’s domestic support prices in the years ahead as it would help increase export opportunities for U.S. and Canadian wheat farmers.”
China’s state wheat purchase price for 2017 was set at US$9.49 per bushel, which is substantially more than North American farmers are getting for their wheat.
G3 Canada weather and crop specialist Bruce Burnett said China’s wheat support price needs to be adjusted because it is leading to overproduction.
“It is out of line with the overall world marketplace, so they’re generating surplus and storing it,” he said.
The U.S. Department of Agriculture estimates China will be sitting on a stockpile of 112 million tonnes of wheat at the end of 2016-17, or 44 percent of world supplies.
Burnett will wait to see how much the price is adjusted before he passes judgment on the impact it will have on world prices and exports to that region.
“The magnitude is going to be important in terms of how much they reduce it,” he said.
“I don’t think they would reduce it down to international price levels by any means.”
One thing he knows for sure is it will have no impact on the 2017-18 crop because China grows winter wheat and it is already in the ground.
Burnett anticipates the new minimum support price will be announced in the fall of 2017 be-fore the next crop is planted.
Even if China drastically reduces its minimum support price, Burnett doesn’t anticipate an immediate shift to imports because it will take a while to chew through China’s excess supplies.
“There’s a lot of cushion here for the production to drop and still not have a big impact on the global international marketplace,” he said.
China recently hinted it may be moving away from its longstanding food self-sufficiency policy in its No. 1 Central Document, which is the key annual rural policy document.
Reuters reports that this year’s document breaks with the tradition of the last six years and omits any reference to self sufficiency in food crops.
“China is embarking on a major shift in its agriculture policy, abandoning its long-held obsession with self-sufficiency in favour of better meeting consumer de-mand,” states the Reuters story.
Burnett has a tough time buying that.
“I would hesitate to say that they’re going to eliminate all subsidies for wheat farmers,” he said.
Sean Linstead, a Vancouver-based trader who sources crops for COFCO, the China National Cereals, Oils and Foodstuffs Corp., agrees with Burnett.
“It’s kind of doubtful they would do that,” he said.
Wheat is a staple commodity in the country and he doubts China would be willing to rely on imports to fill any shortfall in production.
There’s a reason China has maintained huge reserves of wheat to feed the population.
“It wasn’t that long ago in the 1970s there were crop failures,” said Linstead.
