China has built up a huge wheat stock. The country has about half of the world's stock. That's good for just over a year of domestic use. Why are such large stocks held in China and what are we seeing in Europe?
By far the most important reason for maintaining large stocks is food security. China has a long history of famines that caused social and political unrest. The outbreak of the coronavirus caused problems in international trade. That woke up the Chinese government. The government is very concerned about preventing unrest among the population of 1,4 billion people. It is not that Chinese food security has been at risk, but the imbalance between supply and demand has become painfully clear.
Demand for grain is growing faster than production
The demand for grain in China is growing faster than production. The U.S. Department of Agriculture (USDA) estimated feed wheat use at 35 million tons in its WASDE report earlier this week. That was 30 million tons a month earlier and 2020 million tons in May 20. This increased use is strongly related to the reforms in the pig sector. African swine fever has wreaked havoc in China. To reduce the risk of new disease outbreaks, the government wants to restrict the use of residual/waste flows from the food industry in pig feed.
This measure ensures that the demand for feed grain increases faster than would be expected based on the recovery of the pig sector. It would be quite possible for China to make some use of its large grain supply. Given the purpose of the supplies for food security, Beijing will not allow this.
This means that China will have to actively buy on the world market for the time being. This goes against the country's ambition to become more independent. China continues to manifest itself more emphatically on the world stage, resulting in geopolitical tensions. Consider, for example, the cooled relations with Australia, the border conflict with India and the tensions with Japan over a group of islands.
European arable farmers benefit of Chinese demand
China is therefore committed to a strategy of supplier diversification. The government is working to avoid becoming too dependent on one supplier and is therefore looking for new markets. European arable farmers benefit from this. The knife cuts on both sides. On the one hand, Chinese demand is driving higher raw material prices. On the other hand, the EU gains an additional sales market.
We see this in Eurostat's export figures. In the 2019/2020 season, China imported 8 million wheat until March 1, 4,6% of total exports. This season, exports have increased to a market share of 9,7% with almost 1,8 million tons. The increase is even greater in feed barley. There, China's share in total EU exports up to March 8 has risen to 38,6% with almost 2 million tons. One year that was 820.000 tons.