Will the soybean storm happen again in the grain industry when the internal and external price difference is widened?

"If you control oil, you control all countries; if you control food, you control everyone." As former US Secretary of State Kissinger said, food security is not only a major issue of concern above the temple, but also a must-have topic related to whether rural villagers can eat and drink enough.

While drought ravages and autumn grain, especially corn, suffers from drought in some areas and breeds food worries, a data from the General Administration of Customs of China directly reflects the fact that "foreign grain" accelerates its influx into the domestic market. With the strengthening of domestic and international price linkage, the worry about whether the "soybean" storm will repeat itself in the grain industry makes people in the industry feel that the grain "long-term worry" seems to have gradually become "near-worry".

The price difference between inside and outside expands,"foreign" grain accelerates influx

China imported 11.34 million tons of grain and grain flour in the first seven months of this year, up 80.7 percent from the same period last year, according to the General Administration of Customs.

Since the beginning of this year, China's grain imports, especially wheat imports, have accelerated significantly. Although China's grain has achieved eleven consecutive increases and the proportion of "foreign grain" imports in domestic output is less than 5%, the growth rate of "foreign grain" imports has rebounded sharply. Since 2008, China has transformed from a large net grain exporter to a large net grain importer, which has attracted people's attention to food security issues.

As for the reasons for the rapid growth of agricultural products imports since this year, the analysis article released by the official website of China General Administration of Customs pointed out that, firstly, domestic demand is strong. Take soybeans as an example. At present, domestic imported soybeans are mainly used for oil extraction, and the main products of soybean processing are soybean oil and soybean meal. At present, the proportion of large-scale breeding in China has increased, the demand for soybean meal and other feeds has continued to increase, and the economic benefits of enterprises exporting soybean meal are relatively high. Second, the prices of agricultural products in the international market are at a low level. According to the grain price index released by the Food and Agriculture Organization of the United Nations, the average index in May this year was 204.4 points, down 13% year-on-year and 1.2% month-on-month. 1-5 The monthly grain price index fell 15.9 percent year-on-year.

"At present, our country is fully capable of realizing self-sufficiency of staple grain. If we add a huge amount of storage, the overall supply can be said to be loose. The large increase in China's staple grain imports is not due to the imbalance of domestic supply and demand structure." Fan Jingya, an analyst at COFCO Futures, pointed out that for different varieties, there are different reasons for the increase in imports.

For wheat, because of the traditional smallholder farming methods in China, wheat sowing is relatively scattered, and the quality is not as good as imported wheat. Imported wheat mainly plays the role of adding appropriate amount in flour milling to improve flour quality. For corn, most of the imported corn is mainly used as feed. From the end of 2013 to the beginning of 2014, Chinese customs returned a large number of American corn and its downstream products DDGS containing genetically modified ingredients. In addition, the relatively high price of jade rice has led to an increase in the number of imported sorghum in recent years. Sorghum is relatively cheap and is also a good energy feed. As for rice, the price difference between domestic and foreign rice is very obvious due to the support of domestic rice policies, and the smuggling trade at the border is active. Most imported rice is low-priced ordinary white rice and broken rice, mainly to meet industrial rather than food needs.

"The rapid growth of grain imports is also due to the gradual expansion of domestic and foreign price differences. At present, the international FOB price of wheat plus freight insurance, customs duties, import VAT, handling fees and other expenses, after arrival than the domestic wheat market price is about 10%." Professor Han Yijun of China Agricultural University pointed out that since China's accession to the WTO, with the acceleration of the industrialization process, the cost of grain production has been in a period of rigid and rapid growth, coupled with the relevant policy of purchasing and supporting the market, which has kept domestic grain prices high and gradually widened the price gap with international prices, accelerating the trend of domestic imports.

Import surge does not equal domestic "food shortage"

"From a series of data analysis, China's net import of staple grain is actually very limited, this phenomenon does not mean that China has a 'grain shortage'." Fan Jingya pointed out.

According to the documents of the National Development and Reform Commission, China's grain import quotas in 2014 are as follows: wheat 9.636 million tons, 90% of state-owned trade; corn 7.2 million tons, 60% of state-owned trade; rice 5.32 million tons, 50% of state-owned trade. According to the data in the July supply and demand balance table of the National Grain Center, China's grain output in 2014 is as follows: wheat 123 million tons, corn 223 million tons, rice 207 million tons. Looking at the import volume in recent years, even if the import volume has increased, it still falls short of the quota total. Even the total quota accounts for less than 8 per cent of the output of staple foods. Therefore, imported grain is not enough to change the overall supply and demand balance pattern of China's grain market.

However, although the quantity is limited, the impact of imported grain on China's food policy should not be underestimated. Fan Jingya believes that China's agricultural employment population base is large, the development degree is low, and it is inherently deficient, so it cannot be compared with the farm economy of developed countries. However, if development is not pursued, protection from a policy perspective alone is not a long-term solution. Especially since this year, as wheat stocks have reached record levels, the problem of insufficient treasury capacity has further emerged. The high quality and low price of imported grain will force China's agricultural protection policy reform to a certain extent.

Internal and external linkage is close, price risk increases sharply

"The continuous increase in the number of imports has further strengthened the linkage between domestic and foreign food prices." Chai Ning believes that the challenge of soaring international food prices to domestic prices and food security cannot be ignored.

Relevant sources said that for China, there is no immediate worry but there should be long-term concern. Successive bumper harvests have provided a solid foundation for ensuring food security. However, based on domestic security, food supply cannot be relaxed for a moment. The food crisis, which occurred only once in the past ten years, has become more and more obvious as the global extreme weather becomes more and more frequent.

"In the last four years, there have been three global food crises or high food prices, in 2008, 2011 and 2012. In the past four years, there have been three global food crises or high food prices. China should attach great importance to this and adhere to its basic policy, that is, to ensure China's food security based on domestic production." Han Yijun stressed that the practice of the past four years has repeatedly proved and warned us that for China with a population of 1.34 billion, we must not put our own rice bowl in the hands of others.

In order to solve this problem, Han Yijun suggested that the existing support policies such as various subsidies and temporary storage to support agriculture should be gradually adjusted to the direction of target price subsidy policy, but the adjustment should not be too fast.

Fan Jingya pointed out that the issue of food security is of high importance and involves a wide range of issues. Policy reform must be carefully weighed while taking into account the interests of all parties. Since 2014, the policy on cotton (14865, -20.00, -0.13%) has been changed from reserve to pilot direct subsidy, which can be regarded as a new idea of policy reform. However, cotton is a cash crop after all, and the effect of its policy change remains to be seen, and whether it can be applied to the staple grain market remains to be considered. In addition to policy reform, it is also a feasible way to promote agricultural modernization and improve agricultural insurance system by learning from American experience.