(Reuters) – China will strengthen control over grains imports and crack down on illegal activities like smuggling in a bid to cut oversupply, with record stockpiles creating storage problems for the new harvest, China’s vice premier said on Friday.
China’s stockpiling policy, under which it buys from farmers at inflated prices, has made cheaper overseas supplies more attractive for end-users like feed mills, forcing the government to take action to try to curb surging imports.
“We will strengthen import and export controls for grains while severely cracking down on irregularities like smuggling in order to stabilizes the domestic market,” vice premier Wang Yang said at a national conference.
China’s rejection of cheap U.S. corn cargoes on the grounds that it contained a genetically-modified strain not permitted for import was also seen as part of Beijing’s efforts curb cheap imports and support domestic corn prices.
But buyers in the world’s No.2 corn consumer have turned to non-traditional exporters, including Bulgaria and Ukraine, to fill the gap following the restrictions on U.S. supplies. There has also been an increase in smuggling.
“The wide price gap between domestic and overseas markets has spurred an increase in grains imports. Stockpile of autumn grains face many difficulties and problems,” said Wang, according to a transcript of his speech published on China’s official government website.
The gap between U.S. and domestic corn prices <0#ASCORN-CN> is at a record high as a huge American crop has pushed down prices there while China’s support for corn growers has remained unchanged. Beijing pays farmers 2,220-2,260 yuan ($362.9-$369.5) per ton for corn. U.S. corn is now at $143 per ton.
Commercial storage facilities should be used and more companies will be encouraged to stockpile grains in order to ensure that farmers are able to sell their crop, Wang said.
China does not reveal details of its total grain stockpiles, but analysts estimate the country was sitting on close to 100 million tonnes of corn stocks – equivalent to about half annual domestic consumption – before the current harvest began.
Industry analysts expect Beijing to stockpile a big volume of corn for a third year in a row in the marketing year to September 2015.
Wang said China is facing new challenges with respect to boosting rural income and production amid an economic slowdown and sliding fiscal revenue, adding that with production costs rising, the government is forced to offer more and more subsidy to keep farming profitable.
Overuse of resources and environmental pollution have also threatened sustainable development, he said.
(Reporting by Niu Shuping and Dominique Patton; Editing by Himani Sarkar)