China's grain reforms to boost depressed corn processing industry

Global Bio-chem Technology Co

01/04/2016 09:57

By Niu Shuping and David Stanway 
    BEIJING, April 1 (Reuters) - China's plan to let the market 
set corn prices is bad news for international grain exporters, 
but should boost the country's struggling corn processors that 
use the grain in products ranging from food additives to paper 
and textiles.  
    New demand from corn processing companies, as well as the 
feed and ethanol industries, will be vital to help China start 
cutting the 250 million tonnes of corn reserves built up under 
stockpiling policies, or more than the country can consume in a 
year. 
    In its biggest grain reforms in a decade, China said this 
week it will stop stockpiling corn and halt price support 
schemes, narrowing the gap between international  0#C:  and 
local prices  0#DCC:  and encouraging the use of local grain 
rather than imports of cheaper substitutes, such as sorghum and 
the ethanol byproduct distillers' grains (DDGS).  
    Food processors use corn to make starch, syrup and alcohol, 
but China's corn starch industry has been running losses over 
the past three years, with more than half of its capacity lying 
idle. 
    "It is good news for the industry," said Fan Chunyan, 
secretary general of the China Corn Starch Association 
    "More companies would raise production and become profitable 
and some companies may be able to export their products," said 
Fan, adding that utilisation rates could recover to about 70 
percent, up from as low as 40 percent in recent years. 
    Corn starch is used to make thousands of products, including 
the food additives lysine and citric acid, which China once was 
the world's largest exporter, as well as corn syrup, which can 
replace natural sugar in the production of soft drinks and 
cakes. 
    Major players in the industry include COFCO Co 
Ltd CNCOF.UL , Global Bio-chem Technology Group Co. Ltd 
 0809.HK  and the Xiwang Group  000639.SZ . 
    Global agribusinesses Cargill  CARGIL.UL  and Wilmar 
International  WLIL.SI  also run some corn starch joint ventures 
in China. 
     
    IMPORTS TO EXPORTS? 
    The decade-old corn stockpiling policy, which will be 
scrapped from the autumn, has pushed domestic corn prices up to 
50 percent above international prices, saddling feed mills and 
food processors with higher costs. 
    "Many plants were dead because of the stockpiling policy. 
For those which are still alive, definitely there is a chance," 
an executive at a corn processor in the province of Liaoning 
told Reuters. 
    The industry had been suffering losses for many years and 
his own company's plant had shut, said the executive, who 
declined to be identified. 
    Chinese feed mills bought a record volume of foreign feed 
grains in 2015, which together with corn imports, replaced more 
than 42 million tonnes of domestic corn production, about a 
quarter of annual consumption. urn:newsml:reuters.com:*:nL3N159344 
    Beijing controls quotas on low-tariff corn imports, which 
encourages users in China to seek out lower priced substitutes 
once the quotas have been reached. 
    Cheap imports of cassava and cassava starch have largely 
been used instead of domestic corn in refineries, whose main 
products include ethanol and corn syrup. Chinese imports of 
cassava hit nearly 10 million tonnes in 2015. GRA/CN  
   "With the drop in domestic corn prices, soft-drink makers 
will increase their use of corn syrup to help cut costs," said 
Lief Chiang, an analyst with Rabobank. 
    The policy change will also slash feed costs for China's pig 
industry and boost profits of ethanol producers. 
    "The feed grain price drop would prolong the high breeding 
margins for hog breeders, which are now recovering their herds, 
while for the corn processing industry, some products can be 
competitive globally," said Chiang. 
    China's appetite for cheap U.S. ethanol could also wane this 
year as domestic companies increase production, said an official 
at the China Alcohol Industry Association. China imported a 
record volume of ethanol in 2015 due to expensive domestic corn. 
 urn:newsml:reuters.com:*:nL2N16C26X  urn:newsml:reuters.com:*:nL1N10R0I2 
    "A drop in raw material prices would increase ethanol output 
and imports would shrink," said the official, who declined to be 
identified. 
    "China may be able to export ethanol to other countries, 
including South Korea and Southeast Asia, and compete with the 
United States and Brazil," the official added. 
 
 (Editing by Richard Pullin and Ed Davies) 
 ((niu.shuping@thomsonreuters.com; 86-10-66271210; Reuters 
Messaging: niu.shuping.thomsonreuters.com@reuters.net)) 
 
Keywords: CHINA CORN/FOODPROCESSING