1. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 1 Joint Meeting of the 30th Session of the Intergovernmental Group on Grains and the 41st Session of the Intergovernmental Group on Rice Rome 10-11 February 2004 CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS CCP: GR-RI 04/CRS.3

2. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 2 Overview of the presentation  Background  Main issues  “Cereals” and Sources  Food use estimates  Feed use estimates  Stocks  Implications

3. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 3 Background  China in global economy  Reasons for FAO’s first revision of China’s cereal balances (2000)  Impacts on world numbers  Steady decline in China’s stocks since 1999  Need for more detailed review and analysis  FAO cereal balances: GIEWS and FAOSTAT  Research inputs and main collaborators

4. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 4 Issues  What do we know about cereal supply and demand in China?  Are domestic cereal supplies adequate to meet demand?  How to determine the “accurate” level of stocks in China and are they falling so massively?  China, a major source of instability in world cereal markets?

5. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 5 Few words about “cereals” in China...  Main cereals grown and consumed in China include: wheat, rice, maize, barley, rye, oats, millet and sorghum;  But cereals are referred to as “grains” in China, which also include soybeans and roots crops (mainly sweet potatoes);  Wheat, rice and maize production amounts to roughly 97% of the total cereal output in China;  Wheat (north) and rice (south) are used mostly for food while maize is used primarily as feed.

6. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 6 Basic official sources:  Ministry of Agriculture: collects production and price data based on data supplied by the provinces and counties;  The Chinese National Bureau of Statistics (NBS) - formerly the State Statistical Bureau (SSB) - collects production data based on yield sampling survey; consumption data based on household survey; year-end stocks in per capita term for rural households [“China Rural Household Survey Yearbook”, “China Statistical Yearbook”, “Yearbook of China Prices and Survey of Urban Household Expenses”];  Custom: collects monthly trade data;  Ministry of Domestic Trade: collects data on state purchasing and state reserve and quota price data

7. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 7 A simple cereal supply & demand balance: what is “official” and what is not!  Total Supply Production Opening stocks Imports  Total Utilization Domestic Utilization Food use Feed use Other use Exports Ending Stocks official Unofficial estimates

8. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 8 FAO/GIEWSNBS * FAO/GIEWSNBS * (...... million tonnes...... )(... per capita in Kg/year... ) 1995/9699928277 1996/97100948277 1997/98101928375 1998/99102918274 1999/00102918273 2000/01100918073 2001/0299887870 2002/0398877769 FAO/GIEWS per capita wheat consumption estimates are above the adjusted NBS figures but both series show a sharp decline

9. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 9 FAO/GIEWS per capita rice consumption estimates are above the adjusted NBS figures and NBS numbers show faster declines FAO/GIEWSNBS * FAO/GIEWSNBS * (..... million tonnes....... )(... per capita in kg.... ) 1995/961071049087 1996/971091039085 1997/981101019083 1998/991111009082 1999/00112979078 2000/011121008980 2001/02112988977 2002/03112978877

10. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 10 Calculating feed use  Two approaches to estimate feed grain utilization: supply” or “availability” approach (i.e. the feed use = total grain production-food use- seed use-waste and other uses). “utilization” approach (i.e. the feed use = meat production multiplied by corresponding overall feed conversion factor, which are intended to reflect both the intensity and the technical efficiency of the livestock system).

11. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 11 Low scenarioMiddle scenario High scenario 1996167207224 1997186216233 1998173207226 1999185212229 2000176194210 2001183202218 Three different feed requirement scenarios could be considered for the period 1996 to 2001 (million tonnes)

12. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 12 How much grains are available for livestock production?  Based on FAO/GIEWS estimates, total amount of grains used as feed would be in the range of 150-180mt, which would be closer to the grain feed requirements under the low scenario.  Chinese farmers contribute about 70-100mt and the milling enterprises another 40-50mt. In addition, feed use by larger scale livestock producers (and milling companies) need also to be taken into consideration since they purchase feed ingredients and produce their own compound feed.

13. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 13 Stocks in China  Government stocks: State (central government); Special Grain Reserves (SAGR) - established in 1990s local government stocks; and “business” stocks held by the State Owned Enterprises (SOE).  On-farm Stocks

14. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 14 The adjusted cereal stock estimates would be higher than FAO’s but... Derived Gov. Stocks Adjusted On-farm Stocks Adjusted Total Cereal Stocks FAO/GIEWS Total Stocks (......... million tonnes......... ) 1994/95120141261 350 1995/96166140306 358 1996/97208111319 372 1997/98233151384 368 1998/99259210469 375 1999/00235155390 368 2000/0125096346 318 2001/02204105309 265

15. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 15 China’s cereal production has been falling while utilization seems flat, is the gap real, what about the future?

16. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 16 Can stocks fall to nil?

17. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 17 Wheat imports have started to rise while maize exports are declining as stocks fall sharply... million tonnes 79/80 84/85 89/90 94/95 99/00 03/04 million tonnes 79/80 84/85 89/90 94/95 99/00 03/04 Imports and Exports Stocks

18. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 18 Domestic cereal prices have started to increase, but Selected Wholesale Cereal Prices in China, 2000-2003 RMB/tonne Maize Wheat Rice (Early Indica) Rice (Japonica)

19. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 19 What Next?  It is certain that cereal stocks in China must have fallen substantially in recent years  And that much of the drawdown in world stocks has been due to a sharp decline in China’s cereal stocks  But, we still need to substantiate what may or may not be the real level of stocks in China  As long as FAO does not have reliable and consistent information about the overall level of stocks in China, the Organisation’s assessment of the global cereal market situation will not be reliable

20. CRITICAL REVIEW OF CHINA’S CEREAL SUPPLY & DEMAND AND IMPLICATIONS FOR WORLD MARKETS S. 20 WELCOME TO THE YEAR OF MONKEY AND THANK YOU A monkey practices acrobatic skills on the horns of a goat in the Changchun Fauna and Flora Garden in the capital of Jilin Province in Northeast China. [China Daily]