China's agricultural imports surge in June, as worsening US ties stoke fears of supply disruptions

Chinese imports of agricultural goods surged in June as buyers stockpiled farm products to hedge against possible supply disruptions caused by deteriorating relations with the United States and fill gaps in domestic production, analysts said.

By the end of the month, imports of grains - including wheat, barley, corn, rice, sorghum, and soybeans - had jumped 80.6 per cent from a year earlier, accelerating from the 32.4 per cent increase recorded in May and a sharp reversal from the decline of 6.4 per cent in April.

On the face of it, the rise in imports appears to show Beijing is meeting the agricultural purchases element of its phase one trade deal with the US, but it also highlights gaps in domestic supply, including strategic grains.

Food security for China's 1.4 billion people has long been a top priority for the central government, and analysts said authorities have tried in recent months to prevent food price inflation caused by the coronavirus pandemic and flooding in central and eastern China.

Imports of farm goods are likely to remain strong in the second half of the year given gaps in domestic supply, they added.

Buyers have imported food from around the world, indicating China is diversifying its food supply as well as trying to comply with the US trade deal.

Rosa Wang, Shanghai-based analyst at agricultural data provider JCI China, attributed the rise in agricultural imports to the phase one trade deal and a surge in the price of domestic products.

Many Chinese companies were also buying extra products to safeguard against a further deterioration in US-China relations, she said.

"For ordinary companies, like trading and breeding firms, they are more concerned about ensuring production, ensuring that their animals have food to eat, so you can see that the imports of almost all kinds of grains have increased in the January-June period," Wang said.

"If [US-China relations] are not good, then companies will try their best to buy various alternative products to [US] soybeans and China's imports of other farm goods might fully flower.

"Brazilian soybeans have no political risk, although their price advantage is limited, so if you can buy, you would get ready using the Brazilian supply first as a backup."

China imported a record 10.51 million tonnes of soybeans from Brazil in June, up 91 per cent from the same period a year earlier.

Although agricultural imports would be strong in the second half of the year, it was less certain that this supply would be filled by American farmers, she said.

"Everyone is looking at this issue because the uncertainty is so great ... if [the phase one trade deal] continues to be implemented, imports of American agricultural goods must be on a large scale, surpassing any other country's products," she said.

China's 3.35 million tonnes of wheat imports in the first half of the year were just shy of the 3.49 million imported during the whole of 2019.

Buyers were also willing to pay more for certain goods, with pork imports increasing 142.7 per cent in the first half by volume, but up 282.1 per cent by value.

Chinese sorghum imports, a grain used for animal feed and to make alcohol, were 150 times higher by volume in the first half of this year than the same period a year earlier, according to data from the General Administration of Customs. In June alone, sorghum imports surged 21,296 per cent to 680,000 tonnes.

Imports of wheat nearly tripled in June and purchases of barley doubled by volume. Soybean purchases rose 72.7 per cent.

Although the statistics agency did not provide a breakdown for country of origin, US data showed China ordered a record-high 1.96 million tonnes of American corn and at least 1.69 million tonnes of American soybeans earlier this month. Imports of US sorghum have also accelerated since March when China offered to exempt the product from additional tariffs.

"There are uncertainties surrounding [China's] autumn grain production, so it is inevitable that food imports will continue to grow [in the second half of the year]," said Ma Wenfeng, a senior analyst from Beijing Orient Agribusiness Consulting.

Escalating tensions with the US may have an impact on China's food imports in the short-run, but they would not fundamentally change the soybean trade flow between the two countries given the large supply gap in China, he added.

"China's imports are inevitable, so are US exports, otherwise the US cannot use up all the farm goods it produces," Ma said.

"Merchants always have solutions to bypass [trade] barriers. It is a fantasy that the trade war would stop American agricultural products from entering China."

Analysts from TF Securities said that China's demand for soybeans has rebounded recently due to the recovery in hog production.

"The impact of the pandemic on the international food trade was not as pessimistic as expected, the foreign supply is sufficient, China's imports have basically recovered," TF Securities said earlier this month.

Food supply security risks are again on the radar for Beijing, with President Xi Jinping making a visit to the major corn growing province of Jilin last week, where he urged local authorities to protect fertile land and ensure "grain security" for the country.

China's state media has also been reassuring the public that grain supply was secure.

This article originally appeared on the South China Morning Post (SCMP).

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