BMI View: As China embarks on an imports spree for some agricultural commodities, it iswidely thoughtthat major global agriculturalcountrieswillgainfrom this seismic shiftin Mainland demand. We believe Brazil, the US, New Zealand, and various South East Asia countries are set to stand out the most fromsuchtrends, given their established trade relationship with China and ability to meet the country's growing needs. However, other powerhouses will miss out on this opportunity, mainlydue to a lack oflong-termproduction growth potential.
Due to active official support for agriculture production, China is set to improve its food security and remain broadly self-sufficient in the main food crops over the next five years. However, we expect the Asian giant to record growing imbalances between production and consumption of selected commodities, as urbanisation and rising purchasing power are leading to a dietary pattern change from traditional food grain products to more meat and sugar. As a result, we expect China to increase its import needs for soybean, corn, sugar, palm oil, as well as for dairy and meat products. Meanwhile, import demand for wheat, rice and cotton will remain broadly stagnant or record only mild growth ( see ' China Future Imports: Enduring Trends & New Trajectories', June 17).
Major global agricultural suppliers are widely thought to benefit from this seismic shift in China commodities' demand. We believe the picture will not be entirely rosy as not all agricultural exporters will benefit to the same extent from these dynamics.
China - Select Commodities Production Balance, '000 tonnes
The countries set to benefit the most from China's growing agricultural imports will be those with the potential to significantly increase their production surplus of the commodities in increasing demand. Moreover, countries whose exports to China will have a significant impact on headline economic performance will clearly enjoy the largest wealth benefit. As a result, we see mostly key emerging market exporters, such as Brazil, Thailand, Vietnam, Argentina and Ukraine alongside New Zealand and the US, benefiting the most from China's new import trajectories.
Traditional Suppliers To Increase Exposure
China - Select Commodities Imports By Origin, 2012 (% of Total)
Meanwhile, given the strict import regulations in China and the long procedures to be granted the right to export there, the first countries to benefit will be those which are already allowed to export to China, meaning current suppliers (see chart below). China is currently looking into diversifying its import sources in order to procure a stable supply of agricultural goods; therefore other countries will soon be able to take advantage of higher demand. This is the case for Argentina, Brazil and Ukraine, which are likely to start shipping corn and soybean to China soon. Apart from established trade relationships, agricultural suppliers boasting Free Trade Agreements (FTA) with China, such as New Zealand, members of the ASEAN community, will also be the main benefiters, and the gains are likely to be accentuated as the import tariffs fade to zero. China is currently negotiating an FTA with Australia.
Select Countries - Exposure To Agricultural Exports To China, 2012
Agricultural Exports To China (US$mn)
Total Agricultural Exports (US$mn)
Nominal GDP (US$mn)
Agricultural Exports To China/Total Exports
Agricultural Exports To China/GDP
Source: BMI, UNCTAD
Larger imports of oilseeds and corn will most likely benefit Brazil and Argentina, which boast increasing production surpluses. For meat, we believe low-cost producers will be favoured, as China's imports will mostly be made on price arbitrage. Indeed, although China will record a rather balanced supply in the case of poultry and beef and a relatively low production deficit for pork, imports will slowly increase, spurred by lower international prices and demand for quality meat produced under strong safety standards. Brazil and Argentina will most likely maintain their lead in the poultry market, while Australia and New Zealand could see a stiff increase in competition from India should the country be granted the right to export beef in China. The signature of a Memorandum of Understanding in May 2013 over direct exports of Indian buffalo meat to China could be a first step in that direction.
Countries whose economic performance is exposed to agricultural exports to China will also stand to benefit strongly from China's change in diet. For this reason, secondary exporters to China such as Vietnam, Malaysia, Indonesia and Uruguay will benefit significantly.
China Future Agricultural Imports - Potential Winners And Losers
Future Import Trend
Argentina, Ukraine, US, Brazil (should it be granted approval)
Thailand, Vietnam, Pakistan
Brazil, Argentina, US
Fruits & Vegetables
US, India, Australia
Vietnam, Thailand, Indonesia
Australia, New Zealand, Uruguay, eventually India and US if granted approval
Australia and New Zealand if India enters market.
US, Canada, France, Denmark
Meanwhile, we believe other traditional agricultural countries will miss out on the opportunities arising from China's imports. First, this will be the case for agricultural powerhouses which are not currently exporting to China, such as Russia. Second, countries supplying commodities for which import demand is likely to stagnate such as wheat or rice will see their revenue from agricultural trade with China stall. This is even more dramatic for cotton suppliers, including India and the US, as import demand is likely to fall in the coming years, driven by the shift of textile production away from China and towards more competitive Asian countries.
Mind The Gap
Select Countries - Corn (LHS) & Sugar (RHS) Production Balance, '000 tonnes
Finally, some of China's current major suppliers may 'miss the boat', as their production growth peak for some commodity has passed. For example, we are cautious on the ability of Australia to benefit from China's rising agricultural products as much as other agricultural powerhouses, including its rival New Zealand. Indeed, Australia's slow production growth of sugar and milk powder will be insufficient to help fill China's ballooning deficits.
Corn Production & Consumption ('000 tonnes)
Soybean Production & Consumption ('000 tonnes)
Sugar Production & Consumption ('000 tonnes)
Whole Milk Powder Production & Consumption ('000 tonnes)
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