China moves to cut food oil overcapacity

China moves to cut food oil overcapacity

By Richard McGregor in Beijing

Published: April 14 2008 16:41 | Last updated: April 14 2008 16:41

China has banned the construction of new soyabean crushing plants, in a move designed to reduce overcapacity in the industry and check the growing market share of foreign companies in the food oil business.

The announcement, by an official of the economic planning ministry in Beijing on Monday, follows the related decision late last year to restrict foreign ownership in new crushing plants to 49 per cent.

Speaking at a conference in Beijing, He Yanli, of the National Development and Reform Commission, said foreign ownership limited “China’s ability to negotiate prices and secure supplies”.

“In principle, we will not approve the building of any new crushers or the expansion by existing firms in the years to come, because output already exceeds demand and repeated construction has become a serious problem,” she said.

Plea for Pakistan wheat price rises

Pakistan’s top agricultural scientist says the country’s new government should let wheat prices rise and subsidise chemical fertilisers to help boost production following last year’s flour shortages, writes Farhan Bokhari in Islamabad.

In February, politicians loyal to President Pervez Musharraf were defeated in parliamentary elections by opposition parties, partly on the back of public anger over a big increase in the price of roti, traditional round bread made with flour. “Without incentives for farmers to grow more [wheat], our import bill will rise,” said M.E. Tusneem, who chairs the Pakistan Agricultural Research Council (Parc).

According to Parc’s latest estimates, Pakistan this year will produce about 22m tonnes of wheat, or 4-5 per cent less than its annual consumption.

Mr Tusneem urged quality control on the rice crop to prevent the mixing of high-quality basmati rice with low quality varieties, a practice that brings down the international price. Pakistan basmati rice was selling at $800 (€505, £403) a tonne compared with $1,200 a tonne for that from India because of quality issues, he said.

Yusuf Raza Gilani, prime minister, announced a 19 per cent price rise for wheat bought by the government and flour factory owners in his first policy speech.

Foreigners now have about a 50 per cent market share in food oil, led by Singapore-listed Wilmar International, followed by Cargill, the privately held US company, and Bunge, the US-based agriculture group.

All the foreign companies have ambitious plans to expand in China, which has the potential to be a bigger market for companies than the US.

The two decisions reflect anxiety in China about growing reliance on soyabean imports, which have tripled in volume since 2003. Imports now account for about 80 per cent of raw soyabean.

The growth in soyabean imports is also the harbinger of a trend that could be replicated in other grains, including wheat, as local production struggles to keep up with the demands of a wealthier population.

China is self-sufficient in agriculture, and an exporter of some produce, but tightening land supplies, scarce water, and a limited ability to lift yields further in large acre crops mean that more imports are inevitable.

While most food prices are now set by the market in China, the government has maintained subsidies and trade barriers for grains in support of its longstanding policy of maintaining food security.

In the case of soyabeans, the local industry has lobbied the central government to stop further expansion of foreigners in the crushing business in China.

Ms He also said that the moratorium on new plants would help prevent “vicious competition” between existing companies trying to survive an industry shakeout.

A foreign industry executive, speaking on condition of anonymity, said there had been overcapacity in the Chinese crushing industry for at least five years.

“If foreigners were not involved in the industry, then I think they just would have said to the local companies ‘You sort it out yourselves’ rather than stopping the construction of new plants,” the executive said.