Tracy: China Offers Opportunity For Wheat

China consumes far more than its farmers can grow. Bill Spiegel

Published on: Feb 21, 2005

China is poised to be a huge buyer of U.S. wheat, according to Alan Tracy, chairman of the U.S. Wheat Associates, a farmer-funded marketing arm of the U.S. wheat industry.

Tracy addressed the farmer-members of U.S. Wheat at a session of the North American Grain Congress in Reno, Nevada Saturday.

China – roughly the same size as the United States – is home to 1.3 billion people; the most populous country in the world. Its citizens are not wealthy – certainly not by American standards – but the average $5,000 in income per capita multiplied by the large population makes China the second largest economy in the world, behind the U.S.

The country is booming. It is the world’s largest consumer of coal. Steel and concrete imports are massive and distorting the world market. And China’s farmers simply cannot keep pace with the country’s rapid growth.

According to Tracy, China consumes one-sixth of the world’s wheat production and is the eighth largest importer of U.S. wheat. The world wheat market is about 100 million metric tons. In normal weather years, China could consume 18% of that total.

"For 10 years, China had been building wheat stocks. In 2002-03, China was a net exporter of wheat. Now, they are a net importer," Tracy says.

China, in fact, imports vast quantities of corn, rice, soybeans and cotton. That’s where the opportunity comes in, he adds.

"When you import more than half your soybeans, your farmers aren’t going to switch to growing wheat."

Shipping costs are the limiting factor, however. Its proximity to the China gives Australian farmers a distinct advantage in cheaper freight. But, "we have some excellent potential for high protein hard white wheat," says Tracy, who adds that the higher value of high protein wheat could offset the higher freight rate to ship from the Pacific Northwest.

The country is beginning to experience growing pains. Deforestation has resulted in some flooding and a reduction of land quality, Tracy says. A massive – and expensive – re-forestation project has begun. In addition, urban sprawl is taking over some of the country’s best farmland. Finally, Tracy notes that China is quietly beginning to subsidize its farmers. Staying in compliance with World Trade Organization rules, subsidization occurs base on acreage, not production.