Agricultural Imports Spree: Winners & Losers


BMI View: As China embarks on an imports spree for some agricultural commodities, it is widely thought that major global agricultural countries will gain from this seismic shift in Mainland demand . We believe Brazil, the US, New Zealand, and various South East Asia countries are set to stand out the most from such trends, 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 , mainly due to a lack of long-term production 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.

Growing Imbalances
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
Countries 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
US 32,532 162,019 15,684,800 20.08 0.21
Brazil 16,201 82,978 2,252,900 19.52 0.72
Canada 8,364 57,776 1,818,500 14.48 0.46
Thailand 7,142 40,234 365,700 17.75 1.95
Australia 5,223 34,883 1,541,300 14.97 0.34
Vietnam 5,053 25,228 141,400 20.03 3.57
New Zealand 4,317 22,675 169,600 19.04 2.55
Argentina 3,983 36,954 414,400 10.78 0.96
Indonesia 3,305 21,995 881,000 15.03 0.38
India 2,966 33,517 2,078,200 8.85 0.14
Russia 2,067 40,667 2,015,700 5.08 0.10
Malaysia 1,606 12,866 303,600 12.48 0.53
Uruguay 585 5,013 50,100 11.66 1.17
South Africa 548 7,241 384,400 7.57 0.14
Pakistan 427 4,440 216,000 9.62 0.20
Philippines 246 3,684 250,400 6.67 0.10

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 Winners Losing Out
Source: BMI
Corn Increasing Argentina, Ukraine, US, Brazil (should it be granted approval)
Wheat Broadly Stagnating Russia, Australia
Rice Broadly Stagnating Thailand, Vietnam, Pakistan
Soybean Increasing Brazil, Argentina, US
Palm oil Increasing Indonesia, Malaysia
Sugar Increasing Imports Brazil, Thailand Australia
Dairy Increasing Imports New Zealand
Fruits & Vegetables Increasing Vietnam, Thailand
Cotton Stagnating/Decreasing US, India, Australia
Rubber Increasing Vietnam, Thailand, Indonesia
Live animals Increasing Australia, Uruguay
Beef Increasing Australia, New Zealand, Uruguay, eventually India and US if granted approval Australia and New Zealand if India enters market.
Poultry Increasing Brazil, Argentina
Pork Increasing 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)
2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI
Argentina Production 22,000 15,500 23,300 23,600 21,000 25,000 26,250 27,720 29,106 30,736
Argentina Consumption 7,000 6,400 6,900 7,300 6,700 7,303 7,594 7,853 8,071 8,243
Brazil Production 58,600 51,000 56,059 57,400 73,000 75,000 78,000 81,120 84,365 87,739
Brazil Consumption 42,500 44,500 47,000 49,500 50,500 52,261 54,197 56,264 58,471 60,828
Ukraine Production 7,421 11,447 10,486 11,919 22,500 21,000 19,000 21,000 22,500 23,000
Ukraine Consumption 5,750 5,650 5,946 6,481 7,809 8,044 8,084 8,124 8,149 8,157
US Production 331,177 307,383 332,549 316,165 313,950 275,000 340,000 345,000 350,000 340,000
US Consumption 261,632 259,053 281,423 285,005 279,023 260,049 278,253 286,600 295,198 304,054
Soybean Production & Consumption ('000 tonnes)
2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI
Argentina Production 46,200 32,000 54,500 49,000 40,500 52,000 53,000 53,500 54,838 56,208
Argentina Consumption 36,163 32,823 35,723 39,213 37,400 38,870 40,475 41,662 42,387 42,618
Brazil Production 61,000 57,000 69,000 75,300 66,500 81,000 79,000 80,580 84,609 88,839
Brazil Consumption 35,074 35,412 37,500 39,330 40,038 41,095 42,670 44,164 45,489 46,626
US Production 72,859 80,749 91,417 90,606 84,192 82,055 89,329 91,115 92,938 94,796
US Consumption 51,567 48,004 50,617 48,083 48,810 47,346 48,103 48,884 49,689 50,520
Sugar Production & Consumption ('000 tonnes)
2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI
Australia Production 4,939 4,634 4,472 3,610 3,733 4,250 4,424 4,517 4,598 4,667
Australia Consumption 1,250 1,246 1,252 1,333 1,253 1,261 1,270 1,279 1,288 1,298
Brazil Production 31,600 31,850 36,400 38,400 36,800 38,300 39,700 40,812 41,465 42,501
Brazil Consumption 11,400 11,650 11,800 12,000 11,500 11,778 12,082 12,407 12,754 13,125
Thailand Production 7,820 7,200 6,930 9,663 10,230 9,900 10,400 10,504 10,651 10,800
Thailand Consumption 2,000 2,000 2,220 2,400 2,500 2,630 2,738 2,875 3,018 3,169
Whole Milk Powder Production & Consumption ('000 tonnes)
2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI
Australia Production 142 148 150 151 140 116 130 143 157 173
Australia Consumption 27 28 45 40 42 42 43 45 47 49
New Zealand Production 651 768 947 1,141 1,250 1,270 1,171 1,208 1,244 1,281
New Zealand Consumption 1 1 1 1 1 1 1 1 1 1
Beef Production & Consumption ('000 tonnes)
2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI
Australia Production 2,161 2,106 2,109 2,133 2,115 2,230 2,300 2,266 2,288 2,311
Australia Consumption 715 722 802 736 745 746 754 761 769 777
New Zealand Production 644 624 643 601 630 633 640 648 655 663
New Zealand Consumption 123 120 124 110 116 113 113 112 112 112
US Production 12,163 11,889 12,047 11,988 11,855 11,600 11,800 12,170 12,230 12,290
US Consumption 12,452 12,239 12,040 11,651 11,744 11,685 11,844 11,999 12,150 12,297
Pork Production & Consumption ('000 tonnes)
2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Source: BMI
Canada Production 1,786 1,789 1,772 1,797 1,820 1,757 1,725 1,760 1,786 1,818
Canada Consumption 848 854 802 785 820 827 835 843 850 859
US Production 10,599 10,439 10,187 10,278 10,554 10,600 11,200 11,703 11,956 12,209
US Consumption 8,806 9,013 8,653 8,384 8,438 8,565 8,688 8,808 8,924 9,035

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