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Russia-Ukraine conflict has a limited impact on China’s food prices

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A display of goods in the Ukraine Import Pavilion, Shanghai, China. November 4, 2020. This is ahead of China International Import Expo.

Future Publishing | Future Publishing | Getty Images

BEIJING — China’s emphasis on its own food production and security helps mitigate the impact of the Russia-Ukraine conflict on domestic food prices, analysts said.

Citi found that China is second in world corn consumers, however, only 9.4% domestic corn consumption was derived from imported corn. According to the report, only 5.9% of China’s total wheat consumption was imported last year.

Citi analysts Xiangrong Ya and Xiaowen Jin reported Monday that “the US-China trade issues, the African swine disease outbreak and the food price shock from the Covid-19 Pandemic have propelled China further to improve its self-reliance food supply.”

Analysts stated, “China has been increasing its incentive system for producing grain, pork, or other food, as well diversifying sources of imports.” Due to increased policy focus on food security, recent years have seen a very low direct contribution by grain price growth in headline inflation.

China has increased its agricultural production and increased the supply of import food.

In 2021, domestic corn production grew by 4.6%, while Chinese buyers turned away from U.S. corn to become Ukraine’s largest buyer of corn — accounting for a third of Chinese corn imports, according to U.S. government reports.

Stephen Olson (senior research fellow, Hinrich Foundation), a non-profit focused on trade, stated that Ukraine is an important component of China’s efforts in improving national food security and diversifying its sources of grain.

He stated that any disruption in the shipment of goods from Ukraine to China will undoubtedly lead to inflationary pressures.

Inflation worries, for both food and clothing, have increased ever since the pandemic began in early 2020.

Steven Cochrane of Moody’s Analytics’ chief APAC economist, stated Tuesday, “Food-price inflation could remain higher for longer because of high energy prices, disruptions of shipments wheat, corn and seed oils” “Ukraine is primarily an exporter of agricultural commodities—mostly wheat—as well as basic manufactured commodities such as iron, steel and aluminum.”

India and Indonesia are the countries most exposed to Ukraine’s imports, closely followed by China. The imports of Ukraine are small relative to their size. [APAC]Cochrane stated that the country’s GDP and import flows were modest in relation to each other.

Global prices surge

China’s dependence on wheat and corn grown domestically does not guarantee that it is invulnerable to rising prices. Chinese media reported that import prices for wheat and corn rose.

Globally, corn and wheat futures have surged to highs not seen in at least nine years — near record levels — as traders worry whether a prolonged Russia-Ukraine conflict will cut into the global grain supply.

“The gains [for wheat futures]”The trade volumes on the US exchanges may have been greater if they had not been stopped at daily trading limits,” Tobin Goury, strategist for agri commodities at Commonwealth Bank of Australia, wrote in Wednesday’s note.

According to Gorey, supply problems will persist for wheat, but there is concern about Ukraine’s corn harvest being delayed or stopped. In a note, Gorey stated that this season usually begins in April.

China imports the majority of its soybeans

Soybeans are the only major crop for which China relies heavily on imports — 84% of domestic consumption in 2021, mostly from the U.S. and Brazil, according to Citi.

As traders fear that Ukraine’s shortage of sunflower oil might increase the demand for soybean oils, soybean prices are rising. Jim Sutter is chief executive officer of U.S. Soybean Export Council.

China is the biggest importer of soybeans worldwide. Sutter noted that this was due to worries about South American supply.

CNBC Pro has more information about China

China’s Ministry of Commerce Wang Wentao, along with other ministry officials, did not answer questions about trade relations with Russia, Ukraine, or the United States during Tuesday’s press conference.

Instead, it emphasized the need to strengthen trade relations with both the European Union and Southeast Asia.

Russia and Ukraine are both part of “Belt and Road”, a plan to develop regional infrastructure. This is widely considered Beijing’s attempt to expand its global reach.

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