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China Wheat-Flour Supply-Chain -- Market Research

Updated: Jan 18





Recent Trends and Export Prospects



Prairie Grain Portal



Wheat Consumption Trends



Wheat Production Trends



Flour Milling Industry



Wheat Import Outlook




Introduction


China became the world’s largest grain importer and increased its imports from Canada to become our largest grain export destination, with a 20% share. China’s grain imports increased to 130 MT/year, but mostly driven by feed rather than food needs, with soybean becoming the principal import-crop at close to 75% of the total. Wheat has been a minor share in China’s import-mix; having peaked at 7 MT in the early 2000s and again in the early 2010s, lately it has been in the 4-5 MT/year range, little more than canola but less than sorghum or barley.


China is the world’s 2nd largest wheat producer, also at about 130 MT/year, only 12% less than the largest, EU. Wheat and rice have been the country’s two food staples, consumed in equal quantities. Self-sufficiency has been the goal in both, though achieved in rice, not always in wheat, requiring an average of 10 MT of imports a year through the 1980s and 1990s. Lately China has been producing as much wheat as it consumes, but it continues to import to build up its stocks – largest wheat-reserves in the world, equivalent to one year of its consumption.


We on the other hand are a much smaller wheat-producer, 7th in the world with 30-35 MT/year but export two-thirds of what we produce, making us 5th largest exporter. But more important than our export volume is the quality of our grades or varieties, particularly durum. Going back 20 years, China used to source 60-70% of its wheat imports from us, lately that share has been below 10% – 2-3% of our wheat-exports of late, down from its peak at 16% in the mid-2000s.


Lately our trading relations with China have soured, threatening our grain exports altogether. We are not sure whether we can restore these relations to continue exporting grains to China, but we thought we would revisit some of the opportunities we had identified a few years ago, particularly with respect to containerized wheat exports to the milling industry, which has gone through a technological revival, and needs high grades of wheat to improve flour quality.




Wheat Consumption Trends


Wheat consumption in China has been quite steady of late but we should pay attention to a few finer details. It increased from 102 MT in 2006/07 to 122.5 MT in 2011/12, 20% in 5 years. If this trend had prevailed for another 5 years, now consumption would be close to 150 MT. However, over the next 4 years consumption actually declined to 112 MT; only due to a sharp pick up in 2016/17 that it recovered to 118.5 MT. This is still a fairly significant increase, 16% over 10 years, while the country’s population increased by only 5%. Thus, per capita wheat consumption increased at close to 1% per annum, from 77 kg/year to 86 kg/year.


This rate of increase pales in comparison to China’s GDP per capita, which doubled over the same period, or 7% per annum. It may not be an indication of a strong income effect on consumption, but cannot be dismissed if it were to be sustainable. In 10 years from now, China’s annual wheat consumption would be close to 140 MT, 20 MT more than today. The income effect on wheat consumption is controversial (which we will get into later), but given China’s size we would be amiss to ignore it. We acknowledge at the outset that income effect is not huge, and taken on its own may even be negative. But with development and concomitant rise in incomes, other effects come into play – such as rural-to-urban migration, shifts in culinary habits or traditions, or even the type or grade of wheat consumed.


Below we show wheat and rice consumption in China together with coarse-grains, which are mostly corn with some barley and sorghum in the mix. Wheat and rice are the main food staples (only 5% for animal-feed), which the Chinese consume in more or less same quantities on a per capita basis. Rice consumption has been quite steady over the years at 100 kg/year, while wheat is consumed somewhat less but on a per capita basis, increasing modestly over time. Per capita coarse grain consumption is higher with significant increases over the last 10 years, from 120 kg/year to 180 kg/year, but used primarily for animal-feed.





The above charts display per capita wheat and rice consumption for select countries around the world. The 8 countries shown on the left (all top-10 grain producers but India which is included in the Asian group to the right) are compared to China. Among them only Brazil is a significant rice consumer with almost 40 kg/year per capita; Australia, US, Canada, and Argentina consume in the 11-16 kg/year range, while EU, Russia and Ukraine even less, in the 2-8 kg/year range.


Among these nine countries China’s per capita wheat consumption is only higher than Brazil’s; the US and Argentina consume more than China but by modest margins (14% and 34%). EU’s per capita wheat consumption is almost 3-times that of China’s; Ukraine consumes 2.7-times, Russia 3.2, Canada 3.4 and Australia 3.6. It is interesting to note how much more wheat EU consumes than the US; at 250 kg/year it consumes less than Russia (278 kg/year) but more than Ukraine (234 kg/year). Australia (308 kg/year) and Canada (289 kg/year) consume more than all three, and in this regard are more European than American in their dietary habits.


There is a stark contrast between the two sets of countries shown above. The group to the left (excluding China) on average consumes 184 kg/year of wheat and a mere 13 kg/year of rice, while the Asian group to the right (again excluding China) consumes 67 kg/year of wheat and 99 kg/year of rice. The combined wheat-rice total of those to the right is 197 kg/year compared to the other group at 166 kg/year (in both cases excluding China) – China’s total is 189 kg/year.


Among the Asian group China’s per capita wheat consumption (86 kg/year) is above all the others but South Korea, and even then only slightly (2 kg/year difference). India’s wheat consumption (76 kg/year) ranks behind China and the lowest in the group is Indonesia (39 kg/year) – the other 5 (Japan, Philippines, Thailand, Malaysia and Vietnam) all consume around 50 kg/year. Vietnam takes the top spot in rice consumption with 242 kg/year, followed by Thailand at 174 kg/year, Indonesia at 147 and Philippines at 126. The richest country in the group, Japan, has both the lowest rice (67 kg/year) and combined rice-wheat (111 kg/year) consumption, while the poorest, Vietnam, has the honor of being the highest on both counts.


There is a commonly held, but incorrect belief that there is a strong relationship between income levels and grain consumption – that people will eat more until they overcome their hunger, but as they become more prosperous, they reduce their grain intake by substituting calories from meat, vegetables, and fruits that they can now afford. Other than the comparison we drew above between Japan and Vietnam, there is little in wheat-rice consumption patterns to support this belief. In the chart below we rank the 17 countries we examined above by PPP adjusted GDP per capita. There is no evidence of an income effect on either wheat or rice, or their combined total, and the effect seems to be explained by culinary traditions.


In the highest income group ($37,000 to $57,000 per capita) Australia and Canada consume 3-times more wheat than the US, who they follow on the income-ladder. EU consumes 2.5 times more wheat than US, but like all three above it in the income ladder consumes little rice. Japan and South Korea that are at comparable income-levels to EU, consume considerably less wheat, and even wheat-rice combined. These two high-income Asian countries consume less wheat than the US, but more wheat-rice combined (particularly South Korea, 60% more).


In the middle-income group, Russia has the highest wheat consumption (even higher than EU) but consumes very little rice. Argentina is the 2nd highest wheat consumer in the group (but only little more than the US), but like Ukraine consumes very little rice. Thailand is the highest rice consumer and 2nd highest behind Russia with rice-wheat combined; rice constitutes 75% of its total. China is the 3rd largest in wheat as well wheat-rice combined; though its income level is about the same as Brazil, it consumes more of both wheat and rice. All three Asian countries in the group have more rice in the mix, but Brazil consumes quite a bit of rice as well.


In the lowest income group Vietnam (at the bottom of income ladder) is the highest consumer of wheat-rice combined (3rd highest among all 17). All 4 Asian countries in the group have more rice than wheat in the mix, but Vietnam is by far the highest rice consumer. In total Ukraine ranks 2nd in the group but almost all with wheat; India is the lowest with wheat-rice combined (in equal quantities). This lowest income group has a combined per capita consumption of 168 kg/year compared to 197 kg/year for the high and 185 kg/year for the middle income groups.