A customer wearing face mask buys flour at a supermarket on May 12, 2020 in Taiyuan, Shanxi Province of China.
Zhang Yun | China News Service | Getty Images
China has been building up its food and energy stockpile this year, taking advantage of slumping crude oil prices even before the coronavirus pandemic disrupted supplies.
The world’s second largest economy, which has limited arable land, is facing pressure to shore up its food supplies as prices for food started ticking higher last year, prior to the virus outbreak.
Lockdowns and movement restrictions aimed at containing the coronavirus have triggered transportation and logistics bottlenecks.
Those blockages have highlighted the vulnerability of global supply chains, and fears of food shortages have come to the forefront of countries, both in developed and emerging economies.
Fear is a powerful motivator. It’s driving policy in China currently. Fits well with those hardliners that want to rebuild food reserves.
chief commodities economist at INTL FCStone
Consumers in China are worried about further repercussions from the pandemic as it continues to spread globally.
“People there (in China) are panicked that coronavirus will eventually shut down the world’s ports, making it impossible for them to import,” said Arlan Suderman, chief commodities economist for INTL FCStone in a tweet on Monday. “As such, they are hoarding supplies now while they are cheap and available.”
“Fear is a powerful motivator. It’s driving policy in China currently. Fits well with those hardliners that want to rebuild food reserves,” he added.
Food prices surge
China is the world’s largest consumer of pork, a staple protein for the country.
In the first four months of the year, meat imports in China rose 82% compared to a year ago. These include pork, beef and poultry.
“We expect food stockpiling to continue especially in cities exposed to logistic disruption. The confluence of expected food price increases alongside an economic contraction and rising unemployment will push up the risk of civil unrest,” said Kaho Yu, senior Asia risk analyst at Verisk Maplecroft, a consultancy.
Already, food inflation in the country has been ticking higher.
Last Tuesday, China announced that food prices rose 14.8% in April from a year ago. Even though it was lower than the 18% increase in March, it was still at a high level.
Pork prices rose almost 97% in April in what has been a persistent trend since early 2019 due to the African swine fever epidemic in pigs that decimated China’s hog herds.
In comparison, non-food prices rose just 0.4% in April, official government data showed.
Soybean supplies are particularly vulnerable to supply shocks as China, the top importer of the commodity, needs the oilseed to make animal feed and cooking oil.
In April, China’s soybean imports fell 12% from a year earlier, customs data showed, due to bad weather causing the delay of cargoes from top supplier Brazil.
As for rice, China is the world’s largest producer of the staple grain with most of its supplies being consumed domestically.
Even so, concerns about food security of the staple grain have led to panic buying and spurred the state to acquire more stocks from the market for its national reserve.
In April, Chinese authorities assured the population that it was stepping up state buying of rice and that there were enough stocks, state news agency Xinhua reported.
“We expect China to continue stockpiling crops to ensure sufficient supply over the next six months by scouring the globe for available supplies,” said Yu in a recent report.
The consultancy puts China in its “high risk” category in terms of food import security, which means that its food imports risk being subjected to disruption.
Crude oil reserve building
Likewise, China has been building up its crude oil stockpile, and went on a buying spree in the first quarter of this year, data show.
Although crude oil imports fell in April compared to a year ago, they still rose from March. But analysts say limited storage facilities could put a cap on imports.
China is expected to continue importing crude to fill its reserves taking advantage of lower oil prices.
senior consultant at Wood Mackenzie
“Major crude oil importers such as China have been known to build their strategic reserves when prices are low, as seen in previous oil price routs,” Lei Sun, senior consultant at Wood Mackenzie, said in a March report. “China is expected to continue importing crude to fill its reserves taking advantage of lower oil prices.”
However, the country has less room to import than it did in the last two years, due to limitations in storage capacity, he said.
As supply lines continue to be disrupted due to the coronavirus outbreak, Yu at Verisk Maplecroft said he expects Beijing to double down on building more storage capacity, on top of energy development at home.
“Energy is also core to the country’s economic engine. Throughout the pandemic, Beijing has been prioritising maintaining a stable coal supply with an eye on power generation for industrial activities,” said Yu. “We also expect Beijing to speed up the resumption of large scale energy infrastructure projects.”
Putting food and energy first
Food and energy security have always been important for China, but the pandemic has underscored these concerns.
In April, President Xi Jinping spoke about food and energy supply security several times, noted Yu.
In the same month, state agencies — such as China’s National Development and Reform Commission, the National Food and Strategic Reserves Administration and other ministries — issued a policy notice aimed at ensuring adequate food production, storage capacity and logistics, Yu noted.
Also in April, China’s National Energy Agency issued a list of policy areas to focus on this year. They included power supply, grid networks, oil and gas infrastructure, and coal projects.
The developments underscored the government’s concerns, he said.
“Both Xi’s rhetoric and associated policy announcements from various ministries show how food and energy security are high on the government’s agenda,” said Yu.
“All of them are aiming to avoid potential pandemic-linked supply shortages and to increase self-sufficiency of critical resources over the long term. The COVID-19’s disruption on trade and industrial activities has reignited Chinese leadership’s long-running concerns over resource security.”
Source: Thanks https://www.cnbc.com/2020/05/20/china-stocks-up-food-oil-as-coronavirus-spurs-fears-about-shortages.html