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Corn+Soybean Digest

China Sets Quota On Flour Exports

China's commerce ministry on Tuesday imposed export quotas on flour made from wheat, corn and rice to help stabilize domestic grain prices and guarantee the country's grain security.

The quota restriction was in addition to a 25% export tax on wheat flour announced by the finance ministry a day earlier. It gave no grace period. The ministry earlier removed a 13% tax rebate on exports of grains and flour.

According to Reuters News Service, the decision surprised most wheat flour exporters, who are expected to cancel some shipments to buyers in southeast Asia.

"It will be a bad year for us. The policy was a complete surprise. Many mills will have to breach contracts," Dong Yuefei, a sales manager with Shandong Banqiu Flour Mill, a major exporter, told Reuters.

The policy change highlights Beijing's mounting concern over its supplies and rising food prices in a tight global wheat market after drought cut production in major producing countries, including Australia and Canada.

Reduced exports from China could raise prices of staples like flour and bread in southeast Asia, which already faces reduced shipments from drought-hit Australia, the world's second-largest wheat exporter.

India last week scrapped import duties on wheat flour, to try to keep a lid on prices.

China became a major wheat and wheat flour exporter last year as high freight rates and record world wheat prices made U.S and Australian wheat uncompetitive in southeast Asia.

China's exports of wheat flour rose to more than 1 million metric tons in 2007, up sharply from only 200,000 tons in 2006, analysts estimated.

The shift to exporting flour, rather than bulk grain, came after Beijing stopped issuing fresh export quotas for wheat and corn in the second half of 2007, in an effort to curb inflation.

Editor’s note: Richard Brock, The Corn And Soybean Digest's Marketing Editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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