France, the world's fourth-largest grain exporter, last week made its first wheat shipment to China in almost a decade.

The 55,000 tons of wheat, which arrived last Monday at the port of Tianjin, was the first batch of a 700,000-ton wheat contract signed last May.

"The contract is worth US$100 million, and the rest of the wheat will be shipped to China in the first half of next year," said Li Zhaoyu, chief representative of France Export Cereals (FEC) Beijing Office.

"With the entry of 10 new members into the EU, France's position in the European market is challenged by competition from other wheat producers in the EU," Li told China Business Weekly. "France is eager to seek new markets outside Europe.”

FEC last month donated 300 tons of French wheat to a mill in south China's Guangdong Province. Three French technicians are conducting tests at the mill to adapt French wheat to special requirements for making Chinese food, Li said, and the results will be released in the first half of next year.

"I hope this contract can boost wheat trade between China and France," said Marie-Helene Le Henaff, agricultural counselor at the French Embassy in Beijing. "France had a bumper harvest this year, and we can provide 2 million tons of wheat to China next year."

France produces more than 37 million tons of wheat annually, half of which is exported.

"We will still import wheat next year, but it is too early to predict whether import volume will increase," said Yang Hong, general manager of the wheat department of the China National Cereals, Oils & Foodstuffs Imp & Exp Corp (COFCO).

COFCO, a government-designated grain-buying agent, handles 90 percent of wheat imports. Private trading companies and mills apply for quotas on the remainder.

Although final figures for wheat output have not been released by the National Bureau of Statistics (NBS), output is "definitely rising this year, given enlarged planting areas and farmers’ growing enthusiasm for planting wheat," said an unnamed official at the Ministry of Agriculture.

"Rising wheat output this year will not necessarily lead to a drop in wheat imports next year," said Yang Jun, an analyst with the Center for Chinese Agricultural Policy of the Chinese Academy of Sciences.

"China's wheat output has dropped for a few years, and the government has used the wheat reserves to fill the supply gap and to stabilize wheat prices. The government, out of security concerns, may still need imported wheat to replenish stock," Yang Jun told China Business Weekly.

Despite the good harvest this year, China must delicately balance supply and demand in the next few years, and must use reserves and imports to make up the gap, Zheng Jingping, NBS spokesperson, was quoted as saying by Xinhua News Agency in October.

According to customs figures, China imported 5.97 million tons of wheat in the year's first ten months, up 17.7 fold over the same period last year.

COFCO's Yang denied reports that China is expected to import 8 million tons of wheat by year's end.

"That figure is too high. Up till now, we have imported 6.3 million tons," Yang Hong told China Business Weekly.

China set its tariff rate quota (TRQ) of 9.636 million tons for wheat this year, in accordance with its commitments to the WTO.

Under the WTO entry agreement, imports within the TRQ must have a 1 percent tariff, and imports beyond the quota must carry a 65 percent quota.

But the fill rate for the wheat TRQ was only 5 percent last year, and 7 percent in 2002.

"The rate for this year will be much higher," Yang Jun said.

"It is a rational choice for China to import high quality wheat, in which China is not competitive. But the key for China is to have a diverse source of imports, rather than just relying on one or two countries," he added.

China mainly imports wheat, with higher protein and gluten content, from the US, Canada, Australia and France.

The Zhengzhou National Grain Wholesale Market expects 22.9-23 million hectares of wheat to be grown domestically this year, up 4.5-5 percent from last year.

At the beginning of this year, the Central Committee of the Communist Party of China and the State Council issued the No 1 Circular, which contained several new policies aimed at raising farmers' incomes to help spur rural growth.

Major policies include the lowering, and eventual abolition, of agricultural tax, the direct subsidization of grain producers, and the establishment of fixed bottom prices for major grain products.

(China Business Weekly December 24, 2004)