China's corn exports will experience a partial revival this year thanks to the central government's policy adjustment, but this rise will remain moderate, analysts said.

An expert from the China National Grain and Oils Information Centre said the government is considering more policies to boost exports in the wake of recent tax rebate increase.

The expert, who wished to remain anonymous, said the government had increased the base price for calculating a rebate of a 13-per-cent value added tax to 1,100 yuan (US$133) per ton, from the former base price of 860 yuan (US$104).

In China, the value on which the 13-per-cent is refunded is not based on actual FOB (free-on-board) prices but on fixed prices set by the government, which are usually lower than the FOB prices.

The policy change meant exporters tax rebates would be increased by US$3.77 per ton.

But the expert said it does not mean corn suppliers would cut their export prices as they made little from exports.

In order to encourage exports and increase farmers' incomes, the government may introduce more measures to support corn exports, including increasing export quotas and waiving railway construction funds in corn transportation, he said.

"The exemption of construction funds will help lower delivery costs from production bases to ports by 30 per cent, for example 23 yuan (US$2.78) per ton in Jilin and 30 yuan (US$3.61) in Heilongiang," he said.

China may export 5 million tons of corn in the marketing year ending September 2005 after a bigger harvest last year, said the expert.

That would be double last year's total corn exports of 2.32 million tons.

But this only appears to be a massive rise given the nation's low level of corn exports in 2004.

China exported 2.32 million tons last year, compared to 16.4 million tons in 2003 and 11.67 million tons in 2002.

Exporters did not even use up the export quota of 4.4 million tons provided by the government in 2004.

Last year's fall in exports was mainly a result of the government's delay in issuing quotas.

Concerned that falling corn stocks may imperil national grain security, the government issued the 2004 quotas at a later date and missed the corn exporting season.

The hike in grain prices, led by increased government agricultural subsidies, also eroded China's price edge in exports.

The World Trade Organization allows China to adopt a "yellow box policy" to subsidize farmers, up to 8.5 per cent of China's total agriculture production value. There is still much room as the percentage in China ranges from 3.3 to 3.5 per cent.

The China National Grain and Oils Information Centre predicted China's corn harvest to rise 14 per cent to 131.7 million tons in 2004 from 2003, after the area sown with the crop expanded 6 per cent to 25.6 million hectares.

China's demand for corn is projected at 126 million tons for the crop year through September 2005, which means this marketing year will be the first time in five years that production exceeds demand.

The situation means China must increase its exports to an extent, but this is impossible without government support, said analysts.

The increased global corn harvest has put pressure on Chinese corn prices, said Xu Lihua, an analyst from COFCO (China National Cereals, Oil and Foodstuffs Import and Export Corp) Futures.

Total global corn output in the marketing year is projected to be 700.5 million tons, a year-on-year rise of 12.7 per cent, according to the US Department of Agriculture.

Ample supplies in the major corn-exporting countries like the United States and Argentina will make it difficult for Chinese exports to expand their market share, Xu said.

Chinese corn is likely to lose its competitive edge over US and Argentinian corn owing to the expected drops in international marine freight costs, she added.

Japan and South Korea the are main export destinations of Chinese corn. But if freight costs continue to fall, US shipments will be cheaper.

At the same time, Chinese farmers still hold on to about 50-70 per cent of their unsold corn in the main producing areas of Northeast China awaiting higher prices.

At the beginning of this year, corn exports reached 202,310 tons by January 25, mostly to Japan, South Korea and the Philippines.

(China Daily January 31, 2005)