Chinese grain traders have reported that the government has issued permits for importing two cargoes of 100 metric tons each of biotech corn from the U.S. The price was reported to not be competitive with local supplies, but the importers wanted to be prepared for possibly more imports in coming months. That China would import 200 metric tons of corn, a little less than 8,000 bushels, is not much news, but like so many events in China it may signal changes in public policies on biotechnology or corn imports.

China officially does not produce biotech corn just like it does not produce biotech soybeans. China has imported large volumes of biotech soybean from the U.S., Brazil and Argentina in recent years. Biotech soybeans had to go through a slow approval process that duplicated what was done in the producing country. Corn had to follow a similar process and then receive final permits from the government. This may indicate that a government policy decision has been made that importing biotech corn is acceptable.

China is not new to the biotech industry. According to the International Service for the Acquisition of Agri-Biotech Applications (ISAAA), China has grown Bt cotton since 1996, the first year it was commercialized in the world. In 2005 China produced 8.2 million acres of Bt cotton, about two-thirds of the cotton grown in China, making it the fifth largest country in area of biotech crops. The cotton was grown by an estimated 6.4 million small farmers. According to the ISAAA, China has over a dozen biotech crops in field tests, including the big three starches – rice, corn and wheat. Some analysts thought China would be the first country to commercialize biotech rice, but that position was taken by Iran in 2005. The ISAAA reports that China has about 200 government funded biotech laboratories and 500 private companies in biotech research and development.

China’s corn yields as reported by USDA have been below trend for the past seven years with the 2005 spread between trend and actual yields at 15 bushels per acre. This may be caused by a production problem that could be at least partially alleviated by using biotech corn. Even if China’s corn yield in 2005 were on the trend for the past 35 years, it would still have been over 40 bushels below the trend yield for the U.S. With 1.3 billion people and an economy that has consistently grown at close to 10 percent per year in recent years, the government may see a need to increase corn supplies with some combination of higher yields with biotech corn and increased imports.

Imports of biotech corn may herald the beginning of major imports of corn by China. That has been a hope (or dream) for U.S. corn producers for over a decade. USDA estimates show that China exported 7.6 million metric tons (MMT) of corn in 04/05 and projects them at 5.0 MMT for 05/06 and 4.0 MMY for 06/07. Much of the exports have gone nearby in Asia were China has a freight advantage and where buyers have sought out non-biotech corn. If China plans to commercialize biotech corn, that will change its trading relationships with South Korea and Japan who have threatened to quite buying corn and rice if biotech crops are grown in China.

Chinese corn imports are estimated at 2,000 metric tons (MT) for 04/05 with projections of 25,000 MT for 05/06 and 100,000 MT for 06/07. The last time China imported a significant amount of corn was in 94/95. Corn imports are in sharp contrast to Chinese soybean imports with USDA estimates of 25.8 MMT for 04/05 and projections of 27 MMT for 05/06. This is up from 10.4 MMT as recently as 2001/02 and virtually nothing prior to 1995. Livestock and poultry feeding patterns are beginning to change with an estimated 40 percent of swine and 70 percent of poultry now raised on commercial farms. If China does plan to import corn on a significant scale, they will have to deal with biotech corn because the U.S. and Argentina are the two largest exporters and both produce biotech corn.

As part of the agreement for China to join the World Trade Organization (WTO) in 2001, China established Tariff Rate Quotas (TRQ) for corn and several other commodities. These quotas were phased in and reached final levels in 2004. The total quota for corn is 7.2 MMT with 40 percent of it reserved for non-state-owned enterprises. If there is a market demand for corn imports, the mechanism is in place for that to happen with minimum government interference.

Increased corn imports by China may be related to their interest in ethanol. China has felt the economic impact of higher petroleum prices just as has other importers and has air pollution problems in major urban areas that may be reduced by using ethanol. According to the U.S. agricultural attaché in China the fuel-ethanol industry is estimated to use this year about 2 MMT of grain with about 1.4 MMT of corn. China has four fuel-ethanol plants for processing grains with a total planned capacity of 1.02 MMT. Output was 700,000 MT in 2005. All four plants are now operating at full capacity and are expected to process approximately 3 MMT of grain in 2006, of which 2 MMT will be corn. Ethanol was subsidized at $225 per ton in 2005, but will receive only $37.50 per ton in 2006. The new five year plan calls for another 1 MMT increase in ethanol output, but that will occur in the southern part of the country where little corn is grown.

China has had a policy goal of being self sufficient in grains (meeting 85-90 percent of their needs). If these biotech corn imports signal a change, it is big news. From past experiences we have learned that when change come in China it usually comes in substantial amounts. A year from now we may be laughing about how nothing came of the biotech corn imports. If the imports do have some broader meaning, now is the time for policy analysts to begin thinking about them.