Chinese storage scandal leaves question mark over global foodgrain stocks

A major scandal in the foodgrain storage scandal in China has raised questions over actual foodgrain stocks across the world. The suspicion is that ending or carryover stocks of cereals, particularly rice, could be lower, when there are concerns over the global production of rice in view of weather affecting the paddy crop in Asia. 

The Chinese government’s action over the past few months, particularly just before the 75-day heat wave set in across the Communist country in June, has drawn the trade’s attention. China is facing its severest heat wave yet since 1961. 

According to details seeping in from Beijing, the arrest of Zhang Wufeng, vice-minister and former director of the state grain and materials reserve bureau, was the trigger for the global community to take notice of the shocking developments. Wufeng was set to get a major role in the CCP’s National Congress in Beijing next month. 

Authorities’ action

Following his arrest, the Chinese authorities took action against more officials within a fortnight. Besides Wufeng, a top leader in the Chinese Communist Party, over 20 others who have been involved in grain storage management have been “investigated” — parlance for arrest — for the scandal, in which various irregularities have been committed in the storage system, including misleading stock position. 

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Apart from these, 14 provincial-level leaders of local grain companies and bureaus have faced disciplinary actions. In one of China’s largest producer firms, over 1,000 have come under disciplinary action for the irregularities that were committed. The action, which began in August last year and has gathered pace ahead of the National Congress, either means arrest or dismissal from service or both. 

Investigations by Chinese authorities have revealed a number of warehouses were empty when account books showed they were filled with grains. Some local Chinese officials were also found involved in the scandal, which now raises suspicion over actual foodgrain stocks with the Communist nation. 

Abuse of authority

Some local officials, who have small but centralised power to guard stockpiles, have been found to have abused their positions for personal interests. State media reports alleged these officials pulled down prices of grains, reporting high crop losses to skim money and illegally selling the foodgrain reserves. Among those arrested for these violations is Xu Baoyi, a former deputy general manager of a stockpiling firm., on July 22.

The problem with this is these warehouses were considered full and tonnes of foodgrains have been added as stocks in the system. What aroused the suspicion of the Chinese authorities was the rise in imports of agricultural produce when the country claimed record production. 

Trade analysts point out how China had been secretive in even revealing its actual production details of Japonica and Indica rice - the two types it grows - to the World Trade Organisation (WTO) during the hearing of a dispute with the US in 2019. 

Series of violations

Then, China told the WTO that Japonica rice made up one-third of its total production rather than reveal the exact volume. Analysts point out that the area under paddy and the yield have been stagnant over the last few years at 30 million hectares and 6.5 tonnes per hectare, respectively. 

The violations noted by the Chinese authorities are these officials “maintained books”, “mishandled grain public funds”, engaged in circular trading resulting in what goes out coming back with a new entry record and falsified transportation costs. 

The action is also to pre-empt any adverse comment by the CCP at its 20th National Congress next month. The Communist Party’s central committee gives top priority to food security. In 2013, Chinese premier Xu Jinpeng remarked “the rice bowl of the Chinese people must be firmly held in our own hands”. 

Asian paddy under stress

Reports on the scandal have raised concerns since neither the Chinese authorities nor market players have a clear idea of the stocks that are available for consumption. Global agencies such as the Food and Agriculture Organisation, US Department of Agriculture and International Grains Council say their estimates on Chinese foodgrain production and stocks are based on “good faith”. 

Analysts say the worry over the Chinese development is in view of the problem that the paddy crop is facing in Asia, which is the main supplier of the cereal to the global market. The 75-day heat wave in China has affected the paddy crop in a few key provinces, particularly Jiangxi and Anhui in the south. 

In India, deficient rainfall in key paddy-growing regions such as West Bengal, Odisha, Jharkhand and eastern Uttar Pradesh could affect rice production, though the extent is anyone’s guess. In Pakistan, the paddy crop has been affected by recent floods and heavy rains.

Myanmar’s key Rakhine valley has also been affected by deficient rains, while Bangladesh’s production of the cereal is seen impacted by, first, rains and, now, deficient rainfall. There are also reports of some paddy farmers skipping planting operations in view of rising fertiliser prices. 

India’s swift action

In particular, the problem with rice is that global trade accounts for just 55 million tonnes. This is a little more than one-fourth of the global wheat trade. In such circumstances, a small dent to supply can result in prices soaring and triggering food inflation, analysts say. 

Probably, India had got a sense of what is happening in China and it is seen as one of the reasons why the Government curbed rice exports last week. Analysts now say a clear picture will emerge when China begins buying rice from its farmers as part of its stock procurement operations. 

A lower procurement will lead to higher Chinese imports of not just rice but also other commodities such as corn, wheat and soyabean.