Deal With Canada CHINA MAKES SURE OF ITS WHEAT SUPPLIES

Press, Volume CIV, Issue 30918, 26 November 1965, Page 10

Deal With Canada CHINA MAKES SURE OF ITS WHEAT SUPPLIES

(By the Commodities Staff of the "Financial Times. 1

(Reprinted from the “Financial Times" by arrangement.J

Although the precise terms of Canada’s recently announced wheat deal with China will not be finalised until May 1, 1966, and shipments wilt not begin until the following August the implications of_ the agreement are already beginning to lie spelt out. Following hard on the heels of the Canadian Wheat Board’s 5 million-ton sale to Russia, to be shipped in a 12-month period which began last month, this latest deal could well set the pattern of the world’s wheat trade for several years to come.

The details of the agreement released in Winnipeg show that it is a “three tier" deal. There is an initial threeyear contract to ship a minimum of around 3 million metric tons (112 million bushels) and a maximum of 5 million tons, and two alternatives which must be decided on in the next six months.

The options before the Chinese are either to increase the quantities in the threeyear deal to a minimum of 4.6 million tons and a maximum of 7.6 million metric tons, or to agree to a fiveyear deal. This last would involve a minimum of 7.6 million tons and a maximum of nearly 12.7 million tons, worth a total of 900 million dollars. Range of Options China has so far given little indication which of the options it intends to take up. but as the Canadian Minister of Trade hinted when announcing the agreement, past experience shows that the total amount eventually shipped could well be closer to the maximum figure rather than the minimum. Certainly, under the previous three-year wheat deal with Canada, which expires on July 31. 1966, China has already ordered the maximum amount of 5 million tons. Whatever the outcome the wide range of options shows that China is at present none too happy about its ability to meet its future grain requirements from domestic sources. The main problem is China’s spiralling population, which has been growing at a rate of about 2i per cent a year (17 million) pushing the current total to some 740 million. Rice production has been stagnating, and although wheat production has recovered in the last four years to around 23.5 million tons in 1963-64, it is still a good 1 million tons below the 195559 average. The situation has not been made any easier by China’s determination to continue exporting rice for “policy” reasons. Other complications have arisen owing to the fact that most of China’s recent industrialisation has been concentrated mainly in the northern, wheat eating areas. According to the International Wheat Council there has been a sharp increase in the number of industrial workers in the towns, and feeding them has become a major headache. Drought and other production difficulties apart, a lack of both adequate farmers’ “in-

ducements” and transport have often proved big obstacles to getting enough wheat into the towns. It is not surprising, then, that most of the grain imported into China it) recent years has been shipped to the northern coastal cities. Russian Imports The growing pressure on China's rice supplies, its industrial geography and, moreover, the continuing marked bias towards grain in the Chinese diet, all point to the fact that China will be needing more wheat from the West. In 1961-1962 it imported some 41 million metric tons, mainly from Canada and Australia. Last season (19641965) this figure had risen to nearer 6 million tons, and it could be just as large this season, ending June, 1966. After that the new CanadianChinese wheat deal comes into effect.

Russia, too. has been importing heavily from the West. So far this season it has signed contracts for some 9.5 million tons, and although shipments on the latest Canadian deal are due to be completed within a relatively short time the last has plainly not been heard from Russian buyers. Russia is now reckoned to be planning for a long-term grain deficiency, while at the same time trying hard to keep up its export commitments to Eastern Europe and countries like Cuba.

Here Russia does not seem to be doing too well, for as International Wheat Council figures show, although total wheat imports into Eastern Europe have been rising rapidly, those from Russia have fallen heavily. Like Russia itself Eastern Europe has been turning to the West for the extra supplies. The continued failure of Communist bloc countries to provide enough grain for themselves is bound to have important political as well as economic implications. Those countries which used to depend on Russia for wheat imports are already showing signs of impatience with Moscow. Indeed, it recently required a full-fledged visit by Mr Brezhev to Prague to placate the Czech Government, and assure it that deliveries would not be cut back.

Also, against a background of falling world stocks ! n exporting countries, there is likely to be increased competition among the Communist countries for these supplies. China’s recent deal with Can-

ada, for example, looked very much as if China was making sure of its wheat supplies well ahead of all other possible bidders. U.S. Position In this situation it seems unlikely that the United States, which holds at least half the world’s exportable stocks, will continue to remain aloof from trading with the Communists. The President does have the authority to lift the “50-50” shipping restriction which effectively prohibits the export of United States wheat to Russia. So far the unions have successfully delayed the lifting of the ban. The United States Administration's growing preoccupation with the balance of payments problem, however, maysoon lead it to override opposition from this quarter. And once trading with Russia has been resumed, it can only be a matter of time before United States wheat growers will begin to feel better disposed towards a China which is in the habit of handling out 5 million-ton wheat contracts to the Canadians across the border.