Export Corn, Research Paper Example

Introduction

China is the world’s largest economy and leading consumer and producer of many agricultural commodities. Over the recent years, its massive population and growth in income have significantly fueled a rapid increase in both quality and quantity of fiber and food consumed. China has increased its domestic production to match this increasing demand. China has also emerged as a leading imported for several agricultural commodities including maize.

Major players in world markets

Following the breakdown of the former USSR sent maize tumbling and resulted into rapid consolidation all around the world, especially in the form of acquisitions and mergers. This has led to control of large volumes of maize exportation by a small number of companies with transportation and storage operations across the supply chain and strong financial positions to manage growth and returns through business cycles (Dow Jones Newswire, 2011). The global competitors combined because of low profit margins and excess capacity by combining their industrial merchandise. The list below provides the most important global companies in the global maize market.

Cargill

The company is a privately owned agricultural processing and trading firm with headquarters in the United States. The company plays a major role in the world markets for oil seeds and grain trading and processing, for poultry and livestock, for cotton, and the manufacture of several other commodities. The firm is the world market leader in export with over 50 million tons of oilseeds and cereals traded. Cargill is the world’s largest maize exporter and it does business with China.

Archer Daniels Midland Company

This United States based firm deals with agricultural trading and processing. It is the second largest maize exporter after Cargill. The company has also acquired a major stake of the German based and leading European firm, Alfred C. Toepfer International.

Bunge Group

The company is based in Argentina and trades more than 30 tons of maize annually. It is responsible for one fifth of the world’s trade in wheat, maize, soya beans and other grains, as is a major exporter of grains and soybeans from Brazil and Argentina. The group operates one of the major flour milling plant in the world.

Louis Dreyfus

This is a French family company specializing in agricultural trade. The company accounts for 15 per cent of world trade in oil seeds and grains. It has operations in China and other countries in the world.

Nidera

It is a family owned firm with headquarters in Netherlands. It has major trading operations in Latin America and exports to countries around the world.

Noble

This company operates in Hong-Kong and operates on a wide array of commodities including exporting maize to other countries.

ZenNoh

It is a cooperative association of more than 4.7 million farming households in Japan and exports maize worldwide.

Pricing

China was a major importer of corn in 1994 and 1995, but this changed when China emerged as a major exporter of corn. This trend however changed with increased demand for corn in China. The United States has been the major importer of corn into China. China is now the major importer of corn from overseas markets, buying 900,000 metric tons from America. This shows that growing Chinese demand will play a significant role global grain prices. Before 2009, the country was the major exporter of corn but it is now struggling to meet the increasing demand for the grain that is mainly used as animal feed. People’s income is on the rise and people eat more meat.

The maize price in China rose sharply, from 1762 RMB to 2000RMB per ton. The price is however high in non-producing provinces. The rise in price is largely due to drought experienced in the country the previous year. Market analysts believe that prices will continue soaring and this present a good opportunity for importing corn to China. There has been a significant reduction in corn production in the last two years resulting to increase in corn prices.

Promotion

Export promotion strategy was introduced in the US in 2009 in the bid of improving international business between the US and China. The National Export initiative aims at promoting export and creating jobs (USDA, 2012). The US government has been organizing meeting with China government on ways of expanding agricultural export to China. China is the United States’ leading partner in trade and 25%of annual trade between the two countries is agriculture. Promotion for corn products in China can be undertaken through export promotion agencies and liaising with domestic distributors. This will enhance the distribution channel for the product in the market.

Channels

Distribution of corn requires a good transportation and telecommunication network. China does not have a well-developed road network to distribute products once they land at the port. Importers into the country need to maximize available demand outlets by either investing in interior storage, or transport system to enhance access. This also assists them manage distribution trade taking place at longer distances between the points of production. Importers can also considering alliances with domestic players in the value chain.

Government Regulations and Tariffs

Following the signing of the US-China Bilateral Market Access Agreement on China’s Accession to the WTO on November 15, 1999, the China’s market has become more open to the US goods and services. The resulting structural reforms and rule of law has also supported domestic reform in China.

Tariff rates

China’s import tariff is divided into two categories: the general tariff and the minimum tariff. The United States has access to minimum tariff for importing to China both countries has an agreement containing preferential tariff clauses. Import taxes are imposed on importation of certain goods including textile and other raw materials. China announced that it would start cutting import on a number of products, which became effective January 1, 2000.

Trade barriers

The Bilateral Agreement following the accession of China to WTO is one of the latest trade agreements negotiation between the US and China. The Chinese government have realized the importance of economic reform and open markets in bring sustainable economic growth. However, these reforms have been difficult to achieve in certain sectors, particularly the heavily protected agricultural sector, and the aging industrial sector. China today has a more competitive and open economy than 15 years ago, even though there are still many significant barriers in place.

Some of the current trade barriers that U.S. firms face

China has high tariffs, which form an effective import barrier. China is still charging high tariff on importation of some goods in their bid to build international competitiveness. The tariff for US agricultural products import to china is still high at 14.4%.

China has been eliminating trade quotas since joining the WTO. Officials at the central and local levels asses the need for quantitative restriction on particular products.

Import licensing

Import licensing procedure is available for some electronic products, laser discs, ozone depleting materials, and chemicals that can be used as weapons. The products such as vegetable oils, tobacco, and wines have been removed from quantitative restrictions and are now listed under free imports.

Foreign exchange policy

Foreign exchange policy is a good tool in stabilizing the currency exchange rate in foreign exchange market. The current foreign exchange policy of China aims at strengthening its currency in the world market (Morrison, 2011). The central bank of China has foreign exchange reserve of 2500 billion dollars. China has account surplus of 8 per cent of its GDP. While the current account deficit of the US is only 2.9 per cent of GDP. This shows why the US has to devalue its currency when trading with China.

Requirements for importation documentation

Custom officials upon request require a certificate of origin. A commercial invoice must include shipper’s name, address and other details about the contracting the shipper. The details must include a detailed description of the goods, the currency used, their value, weight of the shipment, and where the shipment came from packaging list and bill of lading must be included with all pertinent information given.

Import duty on corn

According to report issued by the state-owned China National Grain and Oil Information Center, there is a 13% value added tax and 1% duty on corn imports.

Source: USDA, Brilliant Pioneer Consultants, Potash Corp

Source: FAO

Source: FAO

Source: FAO

References

Food and Agriculture Organization of the United Nations. (2012). http://faostat.fao.org/desktopdefault.aspx

USDA, Brilliant Pioneer Consultants, Potash Corp. (2012). www.potashcorp.com/…/POT_2011_GoldmanSachsPresentation.pdf

Dow-Jones, Newswire (2011). China’s Corn Demand Market Analysis Agriculture.com www.agriculture,com/marketanalysis/corn/chinas-cn-dm-mindblowing_9-ar18414 02/23/12

Morrison, W.M. (2011). China’s Economic Conditions: Congressional Research Service www.fas.org/sgp/crs/row/RL33534.pdf 02/23/12