China Should Invest FX Reserves In Agriculture Abroad -Govt Researcher

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Dow Jones | 27 May 2011

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BEIJING (Dow Jones)–China should use its huge foreign exchange reserves to expand investment in the agricultural sector overseas, in an effort to increase domestic market supply, a researcher with a government-owned economic institute said.

China's foreign exchange reserves, the world's largest, rose to $3.04 trillion as of the end of March, with a substantial portion invested in U.S. Treasurys.

China should build grain production bases abroad, especially in South America, Africa and some neighbouring countries with great potential to increase grain production, Chen Jie, a researcher with the Research Center For Rural Economy, a consultancy under the Ministry of Agriculture, said in an essay published in the state-owned Farmer's Daily dated May 21.

"We must not rely on imports to meet domestic demand for grains," she said in the article.

"Otherwise, the issue of grain supply could become a national security problem anytime," he said, adding that cereal exporters could easily embargo trade in grains when supplies are tight.

Chinese agricultural companies are eager to tap overseas resources as domestic demand is rising quickly and domestic grain and edible oil production is approaching full capacity due to rapid urbanization.

Both the Chinese government and marketers also want to insulate prices from volatility in major markets such as the Chicago Board of Trade, and controlling upstream resources including land and crop selection would be the best way.

Local media have reported that the state-owned Chongqing Grain Group Co. to spend more than CNY2.5 billion to purchase land in Brazil for soybean cultivation, as part of a $3.4 billion plan to build oilseed and rice production bases overseas including bases for rapeseed in Canada and Australia, palm oil in Malaysia and rice in Cambodia.

The Tianjin-based Julong Group, a privately-owned palm oil trader and importer, has spent $200 million to buy 20,000 hectares of land in Indonesia to plant oil palm. The company plans to expand its oil palm planting area overseas to 200,000 hectares, with a total investment of $2 billion.

Meanwhile, China's state-owned Cofco Group is seeking to acquire Australia-based sugar producer Tully Sugar Ltd., competing with the New York-based Bunge Ltd. (BG).

China, the world's largest importer of soybeans and palm oil, is attempting to maintain a grain self-sufficiency rate above 95%.

It is becoming a major player in the global corn market because of robust domestic corn consumption for animal feed and industrial processing. In 2010, China imported 1.57 million tons of corn, the largest volume in more than a decade.

-Zhoudong Shangguan contributed to this article; Dow Jones Newswires; (8610) 8400 7715; [email protected]

Original source: Dow Jones
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