China called out for lack of transparency

Grain exporting nations want the World Trade Organization to ensure there is better transparency in grain markets.

Seth Meyer, chief economist with the United States Department of Agriculture, said there is a lack of transparency by some WTO members when it comes to export restrictions, stock holdings and trade positions.

Meyer was part of a trade policy panel speaking at the International Grains Council’s Grains Conference 2021. The panel included Gloria Abraham Peralta, chair of the WTO’s committee of agriculture.

Meyer made a strong plea for the WTO to ensure member countries properly disclose what stocks they have on hand of key grains because that is not happening today and it creates confusion and volatility.

“We’ve got some big players in the market who tell us very little about what they have on hand,” said Meyer.

The USDA struggles to put together meaningful numbers in its monthly World Agricultural Supply and Demand Estimates report.

“We don’t have a good view into some of the folks whose stock positions would be absolutely critical to understanding where we’re heading,” he said.

Meyer and other panelists kept referring to “big players” and “folks” and “key countries” without mentioning names until Meyer eventually laid his cards on the table.

“We’re dancing around the issue here,” he said.

“Tell me what the stocks of corn are in China and I’ll tell you a bit more about where I think we’re headed.”

China’s longstanding practice of concealing its grain stocks is causing tremendous volatility in grain markets, such as this year when the country suddenly emerged as a major importer of corn and wheat, igniting grain markets around the world.

“We can’t tell, is this transient demand? Are we turning the corner? Are stocks far lower or higher than we anticipate?” said Meyer.

Philippe Mitko, president of COCERAL, a European association of cereals, oilseeds and pulse crop traders, nodded in agreement with Meyer.

He said the grain trade has a much better idea about China’s soybean stocks than it does about the country’s corn reserves and that needs to change because China’s corn demand is driving the recent bull run in grains and oilseeds markets.

Mitko said everybody has their own estimate of China’s corn stocks but nobody truly knows what the Asian giant is holding.

The grain trade desperately wants to know if the corn market is about to undergo a structural change similar to what happened with soybeans many years ago.

Mitko said there needs to be better transparency from China and other WTO countries on other fronts as well.

A big concern for his European member companies is the lack of accurate price reporting in some countries. In fact, that is probably a larger concern than obfuscating stock levels.

Another COCERAL concern is the rise in export restrictions around the globe and the lack of advance-notice of those restrictions and details about how they work.

At one point during the COVID-19 pandemic the WTO reported that 21 new export restrictions had been implemented by 16 countries around the world. Over half of those were outright bans on agricultural exports.

Mitko said there should be no restrictions for WTO members but countries like Ukraine, Russia and Argentina often implement bans to quell domestic food price inflation.

Russia’s recent grain export tax, which was first implemented in February 2021, is particularly worrisome because it has morphed into a complex, unpredictable floating tax that is constantly changing.

He said the tax can amount to as much as US$60 per tonne.

“That has a tremendous impact on the world market, especially for wheat because Russia is the (top) exporter on the world market,” said Mitko.

He said there is a lack of information about how the tax works and no advance notice that it was going to be implemented, which creates market volatility and increases risks in the grain trade.

It also wreaks havoc on grain buyers.

“When you export raw materials or food products you have a responsibility to your customer,” said Mitko.

Countries export the raw product but they’re also exporting food safety, reliability, legal certainty and their values, he said.

Mitko noted that when Russia eventually abandons its export tax it will create yet another shockwave in grain markets.

Meyer agreed that export restrictions “are not helpful,” especially when there is a lack of information about how they work and how long they will be in place.

Abraham Peralta said the WTO is aware of the concerns of exporting nations and assured that they will be addressed at the WTO’s upcoming 12th Ministerial Conference (MC-12) in December.

WTO members are exploring ways to update WTO rules in seven key areas, she said. One of the areas is export restrictions and another is government stockholding.

She said the WTO is attempting to find meaningful and permanent solutions to some of the issues raised by Meyer and Mitko.

The Canadian Agri-Food Trade Alliance said it hopes “ambitious outcomes” can be achieved at the upcoming MC-12 meeting.

“Many members are stating openly that failure to secure meaningful deliverables at MC-12 will further erode the WTO’s credibility,” CAFTA stated in its May 2021 Trade Insights newsletter.