China's Agricultural Imports to Challenge Market in 2016

New CoBank Issue Brief Identifies Multi-Year High in Commodity Supplies as the Culprit

Dec 17, 2015, 14:21 ET from CoBank

DENVER, Dec. 17, 2015 /PRNewswire/ -- China's slowing economic growth has been well documented in the last year due to concerns that it could derail several industries globally. However, China's economic slowdown is not the primary cause for what is expected to be a significant decline in its agricultural imports in 2015 and 2016, according to a new report produced by CoBank's Knowledge Exchange Division. Instead, the decline can be attributed to multi-year highs of supplies in several different commodities – corn, wheat, cotton, milk powder and soybeans.

The issue brief, titled "Don't Blame China's Economy for Its Slowing Agricultural Imports," notes that despite slowing economic growth, China's urban disposable incomes – which drive the country's food and agricultural consumption – are increasing 10 percent year-over-year. In actuality, China's subsidization of its agricultural sector, which has yielded mounting stockpiles of commodities and strained storage capacity, is the real culprit leading to decreased imports in most categories.

"Conventional wisdom might suggest that it's the economy. It's an easy target because China is the world's largest importer of several different commodities," said Dan Kowalski, director of CoBank's Knowledge Exchange Division. "But this issue has been brewing for years and is a result of China's drive to achieve food self-sufficiency. They've subsidized their agricultural sector to the extent that supplies have considerably outpaced increasing consumer spending and consumption."

The report cites U.S. Department of Agriculture figures, which anticipate that China will import 46 percent less corn, 34 percent less cotton and 35 percent less milk powder during the current marketing year. Wheat, soybeans and other food grains are expected to rise, but by smaller margins than in prior years.

China's economic decline and ample agricultural supplies are expected to present near-to-medium term challenges. However, the country's continuing rural-to-urban migration trend, an emerging service sector and rising middle class bode well for future growth opportunities.

CoBank's Knowledge Exchange Division is a knowledge-sharing practice that provides strategic insights regarding the key industries served by CoBank. Knowledge Exchange draws upon the internal expertise of CoBank, deep knowledge within the Farm Credit System and boots-on-the-ground intelligence from customers and other stakeholders to enhance the collective understanding of emerging business opportunities and risks.

A full copy of the report is available to media upon request.

About CoBank

CoBank is a $110 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 75,000 farmers, ranchers and other rural borrowers in 23 states around the country.

CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation's rural economy. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.

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