Ukrainian-Chinese trading with agricultural products - time of changes

Source

APK-Inform

4365

To date, China has already become the key player in the global imports of agricultural products, and it is quite natural: in terms of the population at nearly 20% of the global population, the country controls 7% of the global agricultural land resources only. Growing incomes of the population and changes in dietary preferences make China increasingly interesting for the imports of various types of agricultural products and food products. But has Ukraine managed to fully use the potential of China as importer, and how will develop the relations between our countries in the sphere of agricultural trading in the coming years?

Indeed, China has become the main factor influencing the situation in many segments of the global agro-industrial complex. Taking into account the recent events, we really see how significantly the country can change the production dynamics of any product (for example, the Chinese imports of soybeans and sorghum), how a scandal on the Chinese market can provide billions of losses to the country (recent meat scandal with Brazil), how the Chinese demand radically changes price situation in various market segments (malting barley and coffee markets). To date, agricultural products of such countries as Brazil, Argentina, Uruguay, Australia, Kazakhstan, etc. are almost completely oriented towards the Chinese market. However, the cooperation of Ukraine and China in the sphere of agro-industrial complex (both trade and investment cooperation) is still in very beginning stage of its potential fulfillment.

 

China: imports of the major types of agricultural products, `000 tonnes

Commodity (origin of data)

2012/13

2013/14

2014/15

2015/16

2016/17 *

Corn (USDA)

2702

3277

5516

3174

3000

Soybean oil (USDA)

1409

1353

773

586

620

Sunflower oil (ISOA)

400

550

600

920

1,1

Soybeans (USDA)

59865

70364

78350

83230

87000

* Forecast

 

As for the official sphere, the economic relations between Ukraine and China are still regulated by the Trade and Economic Cooperation Agreement signed in 1992. Although the document provides establishment of the most favorable regime regarding the customs duties and taxes, it is obvious that since its signing both countries have passed a long way of development of the current relationships, and need the further revision and moving of the relations to a new level. Announcement of the Ambassador of the People's Republic of China in Ukraine, Du Wei in November 2016 on the need to establish a free trade zone with Ukraine became an important step in the reporting direction. At the same time, preparations for realization of such agreement may take several years (according to the experience of similar agreements between China and other countries), but to date it is clear that the direction for domestic trade is oriented towards the south-east. Moreover, in terms of the exports of agricultural products and foodstuffs, China is a country of infinite possibilities both by volumes and the range of supplied goods. To date, China imports large-scale volumes of grains, soybeans, vegetable oils, oilseed meals, meat and edible meat offal, dairy products, etc., and its import demand in the reporting products continues growing every year. However, the share of Ukraine in agricultural exports to China is still rather small as opposed to a number of South American and Asian countries. It should come as no surprise, because the contemporary history of relations between China and Ukraine as agricultural partners has not always developed without a hitch.

In particular, we should mention the revolutionary (in terms of the dynamics of relations between our countries) and scandalous Chinese credit for PJSC State Food and Grain Corporation of Ukraine (SFGCU). Briefly about the course of events: in 2012, China and Ukraine signed an agreement according to which the Chinese party provided a loan to Ukraine on the basis of annual deliveries of 4-6 mln tonnes of corn to China, as well as other grains for 15 years. Two public companies - ССЕС (China) and SFGCU (Ukraine) became the parties to the contract. Under the terms of the contract, Ukraine was able to supply grains to other countries, but only through the Chinese corporation (which would receive 5 USD/t from such operations) on the principle of exclusive partnership. However, the reality far removed from the contract: in 2013, the Ukrainian party realized the grain deliveries to China at 13.5% of the contract plan, in 2014-2015 period - 23%, in 2016 - 10.5% only. By the end of 2016, the conflict between the parties already reached its climax, and the supplies of grains were stopped, but in early 2017 there was observed a positive development. According to SFGCU, Ukraine resumed the deliveries to China. It is worth noting that the main claims of ССЕС were not only that SFGCU failed to realize the deliveries of the contracted grain volumes, but also that SFGCU sold grains to other countries without participation of the Chinese company. While missing the offset factors (such as the change of government, and some decline in the global grain prices), the fact remains that Ukraine became a country that disrupted realization of intergovernmental agreements, in the opinion of the Chinese party. Of course, it played directly into a number of other countries-exporters of grains and vegetable oils.

Despite the above-mentioned difficulties in joint operation of two public operators, private companies from Ukraine and China are cooperating well, and continue increasing their trading volumes. The trend is mainly noticeable in the deliveries of sunflower and soybean oils.

  

 

Hereinafter, there is a small-scale analysis of the current trade relations between Ukraine and China on certain agricultural products, with characterization of the current situation and potential for trade between the countries.

 

Grain crops

In the case of grain crops supplying to China, Ukraine mainly exports corn within frames of the above-mentioned contract. In addition, some private companies make corn deliveries to China. For example, in 2016 SFGCU covered 14% of all Ukrainian corn exports to China, and such private companies as Granum Invest and Kernel-Trade - 16% and 12%, respectively. Also, Ukrainian exporters supply barley to China. Thus, in 2016 Ukraine exported more than 300 thsd tonnes of the grain to China (private companies Granum Trading, Nibulon, etc. were the leaders in such exports). Also, the supplies of Ukrainian sorghum to China are perspective: China entered the global market of sorghum as importer several years ago only, and became the largest importer of the grain.

In order to increase the foreign supplies of Ukrainian grains and by-products, there is required well coordinated work of the public authorities to coordinate the phytosanitary issues with the Chinese party, establish new logistical projects, and develop the measures to attract Chinese importers on the Ukrainian market. Also, it is difficult to overestimate the role of industry associations in trade with China: one can learn from the example of South American trade missions and active marketing activities in China of such organization as U.S. Grains Council, etc.

 

Dynamics of grain exports from Ukraine to China

10th group - grain crops, tonnes

2013

2014

2015

2016

2017*

Total

26 831 419

32 259 604

37 441 207

40 232 114

6 591 760

To China

111 132

1 567 313

3 901 615

2 877 836

85 500

Chinese share

0,40%

4,90%

10,40%

7,20%

1,30%

* Hereinafter, January-February

Corn, tonnes

2013

2014

2015

2016

2017*

Total

16 580 920

17 348 412

19 040 845

17 251 639

4 124 189

To China

111 132

1 387 795

3 139 494

2 577 373

85 500

Chinese share

1%

8%

16%

15%

2%

 

Oilseeds

To date, China is the largest global importer of soybeans, and purchases significant annual volumes of the oilseed from South America and the USA. However, in recent years Chinese buyers expanded the geography of imports, and Ukraine entered the list of countries-suppliers of soybeans to China. Although, the import volumes are still small, the market is developing in very dynamic way - during several recent months APK-Inform Agency organized business tours on Ukrainian soybean purchases for some Chinese companies.

In addition, the supplies to China of soybean oil of Ukrainian origin still continue actively developing. APK-Inform analysts expect for good supply dynamics in the coming years.

 

Dynamics of soybeans and soybean oil supplies from Ukraine to China

Soybeans, tonnes

2013

2014

2015

2016

2017*

Total

1 478 813

1 675 612

2 196 281

2 734 472

636 711

To China

131

0

1 436

9 473

4 633

Chinese share

0,01%

0,00%

0,07%

0,35%

0,73%

           

Soybean oil, tonnes

2013

2014

2015

2016

2017*

Total

82 118

78 587

154 300

152 614

22 593

To China

70

8 022

81 845

52 536

3 301

Chinese share

0,10%

10,20%

53,00%

34,40%

14,60%

 

Sunflower oil

Of course, the market sector of sunflower oil is the most dynamically growing segment of Ukrainian-Chinese agricultural trading. During several recent years, the Chinese market continued developing the trend in increasing of vegetable oils consumption. In 2015, the consumption of oils per capita already reached 23 kg, which was the average global figure. According to COFCO, the consumption structures for various types of veg oils also continue changing: the consumption rates of rapeseed, sunflower and peanut oils are increasing, and the rates for corn oil, which is traditional for China drastically reduced. During several recent years, China started increasing the imports of sunflower oil: in 2006/07 MY, its imports totaled 94 thsd tonnes, but in the season-2016/17 - 920 thsd tonnes (ISOA forecast). In addition, according to Wilmar forecast, China can increase the consumption (and imports) of sunflower oil to 2.4 mln tonnes per year in several years. Despite the gradually growing competition rates from Russia, Argentina and Kazakhstan, Ukraine remains the main supplier of sunflower oil on the Chinese market, providing nearly 75% of the imported volumes of the product.

 

Dynamics of sunflower oil exports from Ukraine to China

Sunflower oil, tonnes

2013

2014

2015

2016

2017*

Total

3 183 926

4 330 159

3 939 090

4 842 653

906 759

To China

433 474

377 500

582 058

633 371

67 096

Chinese share

13,60%

8,70%

14,80%

13,10%

7,40%

 

Of course, we should stress the investment cooperation between China and Ukraine, which still remains highly restrained, and certainly fails to meet the potential of both countries. The share of China totals 0.48% (!) only in the general inflow of investments to Ukraine, at the same time the Chinese funds mainly concentrated in agricultural projects (39% of all Chinese investments). In addition, China continues confidently increasing its exports of agricultural chemistry and machinery to Ukraine.

It is clear that in terms of high activity of Ukrainian private exporters, in order to increase competitiveness on the Chinese market, the government should organize a massive promotion of "the products of Ukrainian origin" — because strategy was very successful by other countries-exporters (Kazakhstan, Russia, etc.).

In our part, APK-Inform will continue working to strengthen business-level trade relations between China and Ukraine: in May 2017, APK-Inform co-organized the Meat Congress in Shanghai (and participated in the exhibition SIAL China), in June 2017 we brought a delegation to the veg oil exhibition in Shanghai, and in July 2017 we expect for a large delegation of Chinese importers of sunflower oil at Sunflower Oil Summit in Odessa.

 

Svitlana Synkovska, APK-Inform Agency / ISOA

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