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7 Oct 2020

Econ Digest

China adopts stockpiling policy, triggering global agricultural commodity price tensions

In September 2020, China sent positive signals regarding its 14th Five-Year Plan for National Economic and Social Development (2021-2025), which will be implemented starting in 2021. In particular, the issue of increasing food reserves as a source of food security again at an accelerated pace may lead to an increase in China’s demand for agricultural commodities, which will be an important driver of higher global agricultural commodity prices.

 

KResearch anticipates that, in the short run (2021-2023), the additional demand for agricultural commodities due to China’s policy will contribute to an acceleration in agricultural commodity prices for a short period. Other policies issued by the Chinese authorities that may affect agricultural commodity prices still need to be tracked. Afterwards, China’s additional demand for agricultural commodities is expected to be sustained for another 5 years (2024-2028) to foster confidence towards its food reserves for a while longer, which will contribute to keeping prices at a good level. However, from 2029 onwards, China is expected to shift to a self-sufficiency economy, leading to a decline in its demand for imported agricultural commodities, which in the long run could lead to lower agricultural commodity prices.

 

           Thailand will be affected by changes in the prices of agricultural commodities in the world market, if only the soft commodity market that has a direct impact on Thailand is analyzed, because agricultural products are important exports of Thailand and China is Thailand’s largest export market for such products, accounting for 28.1% of Thailand’s total agricultural export value. Although in the short term, Thailand will benefit from rising prices, especially for the main exports to China such as rubber, tapioca, rice and sugar, Thailand may lose out in the long term when prices are in a downward cycle; therefore, all related parties need to be more aware of the impact of China’s policies on Thai agricultural commodity prices and be prepared by accelerating the development of agricultural production capability to build up food security while preventing the effect of more fluctuations in agricultural commodity prices.     

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