Thursday, December 21, 2006

China May Start Clamping Down on Bio-Fuels

China has started clamping down on the use of corn and other edible grains for producing bio-fuels according to a recent report by Inter-Press Service. China's biofuel industry is booming thanks to voracious demand for energy to power the country's high-flying economy. China has been encouraging the use of bio-fuels as it reduces dependence on foreign oil and also helps alleviate environmental problems. Government planners had hoped that by 2020 15% of transportation fuels would be from Green sources. In China that is huge.

However China is experiencing surging food prices which affects rich and poor. Corn prices have surged 20%. Grain stocks are experiencing shortages and the government is selling from wheat reserves.

Yang Jian, director of the development planning department under the Agriculture Ministry, has been quoted as saying "We have a principle with biofuel: it should neither impact the people's grain consumption, nor should it compete with grain crops for cultivated land,"

The implications are increased oil imports for China. At the same time the recently announced deal between Archer Daniel Midland (NYSE:ADM), Wilmar (Singapore:WIL) and the Kuok Group with its China orientation looks very different after one week. Despite China’s food shortage the timing is strangely suspicious.