Boston, MA -- (SBWIRE) -- 07/20/2012 -- BMI View: As the Chinese government continues to boost agriculture productivity in its drive to ensure national food security, we expect government subsidies to continue to grow. In 2011, it reached a total of CNY134.5bn (USD21.2bn), with a large portion of it being channelled into seed, fertiliser and fuel subsidies. That said, we believe the country will inevitably grow more reliant on imports of key grains such as corn, sugar and even rice in the long term as consumption growth exceeds production growth. Yield improvement would be the fastest way to meet growing demand and we note that the recent verbal acceptance of genetically modified (GM) seeds is an acknowledgement of the need to recalibrate the government's previously staunch stand against GM products in this respect.

Key Forecasts

- Cotton consumption growth to 2016: 32.0% to 40.3mn bales. Growth will originate from textile processing demand to meet overall global textile consumption, especially as global economic growth recovers in the coming years.
- Pork consumption growth to 2016: 25.0% to 62.5mn tonnes. Continued consolidation of the Chinese meat industry is likely to support large-scale production and increase economies of scale in production. This will help to meet the growing demand of a national diet that is increasing its protein intake.
- Whole Milk Powder production growth to 2015/16: 50.0% to 1.59mn tonnes. Dairy products with a longer shelf life are generally more favoured by Asian consumers owing to safety concerns. Despite the consistent growth, however, the dairy sector is notoriously inefficient because of its fragmented nature - more than 70% of Chinese milk production comes from farms with fewer than 20 head of cattle.
- 2012 real GDP growth: 7.5% (from 9.1% in 2011, forecast to average 7.0% over the next five years)
- 2012 consumer price inflation : 3.0% ave (from 5.6% in 2011, forecast to average 3.4% over the next five years )
- 2012 central bank policy rate: 6.06% ave (from 5.8% in 2011, forecast to average 6.4% over the next five years )

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