Record Wheat Demand from China Creates Uncertainty in Global Markets

Following unfavorable weather conditions affecting its wheat production, China has made significant efforts to import wheat from around the world, expecting its annual import levels to reach a record high. Earlier this year, China invested substantial amounts in purchasing wheat from Australia. This month, they have continued this trend, buying significant quantities of wheat from major global exporters, including the US, Canada, and France, according to statements from anonymous traders quoted by Bloomberg. This surge in wheat purchases comes after international wheat prices hit their lowest level in three years in September. While there seems to be enough supply for now, China’s growing demand adds a new level of uncertainty to a global context where supply chains are already vulnerable to events such as conflicts and protectionist trade policies.

Darin Friedrichs, co-founder of Sitonia Consulting Co., stated, „China’s wheat imports will be significantly larger in the future and will certainly exceed the annual quotas. It seems China has bought all available export quantities from Australia and now needs to turn to other suppliers.” To manage food imports like wheat, Beijing authorities utilize a quota system. Currently, China allows the import of 9.636 million tons of wheat annually at a 1% tariff, with 90% of this quota allocated to state-owned companies. For imports exceeding this quota, the customs duty increases significantly to 65%, a level typically not accessible to private buyers. For several years, China did not exceed this quota. However, the situation changed in 2020 with the signing of a trade agreement between China and the Trump administration, which boosted wheat purchases from the US. Last year, China recorded a record level of wheat imports, totaling 9.96 million tons, as Chinese consumers began using wheat as a substitute for other animal feed ingredients and consumed more bread. Today, China competes with Egypt for the title of the world’s largest wheat importer. In the first eight months of this year, Chinese wheat purchases from abroad have already reached 9.56 million tons, with over 60% of this quantity imported from Australia.

Drought, a Major Threat to European Agricultural Production

According to the first edition of the European Drought Risk Atlas, European farmers face potential production losses of up to 10% annually due to drought. Areas with significant risks are especially found in Spain and Romania, which are facing the most difficulties. This drought risk assessment evaluates the consequences for various sectors and systems in the European Union based on current climate conditions and anticipated scenarios in which global temperatures increase by 1.5°C, 2°C, and 3°C compared to the pre-industrial period. The Mediterranean region is the most vulnerable to drought risk due to the clear trend of increasing dry conditions caused by global warming. Spain, for instance, has already seen reductions of over 5% in wheat production and over 10% in barley production due to drought. Romania, along with other eastern and western regions, faces more complex effects caused by fluctuations in humidity levels and precipitation variability. The Atlas shows that Romania already has a relatively high risk of drought, and future projections indicate increased risks across multiple sectors.

From a wheat production perspective, Romania is the fourth-largest producer in the EU. However, the country is expected to suffer significant losses due to drought. Last year, Romania harvested 8.5 million tons of wheat, compared to 10.4 million tons the previous year. The forecasts are not encouraging, with average yields per hectare expected to decrease by 5-7.5% annually. Regarding corn production, Romania is facing an average annual relative reduction of 10-12.5% due to drought. Last year, corn production was 8.2 million tons, down from 14.8 million tons in 2021.