Taiwan. Corn Annual. Apr 2015 April 19, 2015

OVERVIEW

Local animal disease outbreaks contribute to a 5% reduction (to 4.3 MMT) in Taiwan corn imports for MY2014/15 while MY2015/16 imports are forecast to recover to 4.50 MMT. Taiwan CY2015 hog and poultry production are estimated to realize a 3% and 6% production decrease, respectively, due to ongoing disease issues. Barring unforeseen disease resurgences, Taiwan's hog and poultry sectors are expected to fully recover by CY2016.

The market share for U.S. corn in MY2013/14 recovered to 42% from the previous year's record low of 12%, realizing equal market dominance with Brazil. However, a strong U.S. dollar and upcoming Brazilian harvest may cut the U.S. share to one-third of total imports.

PRODUCTION

Nearly all of Taiwan's demand for feed corn is met by imports. However, there is increasing attention on Taiwan's overall food self-sufficiency rate, which is currently amongst the lowest levels in Asia at just 33%. In line with Taiwan's farm land utilization policies and food security concerns, Taiwan has revised domestic production policy to encourage growing import-substitute crops, such as commodity corn, wheat and non-GE soybeans. Still, domestic production of these import-substitute crops is in very small volumes. Taiwan's Council of Agriculture's (COA) increased corn target production for 2015 to 108 TMT from 16 thousand hectare (THA) of land from last year's 74 TMT from 11 THA.

Stocks

Highly reliant on imports, Taiwan is a mature corn market with stocks maintained at levels equal to one-two months' consumption. With diverse import sources and the availability of containerized shipments, Taiwan is able to keep its corn stocks at reasonable levels to reduce capital investment. About 15% of total Taiwan corn imports were shipped via containers in CY2014, a 5% drop from a year earlier. MY2014/15 ending stocks are anticipated to be slightly lower than the previous year's because of animal disease outbreaks and lower world corn prices producing slimmer margins for Taiwan importers.

CONSUMPTION

With the exception of approximate 225 TMT of corn for wet milling, the bulk of Taiwan's consumption is for livestock feed use. Corn consumption estimates for feed use are 4.20 MMT and 4.40 MMT for current and upcoming year, with feed inclusion rates at around 60%. Swine and poultry are Taiwan's most important livestock sectors combining to account for 89% of Taiwan's total feed output. Total feed output estimate for MY2014/15 is lowered to 7.0 MMT due mainly to the current highly pathogenic avian influenza (HPAI) outbreaks in commercial poultry farms. MY2015/16 is forecasted to bounce back to 7.3 MMT.

Domestic Livestock Production

The local poultry sector is competitive with imports since Taiwan liberalized its market as part of its 2002 WTO accession. Trade barriers prevent significant pork imports, including U.S. product, into the island. There are no significant poultry or pork exports, at this time.

Hog Sector, Recovery Mode

Porcine epidemic diarrhea virus (PEDv) outbreaks in Taiwan forced the culling of hundreds of thousands of piglets in Spring 2014 and lower overall slaughter numbers. According to COA preliminary data, 2014 hog production, slaughtered, was 7.99 million head and target production for 2015 is set at 8.35 million head. As of November 2014, the standing hog population is 5.55 million head, a 4.5% drop from pre-PEDv status in November 2013, but showing continued recovery. Hog feed demand for current year is estimated at 3% lower from CY2013.

Despite disease setbacks, the Taiwan hog sector is very lucrative, with the supply chain highly controlled by (reportedly colluding) producers, processors, and wholesalers. Taiwan's 2014 pork prices were at near-record highs with COA forced to monitor live actions, encourage limited inventories, and increase imports. Reportedly, a local cooking oil scandal also contributed to high domestic pork prices as demand for locally-processed lard increased (due to incorrect perceptions that imports were to blame). However, hog auction prices have fallen recently to below NT$65/Kg, compared to record NT$85/kg in March 2014.

Pork Imports, Domestic Production, and Wholesale Market Auction Prices (CY)

Poultry Sector, HPAI Outbreaks

Starting January 8, 2015, there have been HPAI outbreaks in Taiwan commercial poultry farms. Subtypes of HPAI H5N2, H5N3 and H5N8 strains were all detected. Waterfowl, goose and duck farms are the most impacted. As of March 16, COA's Bureau of Animal and Plant Health Inspection and Quarantine (BAPHIQ) confirmed that 873 poultry farms were infected with a total of 6.4 million birds lost. The HPAI situation seems to be slowing as it getting warmer; there have been no new outbreak reported for a couple of days.

Total Taiwan 2013 poultry production was 347 million birds, slaughtered, of which broilers accounted for 186 million; native or Tugi birds, 103 million; ducks, 34 million; geese, 5 million; and 19 million made by other birds. While official 2014 numbers are unavailable as of reporting date, the HPAI impact is estimated to result in a 6% decrease in total poultry production from CY2013, slaughtered. According to BAPHIQ, approximately all Taiwan goose farms and goose breeder operations were/are infected. Taiwan authorities are worried about a short supply of goose meat and have started looking for import supply.

Poultry feed demand for current year is estimated at a 6% decrease from CY 2013, accordingly.

Domestic Poultry Production, HPAI

Poultry Meat Imports, Domestic Production, and Farm Prices

Total Feed Demand Estimates, Corn Inclusion Rates

In line with the domestic hog and poultry situations, total feed demand for MY2014/15 and MY2015/16 are estimated at 7.0 MMT and 7.3 MMT at corn inclusion rate at around 60% with limited rice availability and no anticipated feed wheat imports.

Taiwan Feed Production for CY2010-2016, TMT

Corn Substitutes, Other Feed Grains

Corn substitution for other grains is estimated at 5%. The feed inclusion rates for all other imported grains are calculated at 5-6% as reflected below in the table. Consumption of other feed grains is estimated based on imports plus domestic stocks of old rice. In addition to imported grains, some of the domestically produced sweet potato will be diverted to feed use in an effort to increase the self-sufficiency rate, in particular when world corn price is high. More old rice was available for feed use in CY2014 due to high stock pressure. Going forward, however, there may be less rice for feed use due to drought and farrowed production; forecast estimates are scaled back to 100 TMT.

Imports of Other Grains, TMT

Distillers Dried Grain (DDGS)

Taiwan customs data indicates stable demands for DDGS, with about 3% of feed inclusion rate. DDGS imports are estimated at 210 TMT and 220 TMT for MY2014/15 and forecast year, based on a 3% of feed inclusion rate.

TRADE

Taiwan is heavily reliant on imports. Domestic corn accounts for only about 2% of total corn demand. Taiwan's total corn imports for MY2014/15 and MY2015/16 are estimated at 4.30 MMT and 4.50 MMT to meet domestic feed demand and approximately 225 TMT for wet milling.

The market share for U.S. corn in MY2013/14 recovered to 42% from the previous year's record low of 12%, realizing equal market dominance with Brazil. South Africa followed with 12%, India 2%, and the rest of world 2%. However, a strong U.S. dollar and upcoming Brazilian harvest may cut the U.S. share to one-third of total imports for the current year. While Taiwan importers appreciate U.S. corn's consistent quality and reliable delivery, price is the number one factor in purchase considerations.

According to Taiwan Customs, during the first three months of MY2014/15, Taiwan imported 905 TMT of corn. Compared to the same time period in MY2012/13, import pace showed a 25% decrease due in part to suspicious avian influenza cases in November.

Cross Strait Developments

Corn imports from mainland China are currently banned. As a follow-up to the Cross-Strait Economic Cooperative Framework Agreement, which was signed in September 2010, the Cross Strait Trade Goods Agreement talks are still ongoing and are not expected to finish anytime soon, especially given public demonstrations against the Cross Strait Service Agreement, still pending for Legislative Yuan's passage. Commodities like feed corn that do not threaten Taiwan domestic agricultural production or raise food safety concerns may be on the agenda for future trade liberalization. Taiwan livestock industry groups may welcome the option to purchase feed corn from China, especially during periods of high global commodity prices and rising concern for genetically engineered (GE) products. In the past, Taiwan has occasionally allowed feed corn from China to be imported to mitigate global price spikes.

POLICY

Authority Oversight

According to a February 4, 2015 amendment to The Feed Control Act (FCA), COA is now the competent authority for approval registration of GE events in animal feed, with a two year grace period for implementation. This authority previously rested with Taiwan's Food and Drug Administration (TFDA) under the Ministry of Health and Welfare. TFDA will continue to have responsibility for GE events in food products for human consumption.

The FCA amendment mandates that all for feed use GE events register with COA by February, 2017. COA is expected to promulgate feed safety assessment guidelines for GE registration within six months, anticipated July 31, 2015. Thereafter, GE feed materials and feed additives will not be allowed for delivery, marketing, import and/or export, unless the product is registered and granted approval by COA. GE product developers, life science companies, shall register with both agencies (COA and TFDA) if the product is for both food and feed use.

Market launches for new GE corn events and its stacked products may take longer for regulatory approval, as two agencies are now involved.

GE and Non-GE Corn Clears Customs under Separate HS Codes

Effective November 1, 2014, all corn and its immediate products are required to clear customs under separate HS codes according to GE or Non-GE designation. New import shipping document for Customs clearance is required to indicate whether the corn shipment is GE or non-GE. At the same time, relevant handlers of corn products are required to establish traceability system and keep the record for 5 years.

Highly Processed Products Included in GE Labeling Requirements

Currently, food products derived from GE corn with detectable content must be labeled as "genetically modified (GM)" with a 5% labeling threshold. However, on March 17, 2015, Taiwan authorities put forward a WTO notification (TBT 168 revised) extending the GE 3% labeling threshold to highly processed products where no discernable DNA residues may be detected. The implementation timeline of revised 3% GE labeling threshold has also been shortened by 6 months. The newly proposed implementation date is now June 1, 2015. Local importers and food groups, AIT and U.S. exporters, other suppliers, andindustries are very concerned with this proposal and have mounted a lobbying campaign designed to role back some of these measures.