Are China’s Water Needs Creating a New Equilibrium Price Level in the Global

Grain Markets?

Sept 27, 2010 Calgary

In 2000 China was effectively self sufficient in grain. Fast forward to 2010 and
China imports around 15% of the grain needed for domestic consumption. The
issue for China is water - China has only 8% of the world’s fresh water to meet
the needs of 22% of the world’s people.

The country is seeing its agricultural water supply depleted on three fronts: the
diversion of water from rivers and reservoirs to cities and industry; the depletion
of aquifers; and pollution.

Economically, farms can't currently compete with factories for water. A thousand
tons of water produces one ton of wheat, which has a typical market value of
around $300 to $400, whereas the same amount of water used in industry yields
an estimated $14,000 of output - 50 times as much.

The challenge facing China is how to meet the water needs of its swelling urban
and industrial sectors without undermining its agricultural productivity. With its
booming economy and huge trade surpluses, China appears to be solving its
agricultural water needs by importing more of its food. – leading Enquirica to
believe that China’s presence on the global grain markets is permanent and set
to grow.

Given growing overall demand combined with competition from domestic industry
uses Enquirica feels that “water issues in China will put greater demand on the
world agriculture commodity markets, produce higher real commodity prices over
time and create large demand for productive farmland in politically stable regions
of the world with stable export capacity. Once such region that has all these
characteristics is western Canada with its large farmland base, first world
infrastructure, political stability and a huge exporting capacity. When we think of
prairie agriculture we should start thinking of it in terms of what it is truly
exporting – millions of tons of water in the form of grain.”
 
Enquirica Research is a Calgary based research firm focusing on independent
analysis of alternative asset classes and investment opportunities in exempt
securities that target investments in western Canada. For copies of Enquirica
research register at www.enquirica.com.
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For further information please contact:

Enquirica Research Inc.
Jim Faber
Email: jfaber@enquirica.com
Web: www.enquirica.com