Kuala Lumpur, 9 March 2011

Chinese edible oil firm Julong Group said Beijing may provide subsidies this year to local companies buying up plantation land outside the country as Chins seeks to secure food supplies. Sun Wei Jun, an official with Julong Group, said the government would like Chinese firms to own more food estates overseas, which signals that a grab for arable land has started to pick up as agriculture prices rise.

At the height of the 2007-2008 commodity price boom, countries from South Korea to Saudi Arabia struck deals to buy plantations and secure cheaper food cargoes. Julong Group, the largest unlisted edible oils processor in China, has already ventured into oil palm estates five years ago on the Indonesian side of Borneo island and now has a landbank of 100,000 hectares.

"The government has given their support for our project and they want to encourage other Chinese companies to have upstream operations like us," Sun told Reuters at the sidelines of Bursa Malaysia palm oil conference.

"They might provide subsidies for this type of enterprise, probably this year," he added but he declined to elaborate on how much the government may pay out. China, which is battling to tame food inflation, may use the subsidy as a way to limit pricey imports.

Julong, which says it is the first Chinese company to own oil palm plantations in Southeast Asia, bought the first estate in Kalimantan province five years ago.

"We've spent 8 billion yuan ($1.2 billion) to invest in the plantations, hoping our plantation will expand to 100,000 hectare limit in another five years time," said Sun.

This year, Julong's 24,000 hectares of palm oil plantations in Indonesia have produced 20,000-30,000 tonnes of the vegetable oil.

The quantity is small, considering that China on average imports about 4.6 million tonnes of palm oil a year, but Julong is the first private firm to have integrated downstream and upstream edible oil operations, Sun said.

"A lot of investors, mainly planters, are interested in our shipping service and refinery, they hope to ship in their palm oil directly into China via us," said Sun.

Sun said China's demand for palm oil could increase to 10 percent by next year from the current rate of 8.5 percent as its billion plus population grows.

China, the world's No. 2 palm oil importer, shipped in about 4.6 million tonnes of the palm oil a year, accounting for more than a fifth of its total vegetable oils imports, data from China's Galaxy Futures showed.

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