China s Agriculture and Policies: Challenges and Implications for Global Trade Jikun Huang Contributed presentation at the 60th AARES Annual Conference, Canberra, ACT, 2-5 February 2016 Copyright 2016 by Author(s). All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.
China s Agriculture and Policies: Challenges and Implications for Global Trade Jikun Huang School of Advanced Agricultural Sciences Peking University and Center for Chinese Agricultural Policy (CCAP), CAS
Annual growth of agricultural GDP The biggest challenges of food supply in the past 6 decades were to meet increasing demand from: population growth in the first 3 decades rising income in the recent 3 decades 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2.0 1950s-1970s 4.65 1980s-2000s 1950-1979 1980-2010 Population growth: 1.8% <1% Per capita income growth: 2% 7%
China food trade: export and import (bil. US$) 140 120 100 80 60 40 20 Import Export 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: FAOSTAT Before the mid 2000s, China was a net food exporter. Although recent import > export, total food selfsufficient in 2014 reached 96%.
China s agricultural import and export in 2014 (million US$) 30000 20000 10000 0-10000 -20000-30000 Source: Calculated based on UNCOMTRADE data
Except soybean, China achieved high level of food self-sufficiency in 2014 100 80 60 40 20 0
Question How China has been able to meet its growing demand for foods (with 20% of world population but only 8% of world cultivated land) in the past 3 decades?
Major drivers of agricultural growth - Institutional change (land): 1978-1984 - Technology innovation: since the mid 1980s - Market reform: since the early 1990s - Investment in agriculture: since the late 1990s -
Baseline: the net export of agricultural commodities in 2012-2030 (million tons) 20 0-20 -40 2012 2020 2030-60 -80-100 Source: Simulation by CAPSiM model, Huang et al. (2012)
However, The above baseline has not taken into consideration of the new challenges Now China has reached a stage of agricultural development: -- previous challenges intensified -- new challenges emerged
Previous challenges intensified Increased food production has been at the expensive of environment and sustainable development - groundwater over-exploitation; - falling soil fertility; - rising non-point pollution; - rising concern on food safety; -
Challenges and policy responses Previous challenges intensified: water/land and sustainable development Decision in late 2000s: bring food safety to policy agenda Decision in 2011: Double investment in water conservancy (630 billion US$) in 2012-2020 Decision in 2014: Plan to reduce chemical uses Decision in 2015: program to support Grain +Cash crop +Forage/grass Decision in 2015/16: emphasize on production capacity rather than actual
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 New challenges emerged Per capita income: rural vs urban 35000 30000 25000 20000 15000 10000 5000 Per capita income (yuan in 2014 price; USD1=6.3 Yuan) 13 times 12 times 3.50 3.00 2.50 2.00 1.50 1.00 Ratio of urban to rural income 0 0.50 Urban Rural 0.00
Rising opportunity cost of farming labor China 4000 3500 3000 2500 Manufacturing wages 1994-2008 (USD/year) China India Indonesia Thailand Thailand 3481 2833 2000 2018 1638 1500 1000 China 1180 1075 497 500 481 Indonesia 367 433 0 India 1994 1996 1998 2000 2002 2004 2006 2008 Li et al (2012)
Composition of farm gate price (yuan/kg) Rice Wheat 3 3 2.5 2.5 2 2 1.5 1.5 1 1 0.5 0.5 0 1999 2001 2003 2005 2007 2009 2010 2012 2014 0 1999 2001 2003 2005 2007 2009 2010 2012 2014 Land/labor/profit Seed Fertilizer Machinery Others Land/labor/profit Seed Fertilizer Machinery Others
Composition of farm gate price: vegetable (yuan/kg) 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1999 2001 2003 2005 2007 2009 2010 2012 2014 Land/labor/profit Seed Fertilizer Machinery Others CCAP survey: 2005-2013: 8% of annual growth rate of real labor cost 2008-2013: 10% of annual growth rate of real land rent cost
New challenges emerged Concerns on farmers income: large income gap between urban and rural Rising labor and land costs (rising food price) vs falling global food prices: less competitive Farmers income Food security
New challenges and policy responses New challenges emerged: - Concern on farmers income - Rising price, less competitive, food insecurity Agricultural subsidy Price interventions - rice and wheat - maize and cotton, - soybean and rapeseed
Agricultural subsidies (billion yuan) 180 160 140 120 100 80 60 40 20 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Aggregate inputs Machinery Seed Grain Total subsidy in 2012 was 164.3 billion yuan (26.1 billion US$), about 3.13% of agricultural GDP. However, most are decoupled and have no impact on production (Huang et al., 2011 and 2013)
Market Price vs Minimal Price: Rice and Wheat (yuan/ton) 3000 Late indica rice 3000 Wheat 2500 2500 2000 2000 1500 1500 1000 1000 500 P-min P-mkt 500 P-min P-mkt 0 0 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004
Consequences: Wheat (US$/Ton) 400 350 300 250 200 150 100 50 Domestic Price International Price Increase production Enlarging price gap Rising import pressure Rising storage 0 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Note: The international price refers to No.1 Hard Red Winter Wheat, Kansas City (IMF). Domestic wholesale price refers to Zhengzhou wholesale market No.3 white wheat.
Consequences: Maize (US$/Ton) 450.00 400.00 350.00 300.00 250.00 200.00 150.00 Domestic Price International Price Increase production Enlarging price gap Rising import pressure Rising storage Hurt livestock sector rising meat import 100.00 2001-Jan 2002-Jan 2003-Jan 2004-Jan 2005-Jan 2006-Jan 2007-Jan 2008-Jan 2009-Jan 2010-Jan 2011-Jan 2012-Jan 2013-Jan 2014-Jan Meantime, significant rise of barley, sorghum and other grains: >20 million tons in 2015 Note: Maize international price refers to the U.S. No.2 Yellow Maize price, FOB, Gulf of Mexico plus freight cost; International Monetary Fund (2015). The domestic markets price refers to Zhengzhou wholesale market No.2 Yellow Maize.
WTO Commitments TRQ (mmt) Out-ofquota tariff (%) Wheat 9.30 65 Maize 7.20 65 Rice 5.30 65 Sugar 1.94 38 Cotton 0.89 50 Wool 0.29 38 Tariff only (%) Soybean 3 Fruits 12 Meats 10-12 Dairy 11 Tobacco 10 Others <10
New challenges and policy responses New challenges emerged: - Concern on farmers income - Rising price, less competitive, food insecurity Agricultural subsidy - Huge budget, capping in 2012 Price interventions - Huge storage/costing??? Target price - Pilot in cotton in XJ - Pilot in soybean in part of NE China
2005-1 2005-4 2005-7 2005-10 2006-1 2006-4 2006-7 2006-10 2007-1 2007-4 2007-7 2007-10 2008-1 2008-4 2008-7 2008-10 2009-1 2009-4 2009-7 2009-10 2010-1 2010-4 2010-7 2010-10 2011-1 2011-4 2011-7 2011-10 2012-1 2012-4 2012-7 2012-10 2013-1 2013-4 2013-7 2013-10 2014-1 2014-4 2014-7 2014-10 2015-1 2015-4 2015-7 2015-10 Target price policy in cotton since 2014 35000 Yuan/ton Price intervention period Target price period 30000 25000 20000 15000 10000 5000 Price gap: reduced from >50% to 25% (5% tariff + 13% VAT + others) 0 China cotton price Source: China National Cotton Exchange (CNCE) Import price (CIF)
Target price policy Target price = production cost + profit New challenges: - New budget implications - Huge implementation costs - 200+ million small-scale farms
New challenges and policy responses New challenges/ concerns emerged: - Rising food price, less competitive, and food insecurity - Concern on farmers income Agricultural subsidy - Huge budget, tapping in 2012 - First cut in 2015 Price interventions - Reduced price in 2015 - Try to separate price & income support in/after 2016 Target price policy? Land consolidation - Rental market ( ) - Subsidize large farms (?)
Cultivated land share by farm size in Northeast and North China in 2003, 2008 and 2013 (%) 100 80 60 40 20 0 2003 2008 2013 <1 ha 1-2 ha 2-3 ha 3-7 ha 7-15 ha 15-30 ha 30-70 ha >70 ha Farm size more than 7 ha in 2013: 0.9% of farms; 27% of cultivated land
kg/ha The relationship between farm size and crop yield in NE and NC in 2013 9000 8000 7000 <1 ha 1-2 ha 6000 5000 4000 2-3 ha 3-7 ha 3000 2000 1000 7-15 ha 15-30 ha 0 Rice Wheat Maize 30-70 ha Source: Huang and Ding, 2015
yuan/kg yuan/kg Farm size (15 亩 mu=1 ha) and production cost (yuan/kg) in 2013 2.40 2.20 Rice 2.00 1.80 1.60 1.40 1.20 1.00 Maize 10 亩以下 10-30 亩 30-50 亩 50-100 亩 100-200 亩 200-500 亩 Northeast China 2.50 2.00 1.50 1.00 Maize Wheat North China 0.50 0.00 10 亩以下 10-30 亩 30-50 亩 50-100 亩 100-200 亩 200-500 亩 500-800 亩
However, The discussions so far are just about our traditional food security and policy story Nutrition issues have been largely neglected by policy makers: Malnutrition population in China 151 million
Childhood Anemia (persisting through school age) in the Western China Source: CCAP s survey Total Total 33.7 Shaanxi 2008 (Dataset 1) 37.5 Shanxi 2009 (Dataset 2) 31.6 Gansu 2010 (Dataset 3) 31.2 Qinghai 2009 (Dataset 4) 51.1 Ningxia 2009 (Dataset 5) 25.4 Sichuan 2010 (Dataset 6) 24.8 Guizhou 2010 (Dataset 7) 33.1
Concluding remarks: Successful and challenges In the past, China has been able to largely meet its growing demand for foods with 20% of world population but only 8% of world cultivated land. China s experience has showed that incentives to farmers (land & market), technology and investment are crucial to agricultural growth and ensuring food security in 1980s-2000s. However, agri. intensification has challenged its sustainability; rising wage and land rental cost further challenge food supply; there is concern on farmer s income and malnutrition in the poor areas.
Concluding remarks: Policies and trade implications Policies to increase farmer income and grain production through subsidy and price support are unable to resolve current challenges; new adjustments in these policies have important grain storage and food trade implications in both short run and long run. Recent policies focused on environment, production capacity, land consolidation and investment are encouraging; each of these policies will have significant impacts on China s food import: both positive and negative
Concluding remarks: Policies and trade implications China is expected to increase its imports of many agricultural commodities such as feed, edible oils, cotton, sugar, animal products (beef/mutton/milk); But its role in the global trade will highly depends on how the recent policies be implemented in the coming years.
Thanks