For the twelfth year in a row the Central Committee of the Chinese Communist Party and the Chinese government’s State Council jointly issued the No. 1 Central Document for 2014 that sets the country’s policy priorities for the year focused on rural reforms. The goals are to modernize and industrialize Chinese agricultural production and facilitate the steady movement of rural people to cities, while protecting the nation’s food security.
The Communist Party came to power with the support of the rural peasants and is well aware that sovereignty in China is most often decided by the management of the countryside rather than the cities as is true in many other countries. Most forecasts of the workforce in China show it declining by 3-5 percent by 2050. Factory job in the cities will be filled by attracting rural people who are more than willing to abandon rural life. These changes need to occur without disrupting China’s continued expansion of food production.
The government’s concern about food production is well founded. According to estimates by the Foreign Agricultural Service (FAS) of USDA, China is the largest consumer of wheat at 126 million metric tons (MMT) per year, about 18 percent of world consumption. It is the second largest producer at 122 MMT and is a small net importer, including, until recently, lower-priced feed wheat as a substitute for higher-priced corn. China is also the world’s largest consumer of rice at 146 MMT, 31 percent of global consumption, and the largest producer at 142 MMT. China is the second largest consumer of corn, after the U.S., at 227 MMT per year, up by 55 MMT per year over the last five years; with most of the increase for livestock feed. This year’s corn harvest was above trend at 223 MMT. Corn imports have been increasing in recent years and may reach 10 MMT this year as stocks are rebuilt.
This year’s number one document reinforced China’s ‘basic grain self-sufficiency’ within its longstanding 95-percent food self-sufficiency target. Within that overall framework, the document does state that use of overseas markets will increase and allow an ‘appropriate’ amount of imports. Some foreign analysts thought the self-sufficiency goal would be relaxed. Chinese military strategists have warned that Western nations could use grain imports to undermine its food security and national security.
Chinese soybean imports are often assumed to be the pattern that could be repeated for corn. Fifteen years ago, China imported 10 MMT of soybeans per year. FAS projects that this year China will import 69 MMT. Domestic production has decline from 15 MMT per year to 12 MMT per year as government planners decided to import soybeans to process into soybean meal for livestock and poultry feed and soybean oil for human consumption. China has been able to achieve its grain self-sufficiency goals partly by importing soybeans to free up land to produce grain and to increase feed efficiency in their livestock and poultry industries. China will not be importing corn at the current level for soybeans.
China has a goal of keeping at least 120 million hectares (296 million acres) in farming. That has been a challenge given the need to increase the amount of land in housing and industrial development. Much was made of a December 2013 report from Ministry of Land and Resources that disclosed that over 3.3 million hectares (8.0 million acres) were too polluted to produce crops. Total arable land declined by 0.2 percent between 2006 and 2009, 0.7 million acres.
In addition to direct consumption of grains, China has increased its production of dairy products, livestock meat and poultry meat. China produces about 54 MMT of pork annually, half of global supplies, and imports about 750,000 MT. It produces over 13 MMT of broiler chicken meat per year and exports and imports small quantities. China also has about 9 million dairy cows and a growing demand for fluid milk and dairy products.
With hundreds of millions of farmers working small family plots and selling their surplus to urban markets, some consolidation at that level would free up workers to migrate to non-farm jobs. Consolidation is already underway in dairy and pork production and has led to increased productivity and total output. Doing that in grain production is a much larger challenge. Some consolidation appears to have occurred in areas were farms have traditional been larger than subsistence farms.
Rural land reforms, including land ownership transfers, are needed to allow farms to consolidate to use equipment efficiently and produce the same amount or greater output with less labor input. These rural land reforms need to coincide with urban land market reforms and changes in the household registration system that has split the country into rural and urban areas and bars rural residents from tapping into urban social services.
Any substantial changes in production will require changes for input suppliers and the marketing chain. These changes may allow the adoption of new technologies that will increase productivity. Yields for crops like corn lag behind other majors producing countries and adopting biotechnology and other technology may give them a one-time yield bump.
The Chinese strategists are correct in thinking that this transition will have to be managed internally with as few disruptions as possible. China is already a major importer of agricultural products from the U.S. and other exporters, and could still buy more of many products, but the export market is in no position to replace a major shortfall of Chinese production in a time of transition.
The Chinese government should move ahead and begin the transitions. It will require simultaneous changes in many moving parts, but waiting longer will make the transition harder as market participants make more long-term investments that may need to be undone under a new system. Global markets have just come through several years of lower carryover grain supplies and higher market prices. We have now entered a period when supplies have again over taken demand. Supplies may be large for a few years before lower market prices drive out excess production capacity. Now is the time globally for reforms in China.