Saturday, February 25, 2012

China's Food Security Worries

An article from Securities Times voices the growing worries in China about food security.

Despite record increases in grain production, the article worries about the growing "imbalance" between supply and demand. The article notes that China is heavily dependent on imports of soybeans and foreign trade in corn, wheat, and rice is shifting from net export to net import status. The writer worries that grain is becoming another commodity that China has to import, following petroleum, steel, and minerals.

Food security is an overriding policy objective in China. The article quotes the chief economist of the Ministry of Agriculture who said that maintaining basic self-sufficiency in grains is the fundamental principle for developing modern agriculture.

China's eighth-straight increase in grain production was confirmed by preliminary agricultural statistics in the 2011 national statistical communiqu√© issued Feb 22 by the National Bureau of Statistics. Grain production in 2011 was a record 571.21 mmt and the area planted in grain was 110.57 million hectares. The statistics show that grain production increased 24.73 mmt (4.5%) last year and planted area increased by 700,000 ha despite the sprawl of cities gobbling up land, severe droughts in wheat-production areas and southwestern provinces, and floods in southern China last summer. Rice production reached 200.78 mmt (up 2.6% from 2010), wheat output was 117.92 mmt (up 2.4%) and corn output was 191.75 mmt (up 8.2%).

According to the article, rising income and upgrade of living standards is causing demand for grain to outpace supply. Other worries are the influence of climate change and effects of droughts and floods on agricultural production. The effects of disasters are becoming more acute since grain production is more geographically concentrated. Droughts and floods that affect production regions are more prone to affect the national market. The article also worries that fluctuations in international grain prices are having a stronger influence on domestic grain prices. A major problem is rising production costs due to rising input prices.

The Chinese government has issued a flood of documents and policies designed to boost grain production. This week the Ministry of Agriculture released a "modern agriculture" development plan, and there are plans for raising grain production by 50 mmt by 2020, 14 key projects focused on 800 core grain-producing counties, creating high-yield fields, increasing efforts to prevent and mitigate droughts and floods, a pledge to continue direct subsidies to grain producers, improvement of a "dynamic adjustment mechanism" for the general input subsidy, a compensation mechanism for grain-producing areas, canceling local contributions to provincial "grain risk funds," and continually increasing the minimum prices for rice and wheat.

The article tries to sound a positive note by claiming that inflationary pressures are currently under control, but concludes on a pessimistic note. The article notes the potential for weather events to cause fluctuations in prices and warns market participants that they should pay close attention to weather during 2012.

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