Wednesday, April 25, 2012

Food Security for China's Cadres

An article in a journal for communist officials (Chinese Cadres Tribune) offers a policymaker’s view of China’s commodity supply and demand situation and outlook. The article includes some worries but seems to be relatively optimistic. The author anticipates that rice consumption and production will remain in balance, China will have an excess supply of wheat and a modestly-growing deficit in corn and vegetable oils.

The author, Cheng Guoqiang, is an agricultural economist with the State Council’s Development Research Center. The article, “current situation and medium and long-term trends in our country’s grain supply and demand,” is a tutorial for communist party officials on China’s food security situation.

The article reports a massive 140-metric ton increase in grain output over the past 8 years, an average increase of 17.5 mmt per year. Cheng says the annual growth in grain output averaged 3.1%, faster than the average growth from 1978 to 1999 and faster than the world average. Grain yield per hectare increased 7 kg per year. The burst of grain output has relieved the tight supply-demand situation. Cheng says China’s food security is now at one of its strongest points in history.

Cheng says the supply and demand for rice and wheat is roughly in balance. Per capita consumption of rice peaked at 155 kg in 1991 and has since fallen to 143 kg in 2009. Per capita wheat consumption peaked at 90 kg in 1988 and fell to 78 kg in 2009.  Aggregate rice and wheat consumption both grew only 0.6% per year over the past 5 years and supply has outpaced demand growth. In the last five years, rice production was up 1.8% and wheat 4.5% per year.

Consumers are shifting consumption toward higher-quality products like japonica rice, special-use flour and flour products, animal protein, plant oil, and sugar. In the north, some consumers are switching from flour products to japonica (short grain) rice. Cheng reports that indica (long-grain) rice production in southern China has been falling as farmers plant less. Japonica rice production (mostly in the northeast) has been growing.
Corn consumption has outpaced supply, growing at 3.6% per year, says Cheng. He says corn supply exceeded consumption by 1 mmt in 2009 and expanded to 10 mmt in 2011. (Cheng cites a corn production figure of 154 mmt for 2009, about 10 mmt less than the official figure of 164 mmt estimated by China’s National Bureau of Statistics.) China has switched from a net exporter to a net importer of corn. Imports of corn totaled 1.57 mmt in 2010 and 1.75 during 2011. He notes that the tariff rate quota for corn of 7.2 mmt has room for more imports.

Self-sufficiency in vegetable oil has fallen. Rapeseed output increased from 35.33 mmt in 1990 to 47.84 mmt in 2010, an average increase of 1.5%. On the other hand soybean production has been stagnant at about 15 to 16 mmt over that past 10 years.

Domestic vegetable oil production went from 7 mmt in 1990 to 10 mmt in 2010. Consumption rose from 11 mmt in 1998 to 27.5 mmt in 2010, an average growth of 8% annually. At 19 kg in 2010, China’s per capita vegetable oil consumption exceeds the world average of 16 kg, but is still behind the 24-25 kg in developed countries.

Soybean imports went from 3.85 mmt in 1998 to 54.8 mmt in 2010. According to Cheng, now 84% of China’s soybeans are imported, and China accounts for 61% of world soybean imports. Cheng tells his readers that it would be impossible for China to be self-sufficient in soybeans. He estimates that—at China’s current yields—in order to plant enough soybeans to remain self-sufficient in vegetable oil it would take cropland area equivalent to the amount of land devoted to rice and corn combined.

There are fewer provinces able to meet their own grain needs. Some provinces that used to produce more grain than they consumed now have a deficit. In 2010, 13 grain producing provinces (Heilongjiang, Liaoning, Jilin, Inner Mongolia, Hebei, Jiangsu, Anhui, Jiangxi, Shandong, Henan, Hubei, Hunan, Sichuan) accounted for 71.5% of the national area planted in grain and 75% of grain output.

Cheng discusses some cross-commodity relationships. As people upgrade their diets they are eating more sweeteners and meat. Normally, this would increase demand for sugar and corn (as animal feed). Cheng notes that corn can be used to make sweeteners and is cheap relative to sugar. This is a factor encouraging the industrial use of corn to make sweeteners to substitute for expensive sugar.

The increased demand for corn has raised its price too. Wheat supply has grown faster then wheat consumption, however, so wheat is now cheaper than corn. Consequently, wheat is being used as a substitute for corn in animal feed rations. Cheng puts feed use of wheat at 17.5 mmt in 2011, up from its usual level of 10 mmt. He says cheap wheat for feed relieves some of the tight supply-demand tension in the corn market. Use of corn for sweeteners relieves some of the tension in the sugar market.

Cheng reports that the policy environment in China is more complex. Policymakers face a difficult challenge of balancing the interests of farmers and urban consumers as they implement price policies. Stabilizing prices is particularly difficult.

Cheng refers readers to a report from his organization (I cannot find it online) which worries about rising production costs and new influences on farming: energy intensity, climate change, financial influences, and mechanization that make it more difficult to impose “macro controls” on grain markets. The report claims that high income elasticity of demand for food is pushing grain prices up. This seems implausible for rice and wheat (per capita consumption is falling). Even corn consumption is growing at about half the rate of per capita income, implying an income elasticity of .5. The second influence is rising money supply, a more plausible explanation. Finally, inefficient production restricts growth in supply, exacerbating the growth in grain prices.

Cheng provides some projections for the year 2020. He anticipates that rice consumption will be 194.6 mmt, slightly less than output of 195.5 mmt. He projects wheat consumption at 105.75 mmt with a surplus of 8 mmt in 2020.

Cheng anticipates that the corn deficit will widen to 17 mmt by 2020. However, this number could be larger or smaller, depending in large part on yield growth. He says the average yield was 5.3 mt per ha over the last five years, far below the U.S. average of 9.6 mt/ha. He says Argentina’s experience in raising yields offers a precedent for catching up with the U.S. If China can raise yields by 27% by 2020 production would increase enough to produce a surplus of corn. He notes that use of wheat for feed can substitute for corn.

On the other hand, if China keeps exporting industrial products made from corn the deficit could be bigger. Cheng seems to endorse expanding the tariff rate quota for sugar from 2.9 mmt to 4 mmt. By importing more sugar, there will be less pressure to use corn for sweeteners.

1 comment:

Market Analysis said...

Your content really informative as well as helpful for my China Rice Industry Research and Development.