Cheng Guoqiang, the author of "Causes and Consequences of Our Country's Increase in Agricultural Imports," is a leading authority on China's agricultural trade and a senior economist in the State Council's Development Research Center. His article debunks the fantasy that China can raise its standard of living and remain self-sufficient in agricultural products. He shows that China's availability of calories, fat, and protein have risen to first-world levels--improving the welfare of its citizens. But scarce land, water, and other resources dictate that China has had to increase its reliance on imports to do so.
Cheng says that it is now widely accepted that importing agricultural products is equivalent to importing land, water, and labor from foreign countries. He estimates that importing 10.7 percent of China's grain and soybean consumption is equivalent to importing 20 percent of the land needed to meet its food needs. The relatively large amount of land for imports reflects the low per-hectare yields of soybeans. China has pursued a strategy of importing soybeans to free up land for grain production, so-called "abandoning oils to maintain grain."
Cheng estimates that China's available supply of fats has risen by 321 percent since 1991--from 19 grams to 80 grams per day. He estimates that more than half of the fats come from imports--presumably soybeans, vegetable oils and other oilseeds. Cheng acknowledges that obesity and heart disease have risen in step with the consumption of fats. Cheng estimates that China is 83.9-percent self-sufficient in calories and 77.6-percent self-sufficient in protein. Cheng doesn't mention it, but the protein figures reflect a decrease in protein from wheat and rice offset by an import-dependent increase in animal-based protein.
|China's estimated daily availability of food measured in
calories, protein and fat
|Source: Cheng Guoqiang, "Causes and Consequences of Our Country's Increase in Agricultural Imports," Sept. 2013.|
China's focus on importing soybeans originated in the 1990s when the country's livestock sector development faced a severe lack of high-protein feeds. Authorities slashed tariffs, waived value added tax and eliminated quotas on imports of certain feed ingredients--chiefly fish meal, soy meal, distillers dried grains and other feeds that were high in protein and in short supply in China. (The VAT on soymeal imports was restored shortly thereafter because imports of soy meal were undercutting margins for domestic soybean crushers.) The tariff on soybean imports was cut to 3 percent and quotas were eliminated, setting off China's soybean import boom in the late 1990s. Soybean imports were minimal in the 1990s and are now approaching 60 million metric tons, providing oils for stir-frying (and greasy hot pot!), plus over 45 mmt of high protein feed ingredients.
Cheng's analysis makes clear that China imports mainly fats and protein. What he doesn't mention is that China's main agricultural exports are products largely comprised mostly of water: fruits, fish, and vegetables (mostly canned or processed using a lot of water). Thus, China's agricultural trade can be described as largely importing fats and protein in exchange for exports of water.
Cheng performs some simulations using a commonly-used economic modeling package called GTAP. He finds that banning soybean imports would raise domestic oilseed prices by 120 percent. That might be good for a few million soybean producers in China's northeast, but food prices would rise for consumers. He estimates that a 5-liter bottle of soybean oil would rise in price from 60 yuan to 110 yuan. Rice and pork prices would also go up. He doesn't explain how China could maintain domestic prices well above international prices if it wanted to do so without violating its WTO commitments and creating a huge smuggling problem (meat and rice smuggling is already rampant.)
Cheng Guoqiang's analysis clarifies China's agricultural trade and policies by reducing them to their fundamentals. While China was a nation of farmers until recently, its policy promoted cheap food for the urban population. Despite having a still-low per capita income, China's supplies of protein and fats are at first-world levels. Authorities selectively opened their borders to imports of fats and protein imports so they could concentrate on maintaining self-sufficiency of food grains--carbohydrates and basic energy.
The problem Cheng doesn't acknowledge is that authorities now have to raise grain prices above international levels (via trade barriers) to stimulate production and maintain their self-sufficiency (he does grapple with this issue in his other writings that recommend deficiency payment subsidies). Raising grain prices creates big distortions vis-a-vis oilseeds--minimal barriers to trade keep prices of fats and oilseeds at international levels while grain prices are elevated annually. The result is expensive grain and cheap oils. Excessive amounts of oils and protein are consumed (mainly from imports). Meanwhile oilseed production in China vanishes--an outcome which is blamed on bogeymen like multinational companies, USDA, and GMOs, but is really a creation of the Chinese government's own policies.