Monday, November 28, 2016

China corn v. soybeans in charts

China has become a corn-soybean-centered agricultural economy--much like the United States--but with a twist. Instead of rotating the two crops, China's farmers specialized in massive mono-cropping of corn while nearly all of the country's soybeans were imported. Here's the China corn v. soybean story in charts.

China's corn output has grown relentlessly since 1970, and is now the largest single crop produced in the country. The growth accelerated after 2004 when Chinese authorities adopted pro-cereal grain policies. Growth in corn accelerated even faster during 2009-2012 when a "temporary reserve" floor price program guaranteed farmers a minimum price. Production of corn doubled from about 110 million metric tons in 2000 to about 225 million metric tons in 2015. The surge has ended now--with massive stockpiles--and many are projecting a drop in corn output in 2016.

Source: Data from China National Bureau of Statistics.

Soybean output in China was relatively stagnant over that entire period. Chinese journalists like to write alarmist stories about stagnant soybean production but these stories ignore the flip side: soybean production was stagnant because Chinese farmers went all-in on corn.

Most of the increase in corn came from planting more land in the crop, including encroaching on grasslands, wetlands, and erodible hillsides, and pushing the crop further into the frozen north. The area planted in corn increased by 11.8 million hectares (45%) during 2005-15. The 11.8-million-hectare increase represented 6.7% of all the corn area in the world in 2015. Only three countries--United States, China and Brazil--plant more than 11.8 million hectares of corn. The area planted in soybeans fell 3 million hectares (30%) during 2005-15.
Source: China National Bureau of Statistics; projected plantings for 2016 from Ministry of Agriculture.

Relentless growth in China's soybean imports mirrors the country's soaring corn production. China first imported soybeans in 1995 and is projected to import 86 million metric tons in 2016/17. Hypothetically, if China had used the increased corn area (11.8 million hectares) for soybeans instead of corn, it could have produced only 20 mmt of additional soybeans (assuming an average yield of 1700 metric tons per hectare), less than a fourth of the actual volume of soybean imports.
Source: USDA, Production, Distribution and Supply database.

Why did China specialize in corn? Compared with soybeans, corn yields about three times more physical output  per hectare of land. Planting corn helped meet purely quantitative targets for grain self-sufficiency. In China, the gap between corn and soybean yields has widened from 189% in 2000 to 254% in 2015, according to the National Development and Reform Commission's agricultural production cost survey.
Source: data from China National Development and Reform Commission production cost surveys.

Like a helium balloon, ag commodity prices sometimes float upward for extended periods, but they eventually come back down toward the ground. According to a database, the average corn procurement price on November 17, 2016 was 1684 yuan per metric ton. That was about 25 percent lower than the peak level that prevailed from 2011 to 2013 and about the same as the price in 2009.
Source: China Grain Net database (

The National Development and Reform Commission production cost data show that corn was a very profitable crop during the expansion years. Profits are now shrinking as prices fall to more reasonable levels. The increase in labor and land costs has changed the calculus of Chinese farm production. Rural labor and land used to be essentially free goods, but now they are scarce inputs which must be paid to entice them to produce particular crops.

Source: data from China National Development and Reform Commission production cost surveys.

Material inputs--primarily chemical fertilizer, seed, fuel, repairs, etc.--were about a third of the value of corn output per mu of land during the corn boom. The cost of labor reflects mainly imputed costs of family labor--so it is really profit to the farmer and his family. That "cost" rose rapidly as wages for rural migrants soared--it takes larger profits to entice rural people to stay home and farm. The "cost" of land was also an imputed cost when most farmers cultivated their own land and paid no rent. Now the Ministry of Agriculture says one-third of farmland is rented or otherwise transferred--usually with a rental payment. Moreover, rental rates have increased. Since 2014, gross income from corn production has fallen sharply due to the phase-out of the generous "temporary reserve" floor price policy. In 2015, the floor price was cut 10%. This year--2016/17--the policy was eliminated and price has fallen further. Income in northeastern provinces will be supplemented by a corn producer subsidy of about 120 yuan per  mu, but it will offset only part of the decline in gross income since the peak in 2013.

Soybeans have lower expenses per unit of land than corn for labor and material inputs. However, land rent is similar (depending on the location and quality of the land). Like corn costs, soybean production costs have also risen dramatically. The long rally in Chinese prices from 2004 to 2012 helped Chinese farmers cover those costs. In other countries, prices do not go up year-in and year-out to cover rising production costs. Competition from imported soybeans restrained the growth in Chinese soybean prices, so revenue from soybeans did not grow as fast as revenue from corn. When global commodity prices grew soft in 2013, China's soybean prices began to fall. A "temporary reserve" policy to support Chinese soybean prices collapsed in 2014 because processors bought cheaper imported soybeans and let the government buy up domestic soybeans at the floor price. China's soybean prices have also declined in 2016. The target price subsidy should give soybean producers a subsidy that will partly offset the decline in revenue.
Source: data from China National Development and Reform Commission production cost surveys.

Corn and soybean prices seem to be moving down in parallel. Likewise, subsidies to northeastern producers of both crops are roughly offsetting. Most analysts are predicting a modest rebound in soybean production next year, but there is no clear incentive to shift large amounts of area from corn to soybeans. Hence, Chinese officials constantly harp on their supply side structural adjustment program as the main means to reduce surplus, environmentally harmful corn production.


LoveYou said...

Hi. I have read a lot of your blogs (in fact they might to be essays to me) and I have found them all quite useful and enlightening. Please keep up.

However,I have a question on this article, and I appreciate it a lot if you can clarify for me. Referring to the charts "China: Corn production costs and returns,2000-2015" and "China: Soybean production costs and returns,2000-2015", on the item "labor costs" and "land costs" (both dominated in RMB per mu), how are they identified and measured from a micro viewpoint?
For instance, as for the "labor costs", if a farmer is planting on his own land or other's land, but is self-employed in substance, he doesn't pay himself any wages (nor can we observe such labor costs paid to himself). Then how is the labor cost measured in this case?
For instance, as for the "land costs", if a farmer is planting on his own land (which is a usual case), he does not pay himself land rent. Again for its being unobservable, how is this "land cost" identified and measured in this case?

Thank you for the clarification. Cheers! You have done an amazing job!

dimsums said...

This is a good and important question!
The labor cost includes mostly an imputed cost of the farmer's labor working on his own plot. They calculate an average daily wage in the local area and multiply that by the number of days he/she spends working on his/her own land.
Similarly, for land the rental value of the farmer's own land is imputed.
The costs also include cash expenses for labor hired and land rented from others, but about two-thirds of land is farmed by people that own it and probably an even higher percentage of labor is provided by the farmers and their family members.
This is an important point, because the "costs" of this family labor and owned farmland are actually income to the farmers themselves. Thus, the small "net profit" from farming shown by the Chinese figures vastly understate what Chinese farmers earn from farming. Their earnings from farming per unit of land are actually quite high.