Officials in China worried about warehouses crammed with low-quality rice are contemplating how to adjust their price support policy.
At a September 29 State Council news conference on rural affairs, Han Jun, head of China's Central Rural Work Leadership Group, said that pressure from excess supply of rice has become evident over the last three years and the disposal of excess inventories is a "problem that urgently needs to be solved."
Because the government sets a minimum price that holds the Chinese price above international prices, Han explained, a perverse phenomenon has appeared: imported rice enters the Chinese market, while Chinese rice goes into government reserves.
In 2017, authorities reduced minimum prices for the three main types of rice for the first time since the program was introduced in 2004. Han explained that this year's cut in minimum prices is a signal that supply is greater than demand.
Han said the government had purchased over 50 million metric tons (mmt) of rice and wheat at minimum prices each year since 2014, about 20 percent of the rice and wheat produced in China. Han Jun estimated the excess supply of rice in 2015 at 18.75 mmt (about 9 percent of rice produced). He estimated the excess supply of wheat at 16 mmt (about 13 percent of wheat produced).
A rice market analyst interviewed by China Central Broadcasting last month speculated that the minimum price program for rice could be eliminated as early as next year (2018). A second analyst said excess supply of rice is evident, and estimated China's national rice inventory at 120 mmt (about 60 percent of annual production). With 20 mmt being added to inventories each year, and sales of inventories going at a slow pace, the inventory keeps piling up, the analyst said.
In comments on prospects for the summer grain harvest made in May, the director of the State Administration of Grain commented that “the grain supply is overall loose” and “wheat and rice inventories are at a relatively high level. The director warned that some local areas have imbalances that need to be resolved. He warned of a 5-mmt shortage of storage space for summer grain crops in Jiangsu, Anhui, Jiangxi, Hunan, and Hubei Provinces. The director also warned that the quality of some grain held in storage for a long time had declined.
The Grain Administration director also noted pressure from imported grains. He also observed that consumer demand is shifting toward higher quality grain. Consequently, prices for high quality rice are rising, but reserves hold large volumes of common rice that is not in demand.
A survey of Zhejiang Province rice farmers carried out in June 2017 by the province's Price Bureau found that local officials are struggling to set rice prices to balance various factors. Zhejiang is a highly urbanized province where much of the land is too mountainous to grow rice. Zhejiang produces only 36 percent of its grain needs. Because production costs are high in Zhejiang, the local government contracts with farmers to buy rice for local reserves at a premium price that exceeds the price in neighboring provinces, and it gives cash awards. If the price is not set high enough, farmers will shift their land into growing vegetables, melons, tree saplings, and raising shrimp. Some large-scale farmers abandoned their rented land. In one county, the number of large scale farmers fell half in two years--from 124 in 2015 to 64 this year. On the other hand, if the price is set too high the province will receive a flood of grain from other provinces and from overseas.
According to the Zhejiang Price Bureau, rice makes up 62 percent of the province's grain reserve, while wheat is 26 percent, corn is 8 percent, and soybeans and other grain make up 4%. Officials tend to buy early rice for the reserve because it is easy to store. Specialized rice farmers can make a profit growing two rice crops a year. Authorities buy a large proportion of the early rice crop, while farmers tend to use the late crop for their own consumption. Early rice comprises 26 percent of the reserve in Zhejiang even though it is not popular with consumers. Late rice is 11 percent of reserves and japonica rice 25 percent.
The Zhejiang Price Bureau says the province's grain
"saturated," and the grain imposes a fiscal burden. One local grain
reserve management company sold rice from
reserves last year at 110 yuan per 50 kg, but new rice was purchased at
133 yuan per 50 kg. The financial losses incurred by these reserve
companies are greater and greater, the Bureau's report said.
An official from Zhejiang's Grain Bureau said last month that consumers in Zhejiang have gained a preference for japonica rice purchased from neighboring Jiangsu Province in recent years. The official explained that Jiangsu rice tastes better than imported rice--which is predominantly indica rice.
The comments were made at a meeting of commercial officials from the Zhejiang, Jiangsu, and Shanghai where arrangements are made to trade goods among the three adjacent provinces. An official from Shaoxing City explained that his grain bureau has an arrangement to procure rice from Suqian and Nantong in Jiangsu. A grain official from northern Jiangsu said the government holds periodic meetings to arrange deals among grain-producing and consuming regions. His prefecture arranged sales of 400,000 metric tons of wheat and 1 million metric tons of wheat at meetings held last year. Farmers in his province have adopted rice varieties popular in southern Jiangsu and Shanghai to meet the demands. He said they had to build temperature-controlled storage units to convince Zhejiang buyers to take their rice.
The Shaoxing official also explained that local farmers are paid a bonus of 30 yuan per 50 kg for early rice (23 percent of this year's national minimum) and 20 yuan per 50 kg for late rice (14.7 percent of this year's minimum price) for delivering rice to local reserves. Farmers in Jiangsu's Suzhou City--which also produces less than 40 percent of its grain--also receive premium prices for growing japonica rice.