China Below 90 Percent Self-Sufficiency in 2012

China has entered an era as a net importer of grain, according to a report circulating this month.

During calendar year 2012, China's imports of grains totaled 70 million metric tons (mmt), the largest volume ever. Imports included 58.4 mmt of soybeans, 3.4 mmt of wheat, 5.1 mmt of corn, and 2.1 mmt of rice.

For a number of years, Chinese officials have set a minimum threshold of 95-percent self-sufficiency in grain, which includes cereal grains, soybeans, and tubers. Soybeans and potatoes are included, anachronistically, because they were traditionally staple food grains. Given domestic grain output of 589 mmt in 2012, the self-sufficiency rate is being reported as 89.4 percent, well below the 95% threshold. Domestic production increased 3.2 percent--nearly 19 mmt--so the decline in self-sufficiency resulted from imports outpacing the increase in domestic output.

A researcher quoted by the article said the decline in self-sufficiency shows that China's agriculture faces serious competitiveness problems. He worries that the threat to food security is a threat to the very foundation of the economy.

The article cites a price gap between China and the world market as the main reason for the surge of imports. Using rice as an example, it quotes the boss of a Hunan rice mill who said the price of rice from Vietnam, Pakistan, and Myanmar rice is 172 yuan per 50 kg, while Hunan rice is 180-190 yuan. The rice mill boss explained, “Domestic companies facing this kind of price are not competitive."

Rice imports are larger than official statistics indicate. A May 23 Huaxia Times report quoted a rice industry analyst who estimated that rice imports totaled 3 mmt during 2012--50 percent more than customs statistics report--due to "rampant smuggling" of rice into provinces bordering southeast Asian countries (Guangxi and Yunnan). This total would make China the world's largest rice importer in 2012.

Moreover, the gap between China's commodity prices and world prices seems to be widening as global prices fall. A National Development and Reform Commission report on commodity imports for January-May of 2013 notes that the average price of imported vegetable oil and corn each fell 11.5 percent and the price of imported rice fell 4.2 percent. Imported sugar's price was down 21.9 percent and cotton was down 18.9 percent. The NDRC probably sees an international conspiracy in these price declines (at the same time Chinese officials claim to have discovered foreign companies conspiring to raise prices of milk powder).

China Jan-May 2013 average price of imported commodities
Commodity	Avg Price	Change from 2012
	Dollars per metric ton	Percent
Vegetable oils	1024	-11.5
Corn	295	-11.5
Rice	474	-4.2
Sugar	493	-21.9
Cotton	1915	-18.6
Source: China National Development and Reform Commission

Professor Li Guoxiang of the Chinese Academy of Social Sciences wrote on a microblog that low international prices are making it hard for some Chinese farmers to sell their (more expensive) rice. Rice mills can earn a bigger profit from importing rice than buying it locally, creating "disorder" in the market, says Professor Li.

The real cause of chaos in the market is a policy of raising prices even when global prices are falling. Huaxia Times reported that the minimum price for early indica rice--a type of rice that no one likes to eat--was raised 71.4 percent from 2008 to 2013. The minimum price for japonica rice was raised 82.9 percent over the past five years.

The Huaxia Times report quotes the boss of a liquor company in Hangzhou (are region known for its rice wine) who says domestic rice costs 1000 yuan per ton more than imported rice of equivalent quality. This increases the company's expenses by 5 million yuan annually, says the liquor boss.

However, imported rice from Vietnam and Pakistan is lower in quality than most Chinese rice. That's why it is used for liquor or other industrial uses where taste is not so important or it is mixed with Chinese rice. A rice mill boss explained to Huaxia Times that Chinese mills mix no more than 25 percent imported rice with domestic rice in order to preserve taste. She figures the market could import up to 7 million metric tons of rice--equivalent to 10 mmt of paddy rice or less than 5 percent of China's current output.

Chinese officials just announced a nearly 6-percent increase in the corn price support for this fall's crop while the industry is expecting world prices to plunge after the U.S. harvests one of its largest corn crops ever. This is likely to create increasing confusion in the corn market as Chinese buyers use subterfuge to gain access to cheap U.S. corn later this year.

Imports are still only about 2 percent of China's rice supply, but the upward trajectory of imports amplifies worries about increasing dependence on imports. If China allowed market forces to determine production and trade, imports could easily rise to an equilibrium point of 5 percent of consumption and stop there as Chinese and international prices equilibrate. China's demand would bring gains in income to poor farmers in places like Vietnam, Burma, and Pakistan. 

Instead, most Chinese officials and analysts ignore the realities of the market and raise improbable alarmist all-or-nothing scenarios of China's production completely disappearing. They raise these canards to insist on their policies that create distortions and real confusion and chaos in the marketplace.