One out of every 7 jin of grain in China is imported; grain structure reform will shift direction

On one side is a “full granary of domestically produced grain” after “twelve consecutive years of bumper harvests”, and on the other is low-priced imported grain that has once again exceeded 100 million tonnes. The inversion of domestic and international prices highlights the lagging competitiveness of Chinese agriculture and further strains the nerves of grain policy adjustment.

Statistics show that in the first 11 months of 2015, imported grain reached 113 million tonnes, an increase of 27.3% compared with the same period last year, and it was the second time in history that it exceeded “100 million”; on the other hand, China's total grain output in 2015 was 621 million tonnes, up 2.4% from 2014.

“The recommendations for the ‘13th Five-Year Plan’ put forward some policies, such as carrying out pilot programs for crop rotation and fallowing, and implementing the strategy of ‘storing grain in the land and storing grain in technology’, etc. This in fact sends a signal of appropriately adjusting recent grain output to a certain extent.” Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of its office, pointed out in a recent article, but efforts will still focus on maintaining the stability and improvement of production capacity.

“Reducing output is acceptable, but the area of cultivated land must not be reduced, and farmers themselves should lead the choice of whether to withdraw from grain planting.” Ma Wenfeng, an analyst at AgriWatch, told the Daily Economic News, “If farmers earn less from growing grain, they will naturally plant less, but grain reduction must not be advanced at the cost of harming farmers' interests.”

Corn substitutes imports hit the domestic market

Calculated by the share of imported grain, currently one out of every 7 jin of grain in China comes from abroad. In addition to more than 70% of these imported grains being soybeans, most of the rest are corn substitutes such as barley, sorghum, DDGS, and cassava, and the fierce influx of imported goods is hitting domestic corn sales.

“Cheap imported substitutes directly hit state reserve sales.” Ma Wenfeng told the Daily Economic News, “The current targeted enterprise sales price of state-reserved corn is 1,400 yuan per tonne, or 0.7 yuan per jin, while it was originally purchased at about 1 yuan, which means that for every tonne of corn, in addition to losing storage fees, at least 600 yuan is lost.”

What is inside cannot get out, and what is outside cannot get in. Sky-high grain inventories intensify the difficulty of grain collection in China. How tight is warehouse capacity? The State Administration of Grain once used two unprecedented phrases to describe it: “At present, China's grain inventory has reached a new high. The quantity of grain stored by various grain and oil storage enterprises is unprecedented, and the quantity of state policy grain stored in open-air and simple storage facilities is also unprecedented.”

Chen Xiwen pointed out in his article that imports of barley, sorghum, DDGS, cassava and others to replace corn have hit domestic corn sales, causing unsold stockpiles and backlogs. This is a prominent problem currently facing China's grain market. Therefore, for the Chinese government and farmers, the issue that needs to be considered is what measures to take to adjust domestic grain prices so as to curb the arbitrary growth of imports of corn substitutes.

Grain production structure will undergo prudent reform

Under the pattern of “twelve consecutive increases” in grain output, although some voices hold that moderately reducing grain output can be considered, an article published yesterday in the People's Daily held that adjusting the grain production structure is very urgent, that grain production must adapt to the new normal, and that grain reform must shift from the demand side to the supply side. When the grain supply side is relatively loose, when adjusting the planting structure, it is necessary to transition toward a state of grain supply-demand balance. There must be no excessive reduction, and the intensity and pace must be grasped to tap new potential in grain production. The focus is to push grain production from mainly focusing on quantity growth to placing equal emphasis on quantity, quality, and efficiency, and from relying on resources and material inputs to truly relying on scientific and technological progress and improving the quality of laborers.

Because it has experienced the “huge fluctuations” brought by the previous two declines in grain output, grain reduction is an extremely serious topic.

The first huge fluctuation in grain occurred in the 1980s. Grain output declined for four consecutive years, and it was not until 1989 that grain output recovered to the level of five years earlier. The second began in 1999, when grain output declined, falling all the way to 430 million tonnes in 2003. Then, stimulated by a series of policies, grain output began to recover from 2004, and it was not until 2008 that it surpassed 1998.

“Grain output went ‘down one slope and up one slope’, and the road to recovery took a full ten years.” Chen Xiwen pointed out, “From historical experience, the Chinese government must be especially cautious in adjusting grain policy. Reform of the grain price formation mechanism, subsidy policies for farmers, and grain purchase and storage policies must fully consider farmers' interests and avoid another large decline in grain output.”

And now, the third grain reduction reform has begun to show signs. “In fact, consideration of grain production capacity has been underway for a long time. Last year, when discussing the No. 1 Central Document for 2015, there were already discussions,” a person from the Ministry of Agriculture told the Daily Economic News, “The planting area can be reduced, but production capacity still needs to be guaranteed through technological improvement and restoration of soil fertility.”

As Chen Xiwen said, the recommendations for the “13th Five-Year Plan” put forward some policies, such as carrying out pilot programs for crop rotation and fallowing, and implementing the strategy of “storing grain in the land and storing grain in technology”, etc. This in fact sends a signal of appropriately adjusting recent grain output to a certain extent.