Why is China's wheat becoming less and less internationally competitive? The Ministry of Agriculture responds

&lT;span style="font-family: KaiTi_GB2312, KaiTi;">Seven major trends in the development of China's wheat industry

In recent years, new changes have emerged in the development of China's wheat industry, and these sustained changes will directly alter the development model of China's wheat industry and deserve close attention. Specifically, they are mainly manifested in the following seven major trends.

Trend one: The degree of large-scale wheat production and the level of mechanization are continuously rising. By the end of 2014, the national land transfer area was about 403 million mu, accounting for 30.4% of household contracted arable land. There were more than 3.414 million specialized large households operating more than 50 mu, and more than 870,000 family farms. Among the uses of transferred land, grain production such as wheat accounted for more than half. In 2014, the comprehensive mechanization level of crop cultivation and harvesting nationwide exceeded 60%, the mechanization level of grain production continued to rise, and wheat production nationwide basically achieved full-process mechanization, which further accelerated the development of large-scale operations. Under the effects of large-scale operations and mechanization, China's original wheat operation scale and production mode of 4.5 mu per household on average will undergo profound changes.

Trend two: The commercialization rate and circulation efficiency of China's wheat are continuously rising. More than ten years have passed since the market-oriented reform of China's grain circulation system, and the wheat commercialization rate and circulation efficiency have shown a trend of continuous improvement. Before 2005, China's wheat commercialization rate was only 30%-40%, and farmers' inventories accounted for a large proportion of total social inventories. With changes in production methods such as mechanization and the increase in farmers going out to work, at present wheat farmers in China basically sell the wheat on the spot right after harvesting it, and the national wheat commercialization rate is estimated to have reached more than 80%. According to a survey in Anhui Province, 85% of farmers basically do not store wheat, 10% store 300 jin of wheat per capita, 5% store more than 300 jin of wheat per capita, and 95% of farmers sell all their corn. Under the effect of the national minimum purchase price policy over the past ten years, the characteristics of China's wheat policy market have become increasingly obvious, but as the price gap at home and abroad continues to widen, the room for policy price support in the future will become smaller and smaller. In 2015, the minimum purchase price of wheat remained stable, purchasing entities became increasingly diversified, and the circulation efficiency of wheat will become higher and higher.

Trend three: China's flour processing industry has entered a period of accelerated mergers and reorganization. With the advancement of reform in China's grain processing industry and the increase in openness, wheat processing enterprises have expanded production capacity relatively quickly, enterprise scale has continued to expand, processing distribution has shifted mainly to major producing areas, and industry competition has intensified day by day. Small-scale enterprises will accelerate their exit from the market, and it should be said that an accelerated period of mergers and reorganization and survival of the fittest has already begun. In 2013, the output of wheat flour by agricultural product processing enterprises above designated size nationwide was 132.05 million tons, an increase of 4.2% over the previous year. There were 1,875 wheat flour production enterprises above designated size, mainly concentrated in Henan, Shandong, Anhui, Jiangsu, Hebei, Shaanxi and other areas, and their wheat flour output accounted for 86.3% of the national total, with the trend of enterprise scaling-up clearly strengthening. In 2015, the traditional profit model of flour processing was greatly challenged, and it can be said that most or even the vast majority of enterprises will be in loss, which will further accelerate the restructuring and layout of the flour processing industry.

Trend four: China's total wheat consumption is increasing steadily while changes occur in its structure. In recent years, China's wheat consumption has shown a moderate growth trend, and the estimated total consumption in 2014/2015 was more than 120 million tons. However, it should be noted that China's wheat consumption as food grain has basically remained stable at around 90 million tons, and the largest fluctuations are in feed grain and industrial grain. For example, in 2011/2012, because the prices of wheat and corn were inverted, about 30 million tons of wheat nationwide that year were directly used as wheat processing feed. In 2015, because the price of wheat was higher than that of corn, only about 15 million tons of wheat were consumed as feed. China processes about 7-8 million tons of wheat annually for baijiu production, and this has also decreased somewhat in the past two years.

Trend five: The resource and environmental constraints on China's wheat production are continuously strengthening. With the development of industrialization and urbanization, agricultural resources such as arable land and water have continued to shift outside agriculture, and the resource and environmental constraints faced by wheat production development have strengthened. In terms of planting area, China's wheat production over the past ten years has basically been restorative growth, and at present it is only 360 million mu, a decrease of 90 million mu compared with 1997. In terms of water use, agriculture is a major water user in the whole society in China, and among crops wheat is also a major water user. Against the background of water resources being even scarcer than land resources, China's wheat production will face unprecedented constraints. In particular, wheat production in major producing areas such as North China, where water resources are most scarce, will face even greater challenges, and in some areas with severe groundwater overexploitation it is urgent to restore the fragile ecological environment through fallowing and withdrawing wheat cultivation.

Trend six: China's wheat is becoming less and less internationally competitive. The shortage of agricultural resources such as water and land per capita is the fundamental reason why Asia's livelihood-oriented agriculture lacks international competitiveness, and it is very difficult to change. Over the past ten years or more, except during the global food crisis when international wheat prices were higher than domestic wheat prices, for most of the rest of the time domestic wheat lacked a price advantage, and the price gap at home and abroad has become wider and wider. In particular, since May 2014 international wheat prices have continued to decline, while domestic high-quality wheat prices have shown a trend of steady slight increases, and the price gap after tax on a landed basis compared with domestic prices has continued to widen. In January 2015 the price gap was 899 yuan/ton, and by June it rose to 1,136 yuan/ton, with the international wheat price advantage continuously strengthening. It should be noted that this price gap between domestic and international wheat will exist for a long time, and the price gap will continue to widen. In the future, China's wheat will face increasing international competitive pressure.

Trend seven: China's support and protection policies for the wheat industry will become more systematic. After joining the WTO, China followed WTO rules and initially established support policies for the wheat industry based mainly on the minimum purchase price and four subsidies, but in recent years the drawbacks of these policies have become increasingly apparent, such as subsidies not being decoupled and support space being limited, and the continuous increase in the minimum purchase price leading to a widening price gap at home and abroad, among others. Facing an increasingly complex development environment with more and more challenges, multiple policy measures will be needed in the future to ensure the healthy development of China's wheat industry: First, increase green box policy support. This mainly includes increasing investment in wheat science and technology research and development; establishing wheat water-saving subsidies, ecological restoration subsidies in major producing areas, insurance subsidies, and so on. Second, make good use of the precious de minimis yellow box policy space. This mainly includes stabilizing the application of the minimum purchase price policy; ensuring that newly added subsidies genuinely favor new-type entities; and increasing financial support in various forms such as subsidized loans. Third, in all multilateral and bilateral trade negotiations, it is necessary to hold the line on not lowering the 65% import tariff on wheat, which is the most important strategic defense line for ensuring the healthy development of China's wheat industry.