China's wheat industry development shows seven major trends

In recent years, some new changes have appeared in the development of China's wheat industry, and these sustained changes will directly change 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 continue to increase. By the end of 2014, the national land transfer area was about 403 million mu, accounting for 30.4% of the household contracted cultivated land area. 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, wheat and other grain production accounted for more than half. In 2014, the comprehensive mechanization level of crop cultivation, planting and harvesting nationwide exceeded 60%, the mechanization level of grain production continued to increase, and wheat production nationwide basically achieved full-process mechanization, which further accelerated the development of large-scale operations. Under the effect 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: China's wheat commercialization rate and circulation efficiency continue to increase. 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 continuously increasing trend. Before 2005, China's wheat commercialization rate was only 30%-40%, and farmer household inventories accounted for a large proportion of total social inventories. With changes in production methods such as mechanization and the growth of farmers going out to work, at present wheat farmers in China basically sell the wheat on the spot as soon as they finish 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 farmer households 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 farmer households 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 domestic and international price gap continues to widen, the space for policy price support in the future will become smaller and smaller. In 2015, the wheat minimum purchase price remained stable, purchasing entities became increasingly diversified, and wheat circulation efficiency 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 its degree of openness, wheat processing enterprises have expanded production capacity relatively quickly, enterprise scale has continued to expand, the distribution of processing has shifted toward main production areas, and industry competition has become increasingly fierce. Small-scale enterprises will accelerate their exit from the market, and it should be said that this has already entered an accelerated period of mergers and reorganization and survival of the fittest. 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 toward enterprise scale clearly strengthening. In 2015, the traditional profit model of flour processing is facing enormous challenges, and it can be said that most or even the vast majority of enterprises will be operating at a loss, which will further accelerate the reorganization 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. But it should be noted that China's wheat food consumption has basically remained stable at around 90 million tons, while feed grain and industrial grain use fluctuate the most. For example, in 2011/2012, because the price of wheat and corn was inverted, about 30 million tons of wheat nationwide in that period was directly used as wheat-processed feed, while in 2015, because the price of wheat was higher than that of corn, only about 15 million tons of wheat was consumed as feed. China processes about 7-8 million tons of wheat each year for the consumption of baijiu, and this has also decreased somewhat in the past two years.

Trend five: the resource and environmental constraints on China's wheat production continue to strengthen. As industrialization and urbanization develop, agricultural resources such as cultivated land and water continue to shift outside agriculture, and the resource and environmental constraints faced by wheat production development are strengthening. 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 the largest water user in China's entire society, and among crops wheat is also a major water user. Against the background of water resources being scarcer than land resources, China's wheat production will face unprecedented constraints, especially wheat production in major production areas such as North China, where water resources are most scarce, will face even greater challenges. In some areas with severe groundwater overexploitation, it is even urgent to restore the fragile ecological environment by carrying out wheat land retirement and fallowing.

Trend six: China's wheat is increasingly lacking international competitiveness. The shortage of per capita agricultural resources such as water and land is the fundamental reason why Asia's subsistence-oriented agriculture lacks international competitiveness, and it is very difficult to change. Over the past ten-plus years, 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 domestic and international price gap has become larger and larger. In particular, since May 2014, international wheat prices have continued to show a downward trend, while domestic high-quality wheat prices have shown a trend of steady slight increase. The gap between the after-tax landed price and the domestic price has continued to widen. In January 2015, the price gap was 899 yuan/ton, and by June it had risen to 1,136 yuan/ton, and the price advantage of international wheat has continued to strengthen. It should be noted that this domestic and international wheat price gap 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 wheat industry support and protection policies will become more systematic. After joining the WTO, China, following WTO rules, initially established wheat industry support policies mainly based 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 linked to production and limited support space, and the continuous increase in the minimum purchase price leading to a widening domestic and international price gap, and so on. Facing an increasingly complex development environment with more and more challenges, in the future multiple policy measures will be needed 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 main production areas, insurance subsidies, and so on. Second, make good use of the precious de minimis space under the amber box policy. This mainly includes steadily applying the minimum purchase price policy; ensuring that newly added subsidies are genuinely tilted toward new-type entities; and increasing financial support in various forms such as subsidized interest loans. Third, in all multilateral and bilateral trade negotiations, it is necessary to hold the line on not reducing the 65% import tariff on wheat, which is the most important strategic line of defense for ensuring the healthy development of China's wheat industry.