Food security requires both self-reliance and openness
China is a country with a large population, and food security cannot rely entirely on the international market. For China's food security, first, there must be bottom-line thinking, and second, there must be market thinking. The latter refers not only to using the international market and importing grain from abroad, but also includes: further reform and opening up, developing the economy, crossing the “middle-income trap”, and enabling China to join the ranks of developed countries; using the valuable window of time to step up the confirmation of agricultural land rights, accelerate land circulation, raise the level of scale in Chinese agriculture and its international competitiveness, and ensure the foundation of China's food security.
Part One: General Theory of Food Security
A Perspective of Market and Governance
The Food and Agriculture Organization of the United Nations is the inventor of the concept of “food security” and has defined it three times. In 1974, at the first World Food Summit, the FAO defined food security as: “ensuring that any person at any time has access to the food needed for survival and health.”
In 1983, the FAO revised the concept of food security for the first time, proposing that the goal of food security is: “ensuring that any person at any time can both buy and afford the basic food they need.”
In 1996, the second World Food Conference adopted the “Plan of Action of the World Food Summit”, stating: “Food security is achieved only when all people at all times have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.” This was the FAO's second revision of the concept of food security.
By reconciling the FAO's three definitions, we can arrive at a suitable definition of food security: (1) ensure that any person capable of supporting themselves can at any time both buy and afford the basic food they need; and (2) ensure that any person not capable of supporting themselves can at any time obtain sufficient food needed for survival and health. The two components of this definition respectively narrow the extension of the 1983 definition and the 1974 definition, but retain the basic connotation of the original definitions.
First, this definition can be understood from a perspective higher than food supply security.
Based on this perspective, (1) of the above definition means: for people who have the ability to work and can support themselves, food security is a kind of capability. These people make up the vast majority of a society. For them, as long as the price of labor exceeds the price of the food needed to sustain labor, that is, as long as wages exceed the cost of subsistence, the food security problem has already been replaced by the employment problem. The unemployment rate and the Engel coefficient can be used to quantitatively measure the level of food security. The lower the proportion of food consumption in a person's or a family's total consumption, that is, the lower the Engel coefficient, the higher the standard of living and the level of food security, and at the same time the greater the ability to accumulate more savings and investment, cope with risks such as unemployment, and ensure a higher standard of living and level of food security when unemployed.
For a rural person, if he can earn over 10,000 per month as a decoration worker or delivery rider, far exceeding the income from farming, then his Engel coefficient while working in a non-farm job would be far lower than when farming, and growing grain for self-sufficiency would instead weaken his level of food security. For a country, if it has a higher per capita GDP and per capita disposable income, then in theory its level of food security may also be higher. Famine may occur in Africa, but not in the United States or Japan.
(2) means: for people who have lost the ability to work and cannot support themselves due to congenital or acquired reasons, food security is relief or relief-type welfare provided by society or the government. Such people make up an extremely low proportion of any society. As long as a country has a basic market economy and public governance order, the remaining people who have the ability to work and can support themselves will not be unable to afford the grain relief payments needed to support these people. Only in failed states with a lack of rights and collapsed governance do these people face food security problems.
In summary, from the higher-order perspective of the market system and the governance system, the food security problem is no longer merely a food supply security problem, but has expanded into a problem of the extension of rights and market order and a problem of improving the rule of law and public governance capacity. This is the fundamental solution to the food security problem. For China, this means further reform and opening up, developing the economy, crossing the “middle-income trap”, and enabling China to join the ranks of developed countries.
A Perspective of Supply Security
Second, the above definition can be understood from the perspective of food supply security.
It is meaningful to look at the food security problem from this perspective. The worry that “a person will starve to death after not eating for a few days” will prompt everyone to instinctively adopt this perspective. Simple rhetoric that “the market will automatically solve everything” cannot dissolve this worry. Food security in the usual sense refers to food supply security, just as energy security usually refers to energy supply security.
To correctly define food supply security, one must first have bottom-line thinking. Food supply security should refer to taking effective measures in food production, trade and reserves to eliminate the risk of famine, so that no one starves to death because of a lack of food. What is guaranteed is the basic food demand for subsistence and survival, low-order food demand, rather than the high-order food demand of how many eggs, poultry and meat each person should consume every day and ensuring comprehensive and balanced nutrition.
For basic demand, a roughly fixed bottom line can be drawn. To hold this bottom line, the government needs to mobilize certain resources. Once this bottom line is held, it should be considered that the bottom-line goal of food supply security has been achieved (please note that food supply security also involves the issue of improving China's agricultural competitiveness, which will be elaborated later). As for high-order demand, first, from a moral point of view the government has no need to guarantee it, and second, if it forcibly takes this as a guarantee target, it will greatly distort resource allocation and entail extremely high social costs.
Second, the principle of consumer sovereignty must be upheld. As long as the government holds the bottom line of food supply security, the rest should be left to the market. Since consumers can bear it economically (the price level of labor far exceeds the price of the food needed to sustain labor), the market should be opened and grain prices should be aligned with the world market. When the domestic market is isolated from the international market, if the cost consumers pay to buy grain and food is lower than the international market price, then it is unfair to domestic producers; if it is higher than the international market price, then it is unfair to consumers.
Part Two: Seeking China's Path to Food Security
Domestic Grain Prices Are Far Higher Than the International Market
This is exactly the situation Chinese consumers currently face. Since 2010, China's grain prices have been comprehensively higher than international market FOB prices. According to calculations by Xu Yuan, a researcher at Peking University, at the end of 2013, the domestic/international market prices of wheat, corn, rice and soybeans were 417/314, 384/204, 506/433 and 780/487 in that order, all in USD/ton, with domestic prices higher than international prices by 32.8%, 88.2%, 16.9% and 60.1% in that order; weighted by consumption volume, domestic grain prices were about 50% higher than the international market. Now, the price gap between the two markets is even larger.
First, look at wheat. On July 30, 2015, the price of wheat on the Chicago Board of Trade (CBOT) for September delivery this year was 496.5 cents/bushel. A bushel is a unit of volume, and 1 ton of wheat equals 36.7437 bushels, which can be converted to 182.4 USD/ton. Converted at the central parity rate of the US dollar that day (6.1165), this is 1115.8 yuan/ton.
In 2015, China continued to implement the minimum purchase price policy in major wheat-producing areas. The minimum purchase price for wheat (third grade) was 118 yuan per 50 kg (2.36 yuan/kg), unchanged from the 2014 level. As of July 25, Henan Province had purchased a cumulative total of 12.87 billion kg of wheat, of which 6.7 billion kg were purchased at the minimum purchase price and 6.17 billion kg at market price, with an average purchase price of 2.35 yuan/kg. It is not difficult to calculate that this average “market price” was 2.34 yuan/kg, less than 1% below the minimum purchase price. Both the minimum purchase price and the market price were more than double the international market price.
The 2013 minimum purchase price for wheat (third grade) was 112 yuan per 50 kg (2.24 yuan/kg), and in 2014 and 2015 it was raised to 2.36 yuan/kg. But the international market price of wheat has fallen sharply over this year and a half. This increase and decrease together have caused the current domestic wheat price to be more than 100% higher than the international market price.
Now look at rice. According to a US Department of Agriculture report, in the week ending July 6, the export price of Vietnamese 5% broken rice was 350 USD/ton, equivalent to 2140.8 yuan/ton.
In 2015, China continued to implement the minimum purchase price policy in major rice-producing areas. The minimum purchase prices for early indica rice, mid-to-late indica rice and japonica rice produced in 2015 (all third grade) were 135 yuan, 138 yuan and 155 yuan per 50 kg respectively, unchanged from the 2014 level. These can be converted in order to 2700, 2760 and 3100 yuan/ton. The minimum purchase price of early indica rice being harvested in mid-to-late July was about one-third more expensive than Vietnamese rice.
Finally, look at corn. On July 30, 2015, the price of corn on the CBOT for September delivery this year was 373.25 cents/bushel. 1 ton of corn equals 39.36825 bushels, which can be converted to 146.9 USD/ton or 898.8 yuan/ton. On the same day, the Anhui Grain Wholesale Market and its networked markets held a competitive auction for the sale of imported corn from state temporary storage, and the transaction price of 2012 US No. 2 yellow corn was 2300 yuan/ton. The domestic price of corn was more than 150% more expensive than the international market.
In 2014, China continued to implement the temporary corn purchase and storage policy in the three northeastern provinces and Inner Mongolia, with the purchase period from November 25, 2014 to April 30, 2015. The listed purchase price for corn (third grade): Inner Mongolia and Liaoning 1.13 yuan/jin, Jilin 1.12 yuan/jin, Heilongjiang 1.11 yuan/jin. The price difference between adjacent grades was set at 0.02 yuan per jin.
Import Tariff Quotas
Domestic consumers have no choice but to pay grain prices far higher than the international market, which to a certain extent can be said to lower rather than raise the level of food security. Interestingly, the original intention of the policy was to ensure food security, but the result ran counter to it.
The entire logical chain is as follows: believing that China's food security mainly depends on the domestic market, which is not wrong → building high tariff barriers and implementing a grain purchase and market-support policy to protect domestic grain producers, but these policies themselves cannot improve China's agricultural competitiveness → domestic grain prices are far higher than the international market → consumers have to pay more money to buy grain (violating the principle of consumer sovereignty), weakening the level of food security.
China is a country with a large population and huge grain consumption, but for a long time its agricultural production level has been relatively low, making food security seem especially important. In order to protect domestic grain production and raise the level of food security, most countries, including developed countries such as the United States and Japan, have formulated some protective policies, such as import quotas and tariff barriers. Of course, China is no exception. However, with the development of global economic integration, this kind of protective policy is facing a trend of gradual reduction or even abolition.
Why can domestic grain prices be higher than the international market? Apart from the low production level, the grain import tariff quota system is also an important reason.
The 2015 grain import tariff quota volumes were: wheat 9.636 million tons, with a non-state trading proportion of 10%; corn 7.2 million tons, with a non-state trading proportion of 40%; rice 5.32 million tons, with a non-state trading proportion of 50%. This small import quota accounted for only a little more than 3% of the national total grain output in 2014 (607.099 million tons).
According to the 2002 “Interim Measures for the Administration of Import Tariff Quotas for Agricultural Products”, for agricultural products subject to import tariff quota administration, the annual market access quantity: imports of agricultural products within the quota volume apply the in-quota tariff rate, and imports of agricultural products outside the quota volume apply the out-of-quota tariff rate.
The Customs Import and Export Tariff shows that the 2015 import tariff quota rates for agricultural products were: depending on the commodity classification (tariff line), wheat was 1%, 6%, 9% or 10%, corn was 1%, 9% or 10%, and paddy rice and milled rice were 1% or 9%. If imported from New Zealand, the country-specific tariff quota rate of zero applies. But the out-of-quota tariff rates are frightening: the most-favored-nation rate for imported wheat is 65%, and the general rate is 130% or 180%; the most-favored-nation rate for imported corn is 20%, 40% or 65%, and the general rate is 130% or 180%; the most-favored-nation rate for imported paddy rice and milled rice is 10%, 40% or 65%, and the general rate is 70%, 130% or 180%. In addition to import tariffs, these agricultural products are also subject to a 13% value-added tax at the import stage. Tariffs in the broad sense include: tariffs in the narrow sense, consumption tax at the import stage and value-added tax.
Enterprises that obtained agricultural product import tariff quotas are delighted. At present, domestic prices of wheat and corn are more than 100% and 150% higher than foreign prices respectively. At the end of July 2015, the sea freight for international grain ships from the US Gulf to Chinese ports was 35 USD/ton; from Brazil to Chinese ports it was 26 USD/ton. After further deducting tariffs and import value-added tax, it is basically pure profit.