Can the grain trade deficit be changed?

As early as 2006, Cheng Guoqiang, the current Secretary-General of the Academic Committee and Director-General of the International Cooperation Department of the Development Research Center of the State Council, already said at an “International Symposium on Globalization and Rural Development Strategy”: “Since 2005, the transitional period that Chinese agriculture secured in the WTO accession negotiations has basically ended, and China has become one of the countries with the most open agricultural product markets in the world.”

Since China joined the WTO, the grain trade deficit has been the norm. Data provided by AskCI Consulting show that in the first two months of 2015, China imported 11.138 million tons of soybeans, with an import value of 32.52 billion yuan, and 5.025 million tons of refined oil, with an import value of 14.82 billion yuan. Compared with 2005, the soybean import value quadrupled.

With the full end of the “protection period,” will the state of the grain trade deficit change?

China's grain production still lacks international competitiveness

The full end of the “transitional period” means that Chinese agriculture has entered a new stage of opening to the outside world and will further integrate into the process of economic globalization, while the international competitive pressure facing Chinese agriculture will rise across the board. In particular, the situation in which China's traditional small-scale, scattered farming finds it difficult to compete with large-scale modern agriculture abroad will not be fundamentally changed for a fairly long period.

China's land is severely fragmented in operation, with land transfer amounting to only 380 million mu, accounting for 28.8% of the total cultivated land area, and most cultivated land is still in the hands of individuals. A large amount of cultivated land in rural areas is still farmed by individual farmers.

Huang Jikun, director of the Center for Chinese Agricultural Policy of the Chinese Academy of Sciences, said in an interview with the media that China's real wage for labor has grown at an average annual rate of about 8% since 2005, and cultivated land rents rose by 51% and 70% in Northeast China and North China respectively between 2008 and 2013.

Huang Jikun also believes that changes in the cost of materials (tradable goods) are global, but changes in the cost of labor and land (non-tradable goods) are domestic, and are factors that significantly affect the international market competitiveness of agricultural products. In some fields, the loss of China's agricultural comparative advantage is not merely temporary.

Because various interest relationships are intricate and complex, negotiations are very difficult, and establishing new rules and a new order for international agricultural trade is an arduous process. For a considerable period in the future, China's grain exports will face an extremely complex international competitive environment.

Large grain imports are needed to ensure the strategic bottom line

⟦NL> Recently, China's grain has shown the phenomenon of “three quantities rising together,” namely that production, imports and inventories are all at historic highs,

Large grain imports are a choice forced by the constraints of China's shortage of cultivated land and water resources, and are also needed to ensure the bottom line of the agricultural development strategy.

Take soybeans as an example. Based on current soybean technical conditions and yield levels (113 kg per mu), if 26.59 million tons of soybeans were produced domestically, it would require 234 million mu of cultivated land (equivalent to adding another four Heilongjiang soybean planting areas). If 26.59 million tons of soybeans are imported, it is equivalent to “cultivating” 234 million mu of overseas cultivated land. Importing 2.57 million tons of cotton is equivalent to cultivating 34.24 million mu of overseas cultivated land (equivalent to adding another two Xinjiang cotton-growing areas). If self-sufficiency in soybeans and cotton were to be achieved, 270 million mu would have to be given up for the production of grain and other agricultural products, equivalent to reducing grain production by 166.3 billion jin. If that happened, it would shake China's food security, which is based on domestic production and solving grain self-sufficiency.

The cost of grain production is relatively high, and our agriculture and farming households operate on a relatively small scale. In recent years, the prices of agricultural production materials, labor and land in China have all risen relatively quickly, while the operating scale of farming households has not expanded correspondingly, so the price disadvantage is obvious.

In addition, the state has continuously raised the minimum purchase price for grain or the retail reserve price, causing China's grain prices to differ considerably from international market prices.

In the internationally recognized concept of food security, the most important part is staple food security. Facing increases in grain production and inventories, Ren Zhengxiao, director of the State Administration of Grain, once said during the “Two Sessions” that “this is a pleasant burden. What we look forward to most is a bumper grain harvest every year. An increase in purchase volume is also good for farmers selling grain, converting it into cash, increasing production and raising incomes. Of course, inventories are not better the higher they are, but ‘with grain in hand, the heart is not panicked.’ If the granary is full, the country's food security is guaranteed.”

The trend of increasing grain imports is basically set

From 2006 to now, the renminbi has appreciated by 25% against the US dollar, making imported grain prices relatively much cheaper; falling energy prices have also led to lower grain freight costs and lower costs for imported grain; international grain prices have also fallen because of the strong US dollar.

At a time when domestic grain prices are far higher than international prices, whether viewed from the pressure of low international market prices or from the WTO subsidy ceiling China has committed to, China has no room to subsidize farmers by continuing to raise prices.

It is unrealistic for farmers to rely on producing grain to secure their incomes. As production costs rise, the net profits of related agricultural products are declining across the board, and wheat has even shown negative profit. At present, the income of most rural households in the countryside mainly comes from sideline work and business income.

A 2012 survey by the Hunan Provincial Grain Bureau showed that from 2005 to 2012, the returns from planting cucumbers, peppers and lotus root were 3.1 times, 2.5 times and 3.9 times the income from planting double-cropping rice, respectively.

In addition, large grain imports also have a positive effect on China's ecological environment. China's grain production requires large amounts of fertilizer and pesticides. Research shows that over the 10 years from 2002 to 2012, the use of nitrogen fertilizer (nitrogen content) increased from 28.93 million tons to 44.98 million tons, an increase of 50%, and this figure is 5 times the world average.

Large-scale use of chemical fertilizers and pesticides causes air pollution and water pollution. An important cause of haze formation is ammonia pollution. In the North China Plain, over-extraction of groundwater for irrigation is one of the important reasons for the continuously expanding groundwater depression cones. In this region, groundwater consumed for agriculture accounts for more than 80% of all groundwater consumption.

In an ecological sense, importing grain is importing water resources and land. For a country severely short of both water resources and cultivated land per capita, this is of great significance for improving the ecological environment.