How to answer the new exam question of China's grain "three excesses coexisting"

More output · more imports · more inventory: How to answer the new exam question of China's grain “three excesses coexisting”

Data released by the National Bureau of Statistics on the 15th show that the total national summer grain output in 2015 was 141.066 million tons (282.13 billion jin), an increase of 3.3% over 2014. At this point, China's summer grain achieved “twelve consecutive years of bumper harvests”.

The “twelve consecutive years of bumper harvests” are encouraging and have provided a solid foundation for stable and healthy economic development. However, along with years of bumper harvests, China's grain imports and inventory have also maintained a trend of simultaneous increases. Last year, China's grain imports exceeded 100 million tons for the first time, and inventory rose to a historical high in recent years. China's grain is facing the new issue of more output, more imports and more inventory, the “three excesses coexisting”.

The phenomenon of “three excesses coexisting” in China's grain is becoming increasingly prominent

While total grain output has been climbing steadily, China's grain imports have also been growing rapidly. The latest data from the General Administration of Customs show that in the first half of this year, China imported a cumulative 16.29 million tons of cereals and cereal flour, including wheat, corn and barley, a year-on-year increase of more than 60%.

It is worth noting that while grain output and imports both increased, China's total grain inventory in recent years has also reached a historical high.

The reporter learned from the National Food Administration that over the past 10 years, the average annual growth rate of domestic grain output was less than 3%, but the inventory growth rate exceeded 8%. Some major grain-producing areas face enormous pressure for purchasing and storage, and some varieties have shown phased oversupply.

For example, Heilongjiang Province, an important national granary, saw both its grain purchase volume and policy-based grain purchase volume reach another historical high in the 2014-2015 grain purchasing year, with inventory increasing substantially and the situation for safe grain storage severe.

“Years of bumper grain harvests are a good thing, but the pressure on warehouse capacity is also growing.” said Xu Ming, deputy director of the National Food Administration. Although last year the transformation of “dangerous warehouses and old depots” was intensified and the construction of 100 billion jin of new warehouse capacity was accelerated, the nationwide gap in grain storage capacity is still not small.

“On the one hand, grain production keeps increasing, but on the other hand, imports also keep increasing, and recently inventory has reached a historical high. Output, imports and inventory all increasing at the same time has become a new problem facing China's grain, and it urgently needs attention.” said Chen Xiwen, director of the Office of the Central Rural Work Leading Group.

Price inversion: the “answer” to the “three excesses coexisting” phenomenon

Analysts believe that the price inversion between domestic and foreign markets and between production and processing is the ultimate “answer” to China's grain “three excesses coexisting” phenomenon, reflecting the reality of China's relatively low agricultural productivity.

“The increase in imports does not mean our grain is insufficient to eat; it is mainly caused by the huge price gap between domestic and foreign grain.” said Ye Xingqing, director of the Rural Economy Research Department of the Development Research Center of the State Council. Since 2004, China has implemented the minimum purchase price and temporary storage policies, hoping to use them to raise farmers' enthusiasm for growing grain and stabilize grain production. But as purchase prices gradually rose, domestic grain market prices rose accordingly, while in recent years international market grain prices turned downward, and the price inversion between domestic and foreign agricultural products became increasingly obvious.

The reporter learned that the current trend of domestic and foreign price inversion has expanded from varieties such as soybeans and corn to other grain varieties. Relative to the low prices of international grain, the prices of some domestic grain varieties are considerably higher, and the “price barrier lake” phenomenon is obvious.

Behind the increase in inventory, apart from factors in the reserve system, price inversion is also a major driver. “Driven by profit, many traders and grain processing enterprises are more willing to purchase low-priced foreign grain and correspondingly reduce purchases of domestic grain. The consequence is that grain harvested from the fields cannot enter processing enterprises and has to be stored in granaries, accumulating more and more.” said Liu Yanqiu, manager of Yulü Rice Milling Co., Ltd. of Beidahuang Rice Industry Group.

Taking corn, the largest-output among the three major grains, as an example, industry insiders said that in the past year or two, large amounts of low-priced foreign barley and sorghum have poured in and replaced corn as domestic feed grain, “blocking” sales of domestic inventory corn, causing corn inventory to grow larger and larger, and it has become the grain variety with the largest inventory at present. Data from the Anhui Grain Wholesale Market also confirm this phenomenon. In June this year, the first round of temporary storage corn auctions ended. The auction released 23,398 tons of corn, with an actual transaction volume of 3,000 tons, a transaction rate of only more than 10%.

“Because domestic agricultural production costs have risen year by year, in order to increase farmers' enthusiasm for growing grain, the state has raised the minimum purchase price year by year. Together with other factors, this has created price inversion between domestic and foreign markets and between production and processing, and has given rise to the current ‘three excesses coexisting’ phenomenon. The fundamental reason lies in China's high agricultural production costs and low labor productivity.” said Kong Xiangzhi, professor at the School of Agricultural Economics and Rural Development of Renmin University of China.

How to escape the “three excesses coexisting” dilemma

Analysts believe that to solve the “three excesses coexisting” test, the state must, on the one hand, reform the existing grain purchase and storage system and curb the trend of price inversion; on the other hand, it should accelerate the transformation of the agricultural development model, strive to reduce agricultural production costs, raise labor productivity, and move toward modern agriculture.

“On the premise of protecting farmers' interests, we should promote the gradual transformation of the minimum purchase price, temporary storage and agricultural subsidy policies toward a target price system for agricultural products, reduce market distortions caused by price support policies, and reverse the price inversion phenomenon.” said Cheng Guoqiang, researcher at the Development Research Center of the State Council.

“On the basis of the central government's determination of basic self-sufficiency in staple grains, we should adopt more measures to advance agricultural scientific and technological progress, innovate agricultural operation systems, transform the agricultural development model, and raise farmland output rates and agricultural labor productivity, so as to lower production costs and improve the competitiveness of China's agriculture.” said Chen Xiwen.

Although China's mechanization rate for sowing and harvesting and the contribution rate of agricultural science and technology have risen year by year, because China has many farmers and small operation scales, agricultural labor productivity still lags considerably behind developed agricultural countries. The “lame-legged phenomenon” of agricultural production, with “one leg long” (high grain yields per unit area) and “one leg short” (low labor productivity), still exists.

“On average, one laborer in China can only farm about 7 mu of cropland, whereas under mechanized farming, one laborer in Europe can farm several hundred mu, and one laborer in the United States can farm several thousand mu or even more than ten thousand mu. This gap is the gap in labor productivity.” said Zheng Xinli, vice chairman of the China Center for International Economic Exchanges.

“If Chinese agriculture wants to become strong, it must take the path of modern agriculture. Through institutional innovation, it should develop appropriately scaled operations, cultivate new types of operating entities, and by raising scale efficiency and technological levels, lower agricultural production costs and escape the ‘three excesses coexisting’ dilemma.” Kong Xiangzhi suggested.