Grain Production, Imports and Stocks: The "Three Highs" Become a New Challenge
High production·high imports·high stocks: How to answer China's new challenge of the "three highs coexisting" in grain
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. With this, China's summer grain achieved a "twelfth consecutive bumper harvest."
The "twelfth consecutive bumper harvest" is an encouraging achievement and has provided a solid foundation for stable and healthy economic development. However, along with years of bumper harvests, China's grain imports and stocks have also maintained a trend of simultaneous increases. Last year, China's grain imports exceeded the 100 million ton mark for the first time, and stocks rose to a historic high in recent years. China's grain is encountering the new issue of high production, high imports and high stocks, the "three highs coexisting."
The phenomenon of the "three highs coexisting" in China's grain is becoming increasingly apparent
While total grain output has climbed steadily, China's grain imports have also grown rapidly. The latest data from the General Administration of Customs show that in the first half of this year, China imported a total of 16.29 million tons of grains and grain flour, including wheat, corn and barley, up more than 60% year on year.
It is worth noting that while grain output and imports both increased, China's total grain stocks have also reached historic highs in recent years.
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%, while the growth rate of stocks exceeded 8%. Some major grain-producing areas face enormous pressure to purchase and store grain, and some varieties have seen temporary oversupply.
For example, Heilongjiang Province, an important national granary, saw both its grain purchase volume and policy-based grain purchase volume reach historic highs again in the 2014-2015 grain purchasing year, with stocks increasing substantially and the situation for safe grain storage becoming 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 efforts were stepped up to renovate "dangerous warehouses and old granaries" and accelerate the construction of 100 billion jin of new warehouse capacity, the nationwide shortfall in grain-storable warehouse capacity is still not small.
"On the one hand, grain production keeps increasing, but on the other hand, imports keep increasing, and recently stocks have reached historic highs. Production, imports and stocks all rising 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 highs 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 "three highs coexisting" phenomenon in grain, reflecting the reality of China's relatively low agricultural productivity.
"The increase in imports does not mean we do not have enough grain 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 minimum purchase price and temporary purchase and storage policies, hoping to increase farmers' enthusiasm for growing grain and stabilize grain production. But as purchase prices gradually rose, domestic grain market prices also rose accordingly. However, in recent years international grain market prices have turned downward, and the price inversion between domestic and foreign agricultural products has become increasingly obvious.
The reporter learned that the current trend of domestic and foreign price inversion has extended 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 much higher, and the "price barrier lake" phenomenon is obvious.
Behind the increase in stocks, apart from the reserve system factor, 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, piling up more and more," said Liu Yanqiu, manager of Yulü Rice Milling Co., Ltd. of Beidahuang Rice Industry Group.
Take corn, the largest-produced of the three major grains, as an example. According to industry insiders, in the past year or two, large amounts of low-priced foreign barley and sorghum have poured in, replacing corn as domestic feed grain, "blocking" sales of domestically stored corn and causing corn stocks to grow larger and larger. Corn has now become the grain variety with the largest stocks. 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 offered 23,398 tons of corn, with an actual transaction volume of 3,000 tons, a transaction rate of only a little 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 highs coexisting' phenomenon. The root cause lies in the high cost of agricultural production and low labor productivity in China," said Kong Xiangzhi, a professor at the School of Agricultural Economics and Rural Development at Renmin University of China.
How to break out of the "three highs coexisting" dilemma
Analysts believe that to resolve the "three highs coexisting" challenge, 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 shift from minimum purchase price, temporary purchase and storage, and agricultural subsidy policies to a target price system for agricultural products, reduce market distortions caused by price support policies, and reverse the price inversion phenomenon," said Cheng Guoqiang, a researcher at the Development Research Center of the State Council.
"On the basis of the central government's determination of basic self-sufficiency in ration grain, we should adopt more measures to advance agricultural scientific and technological progress, innovate agricultural operating systems, transform the agricultural development model, and raise farmland output 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 operating scales, agricultural labor productivity still lags considerably behind that of developed agricultural countries. The "lame leg phenomenon" in 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 cultivated land. However, 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 10,000 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 is to become strong, it must take the path of modern agriculture. Through institutional innovation, it should develop appropriately scaled operations and cultivate new types of operating entities. By raising economies of scale and the level of science and technology, it can reduce agricultural production costs and break out of the 'three highs coexisting' dilemma," Kong Xiangzhi suggested.