What are the focal issues in China's agricultural development?

Not long ago, General Secretary Xi Jinping, during an inspection tour in Zhejiang Province, remarked that in the process of advancing our Four Modernizations in a synchronized manner - industrialization, urbanization, informatization, and modernization - agriculture is clearly a weak link, the weakest one. Only by striving to shore up this weak link and resolving these weak spots can we truly advance the development of the Four Modernizations and truly realize the Chinese Dream. I think this judgment is very important.

In recent years, it must be said that the situation for agricultural development has been very good, with grain production increasing year after year for eleven consecutive years and farmers' incomes growing year after year - something almost unprecedented in Chinese history. But while seeing these achievements, all of us also sense a series of new challenges and pressures facing agriculture. Where do these challenges and pressures come from?

Actually, President Ke also mentioned just now that, to sum up, I think we are now facing a kind of puzzlement involving three things growing at the same time. These three simultaneous increases are: first, grain output has been growing year after year for these eleven years; second, since entering the new century, especially since 2010, the quantity of grain we import has been gradually increasing; and third, I think we must also understand that the total grain inventory of our whole society is also growing rapidly. What exactly is going on with these three increases? I think this actually reflects many of our own contradictions and problems.

On December 9 last year, at the Central Economic Work Conference, General Secretary Xi Jinping made an analytical speech on the prominent problems facing agriculture and rural areas. He pointed out four prominent challenges and pressures we currently face.

The first is that the continuous rise in domestic agricultural product prices and the continuous rise in grain prices have already made domestic prices exceed international market prices, so agricultural products from the international market will inevitably enter our country in greater quantities.

Second, this trend has not stopped, so the production costs of domestic agricultural products are also rising at an even faster rate. The high costs of domestic agricultural products lead to high domestic agricultural product prices, which will also cause low-priced foreign agricultural products to enter the Chinese market in greater quantities. So the General Secretary called one a ceiling - the lowest rising price is called the ceiling - and we have now already broken through this ceiling. Domestic production costs are called the floor. So it is obvious that if “the ceiling presses down and the floor rises,” the living space for Chinese agricultural products will become narrower and narrower.

The third issue is that when agriculture in countries around the world develops to a certain stage, it inevitably requires state financial subsidies, and we are the same. In fact, we truly began implementing agricultural subsidies in 2004. Now, according to the WTO standards on agricultural subsidies, for a considerable portion of products the subsidies are already within the amber box with little room left, and some have already broken through the amber box line - for example, cotton and sugar. For many important agricultural products such as grains, the room under amber box policies is also very limited.

The fourth issue is that in recent years we have focused relatively heavily on increasing agricultural product output, while not doing enough for ecological and environmental protection, so the pressure on agricultural resources and the environment is growing greater and greater.

The General Secretary summarized the four major contradictions currently facing agriculture: the pressure of the international market price ceiling, the pressure of the rising floor of domestic agricultural product prices, the pressure on the space for amber box subsidies, and the pressure on the carrying capacity of agricultural resources and the environment. These are the major problems we must face in the future. It can also be said that Chinese agriculture has once again reached an important historical juncture, requiring us to grasp the conditions in all respects, analyze the situation well, and address the many problems that exist in Chinese agriculture in a targeted way.

Among these problems, solving each one is not so simple. I think the most prominent problem, in fact, judging from the four problems we just analyzed, is fundamentally the issue of agricultural production costs. In the current period, the long-term issue is of course one of sustainable, ecologically balanced development. Costs keep rising, and the floor keeps rising, meaning that the height by which the ceiling is breached will keep increasing. The rise in China's agricultural production costs is unavoidable at this stage in our country, because the economy is growing rapidly and people's incomes are rising rapidly. Against this background, the prices of agricultural means of production, the cost of agricultural labor, and the price of rural land rents are all rising rapidly - especially after entering the new century, around 2010, this situation became very obvious. If we comprehensively analyze and compare many prices, and look at the minimum purchase prices and temporary purchase prices implemented by the state for the most important agricultural products, we can see from the rise in these prices that our costs are rising very quickly.

The 2014 No. 1 Central Document clearly proposed fully opening up the grain market. After the full opening of the grain market, the State Council decided that under the condition of a fully open grain market, minimum purchase prices would be implemented in major producing areas for agricultural products in short supply on the market. Since then, this year is the 12th year, and the price policy has been maintained throughout, but the levels have risen enormously. In 2004, when we first implemented minimum purchase prices, there were roughly two: one was wheat, which did not even include spring wheat. At that time, the minimum purchase price for flower wheat was 6 mao 9 per jin, and the minimum purchase price for white wheat was 7 mao 2 per jin. Now, by last year, 2014, the minimum purchase price level for wheat had reached 1 yuan 1 mao 8, so these prices rose by more than 60%; for rice purchase prices in 2004, early indica rice was 7 mao per jin, and last year's minimum purchase price was 1 yuan 3 mao 5. In 2004, middle and late indica rice was 7 mao 2, early indica rice 7 mao, middle and late indica rice 7 mao 2, and last year the price was 1 yuan 3 mao 8. Japonica rice was 7 mao 5 in 2004, and last year it was 1 yuan 5 mao 5. From these two prices, the price of indica rice rose by 91% and 92%, and the price of japonica rice rose by nearly 100%. This is not the price change over 12 years. In fact, when the minimum protective price was set in 2004, the price did not change for the first four years. The real price increases began in 2008. About two-thirds of the wheat price increase I just mentioned, and about 100% of the rice price increase, were completed between 2008 and 2014. So with prices rising like this, two obvious changes occurred in the entire grain market price situation.

One is: what was originally called the minimum purchase price slowly became the maximum purchase price on the Chinese market. Ultimately this maximum purchase price led to two results. The government offered the highest price, and in the end the government became the sole buyer of grain products, so the market no longer played a role. Therefore the grain purchased all ended up sitting in warehouses, which is why inventories have risen sharply in recent years. In the market, processing enterprises and distributors have for some time been saying “strong rice, weak milled rice” and “strong wheat, weak flour,” which illustrates this situation: the purchase price has already surpassed the purchase price of purchasing enterprises.

The second is that since entering the new century, Chinese agricultural product prices were clearly lower than international market prices, but now some product prices have already exceeded the international market, so imports from the international market have increased rapidly.

The increase in import quantities that President Ke just mentioned: by the end of last year, adding together all types of grain products, China's imports last year exceeded 100 million tons for the first time - 100.42 million tons - of which soybeans were 71.4 million tons. This import volume is tremendous. At the beginning of the century it was less than 20 million tons, and now it is 71.4 million tons. In truly international terms, grain imports were instead relatively low. Last year we imported three major grains: rice, 3 million tons; wheat and corn, 2.5 million tons each. So last year the three major grains together totaled 8.4 million tons, a relatively low share. Adding imported soybeans at just under 80 million tons, there were still more than 20 million tons of commodities that people did not pay attention to in the past: more than 5 million tons of barley, more than 5 million tons of sorghum, more than 5 million tons of corn distillers' grains, and more than 8 million tons of cassava flour. Together these add up to 20 million tons. So why are these products imported? In the past, barley imports were mainly for brewing beer, but now in fact half of the more than 5 million tons of barley has gone into feed. Sorghum is needed in brewing high-grade baijiu, but it was almost all domestically produced, and imported sorghum was never used, so basically all imported sorghum went into feed. Corn distillers' grains basically all went into feed, and the more than 8 million tons of cassava flour was mainly for processing starch. Therefore it can be seen that the rapid expansion of imports of these four new varieties actually shows that market entities are using them to replace corn consumption. A very important reason is that the domestic market price of corn is higher than the international market price, and also higher than the import cost of these substitutes. The import of these substitutes has become a trend.

⟦NL> When the minimum price policy was first implemented for corn, corn had never reached it, and neither corn nor soybeans had reached it. By 2007, problems appeared in corn production and sales, and market prices fell. In order to protect farmers' interests, the temporary purchase price for corn was implemented for the first time in 2007. After the corn was harvested and the market price became available, the government sold and purchased at the temporary storage purchase price. That year the average temporary purchase price was 7 mao: Heilongjiang 6 mao 9, Jilin 7 mao, Liaoning 7 mao 1. By last year the average price had become 1.12 yuan: Heilongjiang 1.11 yuan, Liaoning 1.13 yuan, Jilin 1.12 yuan. It can be seen that from 7 mao in 2007 to 2014, also a period of 7 years, the price rose by 60%. So the domestic corn price is clearly higher than the market's capacity to bear, and also clearly higher than the international market, so this product is increasingly being replaced by the international market. This trend has somewhat eased so far. Everyone can see that in the grain purchase prices for the three major grains announced by the state this year, the minimum purchase prices for wheat and rice remain at last year's levels, and farmers also find this acceptable. The main reason is that means of production are declining, and the decline in global energy prices has led to a decline in the prices of agricultural inputs. At present farmers can still accept this price.

So in 2015 prices did not rise, but the absence of an increase does not mean the market can accept it. The very severe and previously unseen difficulty we now face is that what is produced may not necessarily be sellable; our own supply can meet our own demand, but others are not willing to agree and want to seize a piece of territory. The three simultaneous increases mentioned earlier actually mean that a portion of low-priced grain products from abroad has entered the Chinese market, pushing a portion of high-priced Chinese grain products into warehouses. This situation can work in the short term, but obviously cannot continue in the long term. Products cannot only go in and not out. This problem is a very prominent one facing Chinese agriculture, and in the future this contradiction must be resolved as quickly as possible with effective measures.

It should be said that the central government clearly recognized since the year before last that this is a problem, and has already adopted some specific measures. Everyone knows that last year's implementation of target price changes for cotton in Xinjiang and soybeans in four provinces and regions including the Northeast was actually an attempt to change the current target policy.

Research began in early 2013, and after more than a year of research, in 2014 these two target price changes were made respectively in the three northeastern provinces and Inner Mongolia. The results of these two target price changes were also obvious. At the end of 2013, the state's temporary storage purchase price for Xinjiang cotton, in order to protect farmers' interests, was 20,400 yuan per ton of lint cotton. In fact, if the domestic market takes import factors into account and calculates a market equilibrium price, the lint cotton price that enterprises could accept was about 13,500 yuan per ton. Seen this way, one ton of cotton differed by 6,900 yuan. If this continued for a long time, domestic enterprises would be unwilling to use domestic cotton, so imports would continuously increase, producing the same result as with grain: domestic cotton would enter warehouses, and enterprises would use the international market more. It was precisely in response to this situation that last year the state carried out reform for cotton by implementing the target price method in Xinjiang. The target price is actually the truly expected price announced, the expected price announced to farmers. Last year the announced price was 19,800 yuan, a decrease of 600 yuan per ton compared with the year before last. Of course, this price is much higher than what the market can accept, but this price tells farmers that if the cotton they sell at market prices is lower than this target price, the government will subsidize the price difference. Under this method, in fact the price at which farmers can truly sell is about 13,500 yuan, so 19,800 yuan per ton means a subsidy of more than 6,000 yuan. This is only lint cotton; I am giving an example. It is precisely because of this change, and because this target price system was mainly implemented in Xinjiang, that cotton in the interior - in the Yellow River basin and the Yangtze River basin - does not enjoy this policy. For these two major interior regions, a fixed quota per ton of lint cotton was adopted, regardless of how much it differs from the market price. After this adjustment, according to what we have learned, in the new cotton planting regions, cotton planting area in Xinjiang this year fell by about 7-8% compared with the planting area the year before last and last year. So farmers reacted somewhat to this price. But in the two major interior cotton regions, the reductions were both around 45%, a very large reduction. That is to let farmers know that growing cotton in these places will not work, and lint cotton at more than 2,000 yuan per ton is also unbearable, so farmers made adjustments. In this sense, the results are obvious. There are also many specific details, for example, how the state determines how much cotton each farmer sold, and how to subsidize the price difference between you and the target price, and so on. This is also very complicated. So over the past year, the Xinjiang Autonomous Region and the relevant central government departments made enormous efforts for the reform of the cotton target price. Now some conclusions can be drawn: there is no way out for domestic cotton to be maintained at such a price, but farmers' interests also cannot be ignored. Under these two problems, it keeps pushing forward.