Large-scale farms are not suited to China's national conditions, says Han Jun
On May 17, at the “2015 Fourth China International Agribusiness Summit Forum” held at the Beijing campus of the China Europe International Business School, Han Jun, deputy director of the Office of the Central Leading Group for Financial and Economic Affairs, delivered a keynote speech on Chinese agriculture.
Han Jun believes that the management rights of rural land should be liberalized, but forced land transfers by farmers must be prevented, and the one-sided pursuit of large-scale operations must be prevented; large-scale farms are not suited to China's national conditions.
The full text of Han Jun's speech follows:
Good morning, everyone. It is a great honor to attend the Fourth Agribusiness Summit Forum. At the invitation of President Liu of the academy last year, I also had the honor of attending.
Today our theme is very good: opening a new era of modern agriculture. The development of our agriculture faces many new challenges. In China, we always consider agricultural issues, rural issues and farmer issues together. Agricultural issues are not like industrial issues or commercial issues; industrial issues and commercial issues may mainly be issues of industrial development, but agricultural issues in China are both an industrial issue and, even more, a farmer issue. With any agricultural policy of ours, we must consider its impact on farmers, on farmers' employment and on farmers' welfare. Our agriculture has indeed now entered a new stage and faces many severe challenges.
General Secretary Xi Jinping of China has stated that for China to be strong, agriculture must be strong; for China to be beautiful, rural areas must be beautiful; for China to be prosperous, rural areas must be prosperous. This is the most basic guideline for formulating our policies on agriculture, rural areas and farmers. Now, when discussing the new era of modern agriculture, from China's perspective, at this new stage of agricultural development, when formulating policies we face two of the most severe challenges:
Challenge one: the constraints of our resources and environment have already reached their limit. Against this background, how can we ensure our country's food security, and in particular, how can we improve agriculture's capacity for sustainable development? This is a question we cannot avoid.
Challenge two: the prices of our domestic agricultural products have now comprehensively approached, and even exceeded, international agricultural product prices. Against this background, does Chinese agriculture still have competitiveness? This is also a question we must answer.
Below I can first brief everyone on the situation. First, the ceiling effect capping agricultural product prices is something we must now face. This is data as of the end of March, some price gaps for corn, soybeans, wheat and rice. After the international grain and cereals arrive and duties are levied, the landed price is much cheaper than ours. One jin of corn is nearly 0.5 yuan cheaper, one jin of wheat is 0.35 yuan cheaper, one jin of rice is more than 0.5 yuan cheaper. Soybeans are now no longer subject to tariff quota restrictions, and large quantities of soybeans have already come in. But because corn, wheat and rice are subject to tariff quota restrictions, the tariff within the quota is very low, while the tariff outside the quota is very high. In the next three to five years we still do not need to worry too much that cheap foreign grains can shock the Chinese market, because entering outside the tariff quota is now very difficult. Last year our grain self-sufficiency rate was still above 98%, while the self-sufficiency rate for soybeans is now only about 18%.
What may now make the situation more severe is our oilseed crops and sugar crops. By April, sugar imported within the tariff quota was quite cheap. Outside the quota we levied a 50% tariff, and imported foreign sugar is still 500 yuan cheaper per ton than ours. There is no way around it; it will come in if it is going to come in. This is entirely a market behavior. Our dairy industry is now facing a huge shock. An official from the Dutch Ministry of Agriculture attended our forum. I asked Mr. Pan Gang, chairman of Yili, and in the United States the purchase price of one jin of fresh milk is about 2 yuan, in Australia and New Zealand about 2.6 yuan, while in China the cost price of one kilogram of fresh milk for farmers is now 3.7 yuan. Below 3.7 yuan farmers may have no profit to make. It has now been below this price for 16 consecutive weeks. Our production cost for one ton of raw milk powder is more than 10,000 yuan higher than abroad.
Last year we imported only more than 8 million tons, which is to say our grain self-sufficiency rate is still above 98%. Now there are more and more products substituting for corn, because corn imports are subject to tariff quota restrictions. In order to bypass the tariff quota restrictions, imports of barley, sorghum, corn distillers grains and DDGS have grown explosively in the past two years. Barley used to be used for making beer, but now half of barley is used for feed, and sorghum is mainly used for feed. In the first quarter we imported as much as 2.6 to 2.7 million tons of sorghum and barley. Last year, imports of these products alone substituted for at least 10 million tons of our corn. Corn inventories have risen sharply in the past two years.
There is now a lot of discussion in China (including on the internet): why does China import soybeans, and can we not produce them ourselves? If we wanted to produce them ourselves, we probably would not have that much resources. The most realistic problem China faces is that we lack both edible vegetable oil and, even more, feed protein. Importing soybeans is, on the one hand, to meet ordinary people's demand for vegetable oil, and on the other hand, to meet the demand of our modern animal husbandry development for high-quality protein feed.
Speaking of our agricultural issues, for a country as large as China, food security is something we cannot bypass and must answer. Since reform and opening up, there have been many international evaluation index systems for food security. In recent years the Economist Intelligence Unit of the United Kingdom has released a global food security index report, and China has ranked very high every year. Relative to our per capita GDP and level of economic development, our food security index is still very high, ranking 42nd among 107 countries. From my impression, India is about 43rd.
The problem we now face is that the shock to the domestic market caused by imports is hard to avoid. Now cereals are under tariff quota management, and some products under tariff quota management are still relatively better off, while products without tariff quota management now have more prominent problems. The development of our dairy industry is now at a life-or-death moment. In particular, after the shock of melamine, the shadow has not completely dispersed. This year the EU announced the cancellation of the milk production quota management that had been implemented for 31 years, now mainly to respond to the markets of emerging countries, especially China's market. In recent years in New Zealand, because China and New Zealand signed a free trade agreement, New Zealand's share of the global dairy product market has reached 37%, while the EU has only 31%. The EU's cancellation of quota management is also aimed at the Chinese market and the markets of emerging countries, so as to raise its market share. The price ceiling effect is a threshold, and we must get past this threshold.
The second issue: the cost of our agricultural production, which we call the floor, has an increasingly obvious squeezing effect as it rises. This point is very clear. In the past, farmers did not count the cost of labor when farming. Now the cost of labor is getting higher and higher. Now agricultural machinery, chemical fertilizers and other modern inputs are being put in more and more, and the cost of agricultural production is still on a rapidly rising track.
The third issue: we are talking about agricultural subsidies, what we call the amber line. When we joined the WTO, for some measures with tariff quota management, we also committed to upper limits on agricultural subsidies. When we joined the WTO, we committed that our amber box subsidies could not exceed 8.5% of agricultural output value, that is, government subsidies that distort production and trade are limited. Now some of our products have already exceeded the amber line limit, but with this amber line we can still have a lot of room for adjustment. For example, in recent years the EU adjusted its amber line agricultural subsidies from 70 billion euros to 7 billion euros, and we are also studying the EU's experience. For example, this year one of our major policy adjustments is that we adjusted our agricultural subsidies (grain planting subsidies and comprehensive agricultural input subsidies). After the adjustment, we can take the more than 100 billion yuan in comprehensive agricultural production input subsidies, which used to belong to amber box subsidies, and by decoupling this subsidy from the price of agricultural inputs, we can turn it into green box subsidies. This issue is a potential challenge for policy formulation, but we have a lot of room. Our amber box has on the whole still been far from used up, and in the future the room for converting amber box to green box is still very large.
The biggest problem is resources. The red light for the environment has already started to light up. In some respects the constraints of resources and the environment have reached their limit. The issues everyone pays most attention to are chemical fertilizers, pesticides and plastic film. Our chemical fertilizer use per hectare is among the highest in the world. For example, with the issue of plastic film, in the Xinjiang Autonomous Region alone the land using film has reached 4.7 million mu. Most of this film is non-degradable. Now the residue in one mu of land in Xinjiang has reached 16.5 kilograms. The national average is much lower. Now how can degradable film replace the current non-degradable film? This is a major topic in our agricultural environmental governance.
There is now a threshold that Chinese agriculture must pass. To open a new era of modern agricultural development, one threshold we must pass is to transform our agricultural development model. For a long time our agricultural development model has, to some extent, relied on resources and the environment, and we have mainly pursued growth in output. Now we must shift onto a track that gives equal weight to quantity, quality and efficiency. This year's Central Document No. 1 clearly proposed that we should pay more attention to improving agriculture's international competitiveness, pay attention to agricultural technological innovation, and pay more attention to agriculture's sustainable development. Transforming the agricultural development model means shifting agricultural development onto the "three equal emphases" (quantity, quality and efficiency).