Han Jun: China's dairy industry has reached a life-or-death moment
Pictured: Han Jun, deputy director of the Office of the Central Leading Group for Financial and Economic Affairs. (Image source: Sina Finance, photo by Liang Bin)
Sina Finance News - The “2015 Fourth China International Agribusiness Summit Forum” was held in Beijing on May 17. Han Jun, deputy director of the Office of the Central Leading Group for Financial and Economic Affairs, said in his speech that domestic agricultural product prices have now comprehensively approached, and even surpassed, international agricultural product prices. The landed prices of many international grains are still cheaper than domestic ones; because some varieties are subject to tariff quota restrictions, there is no need to worry too much over the next three to five years that cheap foreign grain will hit the Chinese market.
But he warned that China's self-sufficiency rate for soybeans is currently only about 18%. “The policy goal we have set now is for grain to be basically self-sufficient; in the past it was called basic self-sufficiency in food grain, and food grain includes soybeans. There is already no way for soybeans to be basically self-sufficient. Staple grains are mainly wheat and rice, and they must be absolutely secure.”
As for why the goal of basic self-sufficiency in grain must be upheld, Han Jun gave three reasons. First, it is determined by China's national conditions: China has a population of 1.3 billion, and its annual grain demand is twice the volume of global grain trade. If China abandoned the goal of basic grain self-sufficiency, the impact on the world would be very large, and the impact on global resource allocation would be very large. Second, China's rural areas still have more than 600 million people, and 200 million people grow grain; farmers' livelihoods are inseparable from grain. To a large extent, the grain issue is an issue of farmers' employment and livelihoods. Third, as a major country of 1.3 billion people, if China abandoned the goal of basing itself on domestic production and achieving grain self-sufficiency, it would be irresponsible to the world. Conversely, if China solves the food security problem of 1.3 billion people well, that is a tremendous contribution to global food security.
Regarding the dairy industry, Han Jun further said that it has now reached a life-or-death moment. “Especially after the impact of melamine, the shadow has not completely dispersed. This year the EU announced the cancellation of milk production quota management that had been in place for 31 years, mainly to respond to the markets of emerging countries, especially China's market.”
On the issue of agricultural subsidies, Han Jun said that although some programs have reached the yellow line stipulated by the WTO, there is still great room for policy adjustment. On environmental issues, Han Jun said the red light has already been lit. We must shift to a track that places equal emphasis on quantity, quality and efficiency.
The following is a transcript of the speech:
Han Jun: Good morning, everyone. Today's theme is very good: opening a new era of modern agriculture. Our agricultural development 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 and commercial issues may mainly be issues of industrial development, but in China agriculture is both an industrial issue and, more importantly, a farmer issue. Any agricultural policy of ours 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 has pointed out 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, in discussing a new era of modern agriculture, from China's perspective, the new stage of agricultural development faces two of the most severe challenges when policies are being formulated:
Challenge one: our resource and environmental constraints have reached their limit. Against this background, how can we ensure our country's food security, and especially how can we improve agriculture's capacity for sustainable development? This is an issue we cannot avoid.
Challenge two: domestic agricultural product prices have now comprehensively approached, and even surpassed, international agricultural product prices. Against this background, does Chinese agriculture still have competitiveness? This is also a question we must answer.
China's soybean self-sufficiency rate is only about 18%
Below I can first introduce the situation to everyone. First is the ceiling effect of agricultural product prices. We must now face this. This is data as of the end of March: for corn, soybeans, wheat and rice, there are some price gaps. After taxes are levied on international grain at landing, the landed prices are much cheaper than ours. Soybeans are no longer subject to tariff quota restrictions, and large quantities have already come in. But corn, wheat and rice are subject to tariff quota restrictions. Within the quota, tariffs are very low, but outside the quota, tariffs are very high. Over the next three to five years, we still do not need to worry too much that cheap foreign grain will hit the Chinese market, because it is now very difficult for it to come in outside the tariff quota. Last year our grain self-sufficiency rate was still above 98%, while the soybean self-sufficiency rate is now only about 18%.
The situation may now be even more severe for oilseed crops and sugar crops. In April, sugar imported within the tariff quota was quite cheap; outside the quota we imposed a 50% tariff, and imported foreign sugar was still 500 yuan per ton cheaper than ours, so there is no way around it; it will come in if it is going to come in, and this is completely a market behavior. Our dairy industry is now facing a huge impact. Officials from the Dutch Ministry of Agriculture came to our forum. I asked Mr. Pan Gang, chairman of Yili, and he said that acquiring a jin of fresh milk in the United States 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. If it is 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 and corn distillers' grains have grown explosively in the past two years. Barley used to be used for beer; now half of barley is 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 alone, imports of these products substituted for at least 10 million tons of corn. Corn inventories have risen sharply in the past two years.
There is now a lot of discussion about why China imports soybeans and whether it can produce them itself. 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 partly to meet ordinary people's demand for vegetable oil and partly to meet the development of modern animal husbandry and its demand for high-quality protein feed.
When it comes to agriculture, for a country as large as China, food security is a question 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 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. As I recall, India is about 43rd.
Dairy industry development is at a life-or-death moment
The problem we now face is that the impact of imports on the domestic market is difficult to avoid. For grain, with tariff quota management things are still somewhat better; for products without tariff quota management, the problem is now more prominent. The development of the dairy industry is now at a life-or-death moment. Especially after the impact of melamine, the shadow has not completely dispersed. This year the EU announced the cancellation of milk production quota management that had been in place for 31 years, mainly to respond to the markets of emerging countries, especially China's market. In recent years, 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 that it can increase its market share. The price ceiling effect is a hurdle, and we must get over this hurdle.
There is great room for adjusting agricultural subsidies
The second issue is the cost of our agricultural production, which we call the floor. Its upward squeeze is becoming more and more obvious. 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, and inputs of modern factors such as agricultural machinery and chemical fertilizers are increasing. The cost of agricultural production is still on a rapidly rising track.
The third issue is agricultural subsidies, which we call the yellow line. When we joined the WTO, we stipulated some measures related to tariff quota management and also promised upper limits on agricultural subsidies. When we joined the WTO, we promised that subsidies could not exceed 8.5% of agricultural output value; that is, there are limits on government subsidies that distort production and trade. Now some of our products have already exceeded the yellow line limit, but within this yellow line we can still have a lot of room for regulation. For example, in recent years the EU adjusted its yellow-line agricultural subsidies from 70 billion euros to 7 billion euros, and we are also studying the EU's experience. For example, this year we have a major policy adjustment: we adjusted agricultural subsidies (grain-growing subsidies and comprehensive agricultural input subsidies). After the adjustment, we can turn the more than 100 billion yuan in comprehensive subsidies for agricultural production inputs, which used to belong to yellow-line subsidies, into green-line subsidies by decoupling the subsidies from input prices. This issue is a potential challenge. For policy formulation, we have a lot of room. Our yellow line is still far from being used up, and in the future the room for converting yellow-box measures to green-box measures will still be very large.
Environmental problems have already shown a red light
The biggest problem is resources. The red light for the environment has already begun to light up. In some respects resource and environmental constraints have reached their limit. The issues everyone pays most attention to are chemical fertilizers, pesticides and plastic film. Our fertilizer use per hectare is among the highest in the world. Take the plastic film issue, for example: in the Xinjiang Autonomous Region alone, land using film has reached 4.7 million mu, and most of this film is non-degradable. Now residual film in one mu of land in Xinjiang has reached 16.5 kilograms, and the national average is much lower. How can we replace the current non-degradable film with degradable film? This is a major topic in agricultural environmental governance.
There is now a hurdle Chinese agriculture must pass. To open a new era of modern agricultural development, we must transform the mode of agricultural development. For a long time, to some extent, we relied on resource and environmental factors and mainly pursued output growth. Now we must shift to a track that places equal emphasis on quantity, quality and efficiency. This year's Central Document No. 1 clearly proposed paying more attention to improving agriculture's international competitiveness, paying more attention to agricultural technological innovation, and paying more attention to agriculture's sustainable development. Transforming the mode of agricultural development means shifting agricultural development to the three equal emphases (quantity, quality, efficiency).
In answering this question, transforming the mode of agricultural development does not mean sacrificing China's food security. The complete policy formulation of our food security has three levels of meaning:
The first level of meaning: emphasize relying mainly on ourselves, basing ourselves on domestic production, and ensuring production capacity; the core is ensuring production capacity.
The second level of meaning: moderate imports. We have things to protect, things to open up, and things to control. Because our resource endowment has no advantage at all, we still need to appropriately import some grain, cereals and other products.