Chinese agriculture faces dual squeezes and dual constraints

The Central Economic Work Conference and the Central Rural Work Conference held not long ago made some new arrangements for deepening rural reform and accelerating the modernization of agriculture, and in particular put forward some new requirements for accelerating the transformation of the agricultural development model. Today I am very pleased to have the opportunity to offer some interpretation of several important policies from the two conferences.

Overall, our country's agricultural and rural economic situation has maintained a continuously improving trend. Last year grain production achieved an “eleventh consecutive increase,” with an increase of more than 10 billion jin; farmers' incomes achieved rapid growth for the eleventh consecutive year, which we call the “eleventh consecutive rapid increase.” From 2004 to 2013, the per capita net income of farmers rose from 2,936 yuan to 8,896 yuan, an average annual increase of 9.1%. A rough estimate is that last year farmers' incomes rose by about 900 yuan per capita, half of which came from growth in wage income, with household operating income increasing by 300 yuan and various transfer incomes, including property income, increasing by 150 yuan. It is particularly worth noting that over the past five years, farmers' income growth has exceeded urban residents' income growth for five consecutive years, which is of landmark significance for coordinating urban and rural development. This also shows that the Party Central Committee's series of policies benefiting farmers have brought enormous tangible benefits to hundreds of millions of farmers. The eleventh consecutive increase in grain production and the eleventh consecutive rapid increase in farmers' incomes have played a crucial role in ensuring the stability of the overall macroeconomic situation.

The real great test of WTO accession for agriculture has only just begun

⟦NL> What is the biggest change currently facing agricultural development? The Central Economic Work Conference and the Central Rural Work Conference conducted a very in-depth analysis of this, and it can be said that the most prominent issues requiring attention are four aspects.

First, the ceiling-capping effect of agricultural product prices is beginning to appear.

The prices of some of our major agricultural products are now beginning to be significantly higher than the post-tax landed prices of imported foreign agricultural products, and a price inversion between domestic and foreign agricultural products is beginning to appear. In 2008, the only agricultural product with a price inversion was soybeans; now the prices of bulk agricultural products have begun to be comprehensively higher than the free-on-board prices of the international market. For some agricultural products, such as cotton and sugar crops, prices have already broken through the “ceiling.”

At present, global grain and oil are undergoing important cyclical changes in the short term, and in particular after the oil price fell below 50 US dollars, the impact on the international agricultural product market has been very obvious. In the short term, the downward trend is still very obvious. Therefore, the price inversion between domestic and foreign agricultural products may become the norm. This means that the space for domestic agricultural product price increases has begun to be squeezed, and this is a new situation that we must face in formulating agricultural policy.

Second, the squeeze from the rising cost floor is beginning to manifest.

The cost of agricultural products, which we call the “floor,” has already begun to squeeze agriculture very noticeably as it continues to rise. Because labor is becoming more and more expensive, because rents are becoming higher and higher, and because inputs such as agricultural machinery, chemical fertilizers, pesticides and agricultural film are increasing in agricultural production, the cost of agriculture is on a rapidly rising track. Take the simplest example: when we harvest cotton in Xinjiang, the labor cost for harvesting one mu of cotton is 800 yuan, while the mechanized cost can fall to 200 yuan. In sugarcane planting in the southwest and Guangxi, harvesting one mu of sugarcane requires five person-days of labor, and the cost per person-day is as high as 150 yuan. Without the advancement of mechanization, there is no advantage left in harvesting sugarcane by hand.

Third, the yellow line for agricultural production and price subsidies is beginning to be approached.

When we joined the WTO (World Trade Organization), we made commitments. For example, subsidies that distort production and trade, called “amber box subsidies,” are subject to our commitment that the upper limit of subsidies not exceed 8.5% of agricultural output value, including cotton; our amber box subsidies for cotton do not exceed 8.5% of agricultural output value. Now we are already approaching the yellow line. The trade protection we committed to for agriculture is very limited; the average tariff on agricultural products was negotiated down to only 15.2%, while India reached 11.4%, Brazil 35.2%, the United States 11.3%, and the European Union 22.8%. The tariff forms are very simple and extremely transparent. Many important agricultural products are subject to quota management, with quota tariffs of only 1%, and even the highest out-of-quota rate is only 65%.

Under the current trade protection policies, after agricultural product prices hit the “ceiling,” price-driven imports will continue to increase, and the impact of imports on our domestic agriculture will be difficult to avoid. This leaves us facing very severe challenges.

Fourth, the red light for resources and the environment is beginning to light up.

For a long time, in order to increase the output of agricultural products, there has been a problem of excessive development and utilization of agricultural resources, and a problem of severe ecological overdraft. In some places the land cannot be planted and the water cannot be used for irrigation, old debts to resources and the environment have not been repaid, and new debts are still being incurred. It can be said that agricultural development faces the dual squeeze of the “ceiling” and the “floor,” and also faces the dual constraints of the “red light” and the “yellow line.” The commitments we made to agriculture when joining the WTO were basically safe over the past ten years, but now, under such circumstances, the space available for formulating agricultural policy is greatly squeezed.

It can be said that the strong entry of cheap foreign agricultural products is right before us, and the great test of WTO accession for China's agriculture has truly just begun. In the face of these changes, there is only one way out. The Central Economic Work Conference and the Central Rural Work Conference made an important arrangement: we must accelerate the transformation of the agricultural development model.