China's Food Security Faces Five Historic Challenges, How to Respond?

Food security is a very fundamental issue for China. Over the past decade, our country's grain output has increased continuously, and the self-sufficiency rate of cereals is close to 98%, achieving hard-won results. But at the same time, we must also recognize that our country's food security faces many complex and profound problems, many of which are new problems and new challenges arising along with economic development, requiring our careful study.

The first challenge is the ceiling effect of international grain prices on us.

At present, our domestic grain prices are higher than international market prices. For example, for cereals, domestic prices are 10--15% higher than international prices, that is, 600--800 yuan per ton higher than international market prices, and the price of meat is even twice the international meat price. It can be said that although our grain harvest is abundant, production costs are high and efficiency is low, and compared with international grain commodities we have no price advantage.

Although we currently implement tariff protection for domestic grain, imposing tariffs on imports beyond the quota, which to a certain extent alleviates this price disadvantage, given that the cost of domestic grain production is still continuously rising, it is estimated that in another 5--7 years, the current tariff level will no longer be enough to maintain the price advantage of domestic grain. That is to say, even if we use tariff protection, international market prices will still be lower than domestic prices.

The persistently high cost of domestic grain production is mainly due to two reasons: one is the rise in material input costs, and the other is the rise in service prices. Last year, our net income per mu of land was 682 yuan, which also includes the compensation for farmers' own labor. This income level was down 2.4% from the year before, while the prices of various agricultural services rose by 8--10%. What does this net income of 682 yuan mean? That is to say, the income a farmer earns from one mu of land in 365 days a year can be earned by working outside for just 5--7 days. With the opportunity cost of agriculture so high, this greatly undermines farmers' enthusiasm for agricultural production.

The second challenge is the floor effect created by the shrinking space for domestic agricultural subsidies.

We said above that domestic agricultural products have no price advantage, so can we compensate farmers for the price difference through agricultural subsidies?——I am afraid it is very difficult.

Because our country joined the WTO, and the General Agreement on Tariffs and Trade stipulates that our direct subsidies on costs cannot exceed 8.5% of total output value, while our current subsidy level is already nearly 10% of total output value, leaving no room for subsidies. Recently, some foreign cotton traders have begun preparing to file a complaint with the WTO because our subsidy amount for cotton is too high. So, our room for maneuver in the WTO's amber box policy is getting smaller and smaller, making the floor of our domestic grain prices higher and higher, while the ceiling of international market prices mentioned above is getting lower and lower. These two pressures are continuously compressing the space for using policy tools such as agricultural subsidies to solve food security, and the effect will become worse and worse.

The third challenge is the enormous pressure from environmental and ecological degradation.

In 1978, our total annual use of chemical fertilizers was 8 million tons. By 2013, annual fertilizer use had reached 59 million tons, and pesticide use had reached 1.8 million tons. Moreover, only 30% of these fertilizers and pesticides are absorbed by crops, while the other 70% enter the ecosystem through soil, groundwater and so on. Of the plastic mulch widely used in northern China, less than 40% is recovered each year, leaving 1 million tons of mulch fragments in the ground. One can imagine that the damage this does to our ecological environment is extremely enormous. As of 2013, the land in our country suffering from moderate to severe heavy metal pollution had already reached 50 million mu, and the area of underground funnels caused by massive extraction of groundwater was 220,000 sq km, mainly in North China. This mode of agricultural production is certainly unsustainable.

The fourth challenge is the continuous decline of the agricultural labor force.

According to our estimates, the population currently truly engaged in direct agricultural labor is 240 million, and even among these 240 million people, a large proportion are part-time farming households. The increased diversification of farmers' income is very good for the farmers themselves, but it creates great difficulty for the government in formulating targeted agricultural policies.

In 2013, the per capita net income of farmers was 8,896 yuan. That year two important turning points occurred. The first was that among farmers' income, wage income exceeded household operating income for the first time. The second turning point was that among farmers' income, the share of agricultural income fell below 25% for the first time. That is to say, because the proportion of agricultural income in farmers' total income is shrinking day by day, the policy subsidies we give farmers for agriculture have a very limited incentive effect on farmers.

The fifth challenge is the uncertainty of changing factors in the macroeconomic environment.

This year our country's economy entered a new normal, and this will inevitably produce many new phenomena and events. The township and village enterprises that once rose suddenly and prospered in the 1980s had almost all been wiped out by the time the 1990s arrived, showing that the influence of the external economic policy environment on the agricultural economy cannot be underestimated.

Since 2001, the growth rate of the proportion of rural labor going out for employment in our country has begun to decline year by year. That is to say, the surplus labor in the agricultural sector will become less and less, and the demographic dividend is approaching zero. Under such a new normal, if non-agricultural income does not increase significantly and agricultural income growth also stagnates, then this will certainly create a very severe situation for raising farmers' income and raising farmers' enthusiasm for engaging in agriculture.