Increasing grain imports to ensure food security, real grain prices tend to decline

The issue of food security is an old topic. People of insight have long known that the Chinese can fully feed themselves. As early as 1994, when Lester · Brown came to China with alarming claims, many domestic scholars pointed out that there were loopholes in Brown's calculations, the most serious being that he ignored how technological progress can bring rapid increases in grain output. Twenty years later, the facts have given an all-too-clear conclusion: even with no imports at all, China's grain output is entirely enough to eat.

Even so, Mr. Brown still caused a huge shock and profoundly influenced decisions on land and agriculture affecting more than a billion people. This influence still exists today. Last year, food security even topped the agenda of the Central Economic Work Conference, attracting great attention and having a major impact on the current land system reform. There is no other reason: the state takes agriculture as its foundation, and the people take food as their heaven; food security is the “bottom line” of reform. Once a matter involves this “bottom line,” everyone is extraordinarily cautious.

Caution is not wrong, but solving problems must still be based on facts and analysis, and we must not lose our heads. Otherwise, problems will emerge where there originally were none. To make the issue clearer, we might as well break the food security question down.

First, is there enough food in the world to eat? If not, then we need to be careful, hurry to stockpile some grain, and if we have grain, by no means export it; dig a cellar and bury it. In idle moments, open up some wasteland to prepare for unexpected needs.

Second, if world grain output is sufficient, to what extent should we import grain? Will imported grain become a hidden danger to food security? If so, then we should still insist on a high degree, or even complete, self-sufficiency in grain.

Grain growth is faster than population growth

Let us first look at the first question. Malthus published his “Essay on the Principle of Population” in 1789, which had a profound influence on people's thinking. Conversely, this influence actually reflected people's deep anxiety over the food problem over a long period. You see, population grows quickly, while the land area is given, so people naturally ask: will there be enough food to eat? In the long history of humankind, this question has always troubled humanity. Famine and war that broke out from time to time were instead a means by which population passively decreased and balance was reached.

However, not long after Malthus published his “Essay on the Principle of Population,” major changes took place. Around 1760-1850, the Industrial Revolution broke out. Before the Industrial Revolution, and alongside it, many changes took place in agricultural technology, such as mechanization and the breeding of improved varieties. These technological advances increased sown area and raised grain yields per unit. After long accumulation, agricultural productivity had already risen substantially.

What matters is that these technological advances not only increased grain output, but also greatly raised the growth rate of grain output, surpassing the rate of population increase. In this way, the Malthusian population paradox lost its basis in reality. However, changes in thinking always lag behind, and Malthus's statements still influence people's thinking to this day.

Of course, this is not to say that humanity has since bid farewell to famine; famines still occur from time to time. But according to research by Amartya · Sen, winner of the 1998 Nobel Prize in Economics, when famine occurs, the total amount of food is often sufficient; what goes wrong is the food distribution mechanism, which leaves some poor people extremely short of food and facing famine. At such times, the actions of the government and other institutions become especially important——whether to smooth market supply and guarantee basic rations, or to hoard grain and not release it, is a matter of life and death for the poor. The cases studied by Amartya · Sen include the Bengal famine he experienced in his childhood, and also our country's “three years of natural disasters.” An old saying goes: “When Heaven sends down calamities, they can still be avoided. When one brings calamity upon oneself, one cannot live.” It seems Amartya · Sen grasped the essence of these words deeply.

Talking more is useless; let us look at a few numbers. Since the end of World War II, humanity has experienced a rare and relatively long period of relative peace. Coupled with advances in science, technology, and medicine since the nineteenth century, population has grown rapidly. It is estimated that world population surpassed 1 billion around 1804, surpassed 2 billion in 1927, stood at about 2.3 billion in 1945 when World War II ended, and then began to accelerate, growing to 3, 3.7, 4.4, and 5.3 billion in 1960, 1970, 1980, and 1990 respectively, increasing by about 800 million every ten years. World population surpassed 6 billion in 1999 and 7 billion in 2011, and is currently about 7.19 billion.

Since the end of World War II, population has increased by about 5 billion, more than twice the total population at that time. With population increasing by so much, is there enough food to eat? Figure 1 shows that since World War II world grain output has grown rapidly, with total output increasing from 670 million tons in 1961 to 2.75 billion tons in 2013, roughly doubling twice. During this period, world population increased from 3.1 billion to 7.1 billion, a little more than doubling. In other words, the growth rate of grain output was far faster than the growth rate of population. Because grain output grew faster than population, per capita grain output increased significantly, from 216 kg in 1961 to 387 kg in 2013, an increase of 80%.

Real grain prices tend to decline

Is an 80% increase in per capita output enough to eat? By what standard should this be judged? Could it be that because incomes rose, per capita grain consumption increased sharply, making it insufficient after all? It seems not, and there are immediately three reasons that can be listed.

First, with all else unchanged, if people lived on the 1961 diet, there would be a surplus. If there was no worldwide famine in 1961, then there should not be one now either.

Second, the figures above include only grain and do not include other foods, including meat, poultry eggs, vegetables, fruits, and aquatic products. All of these can provide nutrition to the human body, can substitute for grain, or can be “converted” into grain.

Third, and the most direct reason, comes from observation in daily life. Nowadays, famine is long no longer a topic of daily concern; what has replaced it is weight loss. The most common advertisements on television are weight-loss advertisements.

The above are reasons that can be given immediately without using economics. Economic research provides at least two additional pieces of evidence. First, as a statistical regularity, as income rises, the share of food consumption in income decreases; this is the famous Engel's law. The deeper reason lies in the fact that the human body quickly reaches biological saturation in its demand for food, and more food consumption cannot bring more biologically meaningful utility. After income rises, people's additional demand for grain is actually very limited. Eating too much will stuff you; it is not only uncomfortable, but also causes various diseases.

Second, the best evidence that global grain supply exceeds demand is reflected in the long-term changes in grain prices. If supply fell short of demand, we should see a relative rise in grain prices; if supply exceeded demand, we should see a relative decline in grain prices. This is simple supply-and-demand analysis and does not require any complex assumptions or derivations.

Table 1 compares the real prices of four major grain crops in 1957 and 2014. So-called real prices are adjusted by the price index, removing the factor of inflation, so the prices are roughly comparable. The price of wheat fell from 609 USD/ton in 1957 to 280 USD/ton now, a decline of more than half. The price of corn fell from 557 USD/ton to 182 USD/ton, a decline of two-thirds. The price of soybeans fell from 863 USD/ton to 463 USD/ton, a decline of nearly half. The price of rice fell from 660 USD/ton to 410 USD/ton, a decline of more than one-third. Taken together, the real price of world grain fell by more than half, reaching 51%.