Five Measures to Improve China's Food and Food Safety Guarantee Capacity

Li Wei, a research fellow and director of the Development Research Center of the State Council, said recently at the "Fourth China Food and Food Safety Strategy Summit," co-hosted by the China Economic Yearbook Press and the China Institute for Rural Studies at Tsinghua University, that the principal contradiction in China's food and food safety has shifted from insufficient total supply to structural contradiction. Under the new circumstances, continuing to improve China's food and food safety guarantee capacity faces severe challenges. The fundamental way out to resolve the contradiction lies in advancing agricultural supply-side structural reform and improving agriculture's market competitiveness and sustainable development capacity. He proposed reform measures in five areas.

Li Wei pointed out that food and food safety is a livelihood issue of great concern to the whole society and an important cornerstone of economic development and social stability. Through long-term efforts, China has achieved tremendous results in safeguarding food and food safety that surpass its own stage of economic development. Not long ago, the Economist Intelligence Unit of the United Kingdom released the "Global Food Security Index Report," which measured performance using 28 qualitative and quantitative indicators in three aspects: affordability of food, availability of food, and quality and safety assurance capacity. In the 2015 Global Food Security Index rankings, China ranked 42nd overall. This is far ahead of China's position in the global ranking of per capita GDP.

Li Wei said that at present, the supply of various foods in China's grain market is abundant and prices are stable. The principal contradiction in China's food and food safety has shifted from insufficient total supply to structural contradiction. Under the new circumstances, continuing to improve China's food and food safety guarantee capacity still faces severe challenges.

From the perspective of product structure, the problem of excess inventory coexisting with growing imports is becoming increasingly prominent. At present, the total supply of agricultural products in China is abundant, but the development of high-quality, diversified, and specialized agricultural products lags relatively behind, and domestic and international prices are severely inverted, resulting in the coexistence of excessive inventories of some products and rapid growth in imports of other products. According to estimates, in 2015 China's grain output was 620 million tons, consumption was about 650 million tons, and the gap that needed to be filled by imports was about 30 million tons. However, China's actual grain imports in 2015 reached 130 million tons. The reason for the excessive import of 100 million tons was that domestic production of soybeans, for which China has large demand, was insufficient, domestic corn prices were too high, and corn substitutes such as sorghum and barley were imported in large quantities driven by price differences. The result of excessive imports was a rapid increase in domestic grain inventories, especially prominent inventory problems for corn and rice purchased by the state through market-supporting procurement. The coexistence of excess inventory and growing imports reflects that the pace of improving the quality of agricultural products cannot keep up with consumers' continuously rising demand for quality, and that the adjustment of the agricultural production structure cannot keep up with the pace of integration of domestic and international agricultural product markets and changes in agriculture's comparative advantage.

From the perspective of production capacity structure, there is a large amount of marginal production capacity that needs to be withdrawn. At present, among China's total agricultural production capacity, a large amount is obtained at the cost of overdrawing resources and sacrificing the ecological environment, and this is marginal agricultural production capacity. Examples include excessive use of chemical fertilizers and pesticides and long-term overextraction of groundwater; there is also the use of farmland contaminated by heavy metals to grow grain and vegetables, and agricultural film residue remaining in the soil. Although these production practices increase current output, they are obtained at the cost of sacrificing the foundation for the development of future generations. These are not worth the loss and must be resolutely withdrawn.

From the perspective of the structure of business entities, the proportion of large-scale operations urgently needs to be increased. Too small an operating scale not only leads to low agricultural labor productivity, but also affects quality supervision in the fields of food processing and operation. In the agricultural production stage, although the farmland transfer rate reached 33%, most of it consists of scattered transfers between farming households. Small-scale farmers still occupy an absolutely dominant position. Moderately scaled operating entities such as family farms, farmers' cooperatives, and modern agricultural enterprises have only just started and account for a very low proportion of agricultural production. Under this agricultural operating pattern, it is difficult to improve the level of agricultural production standardization, and it is also difficult to ensure the quality and safety of agricultural products from the source. In the food processing and operation stage, China has more than 400,000 food production enterprises, more than 3 million food business entities, and countless small workshops and street vendors. Market concentration is very low, and there is a lack of large enterprises and large brands, greatly increasing the difficulty of supervision.

Li Wei emphasized that to respond to these challenges, the fundamental way out lies in advancing agricultural supply-side structural reform and improving agriculture's market competitiveness and sustainable development capacity. In the process of agricultural modernization, intensifying supply-side structural reform and improving the food and food safety guarantee capacity hinge on doing the following points well.

First, accelerate destocking through market-based means. The formation of inventories of bulk agricultural products such as grain, cotton, oil, and sugar is rooted in the fact that market-supporting procurement prices carry multiple policy objectives such as protecting income, protecting output, and protecting the market. They have long been higher than the market equilibrium price, making it difficult to compete with imported products and difficult to sell out of warehouses at a favorable price. This not only increases the fiscal burden, but also restricts the healthy development of the entire industrial chain. To solve this problem, it is necessary to reform the price formation mechanism and the purchase and storage system for agricultural products and give full play to the regulatory role of the market. The general direction is "market pricing and separation of price from subsidy," promoting the adjustment of planting structure and the development of downstream industries through "market pricing," and ensuring that farmers' incomes can remain basically stable during the transition period through "separation of price from subsidy." In the long run, China's agricultural support policy system also needs to be adjusted and improved, gradually reducing market price support for agricultural products and increasing general service inputs such as infrastructure construction, agricultural scientific research, and extension, leaving greater space for the market.

Second, enhance agricultural competitiveness through appropriately scaled operations. Developing various forms of appropriately scaled agricultural operations is an inevitable requirement for responding to changes in the urban-rural population structure and to the part-time farming, aging of farmers, and hollowing out of rural areas. It is also the fundamental way out to improve agricultural labor productivity, control the excessively rapid rise in labor costs for agricultural products, and strengthen the basic competitiveness of China's agriculture. It is necessary to advance the reform of the "separation of three rights," accelerate the confirmation, registration, and certification of rural contracted land, explore the confirmation, registration, and certification of rural contracted land operating rights obtained through transfer, and seek a balance between safeguarding the rights and interests of contracted households and those of operators. It is necessary to accelerate the construction of a policy system for cultivating new types of agricultural operating entities and vigorously develop family farms, farmers' cooperatives, and agricultural enterprises. Agricultural economies of scale are reflected not only in the production field but also in the service field. It is necessary to expand the scope of pilot innovations in socialized services for the entire agricultural production process and pilot innovations in government purchase of public welfare services, and advance the professionalization, scaling, and socialization of services such as contracted cultivation and contracted planting and unified prevention and control of pests and diseases.

Third, replace the withdrawal of marginal production capacity with the growth of green production capacity. To promote the orderly withdrawal of marginal agricultural production capacity, it is necessary to find the right leverage point, especially by internalizing external negative effects so that those who adopt such production methods pay a price and feel pressure to withdraw. At the same time, advantage should be taken of the favorable opportunity of abundant total agricultural products at present to accelerate returning farmland to forest, returning farmland to wetland, and returning aquaculture areas to beaches, and to expand the intensity of crop rotation and fallowing in areas with groundwater overextraction and heavy metal pollution. The state may provide certain subsidies so that farmers in these areas have the incentive to withdraw. It is necessary to enhance green, healthy, and efficient production capacity so that it can replace or even outperform the withdrawal of marginal production capacity. To this end, it is necessary to implement the strategy of "storing grain in the land and storing grain in technology." Vigorously advance progress in agricultural science and technology, accelerate a new round of variety upgrading for major grain crops, and raise the contribution rate of agricultural scientific and technological progress to 60% by 2020.

Fourth, improve the level of food quality and safety through strict supervision. This is not only an urgent need to safeguard and improve people's livelihood, but also the only way to enhance consumer confidence and expand the market space for agricultural products. Practice shows that in the face of strict quality standards, China's agriculture has sufficient resilience and adaptability. The key lies in strict law enforcement and strict supervision.

Fifth, improve the efficiency of agricultural resource allocation in the process of opening up. An important starting point of agricultural supply-side structural reform is to improve the efficiency of agricultural resource allocation. Under the historical background of building a new open economic system, improving the efficiency of agricultural resource allocation cannot be based only on the domestic market, but should take a global view and truly make coordinated use of both domestic and international markets and both types of resources. On the one hand, it is necessary to scientifically determine the level of self-sufficiency in major agricultural products and rationally arrange the priority order for the development of agricultural industries. It is necessary to adjust the agricultural production structure according to the principle of comparative advantage, accelerate the pace of agricultural transformation and upgrading, and enhance agricultural competitiveness. It is necessary to continue to consolidate and give play to China's industrial advantages in areas such as fruits and vegetables, tea, and aquatic products, expand exports of advantageous agricultural products, and drive income growth for farmers in regions producing export products. On the other hand, it is necessary to take into overall consideration factors such as global agricultural resource endowments, the supply-demand pattern of agricultural products, and the investment policy environment, determine the opening layout by region, country, industry, and product, promote the diversification of import sources, and accelerate the formation of stable economic and trade relations featuring mutual benefit and win-win results. In particular, it is necessary to strengthen cooperation with countries along the "Belt and Road" in the fields of agricultural investment, trade, technology, and production capacity.