What are the reasons for grain output increasing without income increasing in China?

1. Relative surplus of some grain varieties

In 2015, China's major grain crops such as rice and wheat had a bumper harvest, and output increased. The mid-season rice output of large growers generally increased by 5%-10%, leading to a relative "saturation" of grain varieties and a "supply exceeding demand" for grain, causing prices of rice and other grains to fall.

2. The gap between grain import prices and domestic production costs has widened

In recent years, China's labor costs have increased, land rent has risen, materialized inputs have been operating at high prices, and grain costs have remained high. However, due to factors such as a high degree of mechanization or low labor costs, some grain-producing countries have low grain production costs and often sell at prices lower than China's grain production costs in the grain sales market. For example, the rural labor cost in Vietnam is only equivalent to China's prices in the 1990s, and their agricultural input prices are also lower than similar products in China. Therefore, their rice prices are even lower than the production costs of domestically produced rice in China, causing some grain processing enterprises to seek grain from afar and import low-priced grain. The market competitiveness of domestic grain prices has declined, creating a situation of unsold grain and low prices.

3. Increased pressure on state and social grain collection and storage

First, China's grain has achieved twelve consecutive years of bumper harvests. Especially in 2015, rice had a rare exceptionally bumper harvest year in recent years, state-owned enterprise warehouses were "bursting at the seams," old grain depots at grassroots grain stations were seriously in disrepair, and many had lost their grain storage capacity. Newly built grain depots were insufficient, and storage capacity was limited, making it difficult to continue purchasing. Second, due to national economic adjustment, some small and medium-sized grain processing and sales enterprises had difficulty in capital turnover and reduced purchases; grain brokers also greatly reduced purchase volumes due to insufficient funds, creating a situation of unsold grain. Third, with the expansion of large-scale planting area, the previous practice of each household storing grain has disappeared. They no longer store grain themselves but buy grain on the market for consumption. At present, nearly 80% of farmers' land in plain production areas has been transferred, and in mountainous areas where land has not been transferred, they no longer plant it themselves either. In other words, the food rations of nearly 80% of the rural population need to be stored by state-owned grain depots and social granaries, while this part of grain, accounting for about 70% of total output, used to be stored in a dispersed manner by farming households. The task of grain storage has been handed over to society, increasing the storage capacity pressure on the state and grain purchase and sales enterprises.

4. Increased planting area leads to increased total output

Because prices of agricultural products such as cotton have been low in recent years, farmers cannot increase income from planting and may even lose money, leading to a substantial reduction in the planting area of these crops. Most of the reduced area has been used to expand the planting of soybeans, rice, and corn. The planting structure has become imbalanced, causing an increase in grain area, an increase in total output, and excess sales.

5. Poor grain sales conditions in a few areas

In some areas, market information is poor and transportation is inconvenient, making sales difficult and prices low; in addition, drying equipment is unevenly distributed, resulting in the inability to dry grain in time to reach standard moisture content, so farmers have no choice but to not harvest or sell at even lower prices.

6. Large growers are constrained by others

China's large growers, especially small and medium-sized ones, do not have drying equipment or sufficient drying yards. After rice is harvested, wet grain must be sold, while state-owned grain depots only purchase dry grain. Wet grain can only be sold to private drying enterprises and processing enterprises, and the unit price is relatively low. Some processing enterprises and private enterprises engaged in drying seriously grade and price when purchasing rice. According to investigations, although they implement the state protective price when purchasing, they first directly deduct 5 percentage points of moisture, with 1 moisture point deducting 0.75kg/hm2 of rice, and deduct 4% impurities, and then discount to the required moisture point according to the measured moisture point. The average purchase price of machine-gate wet mid-season indica rice was 2.2 yuan/kg, with the lowest less than 1.8 yuan/kg, a decrease of 0.2 yuan/kg from the previous year; the average machine-gate price of japonica rice was 2.4 yuan/kg, a decrease of 0.3 yuan/kg from the previous year. The market for glutinous rice was even more unstable, falling from 2.6 yuan/kg at the beginning to 2.2 yuan/kg.

7. Cheap grain hurts farmers deeply

First, output increases but income does not. In 2015, rice growers generally increased output. Due to changes in the sales market, the price drop exceeded 10%, and the increase in output could not catch up with the decline in price. Second, it dampens the enthusiasm of large growers for grain production. Low prices and difficulty in selling grain will seriously affect the enthusiasm of large grain growers. Some large growers whose land transfer contracts are expiring are considering whether to renew next year, and more are thinking about what to plant in the fields next year. The sentiment of "non-grain" and "non-agricultural" use is growing, and large growers are also greatly reducing investment in agricultural infrastructure. Third, it is unfavorable for planting the next crop. Due to difficulty in selling grain and rainy weather, rice harvest has been delayed, and the fields cannot be cleared in time, affecting the planting of rapeseed and wheat. Even where planting has already occurred, investment has been reduced and seedling conditions are poor.