2.3.1 Trends in China’s Agricultural Sector
As would be expected during the process of industrialisation and economic development, the share of agriculture in China’s GDP has been declining steadily over the past three decades and had fallen to 15.2% in 2004.
The output of China’s major crop and animal output is shown in Tables 2.4 and 2.5 below. Total output of grains peaked in 1995 and fell steadily until rising to a new peak in 2004. Production of wheat has fallen every year since 1995, except in 2004, when it was higher than in the previous year, although still lower than in 1995. The reductions in the production of wheat since 1997-98 appear to have been far greater than the reductions in domestic consumption. China has run down of stocks that had been built up to high levels by the late 1990s. In 2004-05 China entered the world market as a large purchaser. Production of rice has been also falling since 2000. The output of maize, soybeans, cotton and oil-bearing crops has been rising steadily (Table 2.4). According to US Department of Agriculture (2005), production of maize, the dominant feed grain, rose markedly through much of the 1990s but has since levelled out. China’s production of animal products has also been rising across the board (Table 2.5).
The available projections for grain demand are fairly consistent, range from 443 to 513 million metric tons for 2010, and from 549 to 594 million metric tons for 2020. The projections for grain supply range from 403-486 million metric tons for 2010 and 541 to 570 million metric tons for 2002. Based on the projections by Rosegrant et al., (1995), Huang et al. (1997), USDA (2006) and World Bank (2003), China’s grain imports will be from 15 to 39 million metric tons for 2010, and between 24-25 million metric tons for 2020. It is safe to conclude that most studies indicate that China will remain a significant net importer of grains and the bulk of these imports will be wheat, followed by maize and other feed grains.
Table 2.4 China major farm output, selected years, 10,000 ton
Grain Rice Wheat Maize Soybeans Cotton Oil bearing
crops 1978 30467 13693 5384 5594 --- 217 522 1990 44624 18933 9822 9781 --- 451 1613 1995 46662 18522 10220 11198 1787 477 2250 2000 46217 18790 9963 10600 2010 442 2955 2001 45264 17758 9387 11408 2052 532 2865 2002 45706 17454 9029 12130 2241 491 2897 2003 43069 16065 8648 11583 2127 486 2811 2004 46947 17908 9195 13028 2232 632 3065 Source: NBSC (2005a).
Table 2.5 China major animal products, selected years, 10,000 ton
Pork Beef Mutton Dairy
1996 3158 355 181 736 2000 4031 532 274 919 2001 4184 548 292 1123 2002 4326 584 316 1400 2003 4518 630 357 1848 2004 4701 675 399 2368 Source: NBSC (2005a).
The changes in the demand for farm goods have been brought about mainly by income growth and urbanisation. Following the increase in incomes, consumption of meat, seafood, dairy products, vegetable oils, fruit and vegetables is rising, while consumption of starchy staples, including wheat and rice, is declining. Consumers move away from staple foods such as grains to include vegetables, fruits, meats and dairy products in their diet.
While there have been major changes in land use within agriculture, the total area of crops planted has remained relatively static at 150-155 million hectares (Roberts and Andrews 2005). The proportion of the area planted to cereals had declined from 63% in 1991 to 50% in 2003. The changes in the supply of farm goods have been determined by changes in the quantity and quality of farm input and efficiency of input use. The changes in the input use and efficiency are in turn caused by changes in the land and other resources available for agricultural uses, changes in the demand for farm goods and subsequent changes in prices, and government policies.
The reductions in arable land due to urbanisation and water constraints and land degradation pose serious threat to future increase in farm output. More importantly, the current land tenure system with undefined land ownership and very small size of farms have discouraged farmers from investing in land and kept labour productivity in agriculture extremely low, which has contributed to the current state of comparative disadvantage for a number of major farm products. It is expected that farm output could be greatly increased, when the land ownership is further clarified and a market for land is developed, and when the agricultural extension services are improved.
2.3.2 China’s Agricultural Policies: From Taxing to Subsidising Agriculture
Highlighting the very low level of productivity, agriculture still provided employment to 46.9% of workforce in 2004. Rural incomes have generally remained far below urban incomes and have resulted in rising income inequalities. From 1998 to 2003, the income gap between urban and rural population widened from 2.51:1 to 3.23:1.
The Chinese Government has addressed some of the fundamental issues facing China’s agriculture and rural economy by signalling a policy shift in 2004 from taxing to subsiding agriculture. The General Secretary of the Communist Party Mr He noted that the trend that had occurred in the developed economies should, in his judgement, also occur in China:
following the process of industrial development, a country tends to shift from taxing agriculture for industrial development to agricultural support so as to achieve more balanced development, and on the whole, China has reached the stage for supporting agriculture with industrial development and for supporting rural areas with urban development. We shall therefore actively support agricultural development (MOA 2005, p. 22).
There have been heated discussions about how should China shift from taxing to protecting agriculture. The MOA has summarised the development of agricultural support in the developed countries in the following terms: in general starting from price support, to the development of rural infrastructure, education, research and extension, and to direct income support, accordingly, the objective of support gradually shifting from output growth in the early stages to improvement in production capacities, income growth and sustainable development (MOA 2005, pp.106-110).
In 2004, the government announced the decision to phase out special agricultural product taxes (except that for tobacco production) and to reduce agricultural taxes with the objective of removing agricultural taxes within five years from 2004.
The agricultural support measures introduced by the government since 2003 include ‘the three agricultural subsidies’, agricultural price support and government investment in rural infrastructure. ‘Three agricultural subsidies’ refers to direct subsidies to grain producers, hybrid seed subsides applied in certain areas and subsidies for purchases of large farm machineries. In 2004, the three subsidies totalled around 15 billion RMB (less than US$2 billion). Of which, subsidies for grain producers were provided to the producers in 29 provinces all over China and reached 11.6 billion RMB. The seed subsidies amounted to over 3 billion RMB (2.85 billion from the central government and over 0.3 billion from local governments) and the subsidies for farm machinery reached 0.5 billion in 2004, most from local governments. The seed subsidies have been used initially to support soybean production, following a sudden increase in soybean import. According to MOA, the outcome of the seed subsidies for soybean production has been very satisfactory.
The introduction of ‘the three agricultural subsidies’ signals a change in the way for government to assist agriculture: from subsidising marketing channels and urban residents and exporters to subsidise farmers. Prior to the introduction of the three subsidies, the government subsidies went mainly to marketing enterprises, such as the state-owned Grain Bureau system and to agricultural exporters, with the purpose to subsidies urban residents and export.
In 2004, the Chinese Government also introduced a protective price for grain. The floor price for rice was set at 1.4 RMB per kilogram. The central government investment in rural infrastructure in 2004 increased by 22.5% compared with 2003, reached 262.6 billion RMB. The investment ranged from irrigation, drinking water for human and animals rural roads, and biogas to water and electricity, fencing animal disease prevention, and integrated agricultural development.
The long term effects of such subsidies are less certain, with very small size of farms and subsequent very low labour productivity in agriculture. It would be difficult for the government to meet the need for ever-increasing subsidies for agricultural and grain production.
2.3.3 Implications for Western Australia
The Chinese Government has made ‘building a new socialist countryside’ a key priority for the Eleventh Five Year Plan and beyond. The key priorities in this major program are to implement modern methods and technologies, especially in grain production, develop rural infrastructure, extend the reform process in agriculture (including in 2006 rescinding agriculture taxes that have been levied for 2600 hundred years and which currently raise some A$12 billion from farmers) and improve environmental sustainability. Western Australia has been forced, over many years, to address issues concerning farm efficiency and sustainability, and the use of appropriate technologies, on a wide range of types of land, especially for wheat and other cereals. Thus firms and agencies within the State could play a significant role in this large scale attempt to transform the Chinese rural sector.