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Qiushi: China’s Grain Security

[Editor’s Note: Qiushi Online published an article titled “China’s Strategy on Grain Security.” It discussed the national security issues related to China’s food supply and considered several questions. Will China itself be able to produce the agricultural products needed to feed its population? How should China balance the production of different agricultural products? How should it deal with foreign investments and develop domestic farmers? These issues are discussed in the following excerpts translated from the article.] [1]

The First Question: What Is the Origin of “Maintaining at Least 1.8 Billion Mu (300 Million Acres) as Farmland?”

The issue of food includes many factors such as farmland area, the cropping index [2], water resources, farmers’ motivation, government policy, scientific and technological advancement, investments, and climate. In the 1980s, after China’s Contract Responsibility System policy produced good results, the government summarized the three elements that contributed to the positive outcome: good policies, human effort, and good weather. It now appears that these three elements are not enough. There must also be productivity, technological advancement, and investment. How much food does China need overall? The Academy of Sciences drew the conclusion that, for China to become completely self-sufficient with regard to food supply, it would require 1.92 billion mu in 2010 and 1.947 billion mu in 2030. After this plan was proposed, they realized that China could no longer maintain that much of its total land as farmland. They therefore adjusted the target. To achieve the goal of being 95 percent self-sufficient with regard to food supply, it would require 1.824 billion mu of farmland in 2010 and 1.85 billion mu in 2030.

The Second Question: If (China) Can Maintain 1.8 Billion Mu of Farmland, Would It Be Able to Produce Enough Food to Satisfy Domestic Demand?

In 1996, the Whitepaper “China’s Food Problem” proposed that the percentage of the food supply that China needed to produce in order to be self-sufficient should not go lower than 95 percent. That is, net imports should remain at less than 5 percent of domestic consumption. The “grain” referred to here includes grains, beans, and potatoes, which is different from the meaning of “grain” in other countries. In 2009, China’s net grain imports were 42.645 million tons, including 42.2 million tons of soybeans. China produced 530.82 million tons of grain that year. If we combine the domestic production and the net imports to calculate domestic consumption, the net imports accounted for 7.4 percent of the domestic consumption, exceeding the 5 percent limit set in the Whitepaper. For six years starting in 2003, our annual grain production, acreage, and yields increased each year. The yields and consumption per capita declined slightly in 2009, but still remained at about the same level. So we can say that, regarding our food supply, we are nearly self-sufficient.

However, it should be pointed out that our current supply of agricultural products needs to meet urban and rural consumer demand. For industrial raw materials we rely, to a certain extent, on foreign land and foreign water resources. Under the current food consumption pattern and industrial structure of agricultural products, the equilibrium point of supply and demand of agricultural products in China, measured in land resources, is at least 2.1 billion mu, of which about 13 percent is from overseas. Beginning in 2004, China changed from a net exporter to a net importer of agriculture products. Its trade deficit in agricultural products reached US$18.1 billion in 2008. China has entered a period in which it has a deficit in the production of agricultural products.

On the other hand, China’s water resources are about 7 percent of the world’s water resources. Arid and semi-arid areas in China account for more than half of the total land. The distribution of water is uneven: 81 percent of water resources are in the region south of the Yangtze River, where only 36 percent of the land is farmland. In the past, southern China was called the “land of rice and fish.” Now a lot of the fertile land in the south is being used for industrial development. “Shipping grain from the south to the north” has become “shipping grain from the north to the south.” However, there is insufficient water in the north, so China has to “bring water from the south to the north” and utilize underground water. The resources are allocated incorrectly. Therefore, the major grain producing regions strongly oppose the policy of “maintaining 1.8 billion mu of farmland.”

We often say that China feeds 22 percent of the world’s population with seven percent of the world’s farmland. Now it should be said that China feeds 22 percent of the world’s population with eight percent of the world’s farmland, but one percent is overseas. China has changed from a net exporter of agricultural products to a country short of agricultural products. In November 2009, in his speech at the World Food Security Summit in Rome, Vice Premier Hui Liangyu mentioned the latest figures: “China solved the problem of food and clothing for about 20 percent of the world’s population with about nine percent of the world’s farmland.” Whether it is eight percent or nine percent, one percent of farmland resources is borrowed from overseas. In other words, under the current food consumption model, when it comes to land and water, our food safety, to some extent, depends on foreign resources.

The Third Question: Is the Strategy of “Giving up on the Production of Vegetable Oil to Protect Grain Production” Viable?”

Due to the limited domestic farmland, there is more competition for land to be used to grow grain, oil, and cotton. 2004 to 2007 saw an increase in the land used to grow grain while the land used for vegetable oil kept decreasing. The land used for grain increased for four years in a row, with an increase of nearly 100 million mu. Vegetable oil production shrank for four consecutive years, with a loss of 30 million mu. This meant that the expansion of grain production was at the expense of vegetable oil production. Meanwhile, consumption of edible vegetable oil in China continued to grow. In 2007, soybean imports reached 30.82 million tons and edible vegetable oil imports reached 8.397 million tons. China is the world’s number one importer of soybean oil, palm oil, and rapeseed oil, accounting for 18 percent of global trade. China’s soybean oil imports account for 24 percent of the global volume. Currently, China imports about 40 percent of the soybean oil used for consumption and over 60 percent of edible vegetable oil.

Compared to grain, beans and potatoes require more seeds, thus resulting in lower productivity for the same seeding level. In fact, China adopted the strategy of “giving up on vegetable oil production to safeguard grain production.” With the current demand structure, the idea of importing soybeans is acceptable, but we must be alert to the hazards to the domestic soybean industry of importing large numbers of transgenic soybeans. We must also pay attention to protecting the development of domestic soybean growers and processing enterprises, and to using technological innovation and business model innovation to improve the competitiveness of the domestic soybean.

The Fourth Question: How to View Foreign Investment’s Flowing into Every Part of China’s Agriculture Industry?

Besides the vegetable oil processing industry, there are also foreign investments in agricultural machinery, seeds, and other areas. There are two common views regarding foreign investment. One view is the “crocodile effect,” which regards foreign investments as equivalent to inviting in a crocodile that will devour our national enterprises. Another view is the “catfish effect,” which holds that foreign capital can stimulate domestic industries and keep them alive. There are heated debates between these two views. Personally, I think that the current open structure in China is inevitable and what we are against is not foreign investment but foreign monopoly. Any monopoly, whether by a foreign enterprise or a domestic company, is not desirable. It is not enough to simply protect domestic enterprises. We can’t let them grow in a fenced environment. We have to let them grow in an open environment to stimulate their vitality in a competitive market and thus improve their competitiveness.

In fact, our current agricultural model is that capital controls labor, and farmers are in a subordinate position. This is very different from the East Asian model. East Asian countries, particularly Japan, protect their farmers and let them grow. Farmers can form their own associations in order to compete against companies and become an independent force in the market. Farmers in our country are in a subordinate position. Their space for independence and innovation is constrained. Everything they do is in the shadow of companies. Companies led the agricultural modernization and industrialization. Companies even formed the farmers’ cooperatives. With these in mind, if we do not want foreign monopolies, we must, of course, also oppose domestic monopolies. The monopolies of some state-owned enterprises or private enterprises in agriculture would eventually result in the formation of an unequal relationship between themselves and farmers.

Therefore, the state should encourage and support professional planting and aquaculture farmers that focus on agricultural production and form professional cooperatives for agricultural production and marketing. Such cooperatives can be organized on a higher level such as unions or associations when the conditions are right. This kind of cooperation allows it to achieve large-scale production and sales of agricultural products, claim a large market share, and understand and predict the market better. Through innovation of this type of organization, a platform can be built for the farmer cooperatives to negotiate and communicate with the appropriate government agencies and agricultural product processing companies on the supply and demand of agricultural products and prices. The government can also get a handle on macro-control and resource allocation optimization. Eventually, an equal partnership among government, business, and agricultural production and marketing cooperatives will take shape. This will be an important institutional arrangement to safeguard China’s food security and guarantee the basic supply of major agricultural products. Of course, the ultimate realization of this goal requires a long and arduous effort.

[1] Qiushi Online, “China’s Grain Security and Its Strategy,” September 25, 2012.
[2] The number of crops grown per year on a given land area times 100.