Who Will China Feed?
Though China continues
to be a major player in global food exports, growing
resource constraints and environmental costs could
mean an end to “easy” growth for Chinese
agriculture.
Bryan
Lohmar
Fred Gale
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China
is a net food exporter, and its food
exports, as well as its imports, are
growing. |
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China’s
capacity to continue food export growth
is constrained by intense competition
for limited resources by nonagricultural
industry and other sectors of the economy.
|
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Intensive
use of chemical inputs has led to deteriorating
environmental quality, which may affect
China’s future production capacity
and cause problems in export markets. |
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For
more information . . . |
Demand
for Food Quantity and Quality in China,
by Fred Gale and Kuo Huang, ERR-32, USDA,
Economic Research Service, January 2007.
“The
Ongoing Reform of Land Tenure Policies in
China,” by Bryan Lohmar, Keith Wiebe,
and Agapi Somwaru, in Agricultural Outlook,
September 2002.
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You may also
be interested in . . .
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China
Briefing Room
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In the 1990s, many analysts saw
China as a major potential market for agricultural
exports from the United States and other countries.
Lester Brown’s highly publicized 1995 book,
Who Will Feed China? A Wake-Up Call for a Small
Planet, predicted that China would turn to
international grain markets to meet the expanding
food demands of its increasingly affluent population.
World Trade Organization (WTO) accession was expected
to be a watershed event that would finally open
the Chinese market to grain and meat imports.
While China has emerged as the
world’s leading importer of soybeans, vegetable
oil, cotton, wool, rubber, and animal hides, it
has been surprisingly successful at meeting the
basic food needs of its population of more than
1.3 billion people, and it has stepped up as a major
food exporter. How long can China sustain this momentum?
China imports only small amounts
of premium-grade rice, minor amounts of wheat in
most years, and no corn. China has maintained agricultural
self-sufficiency in grains as it carries out the
world’s largest and fastest urbanization and
industrialization. Economic development is increasing
competition for scarce resources in China, but growing
incomes are allowing most consumers to increase
consumption of fruit, vegetables, and livestock
products.
China has become a significant
food exporter by ramping up production in many sectors
and gaining world market share. Indeed, China has
been a net food exporter for most of the last three
decades. China dominates world markets in a variety
of products areas, including garlic, apples, apple
juice, mandarin oranges, farm-raised fish and shrimp,
and vegetables. At times, it seems that China has
suspended the law of scarcity by boosting production
in many sectors and selling at low prices without
having to sacrifice production in other sectors.
More recently, however, signs
hint at a restoration of the law of scarcity, mostly
in the form of rising commodity and input prices,
more expensive labor, restrictions on land developments,
and a reversal of China’s pro-export policies.
Various hidden costs of China’s seemingly
miraculous growth also are beginning to emerge,
including dangerous chemical residues on food and
related food safety problems, falling groundwater
tables, polluted water, and overall environmental
degradation.
China’s Challenge: Feeding
1.3 Billion People
For centuries, China was an agrarian
economy mostly populated by small subsistence farmers.
In the 1930s, John L. Buck, a Professor of Agricultural
Economics at Nanjing University, estimated that
plant-based foods comprised 97 percent of Chinese
caloric intake, and this diet enabled farmers to
maintain subsistence livelihoods on a limited land
base. In the 1950s, China’s agriculture underwent
collectivization, and even though China’s
population doubled from 550 million in 1950 to over
1 billion by 1980, the country was still largely
able to maintain food self-sufficiency during most
of this period. Key to this achievement was the
continuation of plant-based diets for much of the
population, as the centrally planned and collectively
run mobilization of land, water, and labor resources
for agriculture was directed toward production of
food grains at the expense of livestock and horticultural
products.
In the late 1970s, China introduced
reforms that effectively ended collective agriculture
and restored traditional household production. Farm
income grew and diets diversified during the 1980s
and 1990s. Agricultural production gains stemmed
from gains in production efficiency rather than
expansion and mobilization of additional resources.
The immediate effect of these reforms was a decline
in area sown to grain and an increase in land devoted
to nongrain crops and livestock production. Still,
despite the decrease in area, grain production surged
as farmers allocated their limited resources more
efficiently.
Over the past two decades, the
role of the market has expanded and fostered rapid
economic growth in China. Ever-wealthier consumers
began diversifying their diets to include more variety
in fruit and vegetables and more livestock and fish.
China Ministry of Health statistics indicate the
share of calories consumed from grain and vegetable
products in 2002 was 63 percent, far below the 97
percent estimated in the 1930s.
Farmers responded to changing
domestic demand for food products by further diversifying
production. At the same time, Chinese farmers have
supplied a growing stream of food exports that include
farm-raised fish, shrimp, vegetables, fruit, juices,
mushrooms, tea and organic foods. But the rapid
growth of livestock and horticultural production
did not come at the expense of reduced grain output.
After years of regional and local self-sufficiency
enforced under collective agriculture, yields continually
improved over the post-reform period, the result
of stronger incentives, improved production practices,
more regional specialization, and the introduction
of new varieties.
Investments in research and development
raised the quality of inputs and the efficiency
of their use over the past two decades. Research
into improved varieties and quality of seeds surged
after the late 1970s. By the turn of the century,
China had more agricultural researchers than any
other country, and a larger budget for public sector
agricultural research than any developing country.
Fertilizer quality in China also has improved over
the past two decades, as farmers move away from
applying pure nitrogen fertilizer to applying more
nitrogen-phosphorous- potassium blends. China has
been importing breeding animals—which are
often crossed with domestic breeds—to improve
efficiency of weight gain, improve disease resistance,
and raise milk output. The government has offered
subsidies to farmers for dairy herd improvement
for several years.
China today is the world’s
largest agricultural producer and consumer. With
an estimated 10 percent of world land resources
and 6 percent of world water resources, China produces
30 percent of the world’s rice, 20 percent
of the world’s corn, a fourth of the world’s
cotton, an estimated 37 percent of the world’s
fruit and vegetables, and half of the world’s
pork. For most products, China’s world share
of production is close to or exceeds its 20-percent
share of world population. China, however, has exploited
the means of coaxing food and fiber out of a limited
natural resource base to the extent that additional
gains will be more difficult than in the past.
Signs of Stress to Land and Water
Land and water are key inputs
to agriculture and are the main constraints to China’s
continued production growth. Chinese farmers farm
not only the most productive land in plains and
valleys in the eastern third of the country but
also steep hillsides, arid grasslands, drained lakes,
and dry riverbeds that are generally not cultivated
in more land-abundant regions like North America
or Australia. While southern China has relatively
abundant water that facilitates water-intensive
flooding of rice paddies, the per capita water endowment
in the North China Plain is roughly one-tenth the
world average and is well below conventional measures
of water scarcity. Yet, this region produces a large
share of China’s wheat, corn, cotton, and
other crops that rely heavily on irrigation.
China’s current exploitation
of land and water resources is either at or beyond
sustainable levels. The cultivation of steep hillsides
is causing massive sedimentation loss estimated
at over 2 billion tons per year, decreasing productivity
in areas losing topsoil, reducing water storage
capacity in reservoirs, and increasing the likelihood
of floods. Agricultural practices, both crop cultivation
and animal husbandry, on sensitive arid grasslands
are partly to blame for the desertification of these
areas. In the North China Plain, the groundwater
table is falling rapidly in some areas, and several
surface-water sources periodically dry up before
reaching the sea. The Yellow River, for example,
ran dry for long periods of the year in the 1990s.
Policy measures instituted in 2000, however, have
ensured the river’s continued flow to the
ocean.
Industrial and urban growth is
increasing the competition for China’s limited
land and water. China’s nonfarm economic boom
means that housing complexes, industrial parks,
power stations, and other projects, are being built
on land converted from agriculture. Competition
for land within agriculture is also intense. Increasing
production of meat, dairy products, vegetables,
fruit, and farm-raised fish competes with grain
cultivation for area. Given the gradual shrinkage
of the agricultural land base, expansion of one
agricultural activity generally means that land
must be diverted from another. Efforts to develop
saline or other marginal lands for limited agricultural
activities have yet to result in significant expansion
of agricultural production onto such land.
As with land, water resources
face increasing demand from nonfarm users. In 1980,
industrial and domestic consumers used only 13 percent
of the water consumed in China, with agriculture
accounting for the remainder. By 2000, agriculture
use was roughly two-thirds of water consumed in
China, and industry and domestic users have raised
their share to one-third. On the productive North
China Plain, water diversions for human use are
well over 60 percent of renewable water resources,
and nearly 90 percent in the Hai River Basin in
Hebei Province.
While China intensively uses its
land and water resources in agriculture, there is
potential to manage both resources more efficiently.
Land in China is allocated to farm households but
remains collectively owned and subject to redistribution
to other households or sale to nonagricultural interests
by local leaders. This system reduces incentives
for households to invest in land improvement and
raises the cost of land transfers. It also results
in small, fragmented household land holdings that
confound farmers’ capacity to specialize or
take advantage of economies of scale and size. Additionally,
farmers rarely allow land to be fallow and recover
from intensive production, a practice that could
have negative long-term implications for land productivity.
Until the 1990s, water management in China was geared
to exploiting water as a cheap resource to boost
agricultural and industrial production without considering
the opportunity costs. Efforts to encourage water
saving are just beginning to take hold.
Reforming land and water management
policies and practices in China may help improve
the efficiency of resource allocation and could
bring about more sustainable practices and contribute
to future production growth. However, such reforms
are likely to confront ideological and other resistance.
Moreover, the gains may not have a large net effect
on agricultural production since more efficient
allocation may lead to a reduction in the levels
of land and water allocated to agriculture. This
is particularly true for grains, since the value
of these resources in grain production is lower
than in horticultural production and nonagricultural
uses.
Signs of Labor Scarcity
China has been able to maintain
low-cost production in international agricultural
markets largely because of low labor costs. Historically,
Chinese farms have raised large amounts of output
from small plots by using labor-intensive production
strategies, such as growing multiple crops per year,
intercropping, and growing vegetables in courtyards.
But hundreds of millions of rural workers have found
nonfarm employment over the last two decades. The
flow of labor from rural areas enabled China’s
industry and cities to boom, while wage growth was
relatively stagnant for much of the last two decades.
China’s rapid economic expansion
appears to have finally exhausted the pool of under-employed
workers. Since 2003, wages have been rising at a
double-digit pace. The dwindling pool of available
rural workers is resulting in increased mechanization
of harvesting and planting. Anecdotal evidence also
suggests that intensive agricultural practices,
like double-cropping, transplanting seedlings by
hand, and small-scale hog production, have decreased
due to labor shortages and high wages.
Food Prices Are Rising
The recent trends in resource
use, labor availability, and changing agricultural
production, along with rising international food
prices, are causing increases in China’s domestic
food prices. Food prices in China began rising in
2006, and China’s government made controlling
the inflationary impact of food prices a top policy
concern in 2007. Pork prices in China soared to
record levels in 2007 as the hog sector contracted,
in part due to disease outbreaks and inclement weather
in southern China. In previous cycles (as recently
as 2004-05), sharp increases in prices drew more
producers into hog production. But in 2007, response
to the record-high prices was slowed by disease
losses and the high cost of feed and feeder pigs.
Ultimately, officials resorted to introducing subsidies
and insurance as incentives to encourage hog production
and hasten the easing of prices. Recent policies
aimed at boosting grain planting have diverted land
from soybean and rapeseed production, and oilseed
and vegetable oil prices rose sharply in the last
2 years.
Prices are rising partly due to
increasing world commodity prices, but also because
of China’s inability to boost domestic production.
In response, China has made several significant
policy changes in the last year. The Chinese government
withdrew rebates of value-added taxes that encouraged
exports, and it introduced temporary export taxes
on grain and flour to cut off grain exports and
cool domestic grain prices. Also in the past year,
China scaled back ambitious policies to retire environmentally
sensitive land from cultivation, and it revised
plans to develop grain-based bio-fuel production.
Hidden Costs Now and in the Future
In addition to having an impact
on the production costs borne by farm households,
applications of agricultural chemicals and exploitation
of natural resources can have external costs borne
by others or by future generations. These costs
are becoming more evident in China. As education
and access to news improves, Chinese consumers are
growing more concerned about the quality of the
environment and the food they eat, and are seeking
changes. In a 2007 survey of household food consumption
choices in Beijing, far more households reported
choosing food products according to quality and
safety attributes than according to price.
Chinese farmers have applied heavy
doses of chemical fertilizer and pesticides to overcome
natural resource constraints and significant pest
pressures. Farmers use a variety of veterinary drugs
to control diseases that spread quickly among livestock
and fish raised in crowded facilities, and they
use feed additives to enhance animal growth. Residues
of toxic pesticides, drugs, and industrial pollutants
detected in food are a potential health hazard.
A sizeable share of China’s industrial production
also takes place in rural areas and in close proximity
to agriculture. The external costs of industrial
production, such as water pollution, often are borne
by agricultural producers.
China’s food industries
have been stung by quality and safety problems both
overseas and in domestic markets. There is a strong
campaign to reduce and regulate farm chemical use.
Chinese officials now ban food production in heavily
polluted areas and limit use of toxic chemicals.
Exporters must go through stringent certifications
and product testing, raising the costs of production
and limiting the development of potential export
markets for food products. Chemical fertilizer and
animal waste also contribute significantly to water
pollution and may be constrained by environmental
regulations.
The Future of Agricultural Production
and Trade in China
China’s sheer size and relatively
open trade policies ensure that it will continue
to be a major importer and exporter of agricultural
products. However, rising prices and increasing
attention to environmental and food safety problems
in 2006-07 seemed to signal the end of “easy”
growth. In coming decades, China’s agricultural
export juggernaut might be slowed as it faces resource
and labor scarcities and confronts environmental
and food safety costs that were not always taken
into account during the decades of robust growth.
Slower export growth, coupled with growth in domestic
consumption, may shift the food industry’s
attention toward supplying the domestic market.
While future gains in China’s
agricultural production will not come as easily
as in the past, there is still scope to achieve
further growth. Indeed, the United States and many
other countries have faced similar resource and
environmental constraints and still maintained robust
growth in agricultural production while transitioning
into more environmentally friendly production practices.
China, however, is developing at a much more rapid
pace than other countries, has a very large and
diverse agricultural sector, and has yet to fully
establish supporting institutions to facilitate
this transition while increasing the efficiency
of production.
China is establishing policies
to maintain production growth and reduce the environmental
impact of agricultural practices. Research institutes
are developing new crop varieties and production
systems that could increase yields and use water
more efficiently. The livestock industry is importing
breeding stock and developing larger scale commercialized
operations to improve the efficiency of livestock
production. Agricultural officials in China are
promoting demonstration projects in more sustainable
modes of agricultural production. China is strengthening
farmers’ rights to land—although stopping
short of allowing full ownership of land—so
farmers can rent land, consolidate their holdings,
and achieve efficiencies in size and scale. Moreover,
agricultural officials seek to band small farms
together into “production bases” to
supply uniform products to selected agribusinesses
which, in turn, supply farmers with standardized
inputs, technical information, and production credit.
Changing consumption patterns
will play an important role in China’s future
agricultural trade. As Chinese consumers diversify
their diets, aggregate consumption of traditional
food grains, such as rice and wheat, is flat or
declining. Some land historically used to grow food
grains is being shifted to feed grains to support
the growing livestock sector. Finally, China’s
fruit and vegetable production will continue to
grow and, over time, food safety issues will likely
be resolved. However, a large share
of the increases in the production of these products
will be consumed by China’s own large and
increasingly wealthy population.
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