DEVELOPMENTS IN CHINESE
AGRICULTURE
abare eReport 05.7
Ivan Roberts and Neil Andrews
July 2005
abare
© Commonwealth of Australia 2005 This work is copyright. The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgment of the source is included. Major extracts or the entire document may not be reproduced by any process without the written permission of the Executive Director, ABARE.
ISSN 1447-817X ISBN 1 920925 39 2
Roberts, I. and Andrews, N. 2005, Developments in Chinese Agriculture,
ABARE eReport 05.7, Canberra, July. Australian Bureau of Agricultural and Resource Economics GPO Box 1563 Canberra 2601
- Telephone +61 2 6272 2000
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Internet www.abareconomics.com
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ABARE project 2989
abare eReport 05.7
foreword
China’s rapid economic growth is bringing about marked changes to its agricultural industries. Profound changes are taking place in the demand for agricultural products as consumers move away from staple foods such as grains to include vegetables, fruits, meats and dairy products in their diets.
So far, China has been able to meet these changes in demand by being able to adapt its domestic agricultural production. However, there is evidence now that China’s agriculture is coming under increasing pressure from problems associated with water constraints and land degradation in some regions.
Because China is a large agricultural producing and consuming country, small changes in either production or consumption can have a signifi- cant influence on world trade. Developments in China’s economy have the potential to markedly affect trade with agricultural exporting countries, such as Australia.
Developments in Chinese agriculture are examined in this report, with particular reference to production, consumption and trade. The key factors influencing likely developments in Chinese agriculture and trade that are of importance to Australia are assessed.
BRIAN S. FISHER
Executive Director July 2005
iii abare eReport 05.7
acknowledgments
The authors wish to thank Stephen Apted, Leanne Lawrance, David Barrett and Don Gunasekera from ABARE; and Noel Benjamin from the Food and Agriculture Division of the Australian Government Department of Agriculture, Fisheries and Forestry.
Funding for this report was provided by the Food and Agriculture Division, Australian Government Department of Agriculture, Fisheries and Forestry.
iv abare eReport 05.7
contents
Summary
134
1 Introduction 2 Some key trends in China
Rising and more varied food consumption Adaptability of China’s agriculture to satisfy increasing demand
47
Potential limitations on production
12
3 Agricultural policies in China 4 Trade policies in China 5 Trends in Australia's trade with China 6 Concluding comments References
16 18 22 23 24
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box
1
Consistency and reliability of China’s consumption statistics
69
figures
A
Average yields of major grains – China
tables
12
Food consumption in China
55
Food consumption in China and selected other countries, 2002
3
Household consumption of selected foods per person in China, 2003
688
456
Maize supply and utilisation – China Wheat supply and utilisation – China Average annual compound growth rates in Chinese production China’s imports of soybeans Tariff quota commitments on China’s accession to the WTO in 2001
10
- 10
- 7
8
19
20
9
China’s tariff commitments for selected tariff-only items
10 11
China’s imports under tariff quotas and percentage tariff quota fill rates in 2002 and 2003 Australia’s overall and agricultural trade with China
21 22
vi abare eReport 05.7
summary
■
China’s rapid economic growth and urbanisation are bringing about profound changes in demand for agricultural products and in the country’s ability to meet that demand from its own agricultural industries.
■
Overall food consumption in China is rising and there are marked changes in the composition of diets. Consumption of meat, seafood, dairy products, vegetable oils, fruit and vegetables is rising, while consumption of starchy staples, including wheat and rice, is declining. These trends are expected to continue.
■
China has so far been successful in adapting its domestic agricultural production to meet the challenges of increasing demand and changing demand patterns. This has been made possible by a combination of market reforms, greater use of inputs and improvements in technology.
■■
However, there is now substantial evidence of stress on China’s production base, with problems associated with water constraints and land degradation in some regions.
While China has so far maintained a high level of overall food suffi- ciency, there appears to have been a strong political preoccupation with trying to maintain self sufficiency in food grains in particular. However, it is notable that cultivated areas of both wheat and rice have been declining since the late 1990s, while yields have leveled off. The reductions in areas under these crops have occurred because of a combination of competition for land from products with rising demand, such as fruit and vegetables, land degradation from overexploitation, governmentprogramstodiverterodiblelandtopastures and tree crops, and displacement of land through urbanisation and infrastructure development.
■■
China is devoting substantial resources to advancing agricultural technology, especially in plant breeding. However, since the late 1990s, yields for the main grain crops have not been increasing, owing, it appears, largely to pressures on soil fertility, and limitations in availability and quality of water in some northern regions.
For wheat, self sufficiency was largely maintained until 2003, partly through the running down of previously accumulated stocks.
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In 2004, relatively large imports were required. Unless substantial improvements can be made in water and land management and there are breakthroughs in the development and commercialisation of new production technologies, it appears that China could become more dependent on imports of wheat despite an official position that has promoted self sufficiency in food grains. However, imports could vary widely from year to year with changes in seasonal conditions.
■
How China’s agriculture responds to the big increases in demand that are occurring for meat is likely to have profound implications for agricultural imports. China faces alternatives of importing more stock feeds, including feed grains and oilseeds that yield protein feed meals, importing more meat or a combination of these. Where similar situations have arisen elsewhere in Asia, the response has been to increase domestic production of meat, principally intensively produced pig and poultry meat, and to import additional quantities when the domestic expansion has been inadequate. Already, China has been importing substantially increasing quantities of soybeans that have provided greatly increased volumes of high protein feed meals, while exports of maize, the main feed grain, are now declining. It seems likely that China will require increasing imports of feed grains.
■
Unlike many other agricultural products, China has relied on imports of wool for a substantial part of its supplies. Australia has been the main supplier. There appears to be scope for further growth in imports of wool within tariff quotas, but whether that will be taken up will depend on demand in the face of ever increasing competition from synthetics.
■
China appears to have been very flexible in adjusting its agricultural production patterns away from land extensive crops, such as grains, toward more labor intensive products such as fruit, vegetables and meat in which it has a greater comparative advantage. As such, it would not be surprising if in future, China became a larger importer of feed grains. China is also likely to increase imports of wheat and oilseeds. Also, China’s growth in milk production, although rapid, is fallingbehinditsconsumptiongrowthandfurtherincreasesinimports, primarily of milk powders, are likely. With continuing adjustment of China’s agriculture toward labor intensive farming activities it could become an increasingly important competitor on world markets for horticultural and processed agricultural products.
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1
introduction
China is emerging as an increasingly prosperous country, its annual gross domestic product having risen at an average rate of 9 per cent since the early 1990s. Rapid growth is expected to continue, with actual rates depending on economic conditions elsewhere as well as developments in China itself — this is because the Chinese economy is becoming increasingly trade oriented and more open to foreign investment.
A number of important underlying factors have contributed to this growth and these appear likely to contribute to further growth. In general, growth is being generated by transfers of resources from low to higher productivity activities, high levels of investment, preparedness to adopt improved technologies and gradually increasing population. In particular, with efforts to tap the economic potential of the country, there has been a progressive transfer of resources away from low productivity state enterprises toward higher productivity private activities. Also, there has been a strong trend toward urbanisation. In China, urban incomes have been around three times as high as rural incomes and this disparity has been maintained despite the urban share of total population having risen from 18 per cent in 1978 to 39 per cent in 2002. In addition, population growth has been around 1 per cent a year over the past decade and China appears to have been increasingly prepared to adopt and develop productivity increasing technologies.
Such ongoing growth is bringing about profound changes to China’s agricultural industries and has a potential to markedly affect future trade. The Chinese Government has had a policy of agricultural self sufficiency although there is a history of imports to make up for periodic production shortfalls, especially of wheat, and to supplement domestically produced supplies of products such as wool. China has also become a major importer of soybeans since the mid-1990s to meet its rising demand for vegetable oils and also to boost feed supplies as inputs to the country’s rapidly expanding livestock industries. China has also been a significant exporter, primarily of processed agricultural products, with such exports reflecting its comparative advantage in these products. Overall, both China’s exports and imports of agricultural products have been small relative to its very large domestic production and consumption, and the country has been maintaining approximate agricultural self sufficiency.
In 2001, China joined the World Trade Organisation (WTO), signaling greater preparedness to accept imports and embrace opportunities provided by export markets. China is also currently exploring possibilities of bilateral free trade agreements (FTA) with a number of countries including ASEAN, New Zealand, Chile and Australia, further signaling China’s preparedness for greater international engagement in trade, including in agricultural products.
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2
some key trends in China
Rising and more varied food consumption
Economic growth and urbanisation transforming China’s food consumption
The rapid economic growth and urbanisation in China are bringing about profound changes in demand for food within China. There has been a strong trend away from traditional diets that are heavily oriented toward starchy staples that characterise low income developing countries. In particular, there has been a change toward more varied diets incorporating markedly increasing quantities of animal products and fruits and vegetables, but lower quantities of food grains. Furthermore, with increasing incomes, aggregate food intake in terms of calories per person has been increasing (table 1).
Total food consumption per person rising; food grain consumption falling; and consumption of fruit, vegetables, vegetable oils, meat, aquatic products and dairy products all rising
Using FAO food balance sheets as a basis for comparison, China’s total consumption of food per person in terms of calories had risen by 2002 to be higher than in any other country in east, south or south east Asia except the Republic of Korea (table 2; FAO 2004). Also, average intake of animal products, in terms of calories, had risen to the highest level for any country in these regions. Nevertheless, consumption levels are still below those in the developed countries of north America, western Europe and Oceania.
As, according to the FAO food balance sheets, Chinese food consumption has already reached a high level in comparison with other Asian countries, the question may be asked, ‘will China’s changes toward higher food intake per person, lower consumption of food grains and rising consumption of fruits, vegetables, vegetable oils, meat and dairy products continue?’ The answer to this question is that, while China’s income growth rates remain high and while there is a marked trend toward urbanisation, it is likely that these trends will indeed continue.
One of the reasons for this expectation is the possibility, even likelihood, that the data in the FAO food balance sheets have overstated Chinese food consumption levels up to the present time. Consequently, actual food consumption per person in China might not be as high relative to levels in other Asian countries as it appears from the FAO data — see box 1 for a discussion of China’s consumption statistics. But the main reason for the expected continuation of the established trends in food consumption is that rising incomes and increasing urbanisation are likely to continue, and dietary patterns will increasingly reflect a greater orientation toward urban consumption levels and consumption patterns.
4abare eReport 05.7
Food consumption in China
1
- 1975
- 1980
- 1985
- 1990
- 1995
- 2002
Daily calorie intake per person
calories
- calories
- calories
- calories
- calories
- calories
Vegetable products Animal products Total
1 954
135
2 089
2 153
174
2 328
2 383
235
2 618
2 402
310
2 712
2 399
463
2 861
2 333
618
2 951
Consumption per person
- kg
- kg
- kg
- kg
- kg
- kg
Cereals – wheat – rice Starchy roots – potatoes – sweet potatoes Sugar and sweeteners Pulses
163.4
43.5 79.9
109.3
12.4 94.5
3.3
185.7
60.9 84.1 91.2
9.9
78.8
5.4 4.9
210.5
78.1 97.8 65.6 10.1 53.0
7.5
207.7
80.9 93.4 58.9 11.0 45.9
8.0
194.2
79.3 91.3 59.4 14.4 42.7
7.4
166.6
65.2 82.8 80.7 35.3 43.0
7.2
- 5.0
- 3.6
- 2.2
- 1.6
- 1.4
- Oil crops
- 5.2
- 5.4
- 5.9
- 5.6
- 7.7
- 6.9
Vegetable oils Vegetables Fruit
2.0
47.2
6.3
10.6
0.3 0.3 8.5 1.3 2.4 2.2
3.2
49.4
7.3
14.6
0.4 0.5
12.0
1.7 3.0 2.6 5.2
- 4.5
- 6.3
- 7.1
- 9.5
78.6 11.1 19.3
0.5 0.6
16.1
1.9 4.5 4.7 7.3 2.7
98.9 16.5 25.9
1.0 0.9
20.4
3.3 5.9 6.4
11.5
4.5
148.1
31.9 39.1
2.9 1.4
26.9
7.3
254.1
47.3 52.5
4.6
Meat – bovine meat – mutton and goat meat – pig meat – poultry meat Milk, excluding butter Eggs
2.5
34.2 10.5 13.3 17.4 25.6 10.8
7.7
12.7 20.8
7.8
Fish, seafood – freshwater fish
5.6
- 1.2
- 1.3
Source: FAO (2004).
Food consumption in China and selected other countries, 2002
2
- Korea,
- United
China Rep. of Japan Thailand India Indonesia States Australia
Daily calorie intake per person calories calories calories
- calories calories
- calories calories
- calories
Total calories Vegetable calories Animal calories
2 951 3 058 2 761 2 333 2 587 2 187
2 467 2 459 2 172 2 270
2 904 3 774 2 778 2 727
125 1 047
3 054 2 022
- 1 032
- 618
- 478
- 572
- 295
- 189
Consumption per person
- kg
- kg
- kg
- kg
- kg
- kg
- kg
- kg
- Cereals
- 166.6 151.7 113.8
- 122.3 157.8
18.0 24.1
- 203.1 112.5
- 83.8
54.9 17.9 93.3 92.3 48.2 40.6
108.8 263.9
22.3
Starchy roots Vegetable oils Fruits Vegetables Sugar and sweeteners – sugar
80.7
9.5
47.3
17.2 12.3 66.8
34.1 14.1 56.3
66.7 10.4
63.7
- 27.8
- 6.3
- 9.4
87.8 37.7 42.1 69.5 31.9 24.7 31.9 24.7
36.0 110.3
- 27.9 127.7
- 254.1 209.2 106.5
7.2 7.2
52.5 13.3 25.6
37.7 19.2 49.2 29.4 58.7
29.4 19.3 43.9 67.1 66.3
17.5 16.5
71.9 32.9
- Meat
- 26.4
18.8 62.9 30.9 4.8
- 5.2
- 8.2 124.1
- 7.8 261.3
- Milk excluding butter
- Fish, seafood
- 20.8
- 21.3
Source: FAO (2004).
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Urbanisation likely to sustain established trends of declining food grain consumption and rising fruit, vegetable oil, meat, aquatic product and dairy product consumption
A large part of China’s income growth per person is linked to the facts that the proportion of people in urban areas is increasing rapidly and that the incomes of urban dwellers are being maintained at levels that are greatly above incomes of rural people. The higher incomes of urban people and greater access to a wider variety of foods are being reflected in very different levels and patterns of food consumption than for rural people, as is apparent from the household food consumption survey data shown in table 3. The main differences between Chinese urban and rural food consumption patterns are far lower consumption levels for grains in urban areas and higher to much higher consumption levels for virtually all other foods.
Household consumption of selected foods per person in China, 2003
3
- Rural
- Urban
- kg
- kg
Grain Vegetables Fruit Edible Oil
222.4 107.4
17.5
6.3
79.5
118.3
57.8
9.2
Pork, beef and mutton Poultry
13.8
3.2
23.7
9.2
- Eggs
- 4.8
4.7 1.7
11.2 13.4 18.6
Aquatic products Milk and related products
Source: China Statistical Yearbook (2004).
Box 1: Consistency and reliability of China’s consumption statistics
Analysts of developments in China’s production and consumption of agricultural products have encountered considerable problems with consistency and reliability of statistics. The consumption statistics reported in the FAO food balance sheets are determined from supplies that are estimated from officially reported production, changes in stocks, imports and exports. There have been problems with unreliability of reporting of production and other agricultural statistics arising from a ‘bottom up’reporting system, under which village heads provide input that is ultimately aggregated to give national totals. In addition, the use of nonstandard definitions and parallel reporting systems have made Chinese statistics confusing and potentially misleading (Gale 2002). In particular, there has been a widespread belief that China’s reported output of animal products has been inflated (Zhou and Tian 2003, p. 47).