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 repro- duced 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 Facsimile +61 2 6272 2001 Internet www.abareconomics.com ABARE is a professionally independent government economic research agency. 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 prod- ucts 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 pres- sure from problems associated with water constraints and land degrada- tion 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 infl uence on world trade. Developments in China’s economy have the potential to markedly affect trade with agricultural exporting coun- tries, such as Australia. Developments in Chinese agriculture are examined in this report, with particular reference to production, consumption and trade. The key factors infl uencing 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 Divi- sion, Australian Government Department of Agriculture, Fisheries and Forestry. iv abare eReport 05.7 contents Summary 1 1 Introduction 3 2 Some key trends in China 4 Rising and more varied food consumption 4 Adaptability of China’s agriculture to satisfy increasing demand 7 Potential limitations on production 12 3 Agricultural policies in China 16 4 Trade policies in China 18 5 Trends in Australia's trade with China 22 6 Concluding comments 23 References 24 v abare eReport 05.7 box 1 Consistency and reliability of China’s consumption statistics 6 fi gures A Average yields of major grains – China 9 tables 1 Food consumption in China 5 2 Food consumption in China and selected other countries, 2002 5 3 Household consumption of selected foods per person in China, 2003 6 4 Maize supply and utilisation – China 8 5 Wheat supply and utilisation – China 8 6 Average annual compound growth rates in Chinese production 10 7 China’s imports of soybeans 10 8 Tariff quota commitments on China’s accession to the WTO in 2001 19 9 China’s tariff commitments for selected tariff-only items 20 10 China’s imports under tariff quotas and percentage tariff quota fi ll rates in 2002 and 2003 21 11 Australia’s overall and agricultural trade with China 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 agri- cultural 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 improve- ments 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 suffi ciency 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 over- exploitation, government programs to divert erodible land to pastures 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 limita- tions in availability and quality of water in some northern regions. ■ For wheat, self suffi ciency was largely maintained until 2003, partly through the running down of previously accumulated stocks. 1 abare eReport 05.7 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 offi cial position that has promoted self suffi ciency in food grains. However, imports could vary widely from year to year with changes in seasonal condi- tions. ■ 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 situa- tions 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 competi- tion from synthetics. ■ China appears to have been very fl exible 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 falling behind its consumption growth and further increases in imports, 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. 2 1 abare eReport 05.7 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 devel- opments 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, prepared- ness 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 produc- tivity private activities. Also, there has been a strong trend toward urbanisation. In China, urban incomes have been