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Chapter 8. Reversing China’s Harvest Decline: Turning Abroad for Grain
Each of the grains that together account for 96 percent of China’s production—wheat, rice, and corn—is suffering a decline. Even with an improved wheat harvest in 2004, production still fell short of consumption by 12 million tons, an amount equal to the entire wheat harvest of Argentina. When the country’s wheat stocks are depleted within the next year or so, the entire shortfall will have to be covered from imports. In some ways, the rice deficit is even more serious. Trying to cover an annual rice shortfall of 10 million tons in a world where annual rice exports total only 26 million tons could create chaos in the world rice economy. And with a corn shortfall of 12 million tons and stocks already largely depleted, China may soon be importing corn as well. 38
Before the 70-million-ton drop in China’s grain production from 1998 to 2003, the country was producing a modest exportable surplus of 5–10 million tons a year. (See Figure 8–3.) Now this has changed. By 2003, grain production had fallen 56 million tons below consumption. With the harvest upturn in 2004, the shortfall improved but still stood at 35 million tons. 39
China has been covering its grain shortfall in recent years by drawing down its stocks. After peaking at 326 million tons in 1999, China’s carryover stocks of grain plummeted to 102 million tons in 2004. (See Figure 8–4.) At this level, stocks amount to little more than pipeline supplies and cannot be drawn down much farther. This means that within another year or two shortfalls will have to be covered entirely by importing grain. 40
The decline in the grain harvest from 1998 to 2003 alarmed China’s leaders. So did the rise in grain prices beginning in the fall of 2003. The year-to-year rise of nearly 30 percent in grain prices between 2003 and 2004 forced the government to draw down its shrinking stocks of grain even faster in an effort to stabilize food prices. 41
In late 2003 and early 2004, Chinese wheat-buying delegations purchased 8 million tons of wheat in Australia, the United States, and Canada. Within two years China went from being essentially self-sufficient to being the world’s leading wheat importer. In March China made small purchases of rice from Thailand and Viet Nam for immediate import, suggesting that the internal rice situation, at least in some localities, was also beginning to tighten. In late August 2004, Beijing sought to buy 500,000 tons of rice from Hanoi, but was told that, given the export restrictions designed to ensure domestic rice price stability, Viet Nam could not deliver any rice until early 2005. 42
Concerned with falling production and the threat of politically destabilizing rises in food prices, the government announced an emergency appropriation in March 2004—increasing its agricultural budget by 20 percent or roughly $3.6 billion. The additional funds were to be used to raise support prices for wheat and rice, the principal food staples, and to improve irrigation infrastructure. For the State Council to approve such an increase outside the normal budgeting process indicates the government’s mounting concern about food security. Nearly all the leaders in Beijing today are survivors of the great famine of 1959–61, when 30 million Chinese starved to death. For them, food security is not an abstraction. 43
On March 29, 2004, the government announced that the support price for the early rice crop would be raised by 21 percent. This got farmers’ attention, as Beijing hoped it would, leading them to plant nearly 2 million additional hectares of rice—a gain of 7 percent from 2003. China’s rice harvest rose from 112 million tons in 2003 to an estimated 126 million tons in 2004. This 14-million-ton gain was the result of both stronger incentives and a recovery from last year’s weather-depressed yields. Overall, grain production was up 21 million tons in 2004. The much smaller gains for wheat and corn were, as with rice, due to a combination of better weather and stronger prices. 44
While stronger prices can temporarily reverse the decline in China’s grain production, they do not eliminate the forces that are shrinking China’s grainland area and thus its harvest. Unless Beijing can quickly adopt policies to protect its cropland, continued shrinkage of the grain harvest and mounting dependence on imported grain may be inevitable.
A sense of how quickly China can turn to the world market can be seen with soybeans. As recently as 1997, the nation was essentially self-sufficient in soybeans. (See Figure 8–5.) In 2004, it imported 22 million tons—dwarfing the 5 million tons imported by Japan, formerly the world’s leading soybean importer. The Chinese economy is so large and so dynamic that its import needs can shake the entire world. Its soaring soybean needs, combined with a sub-par harvest in the United States in 2003, led to a temporary doubling of world soybean prices during the early months of 2004. 45
Over the longer term, China’s grain imports are likely to climb to levels never before seen. Japan, South Korea, and Taiwan today each import roughly 70 percent of their total grain supply. If China were to do the same, it would be importing 280 million tons per year. This exceeds current world grain imports by all countries of just over 200 million tons. This is obviously not going to happen, but what sort of adjustments will prevent China from following the path of Japan, South Korea, and Taiwan? What sort of economic stresses will develop in the world as China willingly or unwillingly is pushed in the same direction as the earlier Japan syndrome countries? What sort of stresses will develop within China if the world cannot supply the vast imports it needs? 46
38. USDA, op. cit. note 1.
39. Figure 8–3 from ibid.
40. Figure 8–4 from ibid.
41. Business Daily Update, “Food Prices Up 7.9% in March,” Financial Times Information Limited, 20 April 2004.
42. “China Delegation Bought More than 500,000 MT US Wheat—Traders,” Dow Jones Newswires, 19 February 2004; China National Grain and Oils Information Center, China Grain Market Weekly Report (Beijing: 16 April 2004); “Vietnam Says China Seeks 500,000 T Rice, Paddy,” Reuters, 31 August 2004.
43. “State Raises Rice Prices,” op. cit. note 3; Susan Cotts Watkins and Jane Menken, “Famines in Historical Perspective,” Population and Development Review, December 1985.
44. “State Raises Rice Prices,” op. cit. note 3; USDA, op. cit. note 1.
45. Figure 8–5 from USDA, op. cit. note 1; International Monetary Fund, International Financial Statistics, electronic database, viewed 2 September 2004.
46. USDA, op. cit. note 1.
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