AgDM newsletter article, December 2000

Future directions of China's agricultural production*

Bob Wisnerby Bob Wisner, professor of economics, 515-294-6310, rwwisner@iastate.edu

Second in a series of two

The author spent three and one-half weeks in China in June 2000 and made contacts with farmers, food industry, and government officials, and university and Academy of Science researchers.

*Reprinted with permission from Doane’s Agricultural Service Report 8/11/00, Vol. 63, No. 32-5.

Much attention has been given to Chinese food demand prospects, but equally important is China's food production potential. China is a net exporter of farm products including tea, silk, corn, meat, rice, fruits and vegetables. Its yield increases have been impressive for corn, wheat, and rice over the last two decades.

Three key elements stand out when looking ahead.

Technology and yields

Figures 1 and 2 show trends in Chinese corn and soybean yields per acre, and comparisons with the U.S. China’s yields have increased much more rapidly than in the U.S., and likely will continue to do so. Better technology, extensive irrigation, and improved management are behind China's yield trends. Its corn yield is only a little over half the U.S. level and its soybean yield is about 67 percent of the U.S. average yield. If China would raise its average corn yield to the U.S. level, it would produce 3.5 billion bushels more than at present and would be a much larger competitor.

World Trade Organization (WTO) likely will encourage China to adopt new agricultural technology more rapidly than in the past, and over time its corn and soybean yields will move much closer to U.S. levels. Future production increases will come from:

In the last decade, feed grain use has grown slightly faster than production, due to a slower growth of corn yields distorted some by this year’s adverse weather. However, the factors above may accelerate future yield growth.

Other influences on yields

Weed problems exist in Chinese corn and soybeans. Some herbicides supplement hand weeding, but improved weed control would contribute substantially to higher corn and soybean yields. Chinese researchers also told of a widespread imbalance of nutrients in fertilizer, and indicated that correcting this problem will substantially increase corn yields.

Nationally, 60 percent of China’s total cropland is irrigated. Irrigation is most extensive in the south, where almost all land is irrigated.

For the longer term, China is working with two projects to increase the area under irrigation:

The latter project has not been started, but reportedly can be completed in seven to eight years.

The Chinese government also is moving farmers from rural residences to villages and converting their farmsteads to farmland. It also is encouraging westward population movement to reduce pressure on valuable eastern farmland.

Cost of Production

Economists in China estimate that total corn costs of production are identical to the U.S., while soybean costs are about 7 to 10 percent higher. If world prices fall below variable costs and/or acceptable income levels, China may subsidize its producers as the U.S. does to maintain production. However, early indicators suggest prices will remain above variable costs for both crops.

China may also take steps to accelerate yield increases to reduce costs per bushel. A 15 percent gain in yields would make Chinese corn significantly lower cost than in the U.S., and would match U.S. soybean costs.

U.S. China trade agreement

The U.S.-China trade agreement reflects a continuation of recent trends. China agreed to reduce average farm product import duties of about 20 percent over four years, stop subsidizing exports, and implement tariff-rate quotas. Until recently, China subsidized corn exports to bridge the gap between higher domestic prices and low world markets. China’s corn tariff-rate import quota this year will be 177 million bushels and will increase to 284 million bushels by 2004. The tariff for volumes imported up to these levels will be one percent, about what it has been. At larger volumes, the tariff goes up sharply.

These tariff-rate quotas do not require China to import U.S. corn. Domestic production will determine whether imports occur. There is reason to doubt that the WTO will make China a significant corn importer, but weather problems could do that from time to time.

The agreement reduces Chinese impediments to imports of soybean products, and should increase opportunities for U.S. and South American soy processors. Domestic production will determine whether China continues its rapid growth in soybean imports. China may import less of its protein/oil needs as unprocessed soybeans.

For the next year or two, barring extreme weather problems, WTO may slightly decrease China’s corn production and exports. Increased oilseed plantings may slow the growth in soybean imports. Reduced import barriers may create some meat export opportunities in upscale hotels and restaurants.

Long-term implications

Assessing future impacts of China on U.S. exports is highly complex. The country has a history of large yield increases and shifts of land from food grains to feed crops, a large potential for future yield gains, and a strong entrepreneurial spirit. Despite strong demand growth, these factors and a 20-year history should temper optimism about China's future import needs.

China’s future crop production potential is large, and may well allow China to remain a corn exporter and only a small importer of wheat. Its oilseed/product imports likely will increase, but perhaps more slowly than in the last three years.

 

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