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October 9, 2017

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Rural Chinese income on the rise, but big barriers remain in agricultural landscape

MONEY is driving people from farms and villages to cities in massive numbers in search of work.

But rural Chinese who stay behind amid the country’s biggest economic migration in history aren’t necessarily financially worse off. According to renowned agricultural expert and economist Chen Xiwen, the average net annual income of rural Chinese has increased to 12,336 yuan (US$1,858) last year from 2,220 yuan in 2003.

Even if we factor in inflation and across-the-board labor cost increases, this income growth is still impressive.

Chen, director of the Office of Central Rural Work Leading Group, says the growth figures are a big solace, but that should not lull us into complacency, for Chinese agriculture is facing major challenges.

During a recent talk at a forum hosted by Fudan University, Chen cited earlier remarks by President Xi Jinping in arguing that the main challenge to Chinese agriculture is no longer the scarcity of provision; instead, it is the “structural conflict” observed in the demand-supply equation of certain types of grains. For example, domestic demand for soya beans has remained brisk, yet supply has been caught in a spiral of decline.

To meet demand, a large quantity of beans has to be imported. Chen says that last year alone, China imported about 84 million tons of soya beans, accounting for roughly two thirds of global supply.

By contrast, China’s domestic soya bean output totaled only 12 million tons. So China depends on the world for nearly 90 percent of its soya beans, Chen notes.

Another illustration of the “structural conflict” is the growing corn inventory. Although the corn output last year — about 225 million tons — topped that of the two other staple grains, wheat and rice, most of it ended up in warehouses. Foreign-produced corn had to be imported to meet demand, says Chen.

Many things are to blame for this “structural conflict,” but Chen believes that they invariably come down to the same conclusion: the quality and competitiveness of Chinese produce and agricultural production as a whole leaves much to be desired.

And this is a thorny issue that must be addressed if further agricultural development is expected, he adds.

In response to some observers’ proposals that China import more agricultural products instead of producing more at a higher cost, Chen says this sounds plausible but will prove problematic.

Over the past 10 years, the global annual grain exports have hovered around 350 million tons, which converted to the Chinese unit of measurement jin equals 700 billion jin. This fell far short of China’s annual demand of 1,300 billion jin of grains.

Chen said even if China’s massive foreign exchange reserves can fund imports, demand still outstrips supply. Moreover, unrestricted importing could have negative political implications.

An increase in China’s demand will inevitably disrupt the established order of global grain trade, contributing to higher prices. In this scenario, the world will again be rife with conspiracy theorists blaming China’s “gluttony” for some countries’ food woes, Chen warns.

Political discretion

Another problem with the proposal of buying a bulk of grain is that China as a WTO member has the legal right to restrict the inflow of foreign agricultural products beyond the grain import quota granted by the WTO. Usually this is done by imposing a punitively high tariff, around 65 percent, if new imports exceed the quota. For amounts within the quota, the tariff is just 1 percent.

Those who support increasing grain imports must realize that this could be done only by voluntarily waiving China’s import quota or renegotiating with the WTO for a relaxed quota. Either way, this is a political rather than a technical matter, and enormous discretion is required.

Chen concedes, however, that import curbs should not prevent our agricultural workers from feeling “insecure.” In fact, that sense of insecurity underlines the argument that Chinese produce is uncompetitive, in terms of both quality and price. For the same kind of agricultural products, Chinese prices often are higher than global prices. In 2015, for instance, Chinese staple grains were 30 to 50 percent more expensive than foreign grains.

Soya beans were 40 to 50 percent more expensive; cotton 30 to 40 percent; sugar 60 percent; beef and mutton 70 to 80 percent, Chen says.

The steep rise of Chinese grain prices — from below the global average a decade ago to well above the global average today — can be explained by a series of factors, most notably drastically different economic circumstances.

In the wake of the financial crisis in 2008, many countries adopted stimulus policies that increased inflationary pressure. Commodity prices soared.

Although prices have since ebbed, Chen admits China’s efforts to rein in inflation were only partially effective. Production costs of agricultural products multiplied. To protect farmers, the authorities had to raise minimum prices.

The discrepancy between Chinese and foreign grain prices can also be ascribed to the slump in demand for grains for biofuels, which helped deflate global prices, as well as to plummeting oil prices, which makes global shipping much cheaper.

Chen cautions against importing an excessive amount of grain, because this might “jeopardize China’s agricultural security and the livelihoods of hundreds of millions of Chinese farmers.”

“(And) our levels of urbanization and industrialization have yet to reach the stage where they have the capacity to absorb excess rural labor freed up from agricultural work,” he said.


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