China’s food self-sufficiency policies have been too successful, creating mountains of surplus grain.
It is embarking on policies to encourage consumption and reduce support for domestic corn production with an aim to lower corn acreage by 20 percent.
For a country preoccupied by self-sufficiency in grain, this change in direction is mind blowing.
The U.S. Department of Agriculture last week revised upward its China corn stocks estimate by 26 percent to 114.4 million tonnes, saying it had been overestimating the amount of corn being fed in China.
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China’s long-standing policy of being 95 percent self-sufficient in grain, strong support prices for corn and consecutive good growing seasons have helped it increase corn production by 48 percent over 10 years.
Production has exceeded demand, leading to rising year end stocks.
The stockpile now represents 53 percent of annual Chinese consumption and accounts for about 54 percent of total global corn stocks.
The USDA also says China stores 87 million tonnes of wheat, up 18 percent from last year and up 34 percent over two years. Its wheat stocks represent 74 percent of its annual consumption and 38 percent of total global stocks.
A few years ago, many western analysts believed China could not keep up with increasing demand for grain to feed to its growing livestock herd. It was only a matter of time before China was importing corn just as it imports soybeans and canola.
It was seen as the next great demand driver to take over as the biofuel boom reached maturity.
Chinese authorities appeared to agree. To ensure they would not be overly reliant on American corn, they rushed to set up approvals for corn imports from Ukraine, Argentina, Brazil and Russia.
However, meat demand has not grown as fast as expected, and so the demand for feed grains was also weaker. Also, the Chinese greatly increased imports of other cheaper feed, such as sorghum, cassava, barley and dried distillers grain
The strong emphasis on supporting grain production, with domestic support prices well above global grain prices, caused farmers to ignore oilseeds, cotton and other crops. Also, China’s livestock feeders and food processors had to buy the expensive domestic grain, making them uncompetitive with foreign business and forcing them to pass on the high costs to consumers.
Now government planners want to lower corn acreage with the goal of producing only 175 million tonnes of corn by 2020, down from 229 million this year, three industry sources told Reuters, citing proposals by the National Development and Reform Commission, the country’s top planning body.
Dim Sums, the Chinese rural and agricultural blog, cites China’s ministry of agriculture as saying it wants to focus the corn acreage reduction on environmentally sensitive land that has been damaged as grassland and dry areas were plowed up for corn production and irrigated with scarce water. There the focus will shift to fodder crops such as alfalfa.
However, the Dim Sums article says the agriculture ministry wants to strengthen corn production in suitable areas to maintain basic self-sufficiency in cereal grains.
The situation highlights again how government crop subsidies so often trigger inefficiency, environmental damage and unintended consequences.
The government’s overarching goals are to maintain an ample and affordable food supply for its more than a billion citizens and keep incomes high enough to avoid rural unrest and a mass movement of rural people to the cities.
The country has already seen the largest mass migration of people ever, with hundreds of millions moving from the country to cities in the past 20 years.
However, the costs of subsidizing grain production and funding government purchase of massive grain reserves — in economic, environmental and market distortion terms — can no longer be ignored.
The government wants all agriculture to become more market focused and competitive.
For example, China has already pushed support for rapeseed production down to the provincial level, and the expected weaker subsidies could reduce domestic production and increase canola imports in coming years
However, China is still developing the details of this policy shift, and missteps will likely be made along the way.
It is not clear how Chinese farmers will react to the new policies and how grain production will change, but China is such a huge consumer that any upheavals will be felt on the international stage.
We will continue to report in the coming months and years on what all this means for Canadian farmers.
darce.mcmillan@producer.com
