Chen Xiwen

Research Report No 9, 2000

Due to the correct rural policy and increase in agricultural input and promotion of technological progress in agriculture, the grain output has registered a tremendous increase since the policy of reform was implemented. The Third Plenary Session of the 15th Central Committee of the Communist Party of China (CPC) made the judgement that "there is an overall balance and a surplus in abundant years" with regard to the current situation of grain supply and demand. Since 1995, good harvests of grain have been scored in five years running and grain surplus was achieved every year. The amount of grain in inventory has reached 550 billion jin in the sectors of state grain departments nationwide and the per capita amount of grain kept in the hands of farmers had hit 1,324 jin by the end of 1998. After allowing for the amount of grain reserved for production and the livelihood of the farmers themselves, the per capita amount of grain surplus has reached around 500 jin for farmers. By this judgement, the total amount of surplus grain in the hands of farmers stood at more than 450 billion jin. Therefore, the grain surplus of the whole country, excluding the amount of the autumn grain crops of 1999, is about 1,000 billion jin, which is an equivalent to the total grain output of one year. Serious analysis and studies should be made to assess the current situation of grain supply and demand and to consider what strategies to be adopted with regard to future agricultural development and the rural economy.

I. Grain production capabilities have indeed entered a new stage since the mid-1990s.

Since the mid-1990s, particularly in 1993 when the central government enhanced macro-regulation of the economy, grain production has indeed been strengthened and the overall grain production capabilities have entered a new stage. Good grain harvests achieved in five consecutive years since 1995 are attributed to the following three main aspects:

First, the central government adopted the correct agricultural policy. This mainly included the extension of the period of farmers' contracting of land so as to stabilize the relations in land contracting. The governmental purchase price of grain was raised by a large margin in 1994 and 1996, respectively, with the rate of price hikes reaching 102 percent. The policy of purchasing farmers' surplus grain by offering protective prices has been implemented. All these policy measures have effectively tapped the initiatives of farmers in increasing grain production, which can be accounted for by the following three statistical data. Firstly, the grain planted area has been expanded. The planted area of grain was 1.653 billion mu in average annually between 1992 and 1994, and the figure was expanded to 1.685 billion mu between 1995 and 1998, with an additional average of 32 million mu of grain planted every year. Secondly, the irrigation area of arable land was expanded. The irrigation area of 1998 increased by 55.6 million mu over 1992, an increase of 7.63 %. Thirdly, the utilization of chemical fertilizers has increased. Between 1992 and 1994, the average annual amount of utilized chemical fertilizers was 31.333 million tons (in terms of actual tonnage of used chemical fertilizers, similarly hereinafter). From 1995 to 1998, 38.72 million tons of chemical fertilizers were applied annually, 23.6% up.

Second, progress in agricultural technology has played a vital role in promoting increase in grain production. Over the last few years, great progress has been made in the introduction of unified supply of fine seed strains, the usage of mulching films, intercropping and interplanting, protected agriculture, water-conserving farming, dry-land farming and agricultural machinery operations, which led to a remarkable increase in the yield of grain. The grain output per mu amounted to 660.4 jin in 1998, up 81.4 jin from the 579 jin of 1992 or a growth of 14%. The total grain output in 1998 went up by 15.7% over 1992, which can be attributed mainly to the increase in per unit area yields.

Third, honestly speaking, no major natural disasters with an overall adverse impact on grain production had taken place over the past few years. Although major disasters of flooding swept the Yangtze River area, Songhuajiang River area and Nenjiang River in 1998, droughts still remain the primary threat to China’s agricultural production. Some places in northern China were hit by droughts in the past few years, which caused a considerable reduction of autumn grain crops in 1997 and 1999, respectively. The drought in northern China was blamed for the reduction of 46.32 billion jin of corn output in 1997, while the output of autumn crops dropped 20 billion jin as a result of the same disaster in 1999. This indicated the weakness of China’s agriculture that is vulnerable to drought disasters. However, China has fortunately been experiencing a high-water period in recent years. Although the abundance of rainfall exerted a relatively huge pressure on the combat against flooding in rivers and lakes, it still constituted a favorable element to grain production. Judging from the reality of the recent five years, the annual grain production capacity had approached 1,000 billion jin (the figure was 988.8 billion jin in average between 1995 and 1998). Nonetheless, such a production capability has not been tested under conditions of severe and continual natural disasters with overall adverse impacts, and therefore this cannot be regarded as a stable production capability.

II. Obvious changes have taken place in grain demand.

Due to changing domestic and overseas economic environments, obvious changes have taken place in the demand of grain at a time when grain supply has increased markedly. This was mainly reflected in the following two aspects:

First, the consuming behaviors of citizens, particularly those of urban residents, have changed. As a periodic change has occurred in the growth of the entire national economy, changes have also emerged in the consuming behaviors of citizens, particularly those of urban residents. The economy has grown rapidly in the first half of the 1990s. The average annual growth rate of the GDP amounted to 11.98% between 1991 and 1995. Since the mid-1990s, the average annual growth rate of the GDP fell to 8.72% between 1996 and 1998, of which the growth rate was 7.8% in 1998, down 6.4 percentage points from 1992, due to changes in the domestic and external economic environments. That figure continued to drop to 7.1% in 1999. The slowdown of the growth rate of the national economy has naturally affected the growth rate of residents’ income. The average disposable income of urban residents grew at an annual average rate of 4.35% between 1996 and 1998, 3.6 percentage points less than the period of 1991 and 1995. While the growth rate of income continued to fall, visible changes have also taken place in residents’ expectations of their future income and expenditures. Therefore, there was a growing trend of bank savings. During the three years from 1996 to 1998, residents’ savings went up by 2,374.52 billion yuan to exceed the total amount (2,254.25 billion yuan) accumulated in the five years from 1991 to 1995. The annual increase in residents’ savings in the last three years rose by 75.56% over the average annual growth in the preceding five years. Thus, there was a natural slowdown in the growth of residents’ consumption, particularly that of urban residents, which was especially reflected in their food consumption. The absolute amount of expenditures of urban residents in food consumption decreased by 0.81 percentage point in 1998 from the previous year, of which the spending on grain fell by 4.75 percentage points, meats, poultry and their by-products by 6.16 percentage points, vegetables and fruits by 3.37 and 4.96 percentage points, respectively. Of course, the slide in residents’ spending on food, which came along with a drop in price index, is not an equivalent to the reduction of total consumption. After all, the growth of demand has obviously been weakened compared with the rapid growing supply of farm products.

II. Urban residents have in general begun to lead a fairly comfortable life, and their demand for food has shifted from pursuit of mere quantitative growth to emphasis on food quality. The Engel coefficient of urban residents of China fell to 44.48% in 1998, down nearly 10 percentage points from 54.24% of 1990. The grain ration of urban residents was 173.44 jin annually in 1998, reducing 33.7% from the amount of 261.44 jin in 1990. The per capita consumption of pork, beef and mutton was 38.44 jin in 1998, of which pork accounted for 31.76 jin, down 11.6% and 14% over 1990, respectively. Meanwhile, the demand of urban residents for poultry, eggs and aquatic products continued to grow, which indicated that the increasing demand of urban residents for animal products in the future will shift more to poultry, eggs and aquatic products that have a higher feed conversion rate. This also shows that the growth of indirect consumption of grain (mainly feed grains) by urban residents will slow down.

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