By Li Wei

Research Report Vol.18 No.5, 2016

Food security and safety is not only a much-concerned livelihood issue but a cornerstone of economic development and social stability. After long-term efforts, China has chalked up greater achievements in food security and food safety in the current phase of development than it was supposed to do. Based on Global Food Security Index 2014, recently released by the Economist Intelligence Unit, constructed from 28 qualitative and quantitative indexes in terms of affordability, availability as well as quality and safety, China ranked the 42nd, way better than its rank in GDP per capita.

I. Serious Challenges for China’s Food Security and Safety

At present, with sufficient food supply at stable prices in China, the main problem has changed from insufficient food supply to structural problems, therefore serious challenges still stand in the way for improving China’s food security and safety under the new situation.

With respect to product structure, growing stockpile of grain and grain imports co-exist, and this becomes a prominent problem. In spite of abundant supply of agricultural products in China, quality, diversified and specialized agricultural products fail to keep up. As prices abroad are lower than the prices at home, some domestic products are increasingly overstocked while imports of some products are rocketing. It is estimated that China’s grain output was 620 million tons in 2015 while its consumption was 650 million tons, with the import supposed to be 30 million tons. But the actual import was 130 million tons in 2015. Why is that? Because China cannot meet the huge domestic demand for soybeans, and its substitutes like sorghum and barley are largely imported due to high corn prices at home. As a result, fast increase is seen in domestic grain stocks, especially corn and rice purchased by the government. Growth in both grain stock and imports reflect the fact that the quality of agricultural products is not improved as fast as customers’ demand for better quality and the fact that the adjustment of agricultural production structure cannot keep up with the integration of domestic and overseas markets or the change of agricultural comparative advantages.

As for capacity structure, there are many marginal capacities that need to peter out. Currently, in China’s total agricultural production capacities, a large number of marginal capacities are achieved at the expense of resources and ecological environment, such as excessive use of fertilizers and pesticides, and over-pumping of groundwater. Besides, since 2014, more efforts have been made to return the grain plots to forestry, lakes and grassland, which began in the late 20th century and early 21st century, but some areas still see the change from wetlands to farmland or fish pools, from steep hills or land of desertification to farmland. Moreover, land of heavy metal pollution is used to grow food and agricultural film residue remains in soil. Such behaviors increase the current production, but it is at the cost of the development foundation for future generations. Consequences of using these marginal capacities in the long term are showing up, like decreasing capacity of agricultural sustainable development, and more pressure on the development of green agriculture. If we internalize the negative externalities of marginal production capacities in agriculture, the price is so high that we should stop it.

In terms of the composition of operation entities, scale operation needs to be expanded. Small scale operation causes low agricultural labor productivity, and affects quality supervision and regulation in food processing and business operation. In agricultural production, 33% of farmland is transferred, but small land patches are mostly transferred among farmers, and small-scale farming households are still the dominant operation entities. Appropriate scale operation entities like family farms, farmers’ cooperatives and modern agricultural enterprises have just started, with low proportions in agricultural production. Under such operation model, it is difficult to enhance standardized agricultural production and guarantee the quality and safety of agricultural products from the sources. In food processing and business operation, China has more than 400,000 food production enterprises, over 3 million food operation entities, as well as countless small workshops and vendors. Therefore, low market concentration and lack of large enterprises and famous brands make it very hard to supervise and regulate food safety.

II. Key to Improving Food Security and Safety

To address these challenges, the key lies in the structural reform of agricultural supply side so as to improve the market competitiveness and sustainable development of agriculture, which is the main direction of reforming and improving agricultural policies now and in a period to come. National Plan for Agricultural Modernization (2016-2020), recently issued by the State Council, states the general ideas and key measures for the supply-side reform. In the process of agricultural modernization, the following measures must be implemented to advance the structural reform of the supply side, and strengthen food security and safety.

First, it is necessary to reduce overstocked products with market-oriented means. The stockpile of bulk agricultural products like rice, cotton, oil and sugar is attributed to the grain support policies aiming to ensure income, production and market at the same time. So the purchase prices are higher than market equilibrium prices, making them hard to compete with imported products and to be sold at profitable prices, which not only increases financial burden but also hampers the healthy development of the whole industrial chain. To solve the problem, we must reform the price forming mechanism, the system of purchasing and storing agricultural products, and give full play to market’s role. The general direction is to make market determine prices and separate prices with subsidies. With market determining prices, it is possible to adjust the planting structure and promote the growth of downstream industries; separating prices from subsidies guarantees stable income for farmers during the period of adjustment. Since 2014, China initiated pilot reform in target price subsidy for cotton in Xinjiang and soybeans in the northeast. Moreover, this year witnesses new policies of market-oriented corn purchase and subsidy for corn producers in the northeast of China. All of these are proactive pilot reforms and will show their effects. In the long run, it is crucial to adjust and improve China’s agricultural support policy system, gradually reduce market price support for agricultural products, increase general services like infrastructure construction, agricultural scientific research and extension in order to give more space for the market role. ...

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