By Pan Yaoguo, Research Department of Rural Economy of DRC

Research Report No.262, 2006

I. Several Estimations about the Grain Issue

Given the factors such as reduced grain consumption by the Chinese people, grain stock reduced by urbanites and some farmers, scientific progress in animal husbandry, the imports of new breeds, the application of assorted fodder and the shortened breeding period, it would be feasible to produce, by using the same amount of fodder and in a shorter time, a bigger quantity of high quality meat, eggs and milk.

1. The aggregate grain consumption will maintain at a stable level.

In a long period of time, the grain consumption in China will maintain at a basically stable level. With the improvement of living standards, the direct grain consumption both by the urbanites and the farmers has been dropping. In 1981, the per-capita grain consumption was 145 kilograms for the urban people and 256 kilograms for the rural people, and in 2005, the figure was only 77 kilograms for the urban people, a 50% decline, and 208.9 kilograms for the farmers, a drop of about 50 kilograms.

2.The grain saved due to reduced per capita consumption is sufficient to feed the newly-increased population.

With swift urbanization, the proportion of urban residents in China's total population has increased. Furthermore, with the increase of affluent farmers in the developed areas and with the rise of grain substitutes in the diet, direct grain consumption by the majority of the Chinese people is declining, and the amount so saved is sufficient to feed the newly-increased population. This implicates that grain is no longer a serious problem, although high attention still has to be paid to grain production. First, attention should be paid to the issue of grain structure. Rice is exported, wheat has to be imported, and corn is no longer an essential staple of the diet for most people. However, there is a great potential for multi-purpose processing of corn, particularly to be used as feed. Second, today's consumers seldom stock grains at home. Both urban residents and wealthy rural residents will feel quite eased even if they do not stock any grain at home. Grain producers never quit grain crops completely even in lean years, though the prevailing market price decides how much they will grow. Nowadays, most urban consumers purchase grains enough to sustain the family for one month at most. In the supermarket, rice or flour is usually packed in a five to 10-kilogram bag. That means, what the urban families have at home is 10 kilogram rice or flour to the maximum. Last year, the per-capita amount of grain purchased by urban residents in a year was only 77 kilograms.

In the eastern coastal areas and the suburban areas of large and medium-sized cities where industries are fairly developed, most farmers move into cities to work in factories in the secondary industry to make a living. Because the per-capita amount of farmland is limited and grain yields are not enough, farmers have to buy grains from the market, rather than stock any grain at home. Some of them even buy all the grains from the market as they only grow vegetables on their small patches of farmland. In another scenario, there is enough farmland, but most or all the farmland is used to grow melons, fruits or vegetables of higher economic returns. For example, for most rural families in the two established apple-growing regions, i.e., the Bohai Bay area and the Loess Plateau in Northwest China, vegetable growers in the suburban areas of cities, producers in famous vegetable and fruit growing areas, they usually buy grains from the market and will not stock any grain at home either.

3. Most of the incremental grain output is used as feed.

After the issue of feeding the 1.3 billion people is solved, the main factor driving the development of grain production is the ever-increasing huge demands for feed grains. Obviously, the fodder industry has become the main driving force for the increase of China's grain output in the new period.

Bran from staple food as wheat and rice has always been used as fodder, and new progress has been made in the research and application of special breeds of rice and wheat to be used as feed grains. The pace in the research and application of corn to be used as feed grain is faster, and 70% of the corn has become the source of the most important energy feed. With the development of the dairy industry, the growing area of silage corn feed will increase year by year in the major cow-breeding regions.

II. Whether A Raw Material Battle for Corn among Men, Pigs and Vehicle Will Break Out

Processing corn into fuel ethanol is a new industry triggered by joint forces of three factors: first, the price rise of oil on international market forces people to find an oil substitute so as to cope with the difficult situation of the rising oil price; second, major cities, in order to solve the problem of environmental pollution, use fuel ethanol as a substitute for gasoline and a sustainable, environmental-friendly and renewable energy; and third, to find a way to consume the year-old corn. Projects to process corn into fuel ethanol were so initiated in Jilin, Heilongjiang, Henan and Anhui provinces. In 2003, a subsidy of 1,600 yuan from the central finance was granted for each ton of ethanol produced, in 2004, the subsidy was 1,400 yuan, 1,200 yuan in 2005 and 900 yuan in 2006. To date, nine provinces in the country are using ethanol fuel for vehicles. In 2005, 1.02 million tons of ethanol fuels were produced, consuming at least 3.33 million tons of raw corn. This figure was not big, but energy industry consuming corn in some provinces is developing fast. It is estimated that the output of ethanol fuel will reach 1.68 million tons in 2006, consuming more than 5 million tons of corns a year. In fact, corn has become a new material for fuel production.

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