Han Jun & Qin Zhongchun, Research Department of Rural Economy of DRC

Research Report No.039, 2008

I. Basic Picture of Balance between Supply and Demand Related to China's Major Agricultural Products

Since reform and opening-up, with the sharp increase of the total volume of agricultural products in China, the long-standing shortage of supply has been relieved, which has enabled the Chinese people not only to address the issue of grain and clothing but also to make a historic leap from having only adequate grain and clothing to leading a moderately prosperous society in all respects. Since the late 1990s, total supply and demand of grain and other major agricultural products in China has been balanced basically, and in years of bumper harvest, supply even exceeded demand. In recent years, with the fast growth of national economy and as China is getting totally integrated with the world economy after its entry into the WTO, the balance between supply and demand related to agricultural products in China has undergone important changes. On the whole, the supply of agricultural products could meet demand whereas the demand on certain agricultural products has outweighed supply. As a result, China's agriculture is becoming highly dependent on international market.

1. China has entered a phase of rapid increasing demand for agricultural products

In China, major categories of grain include grain, beans and potatoes. The yield of beans and potatoes jointly make up about 11~13% of the country's total grain yield. The concept of grain is generally used by international market while beans are considered as oil-bearing crops. Although China has witnessed an increase of grain for four consecutive years since 2004 and the supply of grain has been greatly enhanced, the pressure on balancing grain supply and demand is still heavy. As to the demand on grain, they are categorized into residents' grain, forage grain, industrial purpose grain and seeding grain. The per capita grain consumption by urban residents and rural residents has been declining gradually respectively from 1985 and 1994. The per capita grain consumption by urban residents has remained relatively stable while the per capita grain consumption by rural residents will continue to decline. The total volume of grain consumption by urban and rural residents has been falling.

The increase of grain demand firstly comes from the increase of the demand on forage grain. Currently, per capita meat consumption by urban residents, including outdoor consumption, is about 40kg, but per capita meat consumption by farmers annually is only 19kg and per capita meat consumption by rich farmers annually is 29kg. Most farmers have reached the level of the rich farmers in terms of meat consumption, and per capita meat consumption annually will increase by 10kg. After some years when per capita meat consumption by farmers catches up with that by urban residents, another 10kg would be added to the average level. A reasonable per capita volume of meat consumption in China is 45~50kg. In the future, the volume of livestock product consumption by urban residents will grow at a relatively slow speed while the volume of livestock product consumption by rural residents is to be increased by a big margin at a relatively quick speed. Generally speaking, the country's demand on forage grain will keep growing.

A great pressure on the demand for grain comes from the fast growth of the consumption volume of grain by industrial processing sectors. The consumption volume of alcohol-use maize (industrial alcohol, edible alcohol and fuel ethanol), the consumption volume of starch-use maize and that of forage-use maize from 2005 to 2006 were up by 95%, 62% and only 5% compared with that from 2001 to 2002. Currently, most maize (64.2%) is put into use for forage, 26.8% of maize is for in-depth processing industry, the consumption volume of edible maize and that of seeding maize remain stable. The fine and in-depth maize processing industry in China has developed rather quickly. From 2004 to 2006, the volume of maize consumed by China's fine and in-depth maize processing industry grew to 35.89 million tons from 16.5 million tons, thus recording an annual average growth of 29.5%, which was far higher than the average growth rate (7.9%) of maize yield. Viewing from the medium- and long-term perspective, by continually implementing supportive policy measures that intend to stabilize the production of grain, the relation between the supply of and demand for wheat, maize and other major varieties of grain could be balanced at large. The major problem existing in the relation between supply and demand for grain is with maize and the relation between the supply and demand for maize is changing from a basic balance between supply and demand toward demand exceeding supply.

In view of population growth, the increasing level of residents' income and the country's drive for urbanization, the pressure on growing demand for agricultural products will be a long-term issue. During the decade from 1996 to 2006, the total population in China increased by 90 million persons, which is even larger than the population of Germany. Apart from that, the distribution of residents in rural and urban areas has also undergone changes. During this decade, the population size in urban areas increased by 200 million. Most of those consumed agricultural commodities by farmers are provided by themselves. But when they settle down in urban areas, they become the purchasers of the commercialized agricultural products. After farmers become urban dwellers, although the consumption volume of residents' grain drops to some extent, the consumption volumes of other agricultural products have climbed up apparently. Within a certain period of time, China's population will witness a net increase. The growth of population will lead to the growth of demand for residents' grain. According to the general rule of urbanization, when urbanization rate reaches 30~70%, the pace of urbanization is accelerated; and a country could not have stabilized relation between supply and demand for agricultural products on the whole until its urbanization rate reaches 70%. It is reasonable to forecast that in the next 20 years, China will remain in a period of fast drive for urbanization. As a consequence, the demand for commercialized agricultural products in China will continue to grow.

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