Han Jun, Xu Xiaoqing, Yu Baoping & Fan Xuezhi

I. Present State and Prospects of China's Grain Supply and Demand

1. Grain production capacity as a whole has been steadily rising and output growth potential is considerable

In 2006 which was the first year of the 11th Five-Year Plan, natural disasters affected 41.09 million hectares of farmland and caused crop failure to 24.63 hectares or 59.9% of the total affected acreage. But the past situation featuring grain output decrease in one of every three years did not appear. In 2008, total grain output reached a record high of 528.5 million tons. In 2009, summer crops posted a harvest and autumn crops were also promising. Total grain output for the whole year is expected to be at the same level of last year or slightly higher. So from 2003 on, China's grain production has posted bumper harvests for six years running. In 2010 which is the final year of the 11th Five-Year Plan, the planned total grain output of 500 million tons can be overfulfilled. In recent years, two-thirds of China's grain output growth can be attributed to higher unit output, with only one-third being contributed by increased sown acreage. While the increased use of chemical fertilizer and other material inputs has played an important role in raising unit output, the advance of agricultural science and technology and the improvement of infrastructure have played vital roles in raising China's grain output. China's model on grain production has also undergone major changes, with the use of manpower, animal power, manure and other traditional factors assuming a growingly lower proportion and the petroleum-related modern factors gradually replacing the traditional factors to become the main contributors.

In terms of output growth potential, the intensified transformation of the low- and middle-yield farmland can increase the unit output by 1,500 kilograms per hectare. In 2007, China's arable land totaled 121.78 million hectares, of which two-thirds were low- and middle-yield, and another two-thirds were used for grain production. If only one half of the low- and middle-yield farmland is transformed, total grain output can increase 40.6 billion kilograms. The advance of science and technology is another factor contributing grain output growth. The improved seeds and farming methods, the pest control technologies, the soil test-based fertilizer application, the water-saving irrigation technology, the protective farming technology, the disaster prevention technology and the agricultural mechanization technology can all contribute to both unit and total grain outputs. From now to 2020, technological advance can increase China's grain unit output by 17% and total output by 8.5 billion kilograms. Added with the development of land resource reserves, China's grain output growth potential can entirely meet the domestic grain demand in 2020.

2. Grain demand rises steadily and main grain varieties can be basically self-sufficient

In terms of the aggregate amounts, grain demand is determined by natural population growth rate and per capita grain consumption. An analysis of the changes in the grain supply and demand and the grain prices in nearly 20 years since 1990 indicates that China's per capita grain demand (including soybean) is about 380 kilograms. China's natural population growth rate has fallen sharply, from the peak 1.661% in 1987 to 0.508% in 2008. The net population growth has also shrunk, staying at about 7 million a year for the past five years (2004~2008). In the meantime, China's grain demand growth has also fallen sharply, at about 2.66 million tons each year or 13.3 million tons for five years. At the end of 2008, China's population totaled about 1,328 million. Based on the per capita grain consumption of 380 kilograms, the total grain demand was 504.6 million tons against the total grain output of 528.5 million tons in a year. So grain supply was sufficient. Based on the net grain import of 37.52 million tons (including soybeans) in 2008, China's grain self-sufficiency was about 93%. In fact, China's self-sufficiency for the main cereals such as rice, wheat and maize was 100% or higher. And based on the net annual population growth, China's population will be about 1,377 million by 2015. If the per capita grain demand remains at about 380 kilograms, China's total grain demand will be about 523.26 million tons in a year. And based on a 95% grain self-sufficiency, China will have to produce about 500 million tons in the year. By 2020, China's total grain demand will be 543.4 million tons if the per capita grain consumption remains at 380 kilograms and the total population is about 1,430 million. With 95% grain self-sufficiency, China will have to produce 515.23 million tons.

The structure of China's grain demand indicates that the total grain demand of the urban and rural people will decrease gradually and the growth of grain demand will be mainly focused on the growth of feed grain and industrial grain. From the perspective of China's grain production and consumption, the situation in which grain demand slightly outpaces grain supply will continue in the short and medium terms. In the medium and long terms, China's wheat supply and demand will be basically balanced and its wheat production will be basically stable. On the other hand, the proportion of rice consumption will rise gradually. As the reduced rice acreage is difficult to restore and the rice production is difficult to stabilize, the total rice demand will slightly outpace the total rice production for a long time. As to maize, the supply will become tight even if maize ethanol processing is controlled, because of the annual growth of the feed and industrial processing demands. Accordingly, China's maize export will undergo changes. China's grain target should rely on domestic production, stabilize grain self-sufficiency at or above 95%, and ensure self-sufficiency for rice and wheat and a basic self-sufficiency for maize.

3. Grain support and protection policies continue to improve and farmers are clearly more enthusiastic about grain growing

The continuous harvest of grain production can be mainly attributed to a host of policies in support of agriculture China has introduced in recent years, in addition to the favorable natural factors. In 2003, China began to offer subsidy funds for improved seeds; in 2004, China took part of the grain risk fund as direct subsidies to the grain-growing farmers in the leading producing areas; in 2005, China introduced the minimum purchase price system for wheat and other key grain varieties; in 2006, the central finance began to offer integrated direct subsidies for agricultural capital goods to offset the impacts of the steeple rise in the prices of chemical fertilizers and pesticides and at the same time to offer subsidies for the purchase of farm machinery and grant rewards and subsidies to the leading grain-producing counties through transfer payments. Also in 2006, China abolished the agricultural tax across the country and cancelled many taxes and fees for the farmers, thus reducing the cost of grain production and increasing the income of grain growing. After China completely opened the grain purchasing market in 2004, it introduced the minimum purchase price policy and the temporary purchase and storage policy in the leading producing areas. From the introduction of the minimum purchase price policy to June 2009, China activated the minimum purchase price plan for rice twice in the leading rice-producing areas in the south, for round-grained rice once in Heilongjiang and Jilin, and for wheat four times in the leading wheat-producing areas. As a result, China bought about 135.1-million-ton grain at the minimum purchase prices (excluding 2009). In 2004 when the state was setting the varieties entitled for the minimum purchase prices, maize, soybean and other varieties were included in the system. In practical operations, temporary purchase and storage became an important tool used by the state to regulate the purchase markets of these varieties. After the state temporarily purchased 6 million tons of maize in the northeast region in the 2007~2008 crop year, it introduced a mass temporary purchase and storage program in October 2008 in the maize, soybean and rice producing area in the northeast and in the rice producing areas in the south. In all, 69.6 million tons of grain were temporarily purchased and stored. They included 40 million tons of maize in the northeastern producing areas, 5.75 million tons of soybean and 8.5 million tons of rice in the northeastern producing areas, and 14 million tons of rice in the southern producing areas. Thanks to the introduction of the minimum purchase price policy and the temporary purchase and storage policy, China's grain prices have been on a steady rise, with the wheat and rice prices remaining at a high level. Higher grain prices increased the farmers' income and effectively stimulated their grain-growing enthusiasm.

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