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China: Falling grain output raises concern

With national grain production down for the fifth consecutive year, China is quickly digesting its grain reserves, which could result in a shortage by 2005, experts warn.

This year has been marked by the rare occurrence of a drop in the yields of all three major crops - wheat, rice and corn - with total national grain output expected to fall below 450 million tons.

Grain prices rose for the first time in six years shortly after the National Day holiday (October 1-7), as did those for cooking oil, meat, eggs and fodder.

The price hikes, which began in Beijing, Nanjing and Zhengzhou, quickly spread throughout the country. Purchase prices for wheat went up by 40 to 80 yuan (US$4.80-9.70) per ton in major wheat production areas such as Henan Province. Prices for corn rose by 80 yuan in northern China, while prices for rapeseed and rice increased by 20 and 10 per cent, respectively, in Anhui Province.

Even though the price hikes are welcomed by farmers, who have been suffering sluggish income growth over the years, some experts warn that a possible grain shortage is looming.

"China has been using its grain reserves to balance the market for the last four years," said Wan Baorui, vice-chairman of the Agriculture and Rural Affairs Committee of the National People's Congress. "The reserves can be used for, at most, another two years."

"A grain shortage is fast approaching," said Li Jingmou, grain expert and president of the Zhengzhou Grain Exchange. "Maybe in 2005, or even earlier if unexpected disasters occur."

Diminishing supply

National grain production reached a historic high of 512.295 million tons in 1998 but, since 1999, China has suffered continuously smaller yields. Decreases totalled 59.65 million tons in the three years between 1999 and 2001.

Since 2000, annual national grain demand has stood at 480-490 million tons, 25-35 million tons more than the annual output.

A shortage has already emerged in some traditional bread baskets, said Yan Bo, deputy director of the State Grain Bureau.

Jiangsu, for instance, is facing a shortage of 4-5 million tons, according to Yan, but the total reserves in the province equal just 6 million tons.

In Shandong, another major grain production area, grain output dropped to 32.5 million tons this year, while consumption in the province is expected to reach 40 million tons, he said.

Fundamental changes including shrinking acreage and natural disasters herald the end of the long years of oversupply, according to experts.

China's total grain growing area, 100.5 million hectares at peak times, has been reduced to 93.38 million hectares. In 2002-03, the amount of land used to raise wheat alone dropped by 7.5 per cent, the sixth straight year such acreage shrunk. Wheat production this year was 4.5 per cent lower than last year, the lowest output since 1999.

Rapid urbanization is one reason grain fields are dwindling.

China has kicked off a massive construction programme in small towns intended to transform more than 200 million farmers into urban residents by 2020, and economists predict that China's urbanization rate will reach 60 per cent in 2020 compared with 37.66 per cent in 2001.

In addition to the swift expansion of towns and cities, many regional governments have reserved large parcels of land for "economic development zones" meant to attract foreign investment, but many such zones simply lie empty due to a lack of infrastructure or adequate local investment.

Official statistics indicate that only 13.51 per cent of the 76 new development zones planned in the country since 1999 have been developed, with each hectare of the zones attracting average investments of just 340,000 yuan (US$40,960) and producing an output value of less than 130,000 yuan (US$15,700).

Farmers' declining enthusiasm for growing grain due to low grain prices over the last six years is also a factor. Heavily burdened by various taxes and charges, most farmers would rather grow more profitable crops, such as peanuts and cotton, or migrate to the cities to look for better earnings.

In some areas, said Professor Li Binguo of China Agriculture University, farmers can only earn 100 yuan (US$12) for one mu (0.067 hectares) of grain.

The latest government statistics indicate that 80.7 million rural labourers were working in cities at the end of September.

According to the results of a survey recently announced by the Hunan Provincial Bureau of Statistics, the total area for planting early rice in the province has steadily decreased over the last three years.

The survey, conducted among 143 villages in 29 counties in the province, found that early rice planting acreage was only 1.17 million hectares, 51,000 hectares less than last year. In some villages, 80 per cent of the labourers have left to seek work in cities. With only the old, the infirm and young children remaining at home, their farms are soon overgrown with weeds.

Poor investment returns from growing grain also forces farmers to cut back in their fields, which in turn affects unit yields and the planting of better kinds of grain.

Finally, government policies initiated after the 1998 floods to return part of the cultivated land, that not suitable for growing crops, to forests and pastures have also had an impact.

According to official statistics, altogether 6.68 million hectares of former farm land had been converted to forests by the end of September 2003. The figure did not include newly converted grasslands or farmland returned to lakes.

Besides the reduction of acreage dedicated to raising grain, natural disasters, including severe annual flooding and drought, have hit China with greater frequency since 1998. Such disasters also led to sharp drops of grain output in the United States, Canada and Australia last year, and in Europe this year, significantly driving up grain prices on the world market.

The World Food Programme recently adjusted statistics on international grain reserves to their lowest historical level.

Professor Li noted that total global output of the three major crops this year would come to 2.03 billion tons, down 63.3 million tons from last year, marking the sixth consecutive year that the figure has dropped. The world grain market, meanwhile, experienced its biggest price fluctuations in seven years.

The international grain supply situation was also a major factor behind the recent food price hikes in China, Li said.

Conversely, grain demand in China is on the rise, said Li Jingmou, because of population growth, the migration of rural populations to urban areas and the rapidly growing need for fodder production.

Balanced grain acreage, reserves vital to national security

Despite President of the Zhengzhou Grain Exchange Li Jingmou's gloomy forecast that a shortage will soon emerge, many experts and government officials are reassuring the world's largest population that they will not starve.

Rising grain prices will increase farmers' incomes and lead to an increase in grain growing acreage, said Li Chenggui, a rural development researcher with the Chinese Academy of Social Sciences.

The amount of acreage dedicated to raising winter wheat is expected to be greater than anticipated this year, according to the Ministry of Agriculture.

By October 25, the 10 major wheat-producing provinces had planted 12.45 million hectares of winter wheat, meeting 70.5 per cent of their targets.

Winter wheat planting will be completed before the end of this month, and the ministry said the decrease in acreage would be the smallest in five years.

The grain price hikes have also attracted the attention of top state leaders. At a conference chaired by Premier Wen Jiabao on October 21, the State Council renewed its pledges to keep grain production from falling any further.

Meeting participants vowed to increase investment in agriculture production, check the occupation of farmland for other purposes and increase farmers' incomes.

The People's Daily said in a commentary recently that grain planting and supply would continue to be a major issue, deserving the utmost attention in the mid- and long-term, because of China's large population, limited arable land resources and growing demand for grain.

The commentary criticized "some local governments" for neglecting grain production and the excessive occupation of arable land for industrial development, noting that governments at all levels should now attach great importance to the planting of crops and strive to increase the incomes of grain farmers.

China must make every effort to guarantee that at least 90 per cent of demand is met by domestic supply, as grain is a product involving national security, said Han Jun, an agriculture researcher with the State Council Development and Research Centre.

To realize this target, Han said, national grain acreage must be kept stable, at around 1.07 billion hectares.

Han also suggested the central government abolish agricultural taxes in five years while taking strict measures to curb the occupation of farmland for industrial development and other purposes.

A national warning mechanism should be established to include all necessary information concerning grain production, circulation and reserves, he suggested, as this is vital to ensuring quick, scientific macro-adjustments by the government.

While keeping grain reserves at a scale equivalent to 17 per cent of market demand, Han said, the government should initiate bold reforms in the grain circulation system to break the monopoly of State-owned businesses in the grain trade.

By fully embracing the market rules, he said, grain production will respond more quickly to demand fluctuations, adding that prices are expected to go up alongside China's rising demand and, therefore, farmers will earn more and become more enthusiastic about production.

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