Tag Archives: farming

Subsidies As High As An Elephant’s Eye

Harvesting wheat in Shulyu Village in Tangxian County, Hebei Province, June 8, 2014.

FARM SUBSIDIES, STARTING with corn and other grains, are to be withdrawn, state media report. The People’s Daily quotes Chen Xiwen, deputy head of the central agricultural work leading team, as saying, “the price will be decided by the market and [the state] will no longer play the role of subsidising farmers” (via FT).

China’s farmers have produced a string of record grain harvests in the face of natural and man-made disasters and shrinking hectarage. At an estimated 621 million tonnes, last year’s annual grain harvest set another record high for the 12th consecutive year.

However, supply still struggles to keep up with the demands of a richer and growing urban population. Stocks and imports cover the gap. China imported 3m tonnes of wheat, 3.4m tonnes of rice and a record 4.7m tonnes of corn (mostly used for animal feed) last year.

While removing incentives for grain production seems counterintuitive in such circumstances, all the state’s guaranteed minimum purchase prices — currently double world prices — is doing is building up record levels of domestic stocks. The US Department of Agriculture estimates those of corn at the end of the 2015/16 crop year will account for more than half the world total, at 113m tonnes.

Policymakers have long recognised that this structural distortion of China’s domestic agricultural commodities markets is not sustainable. So the removal of subsidies has been expected, though it will have to be implemented in ways that do not risk social instability if rural incomes fall too sharply. Subsidies provide on the order of a 20% top-up to farm incomes. Authorities have just announced a new (if sketchy) agriculture investment programme.

That level of support is not out of line with international averages, but the numbers involved are, inevitably, large. The OECD, the rich-countries think-tank, estimates China’s support to its farmers at 1.8 trillion yuan ($292.6 billion) in 2014, the latest year for which comparative figures are available. That is double the amount of five years previously (other countries have been cutting back farm subsidies over that time) and equivalent to 2.5% of GDP, making it a bill worth trimming.

However, the bigger goal is the critical need to improve agricultural productivity overall as China’s shrinking farmland runs up against the limits of what is needed for China to feed itself. The current five-year plan promotes large-scale farming as a priority. By contrast, most grain farming is inefficiently small-scale and labour-intensive.

On average, each farmer plants half a hectare. In mechanised Europe, the ratio is more than 20 times that and in the Big-Agri United States upwards of 100 times. Furthermore, Chinese farms lose or waste some 35 million tonnes of grain a year in the course of storage, transportation and processing, according to state media.

Grain also needs lots of water, an issue in an increasingly water-scarce country, and an acute one on the evermore arid North China Plain, China’s breadbasket. One of the unintended consequences of grain subsidies has been to discourage small farmers from switching to cash crops that make better use of the available land.

Policymakers see large-scale, efficient and technologically advanced farming as the way to address all those challenges — and cut some hefty import and subsidies bills.

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FAO Sees Another Record Rice Harvest In China

A farmer plants early rice in the field in Pingguo County of Baise City, south China's Guangxi Zhuang Autonomous Region, April 20, 2012. Farmers here were busy with planting on Friday, or Guyu (Grain Rain), one of the 24 solar terms created by ancient Chinese to carry out agricultural activities according to position of sun at the zodiacal circle. (Xinhua/Luo Zhiken)

Another bumper rice harvest is forecast for China this year, with the crop increasing 0.6% from last year’s record. The photograph above shows early rice being planted in Guangxi–and a reminder that it is still back-breaking work. Meanwhile, imports are expected to rise and exports to continue their decline of recent years as the country rebuilds its stockpile of reserves.

In its latest world rice outlook, the U.N.’s Food and Agriculture Organization (FAO) predicts the 2012 harvest will come in at 202 million tonnes of paddy (138.4 million tonnes of milled rice), up from 2011’s official forecast of 200.8 million tones of paddy (137.5 million tones of milled rice), which was a 3% increase on 2010’s harvest. The FAO’s optimism follows concerns that the persistent drought the southwest was threatening this year’s harvest.

China's Rice Production, Exports and Imports, 2007-2012The slowing rate of expansion of the harvest, the FAO says, “reflects rising costs of fuel and other inputs, which would dampen the positive effect of a 9%-18% increase in support prices.” As we have previously noted, China may be bumping up against the ceiling of its rice producing capacity. Beijing is directing more than four-fifths of its agricultural support budget of 1.2 trillion yuan ($190 billion) for this year to grain farmers (who include wheat and maize growers) to sustain the record levels of grain output and increase rural incomes.

Regardless of the bumper 2011 harvest, rice exports are expected to fall from 2011’s 516,000 tones to 400,000 tonnes this year (see chart). This reflects officials responding to domestic price inflation, particularly politically sensitive food price rises, by curbing sales abroad to restock domestic reserves. In addition, exports of China’s lower quality Indica rice are becoming less competitive, particularly in its African markets, where it is anyway looking to supply locally. For example, Chinese farmers will start growing rice on 25,000 hectares in northern Sierra Leone this year.

Imports are likely to rise. High domestic prices and supply shortfalls in drought-stricken southern provinces prompted large purchases by Chinese buyers, mostly from Pakistan and Vietnam, the FAO says. This has caused it to raise its 2012 import forecast from the 600,000 tones it had expected in January to 1 million tonnes. The FAO predicts that end-of-season stocks this year will rise to 83.1 million tonnes, up from last year’s 75.4 million tonnes.

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Persistent Drought Starts To Threaten China’s Crops

Dried-up bed of the Xinba reservoir in Shilin County, Yunnan Province, March 22, 2012.

The persistent drought that has hit 13 provinces in southwest and central China is starting to have an adverse impact on farming, China’s drought-relief officials have indicated for the first time. The fear is that the spring planting on 4 million hectares of crop land is threatened by the shortage of water. Reservoirs, such as the one in the picture above, in Shilin County, Yunnan, have dried up, worsening China’s structural water shortages. Approaching 8 million people and 4.6 million head of livestock are short of drinking water, officials say, with the latest number suggesting the impact of the lack of rain is spreading with the drought now in its third year in some parts. Yunnan, Sichuan, Hebei, Shanxi and Gansu are worse affected. A widespread emergency relief effort is underway.

Footnote: The main cash crops in Yunnan, where the drought is most intense, are rice, maize and wheat. The province is also known for its tobacco and tea.

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Pumping Greenhouse Gases From Deep Below The North China Plain

Pumping water from the deep aquifer below the increasingly arid North China Plain has a hidden cost beyond the depletion of irreplaceable water resources, a new joint UK-China study reveals. Farmers are now pumping so much irrigation water from such deep levels, up to 70 meters-80 meters below ground in some provinces, that the energy required to drill the wells and run the diesel pumps accounts for more than half a percent of China’s total greenhouse-gas emissions.

Overall, farming accounts for 17–20% of China’s annual greenhouse-gas emissions, the study’s authors say. Pumping water for irrigation is one of farmers’ most energy intensive activities. The study, conducted by scientists from the Chinese Academy of Agricultural Sciences and the U.K.’s University of East Anglia, claims to be the first detailed estimate of greenhouse-gas emissions from groundwater pumping for irrigation. The authors say its shows that “significant potential exists to promote the co-benefits of water and energy saving in order to meet national planning targets”.

The scale of the challenge of realizing those benefits is that the current five-year plan aims to increase irrigation water use efficiency by 3% by 2015, emphasizing the importance of improving groundwater resource management to control over-exploitation. However, this is to be achieved whilst increasing total grain production by 13% to 450 million tonnes and decreasing national energy consumption per unit of GDP by 16%.

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One Crop Failure From Catastrophe

A peasant is happily showing her harvested wheat in Ganyu County, east China's Jiangsu Province, Oct. 17, 2011.

China’s farmers have been buying land abroad, from Africa to South America, and they should be buying more, according to the prominent Chinese economist David Daokui Li, to forestall a potentially catastrophic grain shortage that faces the country.

Li suggests that it would only take one bad crop to throw the world into food shortage. “We can imagine that with the frequency and severity of natural disasters in China as well as in other parts of the world, the overall global grain output will be decreased, which will pose a potentially grave threat to grain security, leading to worldwide food shortages and resulting in global inflation in food prices,” he says.

Li comments came in an interview published by Insead, the French management school that has a partnership with Tsinghua University, where Li is Director of the Center for China in the World Economy. He is also a member of the Monetary Policy Committee of the People’s Bank of China.

Buying more farm land overseas, Li says, “will not only work towards China’s self-interest, but will also contribute to helping to solve the wider global grain supply problem.”

China’s leadership has been repeatedly expressing its concern about the future of the country’s grain supplies. Regardless of record harvests being reported year after year for seven years despite a string of natural disasters, there is no hiding  the challenges facing China’s growers of wheat, rice and corn. A richer and growing population, urbanization and natural and man-made water shortages have  left supply struggling to keep up with rising demand.

The vulnerability of the country’s harvest, particularly the wheat harvest, increasingly concentrated on the drought-prone North China Plain, is only too clear to see. China is reaching the the edge of its capacity to keep its grain harvests increasing. Agri-technology is still boosting fruit and vegetable yields, but grain may have reached its limits after decades of seed and fertilizer improvement. In addition, grain farming remains inefficiently small scale and labour intensive, as is suggested by the photo above of a farmer from Ganyu County in Jiangsu. Acreage and younger farmers alike are also being lost to towns, exacerbating the longer-running effects of erosion, desertification and other environmental damage.

Stocks and imports have covered the gap with growing demand, forestalling, so far, the sort of shortages that Li fears. China imports more than 4 million tonnes of corn (mainly for animal feed) and more than 1 million tonnes of both wheat and barley a year. But being subject to world commodity markets pushes up prices, and no country likes to feel it can’t be self-sufficient in food, especially when it has an increasing number of mouths to feed.

The UN’s Food and Agriculture Organization estimates China to have 137 million hectares of arable land. China itself reckons 120 million hectares to be the minimum needed to maintain food security. All agree that the hectarage is moving in the direction of the smaller number, with the shrinkage of the area under grain shrinking causing most concern. Better water management, a national priority under the current five year plan, can reclaim some land for farming, but beyond that, as Li suggests, there is only one place to get any more.

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Agri-Colonialism In Africa

Chinese agribusinesses are a familiar sight across Africa, not always one welcomed by locals, but a new scheme in Zimbabwe is proving particularly controversial. Under the so-called twinning program, investors from Hubei would be paired with farmers in Mashonaland East, one of the most fertile regions of Zimbabwe. The farmers would provide land and labor, the investors capital and equipment; the crops grown would be shipped to China.

It is unclear who would own the land. Some reports suggest the Chinese investors would be given all or some of the land, others that they would just own the farm business they operate on it. The twining program is a provincial government-to-provincial government agreement and the details have been kept quiet.

Provincial officials from Hubei have recently returned from a visit to Mashonaland East. Much of the land in question was originally taken from white farmers in 2000 after independence and redistributed to friends of the regime regardless of whether they had any experience of agriculture. Since independence Zimbabwe’s once-prosperous farming based economy has collapsed, with the country facing food shortages. Hence the need to import expertise and finance to get fallow and failing farms back on their feet.

How much benefit this scheme would provide to local farmers or put food on local tables is questionable, given the crops will be exported to China. There is already a backlash against investors from China, South Korea and some of the Gulf states buying up farmland across Africa to produce cash crops for export at the expense of local subsistence farmers. Giving it away smacks of a bizarre reverse new colonialism.

Footnote: Chinese business have stepped into an economic void caused by U.S. and European sanctions imposed in 2002 against Zimbabwe’s human-rights record. Chinese-made goods are a common sight in local stores. Trade between the two countries totaled $560 million dollars last year, with three-fifths of that accounted for by Zimbabwean imports of Chinese products, particular mobile communications hardware.

Zimbabwe’s leading export to China is apparently tobacco, a surprise for such a minerals-rich country, though that may change with the easing of international restrictions on sales of Zimbabwe’s diamonds. Two of the five companies with diamond-mining licenses are Chinese. However, we note in passing trouble at one of them, Sino-Zimbabwe, state-owned cement maker China Building and Material Co.’s joint venture with Zimbabwe’s state-owned Industrial Development Corp., which reportedly fired local workers at its diamond mining operation earlier this month (via Bloomberg).

Political relations between Beijing and Harare are warm. In February, Foreign Minister Yang Jiechi called for the lifting of sanctions against the country. The following month, China provided Zimbabwe with a $700 million loan, to be used primarily to develop farming. Meanwhile, Chinese-owned businesses have been exempted from a recent law requiring Zimbabwean businesses to be 51% indigenously owned.

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U.N. Warns On Drought, Land Loss Threats To China’s Food Security

A senior U.N. official says that loss of farmland poses a major threat to China’s ability to be self-sufficient in grain. The warning comes from Olivier De Schutter, the U.N. Human Rights Council’s special rapporteur on the right to food, in a preliminary report based on a visit to China in December. De Schutter writes:

Since 1997, China has lost 8.2 million hectares of arable land due to urbanization, forest and grassland replanting programmes, and damage caused by natural disasters, and the country’s per capita available land is now at 0.092 hectares, 40 per cent of the world average. This shrinking of arable land represents a major threat to the ability of China to maintain its current self-sufficiency in grain. China has adopted the principle according to which any cultivated land lost for other purposes should be reclaimed elsewhere, and it has set a “red line” at 1.8 billion mu (120 million hectares) beyond which arable land will not be allowed to shrink further. But China is already dangerously close to this limit.

De Schutter also highlights the issue of drought:

Water scarcity is a huge problem: per capita water availability is less than one third the world average. According to one estimate, climate change may cause agricultural productivity to drop by 5 to 10 per cent by 2030 in the absence of mitigation actions, affecting principally wheat, rice and maize. Indeed, already today, droughts affect between 200 and 600 million mu of farmland in China every year.

De Schutter recognizes the progress Beijing has made in improving food security, but says more needs to done to improve living conditions in rural areas, to improve the security of land tenure and to move to more sustainable farming. All these are challenges that Beijing acknowledges it faces, though that makes addressing them none the less urgent.

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