Figure 3. Figure 4.

Reprinted from Doane’s Agricultural Service Report 8/11/00, Vol. 63, No. 32-5.

million bushels, second only to the U.S. China’s wheat imports dropped from 478 million bushels in 1995-96 to 37 million in the marketing year ended last May 31.

Sharply increased corn exports and lower wheat imports are cautions that great care is needed in projecting future Chinese imports, despite impressive long-term growth in its demand for food. Chinese soybean imports, in contrast to wheat and corn, climbed from 29 million bushels in 1995-96 to an estimated 280 million bushels in the current marketing year.

Figures 1 through 3 show some dynamics of China's agricultural sector, and remind us that its imports depend both on demand, and on supply, which is discussed in a companion article. Its increased corn exports occurred despite an average annual growth of 15 percent in manufactured feed output from 1990 through 1999, and a six percent annual increase in hog slaughter over the same period. Mid-1990s projections didn’t materialize because Chinese supplies were under-estimated.

Short-term Prospects

Conclusions here are based partly on three and one-half weeks in China in June 2000 and contacts with farmers, food industry, and government officials, university and Academy of Science researchers. China may modestly increase its wheat imports in the year ahead, reduce its corn exports, and slow the rapid growth in its soybean imports. For the longer term, we can be cautiously optimistic about U.S. soybean and soybean product exports to China, but optimism about corn, wheat, and livestock product exports to the Chinese should be tempered more than for beans and bean products. Optimism stems partly from the U.S.-China trade agreement requiring China to reduce and eventually phase out its corn export subsidies, and to eliminate restrictions on wheat and soybean product imports. Reasons behind the caution will be discussed in more detail in the "Supply" article. China also agreed to reduce barriers and/or allow imports of U.S. fruit and vegetables, meat and citrus from fruit fly free counties. Some of these products already enter China through Hong Kong.

China’s population is over 1.2 billion people, about one-fifth of the world's total. Its anticipated long-term economic expansion is six to eight percent annually. This will generate significant demand growth. Consumers in low-income countries spend much more of income gains on food than in developed nations. However, it is important to note that in the western two-thirds of China is impoverished and consumers there have not participated in the economic growth of eastern provinces. Eastern China is home to around 35 to 40 percent of the population. Even there, millions live in poverty while others are doing quite well economically. Multiplying 1.2 billion people times an assumed economic growth overstates demand potential.

Research institute staff indicated the average monthly wage for Beijing workers, noticeably more prosperous than other areas, is about $75 per month. Housing will be an expense absorbing some, possibly much of the increased income. China is selling government-owned apartments to workers to generate capital. Officials in Beijing reported the price of a modest apartment is about 150,000 yauns or approximately $19,000. These prices will absorb much of a typical two-worker family’s income.

Chinese official unemployment is about six percent. However, accuracy of data is uncertain since social programs are minimal and unemployment compensation doesn’t exist. There are numerous examples of major under-employment and some unemployment, which should temper food demand.

China’s government is meeting increased protein needs in ways other than just with western diets. It is emphasizing farm produced and to some extent green house produced seafood. Protein sources include fish, shrimp, pork, chicken, beef, tofu, eggs, frog legs, turtle meat, eel, and even snake meat. Some farms also produce fungus from decaying trees, which reaches harvestable size in approximately two weeks. Slightly reduced emphasis on pork appears to be occurring, with efforts to shift demand to poultry and sea food, where less grain is required per pound of meat produced. Hog prices ($/cwt.) were in the single digits, and hog numbers may decline in the coming year. Improved genetics and nutrition are increasing feed conversion efficiency in the Chinese pork industry.

One national feed firm has 5,000 geese contracted for production with farmers. It plans to expand to five million geese in five years. Geese mainly eat grass, with some supplement, and can assist in weed control. This firm has pre-packaged goose-meat products, and expects them to be widely accepted by consumers. As the industry expands, it will add protein to Chinese diets with very little increase in grain and a modest increase in protein meal consumption. China also is implementing a "Great Western" program to produce grass-fed beef and mutton.

The word, food, in China, has more than one character, one signifying rebellion. This is a reminder that dependable, affordable food supplies are essential for political stability. History speaks of political risks with a huge population and large food imports. China sees this in U.S. politically motivated export embargoes to Cuba, Iran, Iraq, North Korea, the Former Soviet Union, and some North African nations, as well as the supply-shortage embargo of 1973. Accordingly, a major goal is for "China to feed China".

China’s one-child population policy is an element in long-term food demand. The policy formerly applied just to eastern provinces, but officials said the policy now extends to the entire country. China expects its population to peak at 1.4 billion people in 2030 and then decline. Future implications include (1) financial pressures on younger workers when each couple is asked to save to support four aging parents without social security, (2) impacts from a declining labor force, (3) impacts on population growth from a likely skewing of the male/female distribution to males due to family preferences for male children, and (4) changing dietary patterns as the population ages. These issues may not have noticeable impact on food demand for at least 10 to 15 years.

Chinese farmers near cities are shifting some land from grain to these more profitable crops. Areas with the greatest potential shifts are near large cities. Consumers prefer fresh products, and rarely eat canned or frozen vegetables. Many vegetable and fruit crops are sold in non-refrigerated farmers' markets, where shelf life is short and closeness to the market is essential. Production of these crops also is beginning to emerge on newly cleared steeply sloping land unsuitable for grain.

Government sources indicated China intentionally has not allowed Genetically Modified food and feed crops to be grown, but does have GMO cotton and tobacco. Green food (organic and non-GMO) is a growing market along the Pacific Rim, and China intends to capitalize on it as labeling requirements expand. Future GMO policy is uncertain, but if widely used would substantially increase produciton.

While most countries have reduced or eliminated government grain storage, China has a large government-owned grain reserve, with the size known only to government administrators. One facility visited by our team contains 30 million bushels of corn, wheat, and rice in facilities with computer monitored and controlled temperature sensing and aeration devices. This facility is one of about forty in that province alone, although others are smaller.

China expects WTO to increase its silk and tea exports, and hopes its meat and poultry exports will benefit, although meat quality and animal health need to be improved. The U.S.-China agreement may reduce Chinese corn exports over the next several years because it requires China to phase out export subsidies. The amount of decline in its corn exports will depend on supply trends and changes in China’s domestic farm subsidies. China’s corn production costs are about the same as in the U.S. ² Southern China may import corn for logistical reasons. Its inefficient soybean processing industry is expected to be hurt by WTO. The U.S. China agreement favors increased U.S. exports of soybean products to China. Reduced support prices on wheat and corn are shifting more land to oilseeds, and may temper U.S. soybean export gains. The long-standing dispute over TCK in U.S. wheat has been settled, but increased Chinese wheat yields may restraint imports.

Assessing China’s impacts on U.S. exports is a complex task. Cautious optimism is appropriate, based on population, tariff reductions, and income growth. But the supply side, changing feeding technology, and trends in the dietary mix of poultry, fish, and grass-fed beef vs. pork will temper demand growth. These trends and other demands on the increased wages of Chinese workers are caution signs.

1. Lester Brown, Who Will Feed China, WorldWatch Institute (Washington, D.C..) 1995.
2. Huang Jikun and Ma Hengyun, "Comparison of Production Costs of Some Main Agricultural Products Between China ans the Main International Competitors", Chinese Rural Economy, No. 5, 2000 (Serial No. 185), Institute of Rural Development, Chinese Academy of Social Science (Beijing, China) 2000.

Other sources:

USDA, Foreign Agriculture Service, various issues of Foreign Agricultural Circulars, Grains; Oilseeds; and Livestock, and USDA, World Agricultural Outlook Board, World Supply-Demand Reports, July 12, 2000 and selected other issues (Washington, D.C.)