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Agricultural Policy Outlook

Speaker: Fang YanRural Economy Division, NDRC

November 13, 2013

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Challenges Facing China’s Agriculture Sector

Growing import despite growth in grain

production for consecutive nine years

Agricultural subsidies substantially increase with

descending policy effects

Sustainable development restricted by resources

and environment

Protection of enthusiasm for production in main

producing areas

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Food supply & demand has changed from

“basically balanced with surplus” to “tight

overall supply with emerging structural

contradictions”

Three key food products turned from net

export to net import since 2009

Structural Changes in Food Supply & Demand

4

2799

7748

501

-831

13021990

5806

-2000

0

2000

4000

6000

8000

10000

10kt

粮食 谷物 大豆

0

200

400

600

800

1000

522

835

189

512

112

370

食用植物油 棉花 食糖

10kt

Agricultural Commodities: Net Import since 2001

Trade deficit of agricultural commodities grew 10.4 times from 2004 to 2012 to reach USD49.1 billion

Food Grain SoybeanEdible vegetable oil

Cotton Sugar

5

963.6

720

532

194.589.4

0

200

400

600

800

1000

小麦 玉米 大米 食糖 棉花

万吨大宗农产品进口关税配额与实际进口量

关税配额 2010年进口量 2012年进口量

38%72.3%

44.5%

190%

5.8倍

Note: Import tariff quotas represent the level of commitment in 2004. Actual imports of cotton and sugar went beyond import tariff quotas in 2012 because importers leveraged the price difference between domestic and overseas markets.

Agricultural Commodities: Import Tariff Quotas vs. Actual Imports

10kt

Wheat Corn Rice Sugar Cotton

Import Tariff Quota

Import 2010 Import 2012

5.8 times

6

Agricultural Commodities: Global Production & Trade Volume

0

1

2

3

4

5

6

7

8

9

小麦 玉米 大米 大豆 棉花 食糖

亿吨

世界产量 世界贸易量

0

2000

4000

6000

8000

10000

12000

14000

16000

小麦 玉米 大米 大豆 棉花 食糖

万吨

世界贸易量 中国进口量

Note: Global production, China production and China import are average values of the last three years.

59%

90844%

21%12%

8%36%

34%33%

6.68

8.57

4.62

2.57

14300

9900

3717

9334

1.72

5595

100mmt 10kt

Wheat Corn Rice Soybean Cotton Sugar Wheat Corn Rice Soybean Cotton Sugar

Global Production

Global Trade Volume

Global Trade Volume

China’s Import

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Food Supply & Demand in International Market

• Share of grains per capita varies in different continents: food shortage mainly caused by poverty.

　　　　　　　　　　　　　　　　　　

Share of Grains per Capita In kg

World N. America Oceania Europe Asia Africa

337 1400 1020 640 290 160

1995/1996 2012/13 Increase

Food Production 173mmt 2280mmt 550mmt

Trade Volume 210mmt 290mmt 80mmt

Inventory-to-sales Ratio

17% 22% 5%

2013/14 estimate: 22.3%, record high since 2001/02. Source: FAO

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China’s Investment in Agriculture

Financial support from central governmentInvestment in agricultural infrastructure

Total Green box

Yellow box

1998 - 2012 1996 - 2010

Est.

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Central government spent more than 530 billion Yuan on food

in 2012, i.e. 320 Yuan/mu (divided by sown area) or 0.9

Yuan/kg (divided by food production).

The “four subsidies” totaled 166.8 billion Yuan,

　 food subsidy plus comprehensive agricultural subsidy: 76

Yuan/mu 　　　Per mu cost of food production increased by 110% when

compared to 2003, average annual growth 9.7%. Per mu

revenue from food production only equals to a migrant

worker’s salary per eight days.

Descending Policy Effects

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In Yuan/50kgPrice of Agricultural Commodities since 2004

Moderate advances in price now “capped”

Min. Purchase or Temporary Storage Price Domestic Purchase Price

Early indica rice

Late indica rice

Japonica rice

Wheat

Corn

Soybean

Cotton

Rapeseed

Temporary Storage

Percentage Change 2012 over 2004 (%)

Percentage Change 2012 over 2004 (%)

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Profit rate of cost (PRC) varies substantially

among different crops and years

PRC of japonica rice grew from 40% in 2009 to 59%

Wheat drop from 27% to 17%;

Rapeseed dropped from 10% to 2%;

Soybean maintained at 30% or so;

Cotton volatized between 13% and 74%

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YearTotal Cost

　Net

ProfitCash

Earnings Materials and services 　

Labor LandSeeds Fertili-

zersPesti-cides

Machi-nery

Yuan Yuan Yuan Yuan Yuan Yuan Yuan Yuan Yuan Yuan

2003 377 187 19 58 9 24 138 53 34 211.5

2004 395 200 21 71 12 32 141 54 197 373.9

2005 425 212 25 84 14 38 151 62 123 318.8

2006 445 225 26 87 16 47 152 68 155 356.7

2007 481 240 28 91 18 54 160 82 185 404.6

2008 562 288 31 118 21 69 175 100 186 434.3

2009 600 297 34 118 21 73 188 115 192 466.7

2010 673 312 40 111 22 85 227 133 227 551.4

2011 791 358 46 128 23 99 283 150 251 642.2

Growth 2011 over 2003

(%)110 92 144 121 154 309 106 184 633 204

Food Production Cost

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It is becoming more and more difficult to defend the

redline of 1.8 billion mu arable land

Space left for increasing food acreage is smaller

than ever

Potential to increase effectively irrigated area

remains low

Two pressing issues: non-point source agricultural

pollution and degrading quality of arable land

Sustainable Development Restricted by Resources and Environment

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Two pressing issues: non-point source agricultural

pollution and degrading quality of arable land

China consumes 57 million tons of pure chemical fertilizer every year, or 480kg per hectare, which is 4.1 times of the world’s average consumption.

Pesticide consumption is also above the world’s average level.

Soil erosion seen on 360 million mu of arable land; soil thickness in Northeast China reduced by 70%.

Sustainable Development Restricted by Resources and Environment

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Two pressing issues: non-point source agricultural

pollution and degrading quality of arable land

240 Groundwater drawdown funnels formed in the country; North China Plain has become the largest funnel in the world, with overdraft area of deep confined ground water more than 70,000km2.

150 million mu of wetland reclaimed, total wetland area reduced by 50% or more.

Waste water discharged by animal husbandry and aquaculture exceeds 10 billion tons, more than the sum of industrial wastewater and domestic wastewater.

90% of grassland subject to degradation at varying degrees, including 2.3 billion mu of moderately and heavily degraded grassland; wetland area reduced by 50% or more.

Sustainable Development Restricted by Resources and Environment

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How to protect the interests of main grain producing areas?

Distribution of Core, Non-core and Backup Grain Producing Areas

Core grain producing areas: 37.1 billion kg

Non-core grain producing areas: 2.25 billion kg

Legend

Core grain producing areas

Non-core grain producing areas

Backup areas

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How to protect the interests of main grain producing areas?

全国平均 粮食主产省0

500

1000

1500

2000

2500

3000

3500

4000

4500

3920

3253

Revenue per Capita 2011元

财政收入 财政支出0

1000

2000

3000

4000

5000

6000

7000

8000

4000

6900

1200

3040

Revenue & Expenditure per Capita at County Level

全国平均 产粮大县National Average

Main Grain Producing Provinces National

AverageKey Grain Producing Counties

Revenue Expenditure

Agro Products Consumption Forecast

2015

Urbanization rate: 51.5%

(52.6% in 2012)

Per capita disposable income

of urban residents: 26810

Yuan

Per capita net income of rural

residents: 8310 Yuan

- The 12th Five-year Plan

2020

Urbanization rate: 60%

Per capita disposable income

of urban residents: more than

38000 Yuan

Per capita net income of rural

residents: more than 10000

Yuan (equivalent to per capita

income of urban residents in

2006)

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Food Intake per Capita by 2020

Grain: 135kg Edible vegetable oil:

12kg

Beans: 13kg Meat: 29kg

Egg: 16kg Milk: 36kg

Vegetables: 140kg Fruits: 60kg

Aquatic products: 18kg

Factors boosting agro products

consumption: growing population,

accelerated urbanization and optimized

consumption structure

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Agricultural Policies

Food safety: a basic national policy that

should always be adhered to

Market-oriented price regulation

Sustainable development of agriculture

Food safety as a basic national policy must be adhered to by “retaining essence and removing

dregs”

Priority given to staple food

Cultivation of comprehensive

production capacity

Interest compensation mechanism for producing and

marketing areas

Utilization of resources from

international market

Food safety: a basic national policy that should always be adhered to

Market-oriented price regulation

To break through the “ceiling” that caps prices of agricultural products

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Sustainable development of agriculture

Sustainable development of forests, grasslands and seas to relieve the pressure on domestic resources;

Solution to outstanding environmental issues

Adjustment of planting structure, crop rotation, ecological restoration

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To facilitate advancement of agricultural

technologies:

　 Improved varieties; new cultivation

techniques; water-saving technologies;

recycle of straws; utilization of biogas;

promotion of pesticides with low

toxicity/pesticide residues and slow-release

fertilizers with high efficiency; farm machinery

and equipment

Sustainable development of agriculture

To provide subsidies to governance projects and affected farmers by utilizing available funding sources

Sustainable development of agriculture

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Thank You!