China is experiencing a transformation from traditional to modernized agriculture. But as Chinese agriculture moves from a centrally planned to a more market-orientated system, new constraints to efficiency are developing.
These constraints include inadequate legal and banking systems and the absence of an efficient system for timely market supply and demand information. In addition, poor storage, handling and transport facilities, despite some improvements in recent years, continue to create considerable harvest losses.
China has identified several objectives as keys to achieving sustainable crop production. These include improved yields and quality, reduced use of fertilizer and increasingly scarce water, protection of the environment by reducing pesticide use and increased production efficiency and profitability.
Wu Zhongze, vice-minister of science and technology, told a 2002 science and technology seminar that maintaining food supplies, especially grain, would face severe challenges by the end of 2030 when the country’s population is expected to reach 1.6 billion.
China’s current annual grain production capacity is nearly 500 million tonnes, or about 400 kg per capita, Wu noted. To maintain that per-capita level by 2030, production capacity must increase to about 640 million tonnes, he said.
With accession to the WTO in December of 2001, China committed to open its markets to agricultural imports as part of a broader transition to a market economy. China took measures to replace previous quantitative import restrictions with tariff rate quotas for bulk commodities, to reduce tariff rates and to limit domestic agricultural supports.
A year later, Chinese officials announced that domestic agriculture had remained buoyant, despite predictions of a severe battering from increased competition. But trading partners said this buoyancy had occurred only because some markets remained closed to imports, and they plan to push for further reforms.
Although these partners noted progress in opening up China’s market, some, including U.S. officials, saw "a number of causes for serious concern … particularly in agriculture." For example, although tariff rates were cut, China implemented new sanitary requirements and regulations on genetically modified organisms that trading partners complain effectively shut out overseas competition in meat and grain markets. China also continues to use export subsidies for maize that have undercut shipments to Asia from other regions.
The Chinese government also has actively protected domestic industries by banning the sale of agri-food companies potentially targeted by foreign takeovers. And the central purchasing agency, China National Cereals, Oils and Foodstuffs Import Export Corporation (COFCO), still plays an important role in wheat, rice, maize and edible oils imports.
Nonetheless, Chinese officials in 2002 publicly stated their commitment to increased privatization, the further opening of markets and more ownership opportunities for overseas investors.
WHEAT AND FLOUR MILLING
Chinese harvested wheat area and production have declined each year since 1997-98, with area falling in 2002-03 to the lowest since 1966-67. Several factors account for this trend.
Since 1999-2000, the Chinese government has substantially reduced its wheat price supports. As a result, producers found incentives to switch to alternative crops such as vegetables, fruits and cotton.
About 70% of Chinese wheat receives some irrigation. Increased urban and agricultural water demand has drawn down considerably a key aquifer and other wheat region water resources, raising irrigation costs and encouraging cuts in planting and production.
The shift to a more market orientated production system has affected the quality of wheat seeded. With farm land and now water scarce in major wheat growing areas, producers are finding it more profitable, with government encouragement through higher supports for quality supplies, to switch to higher quality wheat varieties.
These new varieties are expected to provide the wheat necessary for millers and bakers to produce western style cakes, cookies and breads that have increased in popularity in recent years, as well as improve the quality of traditional noodles, dumplings and steamed breads.
A recent indicator of the trend toward higher-quality wheat output was the November shipment of 5,000 tonnes of milling quality wheat to Indonesia, marking the first Chinese exports of milling wheat since 1949. Millers elsewhere in the region, including Taiwan, were closely monitoring this development; if Indonesian millers are satisfied with the quality, analysts expect China might become a key regional supplier.
About 70% to 80% of wheat consumption is for food, and wheat-based foods are the staple diet for most of northern China.
However, Chinese per capita wheat consumption has been moving down in the past decade, from a high of 85 kilograms in 1993 to 80 kg in 2001. A large number of low income, rural northern Chinese still rely on the traditional wheat-based diet, but the rural population is gradually moving to urban centers and becoming wealthier.
Beginning in the early 1980s, China’s wheat flour industry developed rapidly, with a current total capacity of more than 300 million tonnes in more than 40,000 flour mills, according to a late 2002 report by Agriculture and Agri-Food Canada. About 9,800 mills have capacity of more than 50 tonnes per day, with 80 having capacity of 400 tonnes per day or higher.
Most of the flour mills are located in the northern provinces of Shandong, Henan and Hebei. In the south, mills can be found in the provinces of Guangdong, Anhui, and Jiangsu, the AAFC report said.
For 2002-2003, AAFC said Chinese flour consumption was forecast at 90 million tonnes, close to the five-year average.
China’s flour industry suffers from excess capacity, and as a result, domestic flour prices are low. Given the competitive market, most flour mills are not highly profitable.
To achieve better results, Chinese flour millers are hoping to increase the proportion of high quality special-use flours, such as bread, cake, and biscuit flour, as well as home use flour used for steamed buns, dumpling and noodles. Currently, high quality flour accounts for about 10% of demand, but is forecast to increase to more than 50% with more varieties of flour available, the AAFC report said.
Industry sources say China’s feed-milling prospects over the long term are good, as feed production increases to keep pace with continually higher per capita consumption of meat, eggs, milk, dairy and aquatic products. Recent estimates placed demand for mixed feeds at 65 million tonnes in 2000, including more demand for concentrated feed and additives.
Product quality, often suspect in the past, is steadily improving, as more and more of China’s feed millers are traveling to Europe, North America and other regions to obtain the education and technology necessary to assure consistent, high-quality feed. Measures such as mill modernization, development of protein ingredient sources and replacement of grain in rations are expected to create continuing opportunities in China’s feed industry.
The China Feed Industry Association, founded in 1985, plays a key role in this process. Last year, the CFIA signed a memorandum of understanding with the American Feed Industry Association to strengthen cooperation between the world’s two largest feed organizations. The two will "strive to harmonize international feed industry positions; collaborate on developments impacting feed regulatory issues; strengthen the feed industry’s voice on global issues; establish communication channels; establish a dialogue on trade policies; and provide new educational opportunities."
Domestically, the CFIA serves as a bridge between the government and feed industry enterprises and personnel. More specifically, the group advises the government to develop regulations and manage the industry, works to protect its members’ legal rights and interests and promotes scientific development.
One of the first examples in recent years of a major feed investment was a plant developed by the feedstuffs enterprise group Jinqing (Zhanzhou) Industry Ltd. Co. Constructed at a cost of about U.S.$32 million, the 50,000 square-meter plant produces about 300,000 tonnes of pig and poultry feed annually.
Another major project, announced in late 2002, is a huge, integrated aquaculture facility to be built in Shandong province. CP Group will invest CNY 800 million (U.S.$96.6 million) in the plant, which will feature a seven-story circular building of more than 6 million square meters incorporating breeding, processing and feed production facilities.
Improvements in livestock production and marketing are fueling feed industry growth. Production now includes more scientific breeding and a move toward large-scale feeding, while meat distribution is changing from country fairs to marketing in large stores, supermarkets and chain stores.
China is developing medium-and high-grade meat products in domestic markets while looking for ways to enter the global market, and internationalization is the focus of current market development efforts. The meat industry hopes to reduce reliance on domestic markets by increasing the proportion of meat exported, concentrating on markets in Japan, Western Europe and North America.
Like wheat, rice is a food staple, and like wheat, rice planted area declined in recent years, the result of agricultural re-structuring for WTO membership and reduced government procurement. Farmers have been planting more high-quality rice varieties, which resulted in improved yields and helped offset production losses from the smaller area. More chemical and fertilizer use also has helped yields.
Indications are that China will produce more high-quality rice in more provinces and, therefore, yields, in general, should improve. As of now, it is estimated that high-quality rice is planted on over half of China’s rice acreage.
With China’s completion of the rice genome during 2001, many are hopeful that newer and better hybrid rice strains will be developed in the future. Government officials are also hopeful that improved rice strains will allow quality to improve.
Government estimates indicate that rice consumption is growing, with food use accounting much of the increase. But feed use has also grown and at a faster rate over the last year, a trend that is expected to increase as China’s animal and livestock industry expands and other feed ingredient costs rise.
Low-quality inexpensive rice will be an attractive alternative for small-scale or low-intensity livestock producers. Many are aware that the nutritional value of rice for animals is low, but they must rely on what is available and inexpensive.