Average farm size in Taiwan is about one hectare, but in general, agriculture is trending toward more specialized large scale farming operations, especially in hog, rice, and sugarcane production.
Agricultural policy. Taiwan's agriculture sector suffers from high land and production costs resulting from small farm size and faces new difficulties. These include international pressure for trade liberalization, the impact of agricultural trade with the Peoples Republic of China and environmental conservation concerns. Although commodity prices are generally determined on the open market, in 1967 the government created a grain price stabilization fund for rice, wheat, maize and soybeans. A trigger or guarantee price is set and adjusted by the government, based on international grain prices, inflation and exchange rates.
As part of their bid to enter the World Trade Organization, Taiwan officials are following the General Agreement on Tariffs and Trade Uruguay Round provisions to cut total aggregate measurements of support by 20% within six years. The guaranteed purchase price for rice will remain for another three years, and guaranteed purchase schemes for maize, sorghum and soybeans will be downsized beginning this year and will terminate in 1999.
The wheat price system, including the Wheat Stabilization Fund, has been the source of some controversy. Under the system, the government's fixed base price for flour was pegged to international wheat prices. When wheat prices moved above or below the designated marker, millers were given subsidies or charged fees accordingly. Critics, including Taiwan's Fair Trade Commission and the baking industry, called the system ineffective, saying it in fact promoted price manipulation.
At a December emergency meeting, held to answer complaints from the wheat food manufacturers' association, Taiwanese agriculture, trade and finance officials decided to abolish the Wheat Stabilization Fund when the money was exhausted; at that time, the Fund balance was about U.S.$30 million. Until it is depleted, the Fund is being used as a wheat import subsidy to stabilize the domestic flour market.
Officials also decided at the meeting to liberalize flour import policies. In the past, flour imports had been restricted to 3% of annual consumption, a limitation that was lifted completely. Officials also agreed to cut the flour import duty in half, to 15% from 30%.
Officials said opening the market would reduce flour prices, although they conceded that if international wheat prices remained high, upward pressure on local flour prices would be maintained.
Flour milling. As a result of the policy changes, Taiwan's 34 flour millers currently face a period of significant uncertainty and change. Increased competition and ultimately, consolidation, are expected.
The milling industry suffers from excess capacity, estimated at as much as 40%. Within three to five years after the market is completely opened to imports, at least one-third of local mills will close or be forced to enter into mergers to survive, according to industry analysts.
Taiwan flour millers are developing a variety of survival strategies. Some large mills plan to take advantage of their access to raw materials and venture into food processing. Others intend to broaden the types of flours produced to meet the changing demands of downstream customers. One mill has entered into a partnership with a Japanese counterpart to develop new products and save production costs.
The liberalized trade policies are expected to encourage the import of clear flour, especially by Japan. Taiwan's current national standards classify flours by the ceiling ash content, but flours are not graded on ash content.
This allows high ash, low grade flour imports, and Japan produces a surplus of such flours for export. Taiwan's millers are concerned about clear flour dumping by Japan, and officials and millers have agreed to work on revisions to the national flour standards to prevent dumping of this type of flour. Millers also have urged the government to remain alert to potential dumping from other sources, including Europe.
Livestock and feed industry. Pork is the traditional meat in Taiwan. Hog production is concentrated on the southwest coastal plain because of low labor costs and proximity to feed manufacturers and meat packers.
The hog industry has undergone massive structural changes in the past 30 years. Responding to increased meat demand, the government initiated an integrated hog production and marketing program that encouraged the use of formulated feeds, disease control, and improved management. As the industry shifted to larger and more efficient production units, the number of producers involved declined.
The relaxation of import controls for coarse grains and soybeans provided ample supplies of competitively priced feeds. The hog industry has increasingly made use of larger amounts of nutrient and formulated feeds.
Pork production has increased at an annual rate of about 7% over the last 20 years to 1.1 million tonnes in 1994. Taiwan's surplus of pork, about 300,000 tonnes in 1994, is exported mostly to Japan.
Future growth in pork and the feed sector will tend to be constrained by environmental protection policies. Intense efforts to reduce water pollution already are under way, increasing hog production costs. Increasing land and labor costs also should temper growth.
Trade. Taiwan is a net importer of food and agricultural goods. Traditionally, Taiwan imported bulk commodities and intermediate agricultural products, but in the past five years, consumer-ready food product imports have increased as incomes have risen.
Taiwan's agricultural trade regime historically has been characterized by high tariffs and other import restrictions, including unique sanitation or purity standards. But, as the flour import liberalization indicates, these barriers are being reduced to promote Taiwan's entry into the W.T.O., which calls for free markets.
In July 1995, Taiwan authorities reduced tariffs on 265 categories of agricultural products. Although the reduction was only 2.8%, it marked the first tariff cut for imported fruits and vegetables that compete with domestically grown products.