03/25/2004, 00.00
China
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Food alarm sounded as grain production falls

by Maurizio d'Orlando
Industrial development and migration are the among the principle causes why China's demand for grain risks upsetting world agricultural trade balance.

At the National People's Congress, which finished in the middle of March, Chinese Prime Minister Wen Jiabao said the problem of agricultural communities is "the issue" which most affects today's China and promised a series of funding and relief to rural communities.

Already on Feb. 8 the government had increased public financing of farmland to around 3 billion dollars, a 25% overall increase, as part of a rare emergency financial measure. Such state provisions signal a growing alarm over a potential food emergency, especially in terms of the country's growing need for grain.   

In the last 50 years Chinese grain products have experienced incredible growth: from 90 million tons produced in 1950 to a record harvest of 392 million tons in 1998. Since then, however, production has steadily diminished. In 2003 only 322 million tons were recorded. The 70 million-ton drop is equal to Canada's entire grain harvest per year (the North American country is one of the biggest grain exporters in the world). The decrease also involves rice and corn, but the greatest fall has been seen in grain production –whose demand has increased due to the greater wealth of China's urban population who are more inclined now to use this type of cereal.   

To date China's grain production shortfall has been contained by taking advantage large government reserves and thus limiting the negative effects on Chinese consumers. Now that  grain stockpiles have gone down, for the first in recent Chinese history delegations from Beijing traveled to Australia, Canada and the United States to negotiate the purchasing of 5 million tons of grain. These acquisitions have pushed international prices upward and those operating in the sector fear that there will be even larger increases over the next few years. In 2003 alone the difference between Chinese grain production and its own consumption was 19 million tons. When the country's grain reserves run out next year, China will have to import the entire difference.       

The situation is even more alarming in terms of rice, since the production and world trade of this cereal is much smaller. Trying to cover a rice production shortfall means making up for 20 million tons when word rice exports total a mere 26 million tons. Such a situation could produce an earthquake effect in this sector.    

The consequences for corn might be less significant, but China, with an annual shortfall of 15 million tons and soon to run out reserves, could likewise find itself having to import this cereal. 

The causes

There are various reasons for the gap in not satisfying the China's food needs.

In terms of demand, the Chinese population is increasing at a rate of 11 million a year. Yet coupled with this is a per capita increase in income. And these two factors translate in an even greater demand for grains. Improvements in standard of living in China have in fact lead to greater consumption, especially of eggs, pork, fowl and, to a lesser degree milk and beef. The point is this: Chinese farms are not natural wide or even semi-wide open pastures, but small and intensive establishments.     

The production of a kilogram of meat requires several kilos of grain to feed the animals. Therefore proportionately speaking, as meat or animal protein consumption rises to so too does the need to increase production of primary grain products. 

In terms of production the grain shortfall is largely due to the overall reduction in cultivated farmland –from 90 million hectares in 1998 to 76 million in 2003. The reasons are found in the drop of available irrigation water, in the expansion of desert land, in the conversion of farmland for non-agricultural use, in the switching over to more profitable forms of cultivation and lastly in the drastic reduction of manual labor as rural citizens migrate to wealthier costal regions. All this added together makes it impossible for China to double its annual harvest.    

It must be said regarding water supplies that northern China is experiencing a drop in levels of rainfall. As a consequence, underground water systems are going dry and farmers must either adapt by cultivating low-yield land in arid zones or altogether abandon any type of faming. Moreover it is worth mentioning that as water becomes ever the more scarce, the government prefers to give priority to cities and industrial areas over rural communities.      

As deserts expand (e.g. the Gobi Desert) there are around 10 thousand square kms less farmable land each year. It is important to note that planting trees to slow down the desertification process equally contributes to the diminution in cultivatable land.    

Even increasing urbanization and construction of roads takes away land from farmers. China's Ministry of Land and Natural Resources calculates that the country's 6000 zones dedicated to development and industrial parks take up about 3.5 million hectares of land. Similar thoughts are entertained when considering the rising spread of automobile usage. For every 50 new cars produced 1 hectare of land must be paved for parking, roads and freeways. The environmental impact is incredible with over 2 million new vehicles in circulation this year concerning   

Lester Brown, a noted American environmentalist and president of the Earth Policy Institute, said that if current trends are not reversed and if the Chinese economy doe not undergo a major collapse, in the next few years China could end up importing between 30 and 50 million tons of grain per year. Considering the fact that China boasts a 120 billion increase in overall commercial activity when compared to the United States, Chinese do not lack the capability of spending to buy double the entire yearly American harvest. This could have an powerful effect on grain prices, also because world reserves are at their lowest levels in 30 years. The decreasing costs of agricultural foodstuffs, with which we have grown accustomed to could, well become a thing of the past –not only for the Chinese population but for the whole world as well.    

This scenario will also lead to major logistical problems in terms of transport, available freight ships and port facilities. Already now for example, in many Chinese ports, ships remain anchored for as long as a month before docking and unloading their freight.  

There are two more paradoxes worth noting, both of which are linked to the Chinese government's imbalanced and anarchical choices for development:   

1)        in a short amount of time China now imports gigantic quantities of agricultural products it once principally exported;

2)        despite 70% of its population employed in agricultural sectors China must depend on countries whose agricultural population is less than 2% in order to cover its food needs.
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