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By Han Jun, Development Research Center of the State Council (DRC)

Research Report No 46, 2013(Total 4295)

It is an eternal social rule that a nation will enjoy peace when people have sufficient clothing and food and the granaries are full. Since food security is essential to economic development, social stability and national independence, it is always a top priority for China as a big country with a large population to solve the issue of feeding its people so as to develop the country and maintain social stability. After the introduction of reform and opening up policy, the overall grain-producing capacity has been gradually improved and food supply is becoming increasingly abundant. China has fed over one billion people with about 9% of the world's arable land and 6.4% of the world's water resource, and made an achievement winning worldwide recognition. In rapid industrialization and urbanization, the rigid grain demand keeps growing, accompanied by increasingly salient restraints on the grain production by shrinking farmland, water shortage and climate change. Besides, the environmental cost for more grain output is increasing and the foundation for food security remains fragile. We must unswervingly rely on domestic production to ensure basic food self-sufficiency, make efforts to enhance overall grain-producing capacity and faster establish a food security system adapted to China's national conditions so as to ensure food safety and provide a solid support for building a well-off society in an all-round way.

I. China's Food Structural Shortage Becomes Increasingly Tangible

In recent years, China's overall grain-producing capacity has reached a new high when the CPC Central Committee and the State Council have highly emphasized grain production and gradually improved policy package to boost agriculture, benefit farmers and increase farmers' income. China's grain output has increased for nine years in a row since 2004 and stayed above the 500-billion-kilogram level for six consecutive years. The total output in 2012 reached 589.55 billion kilograms, annually increasing 76.5 billion kilograms with a growth rate of 3.6% on average. Before reform and opening up was introduced, China witnessed two records where grain growth lasted for over five consecutive years: one was between 1950 and 1958, when grain production had increased for nine years in a row; the other was between 1962 and 1967, when grain production rose for six consecutive years. In other years, grain production unexceptionally followed the cycle of "two bumper harvests, one ordinary output and one reduced output". This "nine-year consecutive grain growth" totals 158.85 billion kilograms, almost twice the amount of another "nine-year consecutive grain growth" in the early days after the founding of the People's Republic of China. The present achievement is made when China is confronted by severe environment and challenges such as fluctuations in the international grain market, frequent domestic natural disasters and stronger inflation expectation, so it is indeed unprecedentedly significant.

Table 1 China's Grain Import &Export (unit: 10,000 tons)

Grain Varieties	2011			2012
	Import	Export	Net Import	Import	Export	Net Import0}
Grain	6390.0	288.0	6102.0	8025.0	277.0	7748.0
Cereal	545.0	116.0	429.0	1398.0	96.0	1302.0
Rice	59.8	51.6	8.2	234.4	27.9	206.5
Wheat	126.0	33.0	93.0	370.1	0.0	370.1
Corn	175.0	13.6	161.4	520.7	25.7	495.0
Soybean	5264.0	21.0	5243.0	5838.4	32.0	5806.4

Table 2 China's Grain Consumption in 2012 (estimated) (unit: 10,000 tons)

	Rice	Wheat	Corn	Total of Three Cereals<0}	Soybean	Total Grain
Food Consumption	17200	8400	1800	27400	-	-
Fodder & Loss	1526	2000	12600	16126	-	-
Industrial Consumption	1300	1200	6000	8500	-	-
Seed	124	470	145	739	-	-
Annual Domestic Consumption	20150	12070	20545	52765	7350	-
Domestic Output	20428.5	12058	20813	53299.5	1280	58957
Net Import	299.3	370.1	495	1164.4	5806.4	7748
Domestic Self-sufficiency Rate	98.6	97.0	97.7	97.9	18.1	88.4

Note: 1. Rice is converted to paddy at the rate of 0.69.

2. Domestic self-sufficiency rate =domestic output/ (domestic output + net import) *100%.

It is encouraging to see China's grain output continuously making new historical record. However, we should also notice the straight rise in grain imports in spite of the growing grain output in consecutive years. Before 1996, China was a net exporter of soybean. Since then, such import has been soaring and the net import reached a historical record high of 58.384 million tons in 2012. Not only the import of soybean, but also that of wheat, corn and rice has surged in recent years from 1.541 million tons in 2008 to 5.709 million tons in 2010, then slightly down to 5.45 million tons in 2011 and jumped to 13.98 million tons in 2012. At present, the three major cereals all rely on net import. In 2012, the net import of grain in China reached 77.48 million tons and the annual self-sufficiency rate fell to 88.4%, with 18.1% for soybean.

There are several reasons for grain growth in consecutive years and constant import rises.

First, it is related to price fluctuations in domestic and foreign markets and changes in price difference. In recent years, fast rising cost of domestic grain production has steadily pushed up the grain price. As the international grain price drops, imported grain products such as wheat and corn are still priced lower than their domestic counterparts despite the transportation expense, tariff and insurance premiums. In 2012, a large price gap between the foreign and domestic market led to fast growing grain import. Between January and June of the same year, the after-tax CIF price (cost, insurance and freight price) of imported wheat per ton was 150 to 350 yuan lower than the port price of high-quality domestic wheat per ton and the after-tax CIF price of imported corn per ton was 150 yuan lower than domestic corn price. Second, it is affected by the growing population. Between 2000 and 2011, the total Chinese population had increased by 79.92 million, with an annual growth of 7.26 million on average. A growing population directly leads to higher grain demand. Third, it is attributed to profound changes in urban and rural food consumption structure. The economic development and higher residents' income have led to constantly better dietary structure and increasingly diverse food consumption among residents. They gradually reduce grain consumption while consuming more meat, poultry, eggs, dairy products, aquatic products and edible vegetable oil, etc., with constantly improved nourishment. The daily per capita caloric value of food, protein and fat in China has surpassed the world's average level. Accordingly, there are significant changes in the consumption structure of grain: the demand for rice, wheat and other grain products proportionally decreases while that for soybean and corn remarkably rises. Against the background of consecutive nine-year grain growth, imported products led by soybean rapidly increase, mostly driven by changed food consumption structure. This is manifested by the usage of soybean. Soybean import is mainly to meet the demand for edible vegetable oil by China's urban and rural residents whose income has increased. As a by-product from processed soybean, bean dregs can be used as fodder to meet breeding industry's need for protein feed. These are not totally food demands in their original sense. Instead, they reflect more extensive food demands. The demand for oil-extracting soybean grows rapidly in China, rising about nine times from 5.7 million tons in 1996 to 56.2 million tons in 2010 and its share in the overall demand for soybean has risen from 40% to 81% during the same period. As the amount of soybean used for oil extraction has soared rapidly, domestic output of bean dregs has remarkably grown from 4.6 million tons to 43.8 million tons between 1996 and 2010. China lacks both edible oil and protein feed. The imported soybean can meet the demand for extracting edible oil and the bean dregs can be used to boost the development of feed-processing industries and breeding industries, create more jobs and bring more economic benefits to enterprises. The soybean import fills the supply gap in the domestic market and provides effective support for developing the modern breeding industry and improving the national dietary structure.

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