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A Look at Today’s Agricultural Sector in China

Ashley Allen Economics 461: Chinese Economy Professor Elliott Parker June 4, 2007

Abstract:
Agriculture in China is a vital aspect of sustaining life for the large population. Grain continues to be China’s most abundant area of agricultural output, but fresh produce (especially fruit) is rising very rapidly. Efforts are being made to increase productivity of farmers in order to help feed China’s growing population, but also to decrease the large gap in income between rural and urban populations. These efforts include abolishing agriculture taxes, increasing technology, and expanding their markets for fresh produce, particularly in the organic areas. These endeavors are leading to a steady increase in agricultural production.

Introduction With a history of numerous famines with up to 30 million people dying in the span of only a couple of years, China is correct in taking a great interest in their agricultural sector. Not only is agriculture a key to future growth for China considering its world standing, but it is also the main determinate of whether or not many people of this country will survive. Because China is the most populated country in the world, it seems sensible that it should be one of the largest producers of staple nutrition items in order to feed its own people. There have been problems throughout Chinese history where the citizens of this country simply did not have enough food to eat in order to live. As the population continues to rise, there is a continuing need for agricultural production to increase. The government of China is currently enacting specific policies to help with the need for increased agricultural output. New policies and initiatives in the Chinese agricultural sector include abolishing taxes, implementing new technology, and taking guidance from foreign firms. Along with these new plans, China is becoming a large player in the fresh produce field and even taking part in the organic movement; this is bringing varied successes and challenges. A Glimpse of China’s Agricultural Output Since 2000 To begin with, it is useful to have an understanding of where China has stood in its main sectors of agricultural output in the last six years before looking at their new policies and initiatives that have been implemented to encourage growth in this sector. Figure 1 is a clear illustration of the output produced by Chinese farms since 2000. The data for Figure 1 was taken from the National Bureau of Statistics of China’s website (2007). China has always been one of the world’s largest producers of grain (including

rice, wheat, corn, beans, and tubers), and this remains, by far, their largest output today. One output that has grown significantly since 2000 is fruit. Fruit has increased in output by about 160% over a five year span. Other outputs that China is well-accomplished in are sugarcane, oil-bearing crops (including peanuts, rapeseed, and sesame), and cotton. These crops have seen slight increases and decreases since 2000, but by 2005, they were all a little above the levels of five years prior. Figure 1
Output of China's Farm Products
60,000 Output (in 10,000 tons) 50,000 40,000 30,000 20,000 10,000 0 2000 2001 2002 2003 2004 2005 Years Grain Oil-bearing Crops Cotton Sugarcane Fruits

Another aspect of agriculture is the dairy industry, and it is important to look at the trend of milk production in China since 2000 if a general picture of the agricultural sector is the main goal. According to an article that appeared in the March 29, 2007 edition of The Economist, titled “Getting Creamed,” China’s milk production has increased dramatically since 2000. The demand for new dairy products was about equal to this increasing supply until the middle of 2002 when the demand slowed, but the supply continued to rise. This is illustrated in Figure 2 (Economist, 2007).

Figure 2

Many families were sure that by producing milk, they would see increases in their income, so they spent everything they had to take out loans from banks in order to buy cows. In this time period, the number of dairy cows tripled. People were uneducated on how to breed good animals, and they were not efficient in milking the cows. It was very expensive to feed the cows, and milk prices fell, so with time, it has become less attractive for farmers to produce dairy products (Economist, 2007). Keeping in mind these general trends, the policies and initiatives that the Chinese government has implemented can be examined better and more in depth. Abolition of Agriculture Taxes One main problem that China is facing today is the increasing gap between the urban population and the rural population in the area of income. The urban population is able to gain a rather substantial living with today’s industrial work that is found in China’s cities, but this is not the case for the people who live in rural areas. People in the rural areas make up approximately 60% of the population. The World Bank reported that the wealthiest 10% of China’s population increased their incomes by more than 16% from 2001 to 2003, whereas the opposite end on the spectrum of wealth experienced a decrease in income by 2.4% (BusinessWeek, 2007b).

William MacNamara wrote an article titled “Finding China’s Missing Farmers” in November of 2005, and in this article he discussed the dwindling attitudes of Chinese peasants and solutions being implemented to alleviate this problem. Because there were such heavy taxes on agriculture, many farmers were paying taxes that were either higher than, or almost as high as, their total incomes. The poverty that was experienced in rural China was horrible, and the Communist Party felt that there might be a rebellion if conditions did not change. Premier Wen Jiabao decided to abolish the agricultural tax completely by 2006. This was an initiative designed to allow the farmers to keep more of their profits and increase their standard of living. There was hope that the expanding gap between the rural and the urban populations’ incomes would decrease with this new policy. Although the new policy would, in essence, give farmers an extra 100 Yuan a year because they did not have to pay it in taxes, the farmers, according to MacNamara, are not convinced that they will see this increase in income (2005). Prices are rising, so farmers have to pay more to live and will not be able to use this “extra” 100 Yuan a year for further investments that could lead to a future increase in profits. There is also the same problem that Chinese peasants have faced for thousands of years: there is simply not enough land for the farmers to farm. MacNamara (2005) also discussed the trend that is happening in Chinese rural labor. Because people are seeing higher incomes in urban areas, many young peasants are moving to the cities to find work in industrial jobs. Not only are peasants moving away from rural areas, but the people who are staying in rural areas are moving towards other sectors rather than agriculture. This is demonstrated in Figure 3 which was created

using data from the website of the National Bureau of Statistics of China (2007). It is illustrated here that the number of rural laborers in every sector other than agriculture has been increasing since 1999. It also shows that the number of people working in agriculture has been decreasing since 1999. Despite these two very apparent trends, it is worth mentioning that the number of rural laborers who work in the agricultural sector compared to any other sector is still extremely large. Figure 3
Number of Rural Laborers by Sector in China
Number of Rural Laborers by Sector (10,000 persons) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1999 2000 2004 2005 Years
Farming, Forestry, Animal Husbandry & Fishery Industry Construction Transport, Storage, Post and Telecommunication Services Wholesale, Retail Trade and Catering Services Other Non-agricultural Trades

New Technology in Chinese Agriculture China has a very large need for higher technology in their agricultural sector. Because they are feeding so many people on such little land, it is important to have the most output possible which makes increased technology a necessity. There is a rectified concern that by 2030, if water usage continues at current levels, there will be a shortage

of water that will put China below a crisis level. Because China uses 70% of its water for agriculture, it is clear that this is the area to improve (BusinessWeek, 2007a). Lindsay Manufacturing is a company that produces center-pivot irrigation machines; these machines save 50% of the water usually used for irrigation, and according to an article in BusinessWeek called “Can Foreign Ag Firms Help Feed China?” (2007), Chinese farmers bought 30-40 machines last year. The expected sales of machines for 2007 are over 300 machines. The majority of the buyers for these wonderful irrigation machines have been the minority, large corporate farms. It is often difficult to convince private farmers, who only farm small pieces of land, that it is a good investment to spend money on higher technology so that their yields will be increased. Along with the challenge of convincing the private farmers, there is also the problem that many of the high technologies available are only effective if used on large pieces of land where economies of scale can be realized. Large, multinational companies, such as Cargill or ADM, are helping make it possible for higher technology to reach small, private farmers. Because they sign forward contracts with farmers that guarantee future income, they are able to influence the farmers to use pesticides and fertilizers that will help decrease disease and increase yield. These companies are providing education to inform the farmers on how technology can improve their crops and help make their activity more efficient (BusinessWeek, 2007a). Figures 4 and 5 paint a picture of how technology is being implemented into Chinese agriculture at a pretty rapid pace. The consumption of fertilizers increased greatly since 2000, and the number of large and medium agricultural tractors have also

continuously risen, almost doubling, since 1999. (Graphs were designed using input data from the National Bureau of Statistics of China, 2007.) Figures 4 and 5
C o n s u m p tio n o f C h e m ic a l F e rtiliz e rs in C h in a
5, 0 0 0 4, 8 0 0 Consumption of Chemical Fertilizers (10,000 tons) 4, 6 0 0 4, 4 0 0 4, 2 0 0 4, 0 0 0 3, 8 0 0 1999 2000 Y e a rs 2004 2005

N u m b e r o f L a rg e a n d M e d iu m A g ric u ltu ra l T ra c to rs in C h in a
1 ,5 0 0 ,0 0 0 Number of Tractors 1 ,0 0 0 ,0 0 0 50 0 ,0 0 0 0 1999 2000 Ye a rs 2004 2005

Fresh Produce in China Exports of fresh produce are increasing significantly in recent years. Imports of fresh fruit, fresh vegetables, and fruit and vegetable juices, from China into the US increased by 279%, 66%, and 98% respectively from January to March of 2007. The main reason for this huge increase in demand is the number of large retailers (Wal-Mart and Albertsons/Kroger) who want to supply fresh produce to their customers year-round (BusinessWeek, 2007c). There are pros and cons to China producing more and more organic crops for sale abroad. First of all, it is usually a large corporate farm or government officials who decide to grow organic food, so the small farmer is forced into going along with this. Dr. Sjoerd W. Duiker, a Penn State University professor in soil management, explains that it takes more land to grow organic crops because this type of farming produces lower yields, so it is logical that not many private farmers would choose this route seeing that

land shortage is already a problem (BusinessWeek, 2006). A major problem with fresh produce, organic and other, is that it is perishable, and it becomes more susceptible to contamination the farther it must go around the world (BusinessWeek, 2007c). Besides these downfalls of growing organic crops, the benefits include that there is a growing demand for them, which will always encourage some producers to seek this potential profit. Conclusion China is continuing on their historical path with grains being their most produced output in the agricultural sector, but it is quickly increasing the amount of fruit, and vegetables, grown and sold, especially in foreign markets. Government officials are attempting to increase the demand for dairy again with statements like the following made by Premier Wen Jiabao, “[My] dream [is] that all Chinese drink half a litre of milk a day, especially schoolchildren” (Economist, 2007). They are also promoting Chinese milk in Russia. A market research firm predicts that from 2007 to 2011, China will see a 19% annual growth in its dairy industry (BusinessWeek, 2007a). As far as improving the large gap in income between the rural and urban populations, the abolition of the agriculture tax is a good start. Hopes are that this will aid farmers in increasing their profits, but prices will have to stay somewhat stable for this to make a real difference. There is also the apparent trend of rural laborers leaving the agricultural sector and moving to other sectors or to urban areas. New technology is a desired aspect for the future of the Chinese agricultural sector. With improved machinery and methods of farming, China is on their way to increasing their farming efficiency. Fresh produce is growing rapidly in China, and this

is leading to great increases in output. Figures 6 and 7 are graphs that were created using data from the website of the United Nations Statistics Division (2007). These are two final illustrations of how China is on the rise as far as agricultural production since 2000, and the number of undernourished Chinese people is on the decline as a direct result of this increase in output. Figures 6 and 7

Agricultural Production (Index 1999-2001 = 100)
120 115 110 105 100 95 90 2000 2001 2002 Years 2003 2004

Agricultural Production

Undernourished People in China as Percentage of Total Population % of Undernourished Chinese
35 30 25 20 15 10 5 0 1980 1991 Years 1996 2002

References BusinessWeek (2007), “Can Foreign Ag Firms Help Feed China?” (April 3) http://www.businessweek.com/print/globalbiz/content/apr2007/gb20070403_149239.htm BusinessWeek (2007), “China:Seeds of Hope” (April 2) http://www.businessweek.com/print/globalbiz/content/apr2007/gb20070402_101105.htm BusinessWeek (2007), “China’s Growing Exports: Food and Fear” (May 23) http://www.businessweek.com/print/bwdaily/dnflash/content/may2007/db20070523_447 291.htm BusinessWeek (2006), “Online Extra: Why the Stink Over China’s Organic Food?” (October 16) http://www.businessweek.com/print/magazine/content/06_42/b4005007.htm?chan=gl Economist (2007), “Getting creamed” (March 29) http://www.economist.com/world/asia/PrinterFriendly.cfm?story_id=8929260 MacNamara, William (2005), “Finding China’s Missing Farmers,” Far Eastern Economic Review (June 2007) http://www.feer.com/articles1/2005/0511/free/p026.html#top National Bureau of Statistics of China (2007), Agriculture Yearbook (2006) http://www.stats.gov.cn/tjsj/ndsj/2006/indexeh.htm United Nations Statistics Division (2007), http://unstats.un.org/unsd/cdb/cdb_topic_xrxx.asp?topic_code=17

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