*By Xu Xiaoqing, Liu Shouying, Wu Zhenjun & Liao Bingguang, Research Team on "Supply and Demand of Agricultural Products, Cost Fluctuation and Regulatory Policies in China", Research Department of Rural Economy of DRC*

*Research Report No 56, 2012*

Over the next decade, the industrialization and urbanization in China will maintain the momentum of rapid development. The share of agricultural sector in national economy will decrease even more. The spillover of the factors of production (including land, labor force and capital) from agriculture will not be reversed fundamentally. The production and supply of major agricultural products will encounter more severe challenges. With the acceleration of population urbanization, the changes of population age structure, and the further transformation and promotion of household consumption patterns, farming activities and the supply trends of agricultural products will face more complicated situations. Besides, the relations between supply and demand of agricultural products will exert greater and more direct impact upon the stability of urban and rural residents’ life and the control of inflation expectation. On the basis of an objective analysis of the new situations facing major agricultural products, this paper will raise related policy options for the promotion of major agricultural products supply in the coming ten years.

**I. Changes of Costs and Profitability of Major Agricultural Products in Recent Years**

*1. Changes of the costs and structures of agricultural products*

Since 2004, the costs of major agricultural products have witnessed a new round of upsurge. With respect to the total cost of major agricultural products per 50 kilograms, the upsurge of the production costs of major agricultural products during early 1990s slowed down in the mid- and later period and at some point, their costs even decreased. However since 2003, there has been a relatively huge jump in the costs of production.

With respect to the cost structure, from 2003 to 2010 the upward trends of all kinds of costs and their share in the total costs varied from crop to crop.

The total cost of three staple grains increased from 377.02 yuan per mu (15 mu make one hectare) in 2003 to 672.67 yuan per mu in 2010. In total cost structure, the material and service costs rose from 186.64 yuan to 312.49 yuan with an average annual growth rate of 7.6%. Their share in total costs dropped from 49.5% to 46.4%. The labor costs increased from 137.66 yuan to 226.9 yuan with an average annual growth rate of 7.4%. Their share in total costs decreased from 36.51% to 33.73%. The land costs rose from 52.73 yuan to 133.28 yuan with an average annual growth of 14.2% which was the most rapid in recent years. Their share in the total costs was also on the rise from 13.99% to 19.81%.

Among the food crops, the total costs of rice production increased from 416.66 yuan per mu to 766.63 yuan per mu with an average annual growth of 9.1%. Among these costs, the material and service costs grew at an average rate of 8.1% per year. Their share in total costs fell from 49.77% to 46.78%. The labor costs increased at a rate of 8.3% annually. Their percentage in total costs dropped from 36.65% to 34.77%. The average annual growth of land costs was up by 14%. Its share in total costs increased from 13.57% to 18.45%.

The total costs of wheat production went up from 339.64 yuan per mu in 2003 to 618.63 yuan per mu in 2010 with an average annual growth of 8.9%. Among these costs, the material and service costs grew at an average annual growth of 8% and their share of in total costs decreased from 54.52% to 51.46%. The labor cost increased at an average rate of 8.2% per year and its share in total cost dropped from 30.27% to 28.91%. The land cost grew at an average annual rate of 13% and its share in total costs went up from 15.21% to 19.63%.

The total costs of corn production rose from 347.63 yuan per mu in 2003 to 632.59 yuan per mu in 2010 with an average annual growth of 8.9%. Among these costs, the material and service costs increased at an average rate of 6.5% per year and their share in total costs dropped from 48.16% to 41.19%. The labor costs grew at an average annual growth rate of 8.8% and their share in total costs went down from 37.46% to 37.16%. The land costs went up at an average annual rate of 15.5% and their share in total costs increased from 14.38% to 21.65%.

The total costs of soybean production rose from 254.65 yuan per mu in 2003 to 431.20 yuan per mu in 2010 with an average annual growth of 7.8%. Among these costs, the material and service costs increased at an average rate of 5.8% per year and their share in total costs dropped from 43.7% to 38.28%. The labor costs increased at an average annual growth rate of 4.2% and their share in total costs went down from 33.99% to 26.74%. The land costs went up at an average annual rate of 15.5% and their share in total costs went up from 22.31% to 34.97%.

In contrast to the situation of food crops, the rising costs and cost structure changes among cash crops and fruits and vegetables showed different trends. The total costs of cotton production increased from 677.43 yuan per mu in 2003 to 1323.85 yuan per mu in 2010 with an average annual growth of 10%. Among these costs, the material and service costs increased at an average annual growth of 5.7% and their share in total costs went down from 42.03% to 31.72%. The labor cost grew at an average annual rate of 13% and its share in total costs rose from 45.67% to 55.01%. The land cost grew at an average rate of 11.2% per year and its share in total costs went up from 12.3% to 13.27%.

The average total costs of production of two oil-bearing crops (peanut and rapeseed) increased from 346.29 yuan per mu in 2003 to 644.55 yuan per mu in 2010 with an average annual growth of 9.3%. Among these costs, the material and service costs grew at an average annual rate of 7.8% and its share in total costs dropped from 42% to 38.24%. The average annual growth rate of labor cost was 9.1% and its share in total costs went down from 45.13% to 44.72%. The land cost grew at an average annual rate of 13.7% and its share in total costs rose from 12.89% to 17.05%.

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