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Promoting Supply-Side Structural Reform to Ensure China’s Food Security



Food security is not only a livelihood issue that arouses high concern from the whole society, but also a crucial cornerstone of economic development and social stability. Through protracted efforts, China has made great progress in ensuring food security, which has gone beyond what can be achieved at the current stage of economic development. Before long, Economist Intelligence Unit of the United Kingdom released Global Food Security Index, and used 28 qualitative and quantitative indexes concerning affordability of food prices, food supply capacity and quality as well as safety assurance ability to make the assessment. In the Index Ranking of Global Food Security in 2015, China ranked 42nd place, which is higher than China’s ranking in global per capita GDP.

Currently, in China’s food market, supply of all kinds of food is abundant and the prices are stable. The major challenges of China’s food security have transformed from total insufficient amount to structural contradictions. Under the new situation, China is facing serious challenges to continuously strengthen its ability to ensure food security.

In light of product structure, the problems resulting from the coexistence of overstocking and the increasing volume of imports is becoming prominent day by day. At present, the supply of total amount of China’s agricultural products is sufficient, while the development of optimized, diversified and customized agricultural products comparatively lags behind, and price inversion of agricultural products at home and abroad is severe, which have led to the coexistence of the overstocking of some products and the rapid growth of imports. It is estimated that the amount of China’s total food production was 620 million tons in 2015, whereas total food consumption was 650 million tons and about 0.3 million tons were needed to fill the demand gap by importing. In fact, the import volume of grain in 2015 was 130 million tons. The reason why there were excessive imports of 100 million tons was that the demand of soybean cannot be satisfied by domestic output, the domestic price of corns was too high, and substitutes for corns such as sorghum and barley were vulnerable to price variance, which had led to large amount of imports. The outcome of excessive import is that the inventory of domestic grains grows too fast, and over-stocking problems resulting from the government market-based purchasing policy relating to corns and rice purchase are particularly prominent. The co-existence of over-stocking and growth of import reveals the fact that the improvement of agricultural products’ quality cannot meet the requirements of consumers towards the improvement of quality, and the adjustment of agricultural production structure fails to catch up with the pace of the integration of agricultural products markets and changes of agricultural comparative advantages.

In terms of production capacity structure, there exists a large amount of marginal production capacity. At present, a large proportion of the total agricultural production capacity is traded by overdrawing natural resources and sacrificing ecological environment, and this is what we call agricultural marginal production capacity. For instance, there exist the abuse use of fertilizers and pesticide and over-pumping of groundwater. Although the government launched a new round of efforts since 2014 to return cultivated land to forest, lakes and grassland, a program implemented from the end of last century and the beginning of this century, but in some place people still reclaim farmland in wetlands for cultivation, construct pools for fish farming, and reclaim hill slopes and areas that are vulnerable to desertification; and there are some acts of production like growing grains and vegetables in lands which are polluted by heavy metals and pollution caused by agricultural film left in soil. Although these acts of production have increased current output, these are all at the costs of the development base of future generations. Now, the consequences of utilizing these agricultural marginal production capacity for a long time is gradually showing the effects with the decrease of agricultural sustainable development capacity and the increasing pressure on agricultural green development. If the external negative effect of agricultural marginal production capacity is internalized, what will be lost is more than what can be gained, and decision should be made with resolution to stop these erroneous practice.

Viewing from structure of business entities, proportion of scaled operation should be improved urgently. Agricultural labor productivity will be low and quality supervision of food processing and operation field will be impacted if scaled operation is too small. During agricultural production, ratio of farmland transfer has reached 33% while most of them are scattered transfer among farmers, and small-scale household-based farming still plays a dominant role. Family farms, farmers’ cooperative, modern agricultural enterprises and other moderate-scaled business entities have just made a start, and their proportion is still low. In the context of such agricultural operation, it is not only hard to enhance agricultural production standardization, but also difficult to ensure quality and safety of agricultural products at source. In light of food processing and operation, there are over 400,000 food processing enterprises, more than 3 million food business entities, countless small workshops and street vendors. Low market concentration rate and lack of large enterprises and brands has increased difficulties for supervision.

The fundamental way to deal with the challenges is to push forward the supply-side structural reform of agriculture, enhance the market competitiveness and sustainable development capacity of China’s agriculture. And this serves as the main direction of China’s agricultural policy reform and improvement both for the present stage and sometime in the future. Before long, the State Council issued National Agricultural Modernization Plan (2016-2020), which set the general principles and major measures for supply-side structural reform of agriculture. During the agricultural modernization process, efforts should be made in the following aspects in order to intensify supply-side structural reform and enhance the ability to ensure food security:

First, market-oriented measures should be taken to quicken the pace of destocking. The source of overstocking of massive agricultural commodities such as grain, cotton, oil and sugar is due to the government market-based purchasing policy in order to fulfill the goals of ensuring farmers’ income and output, and market performance. The government market-based purchasing price is higher than market price and cannot compete with imported products and it is difficult to sell the products at market price or regulated price. This not only increased the financial burden of the government, but also constrains the sound development of the whole industrial chain. To solve the problem, the pricing mechanism and purchasing and storage system must be reformed, and the regulation role of market should be brought into full play. We need to abide by the general principle of “pricing by market and separating pricing from subsidies”. Adjustment of planting structure and development of downstream industries should be promoted by market pricing, and farmers’ income should be stabilized by separating pricing from subsidies during the transition period. Since 2014, pilot reform has been conducted to grant target-oriented price subsidy to cotton in Xinjiang and soybean in Northeast China. And from this year onwards, new policy has been carried out in terms of market-oriented purchase plus subsidy to producers for corns in Northeast China. All of these are positive reform measures and the outcome will gradually show their effects. In the long run, China’s agricultural supporting policy system should be adjusted and improved, market-based price support should be reduced gradually, inputs to the construction of fundamental infrastructure, agricultural scientific research and promotion and other general services should be increased so that to leave more room for market performance.

Second, moderate-scale operation should be made to strengthen agricultural competitiveness. The development of moderate-scale agricultural operation in multiple forms is not only the necessary requirement to tackle the problems brought about by the structural changes in urban and rural population, rural population aging and the hollowing-out of rural population, but also the fundamental way to increase agricultural labor productivity, prevent labor costs of agricultural products from rising too quickly and strengthen China’s basic agricultural competitiveness. Although the resources endowment decided that China’s agricultural operation scale, especially land management scale cannot be equal to that of new continent countries, even that of European countries, the necessity and urgency to enhance the concentration of land transfer and give play to the leading role of moderate scale operation in modern agriculture construction should be fully understood. The separation of three rights(land ownership right, contract right and management right) should be pushed forward, contracted land right confirmation, registration and certification in rural areas should be accelerated and pilot practice should be made to protect the right of contracted land farmers and that of land managers. A policy system should be quickly established to cultivate new agricultural management entities, and efforts should be made to develop family farms, farmer cooperative and agricultural enterprises. Agricultural economies of scale are not only reflected on production field, but also in service sectors. And efforts should be made to expand the pilot coverage of socialized service for agricultural production throughout the whole process as well as the mechanism of government procurement of public benefit services. Specialized, scaled and socialized outsourced cultivation, integrated pest control and other services should be boosted.

Third, the exit of marginal production capacity should be replaced by the increase of green ones. A proper pivot must be found to propel the exit of agricultural marginal production capacity in an orderly manner, especially the external negative effect must be internalized. Those who adopt this kind of production should be made to pay the price and push them to exist under pressure. For instance, comprehensive reform of agricultural water pricing mechanism should be promoted and let water prices reflect the costs of water supply and its scarcity. In the meantime, the favorable opportunity relating the total amount of abundant agricultural products should be seized to foster Green for Grain Project, and return cultivated land to forests and wetlands, and to return aquaculture farms to tideland; work should be done to push forward crop rotation in places where there is excessive exploration of groundwater and heavy metal pollution, and the government needs to encourage farmers to exit from these places with subsidies. Green, healthy and efficient production capacity should be expanded and enable it to replace or outperform the exit of marginal production capacity. Therefore, food crop production strategy based on farmland management and technological application should be carried out. The development of high-standard farmland should be launched in large-scale to ensure that by 2020, 800 million mu (15 mu make one hectare) or 1,000 million mu of concentrated, high-quality and ecological-friendly farmland could be cultivated to ensure stable and high yields. We need to push forward the construction of water conservancy projects in large scale. By 2020 there should be more than 1,000 mu of farmland with effective irrigation systems, and effective utilization coefficient of farmland irrigation water should be increased to over 0.55. Agricultural technology progress should be vigorously promoted and the new round of main grain crop upgrading should be accelerated, and by 2020, the contribution rate of agricultural technology progress should be raised to 60%.

Fourth, food quality safety should be promoted by strict regulation. This is not only desperately needed to protect and improve people’s livelihood, but also the only way to improve consumer confidence and expand agricultural products market. Facts show that in face of strict quality standards, China’s agriculture has enough resilience and adaptive capacity. We need to tighten law enforcement and supervision. To enhance control at source, we need to make active explorations to establish an electronic traceable encoding system for pesticide, veterinary drugs, feed additives and other farm inputs, and require family farms, farmer cooperative, and agricultural enterprises to establish production archives recording system and a system relating to the withdrawal period for veterinary drugs; we need to promote quality and safety supervision capacity of agricultural products, and establish a traceable system for agricultural products and a national inter-connected and commonly-shared traceable management information platform for quality and safety of agricultural products; we need to establish a credit system of agricultural products producers and a credit information system of agricultural production enterprises; information disclosure should be promoted so as to strengthen the mechanism to give joint incentives to those who act in good faith and to take joint punitive actions against those who act in bad faith.

Fifth, agricultural resources distribution efficiency should be enhanced in the course of opening-up. One of the most important starting points of agricultural supply-side structural reform is to increase agricultural resource distribution efficiency. In the context of constructing a new mechanism of open economy, improving agricultural resource distribution efficiency cannot solely rely on domestic market, and we should have a broader perspective and make use of market resources both at home and abroad. On the one hand, a scientific decision must be made to determine the self-sufficient capacity of main agricultural products and properly arrange priority order of agricultural development. Agricultural production structure should be adjusted in line with the principle of comparative advantage, and the pace of agricultural transformation and upgrading should be accelerated to strengthen agricultural competence. Efforts should be made to continue to strengthen and give full play to China’s industrial advantages in fruits and vegetables, tea, aquatic products and so on, and the export of competitive agricultural products should be further expanded so as to increase the income of farmers engaged in production of export goods. On the other hand, global agricultural resources endowment, supply and demand pattern of agricultural products and investment policy environment and other factors should be comprehensively taken into account, and we need to determine opening-up layout in line with features of different regions, countries, industries and products. Sources of imports should be made diversified and the pace of the establishment of a stable economic and trade relationship for mutual benefit should be quickened. In particular, the cooperation among countries along “One Belt and One Road” routes in agricultural investment, trade, technology and production capacity should be strengthened.

Note: Li Wei, President of DRC, Deputy Secretary of the Leading Party Members’ Group and research fellow