China's Food Economy to the Twenty-first Century: Supply, Demand, and Trade* Jikun Huang Chinese Academy of Agricultural Sciences Scott Rozelle University of California, Davis Mark W.Rosegrant International Food Policy Research Institute . Introduction China's emergence as the world's fastest growing economy has both raised hopes that East Asia's giant can join the ranks of modernizing na- tions and fueled concerns that its rapid transition will upset the fragile equilibrium of global markets and institutions. The nexus of China's growth, the management of its food economy, and its potential effect on world agricultural product markets compellingly illustrates the delicate balance facing policy makers. Directed properly, China's growth pro- vides an unprecedented opportunity for achieving major gains in its foo security, poverty reduction, and nutritional improvement. Without suit- able policies, China's development may wreak havoc on sectors of its own society as well as on the rest of the world. Unfortunately, China's leadership and the international community have a limited scope for understanding future trends, evaluating socio- economic trade-offs, and sorting through policy options. Current analyti- cal tools are quite simple, having almost no structural basis and provid- ing little policy guidance. Predictions have been notoriously sensitive to fundamental assumptions, creating such a wide range of forecasts that policy makers have not become enlightene but instead have felt de- fenseless when confronted with assertions on future supply, demand, and trade balances. The shallowness of understandi was exposed by the outrageous pronouncements by L. Brown when he projected, without any research-based underpinnings, massive food shortfalls in China by 1999 by The University of Chicago. All rights reserved. 0013-0079/99/4704-0005502.00 Copyright 1999. All rights reserved
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738 Economic Development and ral Change 2030. The ensuing panic in China's agricultural hierarchy, however, could not be suppressed since no research team inside or outside of China could respond authoritatively Predictive frameworks are not easy to construct. China is a country experiencing rapid economic and social transformation. Industrialization proceeds at one of the fastest rates in the world. These forces are causin wrenching changes: market development, urbanization, environmental degradation, and budgetary stress. These factors should be expected to have as great, if not greater, an effect on supply and demand as tradi- tional determinants such as income growth and price movements. Deal ing with the challenges of managing their food sector in such a rapidly changing environment requires that Chinas leaders have a clear under- standing of the structure of the economy, especially how supply, de- mand, and trade are affected by any number of key economic, technolog cal and social forces The goal of this article is to help establish a more comprehensive, transparent, and empirically sound basis for assessing the future growth of Chinas food supply and demand balances. We hope this article will shed light on the debate on China,s future grain balance, identify the kinds of structural transformations and policy decisions that might cause large grain deficits, and show the circumstances under which China might maintain its current status as nearly self-sufficient To meet this goal, this article first examines Chinas current grain balance sheet and history of grain imports and then reviews previous ef- forts to project Chinas growth of grain supply, demand, and trade. Our own assessment of the future grain economy begins by investigating a series of factors, beyond income and prices, that may affect grain de- mand and supply. We develop a supply-and-demand projections model which includes a series of important structural factors and policy vari S, including urbanization and market development on the demand side and technology, agricultural investment, environmental trends, and institutional innovations on the supply side. After reviewing the baseline assumptions, we present aseline projections and ex amine alternative scenarios using different rates of growth in income prices, wages, population, and investment in research and irrigation Although we limit our analysis to grain, some of the proje may be surprising. Even in this fairly homogeneous sector of China's food economy, socioeconomic forces act very differently on rice, wheat, and maize, the studys three major crops. Not only do we demonstrate that migration, technological change, income growth, and other trends have important effects on the future supply and demand of the commodi ties, but under a completely reasonable set of assumptions, we also show how there could be a complete reversal in historic global trade patterns for all three grains. Whereas since 1980 China has been a net exporter of rice and maize and the worlds largest importer of wheat, under our Copyright 1999 All rights reserved
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Jikun Huang, Scott Rozelle, and Mark w. Rosegrant baseline scenario, we show that China could import rice and maize in the twenty-first century and satisfy its own demand for wheat IL. Annual Grain Production and Utilization in China Total grain production (in trade weight) rose to 403 million metric tons (MMT) in 1993-95(table 1). 2 After a decline of 2 MMT in stocks (which increases current grain supply) and imports of 2 MMT of grain, Chinas total annual supply of grain during this period was 407 MMT. This supply was used to meet a number of needs: seed, animal feed,non- food manufacturing, and direct consumption for food. Grain used for di rect food consumption took up the greatest part of total supply, about 65% in 1993-95. Animal feed accounted for 23% of utilization on a per capita basis, the average resident in China consumed 222 kilograms grain per year, a level quite high even in comparison to the rest of East Asia. In contrast, meat and fish consumption was relatively low The feed supply helped provide the average resident with about 30 kilo grams of meat, poultry, and fish product. The aggregation of grain balances, however, disguises different pat terms of rice, wheat, and maize utilization in terms of the use of grain for feed and food and rural-urban dietary habits(table 1, rows 2-5). China's residents consume most of the nation s rice(85%)and wheat(91%)di rectly as food grain. The majority (84%)of Chinas maize is used as feed or the livestock sector Even general consumption aggregates vary by sector of the econ- omy. Urbanites eat far less rice(68 kilograms)and more meat and poul grams,respectively;see table 1, rows 7-9). Wheat is more cope try (34 kilograms) than do their rural counterparts(103 and 20 kild Unlike the rest of East and Southeast Asia, China has a large wheat econ omy, and its per capita rural consumption of wheat exceeds urban intake Although there are sharp regional variations, the average rural resident consumes 90 kilograms per year of wheat versus only 72 kilograms per person for those in cities and towns. Commodity and sectoral differences in demand patterns become important in deriving future balances, since tion of consumer groups, affect each consumer group differentl posi- economic forces and structural changes, as well as the size and cor The waxing and waning of supply and demand in the past several decades has caused imports and exports to rise and fall(table 2).When China began its reform program in 1978, policy makers decided to allow a general increase in imports to relieve the constrained demand of con- sumers. Several years after import restrictions on wheat and other grains were relaxed, imports grew to nearly 15 MMT (row 2). Rapid growth of grain yields in the early 1980s reversed these trends, and by 1985 China became a net exporter. with continued demand growth in the mid-1980s poor harvests drove net imports back up to more than 10 MMt by 1989 Soft demand and a resurgence of agricultural growth allowed imports to Copyright@ 1999. All rights reserved
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