China’s grain output has dropped from its record high of 512 million tons in 1998 to 457 million tons in 2002 as the Beijing government has attempted to bring down existing stockpiles and liberate additional farmland for more lucrative cash crops.

Now China’s Agricultural Economic Research Center, part of the Ministry of Agriculture, has stated that grain output for 2003 is expected to be somewhere between 440 and 450 million tons, giving China a grain shortfall of approximately 45 million tons. To put this into perspective the shortfall is about equal to the annual grain production of Canada, one of the world’s major grain exporters. It seems likely that China’s 2003 grain production will fall to a ten-year record low, and that China’s per capita grain reserve will fall to the lowest in 20 years.
Throughout the mid 1990s, China significantly raised its grain production through the use of newly introduced high-yield species, improved water conservancy facilities and intensive farming. Its grain output hit an historic high in 1998, exceeding 500 billion tons. This increasingly abundant grain supply led to falling prices and declines in cultivation and, consequently, yields. Many farmers decided that grain production was not worth the effort in terms of earnings and switched crops entirely while others left the land completely and became part of China’s massive migration to the urban areas. A high degree of grain-growing farmland was abandoned and left to eventually go out of cultivation.

These statistics, and the pattern of the last decade outlined above, have had two major consequences and have raised concerns over the food security of China’s 1.3 billion population as reserves drop and the government continues to seek to end five successive years of falling production.

The first major consequence is that grain prices are rising, meaning that food prices in the urban areas of China are increasing – this October the price of wheat was up over 30% nationwide, while additionally the prices for flour, edible oil, meat and eggs have also risen. In some provinces these prices rises have been even greater. For instance in Anhui province in eastern China, rice purchasing prices have risen 10% while in the north eastern province of Heilongjiang wheat prices have grown by 32% compared with the same period in 2002. This is impacting the major urban conurbations. Anhui is adjacent to Shanghai while in Hebei Province which encircles the city of Beijing corn prices have risen by US$6 toUS$8.4 per ton with additional rises in the prices of vegetable oil, feed, poultry and livestock prices in the capital.

The second consequence is that this new shortage means better pay for farmers, one of the increasingly disenfranchised groups in Chinese society the new leadership of Hu Jintao and Wen Jiabao has pledged to support more proactively. This raises the issue for the leadership of balancing the demands of urban China with those of rural China.

In terms of the rural economy Beijing tends to see the price rises as generally good news for one of their key constituencies – farmers. As a consequence of rising prices many are regaining enthusiasm in grain production and state-run grain procurement stations are seeing yields rise. The Ministry of Agriculture has stated that China will “hopefully resume grain production back to 460 billion kilograms next year, and raise yield by 75 kg per hectare.” The bet the government is making is that the continuing rapid pace of economic growth can maintain urban wages and even raise demand.