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China spending too little to stem farm drain
April 9, 2008 / 1:14 AM / in 10 years

China spending too little to stem farm drain

BEIJING/HONG KONG (Reuters) - The fear of failing to grow enough corn, wheat or rice to feed its people has spurred China into action this year, but Beijing may be doing too little, too late to overcome the powerful forces of urbanization.

<p>A farmer sprays chemicals on his rice field in Sanjiang, in southwest China's Guangxi Zhuang Autonomous region, May 26, 2007. The fear of failing to grow enough corn, wheat or rice to feed its people has spurred China into action this year, but Beijing may be doing too little, too late to overcome the powerful forces of urbanization. REUTERS/ Nir Elias</p>

Just as global grain markets grapple with ultra-low stocks and record-high prices, China is battling to stem the destruction of its arable land due to urban sprawl, the growing scarcity of water and the exodus of labor to its booming cities by directing tens of billions of dollars to rural areas.

But it needs to do much more to counter the impact of the greatest urbanization in history, say analysts.

“The subsidies are still very low,” said Li Guoxiang, a researcher with the Rural Development Institute at the Chinese Academy of Social Sciences, the top government think-tank on rural policies.

He said direct subsidies accounted only for about 5 percent of farmers’ income in China --- well below 60 percent in some developed countries, such as the United States or Japan.

With 20 percent of the world’s population but only 7 percent of the earth’s farmland, China has done well to grow enough rice, corn and wheat to feed its people thus far.

But with diets improving, and meat and dairy consumption rising, those days are ending, possibly faster than many expect, adding to growing global unease over future food supplies.

Beijing has pledged to keep at least 120 million hectares of arable land. But it says it is coming close to the redline, and in fact may have crossed it due to illegal land use.

China has already lost about one percent of its agricultural land -- the equivalent of Holland and Belgium combined -- every year for the past eight years, says Frederic Hervouet, BNP Paribas’ head of commodity investor derivatives.

“The grain supply is secured in the short term. But there is big pressure in the long term,” said Li.

“The most important thing ... is to protect farmland. Now everywhere in the country, they are taking the land away for industrialization or to build industrial parks.”

COOKING OIL, SUBSIDIES

This year’s cooking oil crisis -- where domestic prices surged behind global rates, causing supplies to dry up in some areas -- highlighted Beijing’s unease about relying on foreign supply for the world’s most populous country, whose government places social stability uppermost among its national priorities.

While it’s too late to reverse its reliance on imported vegetable oils, Beijing is doling out money like never before to its vast but shrinking army of rural toilers, exhorting them to begin planting corn, rice or soy to help secure national supply.

“We should go back to basics, take measures to further increase agricultural yield and supply, to offset grain price hikes globally,” Ma Kai, one of China’s five state councilors and secretary-general of the cabinet, said last month.

The government has decided to raise spending on rural development by 30 percent to a record 562.5 billion yuan ($80.13 billion) this year, including 133.5 billion yuan for direct subsidies and 304.4 billion for improving productivity.

This is a sea change. Farmers had been heavily taxed for thousands of years until 2006.

But critics say the extra funds barely offset rising costs for living or production, and pale in comparison to the higher wages and social prospects available in booming coastal cities.

On top of that, Chinese grains prices are among the world’s lowest, if not the lowest, as the government maintains hefty grain stocks and bans some exports in order to keep food affordable for its 1.3 billion people.

Premier Wen Jiabao put grain stocks at 150-200 million metric tons last month, including 40-50 million metric tons of rice.

Chinese rice fetches as little as 2,400 yuan ($350) a metric ton -- less than a half of the more than $700 the Philippines plans to pay Vietnam amid fears of shortages following export curbs by the top suppliers from Vietnam to India.

“Farmers actually are suffering in China because of the government controls,” said a senior official in Shanghai.

“If they don’t give enough subsidies, the farmers may not have the enthusiasm to work very hard.”

BIG ISSUES

Exacerbating the problem is persistent migration from the countryside to the cities. Attracted by higher wages, some 300 to 400 million peasants are expected to move into cities by 2020, abandoning the land and leaving it for older generations to work -- and consuming several times more food and water in the cities.

This is also a factor behind a slow recovery in China’s pork supply following an outbreak of blue-ear disease in 2006. Few are now willing to raise pigs in their backyards, which was once the backbone of the world’s largest pork industry.

“Only women and elders are working on fields. This is one of our problems in raising productivity via technology,” said Liu Jiang, an advisor to the government on agriculture and also the former agricultural minister, last month.

Increasingly volatile weather conditions have played havoc with yields, prompting China’s top weather official to warn last August that China might need an extra 10 million hectares or might face a food shortfall of 100 million metric tons by 2030 when the population would reach its peak of 1.5 billion.

And analysts and officials say water shortages pose a serious challenge for China especially in the longer term, with ground water levels sinking every year in the country’s north, such as Shandong and Hebei, the country’s major wheat area.

“They are building huge canals from the south of China to north of China,” said John Chapple, general manager of Sino Analytica in Qingdao. “But the problem is that the water will be expensive...We don’t think it is going to help the farmers.”

Editing by Jonathan Leff

Our Standards:The Thomson Reuters Trust Principles.
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