China's Good News, Bad News: Food Surplus Up, Rapid Desertification

by Antoaneta Bezlova

But this time around, warnings by Lester Brown, president and founder of the Washington-based Earth Policy Institute, that China's grain shortages would drive up world food prices have not unsettled the country's policymakers.

Unlike their panicked reactions to boost grain supplies in the wake of Brown's 1994 booklet "Who Will Feed China?" his new report "Earth Policy Alert" does not seem to be eroding the country's confidence as it struggles to adjust its agricultural sector enough to join the WTO.

One reason for that -- apart from the fact that China feels secure enough to auction off surplus grain supplies -- is the surprise announcement by the United States Agriculture Department (USDA) in early May that it has made "significant historical revisions" to China's grain stockpiles.

In its supply and demand report, the USDA adjusted all its data for the last ten years and revised upward its estimates of how much grain is stored in Chinese warehouses.

It said that China's combined stocks of rice, wheat and coarse grain in the present marketing year are estimated at 230 million tons. Previous estimates saw combined stocks of only 66.1 million tons.

This means China has stockpiles equal to 61 percent of annual consumption -- instead of the 17.3 percent that had been estimated earlier and which had helped fuel fears of China's "shortages" impacting on the world market.

Brown's 1994 booklet, which rang alarm bells in development and government circles in many parts of the world, also provided hardliners in the Chinese leadership needed leverage to arrest attempts for liberalization of Chinese agriculture and restore strict state control over it.

Thus, making China self-sufficient became the central government's priority in late 1990s.

"As aquifer depletion and the diversion of water to cities shrink irrigation water supplies, China may be forced to import grain on a scale that could destabilize world grain markets," said Brown.

In the mid-1990s, Brown's cataclysmic predictions made Chinese leaders, dreading the country's dependence on foreign imports, increase grain stocks to record levels.

They raised procurement prices well above those on the world market so that farmers would grow more grain. As a result, total grain production increased to 508 million tons in 1999 from 466 million tons in 1995.

In revising its China estimates last month, thus presenting data contradictory to the Earth Policy Institute's reports, the USDA said it had used "new information from China's first agricultural census, official statements and evidence from trade and price patterns."

Also, the USDA said: "There is no indication China will import unusually large quantities of grain in marketing year 2001/2."

It admitted that China's stock levels relative to yearly needs are "above those of many other countries or the levels recommended for optimum food security by the Food and Agriculture Organization of the United Nations."

Because official estimates of total Chinese grain stocks are classified as a state secret, many outside economists rely on the evaluation reports of the USDA to get a picture of the state of Chinese agriculture.

Yet even before USDA issued its report, Chinese leaders and state media gave indications that the country's warehouses were chock-full of grain.

Earlier this year, Premier Zhu Rongji ordered state granaries to begin auctioning off the surplus grain. Much of it was purchased from Canada and the United States, as long ago as 1996 when Beijing panicked about the impending crisis of food shortages.

On April 1, Beijing launched a nationwide inspection of the country's state granaries to find out what the "real stocks" are, said the communist party newspaper People's Daily.

It also quoted Vice Premier Wen Jiabao as telling a tele-conference that the granaries' investigation would help the central government "work out precise grain polices, accelerate agricultural restructuring and further the reform of reserving grain, circulation and management."

Those are all fresh signs that Beijing is tackling the grain issue seriously as it prepares to join the WTO. To conclude its 14- year-long quest for WTO membership, China needs to cut back its reserves and end subsidies which encourage peasants to grow unwanted products.

Grain subsidies remain the last major hurdle in the WTO negotiations.

China argues that it should be treated as a developing country and be allowed to grant its farmers subsidies at 10 percent of total production.

But the United States and the European Union, under pressure from traders eager to tap China's huge market when it joins the WTO, insist that China be treated as a developed country that would cap subsidies at 5 percent.

Officials estimates are that some 10 million farmers will lose their livelihoods in the seven years after China's admission to the WTO. With rural incomes stalled in recent years, the central government is in a quandary on how to preserve social stability when more and more people become destitute in the transition period.

Yet although grain remains a sensitive issue in China, this time around Brown's apocalyptic predictions would not reverse the course of liberalizing China's agricultural sector.

New data showing that China has plenty of grain reserves should strengthen premier Zhu Rongji's hand as he tries to lift state controls over the domestic grain trade and create a free market there.

Already, Beijing has begun to adapt its agricultural trading polices, according to Zhang Hongyu, a senior official of the Ministry of Agriculture.

The first policy change would allow more private firms to take part in grain trading and distribution. The second policy change would boost grain harvests in north and central China to supply inland western areas, while at the same allowing southeast China to import what it needs.

"No matter when China joins the WTO, the trend to form a freer farm-produce market is irreversible in China," Zhang told a WTO policy seminar in Beijing last month.