CHINA: INTERNATIONAL AGRICULTURE AND TRADE -- SUMMARY July 28, 1998 July 1998, WRS-98- Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. The complete text of CHINA: INTERNATIONAL AGRICULTURE & TRADE will be available 1-2 weeks following this summary release. --------------------------------------------------------------------------- China's Economy Slows; Livestock Sector Posts Long-Term Growth The Asian financial crisis is pressuring China's economic growth this year. China's labor-intensive export goods are meeting stiff competition from other Asian economies. After averaging 11 percent annually during the past 5 years, China's GDP is expected to drop below the 8-percent target set by the government for 1998. So far, China has resisted pressure to devalue its currency and is investing in its infrastructure sector to stimulate domestic demand. China's new premier, Zhu Rongji, expects the on-going reform of the government- controlled grain marketing system will improve efficiency, decrease staff, and separate policy functions from commercial operations. However, implementation of the reforms, triggered in part by the grains system's increasing drain on government revenues, will strengthen government control over the grain economy and will likely reduce the operation of open markets. China is forecast to harvest an average-size wheat crop in 1998. Recently, China's State Statistical Bureau announced a much smaller summer grain harvest this year, down more than 14 million tons from the previous year. The "governor's grain bag responsibility system" continues to use economic incentives and administrative pressures to push farmers to grow wheat and rice even though stocks are high and prices are low. Farmers harvested record wheat and rice crops in 1997. In 1997/98 China imported only 2 million tons of wheat, the smallest amount since 1961. Rice exports from the 1997 crop are forecast to rise to 2.5 million tons, the most since 1973. China's agricultural authorities expect the corn crop for 1998/99 will increase to an estimated 122 million tons. Output fell from a record 127 million tons in 1996 to 104 million in 1997, largely due to drought. But even with lower output, China likely will be able to export 6 million tons of corn in 1997/98. Overall, the large grain crops in 1996 and 1997 boosted state-controlled stocks of all grains to over 200 million tons. Cotton output for 1998/99 likely will be down slightly compared with 1997/98. The government has reduced its support price for cotton and ended government- determined prices to mills. China is forecast to import 4.3 million tons of soybean meal in 1997/98, making it the world's largest soymeal import market. The country is also the world's largest market for soybean oil, with imports rising to an estimated 2 million tons in 1997/98. China is the world's largest producer and consumer of most livestock meat products. But trade accounts for very small share of the livestock economy. Government policies have severely limited the exposure to world markets. In the past decade, a strategy of grain self-sufficiency limited the growth of domestic livestock production, while a strategy of meat self-sufficiency restricted imports of livestock products. Of China's total animal protein consumption in 1995, pork accounted 50 percent, eggs 17 percent, aquatic products 16 percent, poultry meat 12 percent, beef 3 percent, mutton and goat meat 2 percent, and milk 0.2 percent. While pork is by far the most important product in China's livestock sector, its importance is declining. Constraints on the feed grain supply are likely to slow future growth of China's pork output. The structure of pork production has been changing as output has gradually shifted from individual farm households using traditional technology to specialized livestock producing households and commercial firms using modern technology. The largest potential future gains in feeding efficiency are still to be found in the pork sector. Poultry production and consumption increased rapidly from 1980 to 1996. Production growth was stimulated not only by general market-oriented policy reforms, but also by direct government support in such things as specialized poultry breeding operations. Government plans call for continued support of the poultry industry. Even though beef production rose sixfold between 1980 and 1996, beef still accounts for only a small share of China's total meat consumption. Although the expansion of more efficient feeding practices is expected to boost production in the coming decade, beef output is likely to increase more slowly than in the past because of consumer preferences, rising prices, and slower income growth. Mutton and goat meat output more than quadrupled from 1980 to 1996. In the coming decade, government policies that support more efficient feeding using crop residues can be expected to continue to stimulate production in intensively cropped areas. Dairy output expanded from 1.4 million tons in 1980 to 7.4 million in 1996. Tightening feed grain supplies over the next decade are likely to reduce the rate of growth. Aquatic product output accounted for the most rapid growth among all animal protein products, making China the world's largest producer. But per capita at-home consumption is still low. Prospects for the coming decade are mixed. While the government has invested heavily in equipment to increase the ocean catch, world fish resources appear to be declining and traditional fishing nations are becoming increasingly conscious of overfishing and damage to marine ecosystems. And although authorities would like to expand inland production, water shortages and environmental concerns will constrain rapid growth. Researchers have observed that per capita meat availability as measured by government production and population statistics is larger than per capita meat consumption as measured by urban and rural household income and expenditure surveys. China's State Statistical Bureau, which recently completed its first census of agriculture, confirmed the overreporting. A number of articles in this report touch briefly on the issue. In addition, ERS plans to address the topic in a Staff Report, A Review of China's Meat Production Statistics: An Estimation Methodology and an Analysis of the Implications for Trade, to be published later this year. Printed copies of the China International Agriculture and Trade Report will be available in about two weeks. For details, contact Francis Tuan (202) 694-5238 or Frederick Crook (202) 694-5217. END_OF_FILE