Wheat in China

by bernat...(flickr.com)

Today I was exploring the Economic Research Service website of USDA, and attracted by a graphic and some analysis on Chinese wheat industry. Let see the graphic first:

We can see from the graphic that China had an increasing wheat trade deficit, until 1996, when the imports was almost equal to the exports. But then it worsened again in 2004.

China net trade of Rice, Wheat and corn (from ERS/USDA)

Bryan Lohmar summarized several reasons for the low production of wheat in China, in his report China’s Wheat Economy: Current Trends and Prospectsfor Imports:

  • Decreasing sown area in China
  • Low wheat prices: farmers moved productive land from wheat to high-value horticultural crops.
  • Policy changes, market development, and increasing commercialization in rural areas: many provinces abandoned the grain quota delivery obligation; instead, they accepted taxes and fees in cash.
  • Depleted resources, particularly water: both ground and surface water sources are showing signs of severe overexploitation

And he concluded:

China’s wheat production will likely remain at or below 90mmt for the foreseeable future. China will continue to expand horticultural production, especially for export markets. China’s wheat marketing institutions are becoming more market oriented and are moving beyond government intervention, and farmers are increasingly making decisions based on commercial considerations.

Is this the case for Chinese wheat production? Chinese wheat industry is going to be market-oriented and the government intervention is going to fail?

Well, it may be not. China is self-sufficient in wheat production last season, even when a series of flood and drought in several provinces have badly damaged the wheat and other grains’ productions in China, the wheat price is constantly going up, but it is basically self-sufficient. Chinese government considers food self-sufficiency as “a matter of national security”, and has been trying to subsidize the wheat production and sale in many ways.

What Leslie Hook wrote in this article at Financial Time precisely describes the whole picture:

China’s self-sufficiency policies are often costly for consumers as they drive up the cost of grain. But today, as world wheat markets shudder after an export ban from Russia and similar talk from Ukraine, China’s leaders are no doubt breathing sigh of relief.

Tomato, Ketchup and China

By An& (Flickr.com)

Most Chinese don´t know ketchup. If you say “ketchup” to a Chinese who just comes to the United States, I bet he/she will look at you strangely, and ask, “What?” I remember when I first came to America last August, I got off the plane at Chicago O’Hare Airport, brought some fries at McDonalds, and asked for “tomato sauce”.

“Tomato sauce”, that is what we call all the processing tomato food  in China. Most Chinese only use it with fries or pizzas in Western restaurants. Chinese cuisine doesn’t have it at all.

Not only ketchup, tomato also has a foreign identification. Four centuries ago, in the middle of Chinese Ming Dynasty, European missionaries followed the Silk Road on their journey to ancient China, bringing seeds of tomatoes and other Western plants. Chinese accepted the tomato, and began to plant it in its own land. The tomato found a new home there, also a new name, “foreign eggplant” (fan qie) in Mandarin.

The ancient European missionaries didn’t expect China accepts tomatoes much easier than bibles, and they would never know China could become one of the world’s largest tomato paste producer and exporter one day. But it is a true story. China, the country where people have no appetite for ketchup, without mentioning other tomato processing food, has only been growing processing tomatoes since the mid to late 1970s, has made a surprising growth in tomato processing industry. Its export volumes of processing tomatoes rose from 100,000 tonnes in 1999, the year that China marked its debut in international tomato market, to 600,000 tonnes in 2005.

In 2009, China exported 8.65 million tons processing tomato products to 150 countries, rising up 35.1% from a year earlier, and increasing the market share to 20.5% in the global processing tomato export market. In particular, the export volume to Italy, Russian Federation and Nigeria accounted for 13%, 12.1% and 6.8% respectively.

The main regions for the tomatoes industry are in Xinjiang Province, a plateau to a number of Muslim ethnic groups, used to be a landlocked frontier crossroad on the ancient Silk Road, and followed by Inner Mongolia and Gansu Province. The dry continental climate there is an ideal condition for tomato growth. The long daylight hours, sufficient sunshine and the significant temperature difference between day and night are all good for sugar and lycopene accumulating inside the crop.

It is a promising industry. But for those farmers living in Xinjiang, tomato is more than just a business. It is a way of life. Xinjiang Production and Construction Corps, an affiliate lead by Xinjiang local government and Beijing, have more than one million employees, most of whom were soldiers, or ex-convicts, who had been sent to the remote barrens, “being reformed through labor” in Chinese political term. Those Han Chinese have been living in this land for decades. Their sons and daughters have grown up, gone to college or had their own jobs. No matter which regions of China they came from, now they are all Xinjiang farmers (though their official identification is “farming soldier”), sinking roots in this plateau, turning the wild land into a fertile spot.

In spite of the boom, Chinese tomato processing industry has its troubles. The irrigation system needs to be improved. The poor transportation causes the tomatoes rotten before reaching the tomato processing plants. The non-brand tomato processing products are given a “made in Italy” label after exporting to Europe and being reprocessed in Italian small plants. China wants its homemade brand, while Europe chides China for dumping products into oversea market.

From "Apple and Tomato Chains in China and the EU" by Xiaoyong Zhang, Huanguang Qiu, Zhurong Huang

The change will not come about by itself. Chinese tomato processing industry should reinforce its agricultural research, improve the rural transportation, develop a better management system to meet the international quality standard, and engage in building its international reputation. The industry with only a history of four decades is still too young. It should learn, learn and learn more, before it boasts its large exporting volume.

Call for Economy Transformation

Now that China has been buffeted by global financial crisis for more than a year, it is time for China to start economy transformation, urged the Editorial Board of the People’s Daily, the official newspaper of the Communist Party of China in an editorial.

The article argued that China is depended too much on international trade, which leads to economy prosperous, but also makes the whole system fragile. China should improve the production capabilities and technical skills of its own industries, rather than taking advantage of the cheap labor market.

I like this article because it gets the point of China’s weakness. China has been focusing too much on the GDP growing, and it really does a good job on it. But if China still relies on the cheap labor to produce the raw materials, without developing its own high-technology and high-end manufacturing industries, its economy cannot be considered as healthy.

The raw products like billet, rolled steel, refined oil and plastic are closely depended on the global climate. If the global market is manipulated by the industry giants or international speculators, China could do nothing but bear it.

An article called “Problems of China’s steel industry” tells what happened to China’s steel industry last year:

In 2009, industrial capacity exceeded 700 million tons while the domestic market could only consume about 560 million. The excess capacity is estimated at over 100 million tons. The situation may worsen this year as analysts predict demand will continue to lag behind supply.

China’s steel overcapacity is also a bad news for the environment. An article published on Chinastakes described its environmental problem:

China has overtaken the US as the largest emitter of greenhouse gases (GHG), to which steel industry contributes no small part.

Just before the Copenhagen climate conference, China promised to lower emissions per unit of GDP by 40 to 45 percent by 2020. As many countries, developed and developing, pointed out, this is the promise of merely a slowdown and not a cut of emissions, and pressure on China to get serious is increasing. The US Congress is even now considering levying penalties against imported products from high emission processes, and also including in climate change legislation additional tariffs on imported steel and other energy-intensive products to offset alleged competitive harm to domestic industries, should other countries not commit to equivalent GHG reductions. China is the key target, and he steel issue threatens to pass currency valuation as the most contentious trade issue between it and the United States.

It is an urgent need for China to transform from low-technology and polluting manufacturing to high-technology and eco-friendly industries. Being the fastest economy growing country is good, but China should also realize that GDP is not everything.

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