A Look at Today’s Agricultural Sector in China

Ashley Allen
Economics 461: Chinese Economy
Professor Elliott Parker
June 4, 2007

Abstract:
Agriculture in China is a vital aspect of sustaining life for the large population.
Grain continues to be China’s most abundant area of agricultural output, but fresh
produce (especially fruit) is rising very rapidly. Efforts are being made to increase
productivity of farmers in order to help feed China’s growing population, but also to
decrease the large gap in income between rural and urban populations. These efforts
include abolishing agriculture taxes, increasing technology, and expanding their markets
for fresh produce, particularly in the organic areas. These endeavors are leading to a
steady increase in agricultural production.
Introduction

With a history of numerous famines with up to 30 million people dying in the

span of only a couple of years, China is correct in taking a great interest in their

agricultural sector. Not only is agriculture a key to future growth for China considering

its world standing, but it is also the main determinate of whether or not many people of

this country will survive. Because China is the most populated country in the world, it

seems sensible that it should be one of the largest producers of staple nutrition items in

order to feed its own people. There have been problems throughout Chinese history

where the citizens of this country simply did not have enough food to eat in order to live.

As the population continues to rise, there is a continuing need for agricultural production

to increase. The government of China is currently enacting specific policies to help with

the need for increased agricultural output. New policies and initiatives in the Chinese

agricultural sector include abolishing taxes, implementing new technology, and taking

guidance from foreign firms. Along with these new plans, China is becoming a large

player in the fresh produce field and even taking part in the organic movement; this is

bringing varied successes and challenges.

A Glimpse of China’s Agricultural Output Since 2000

To begin with, it is useful to have an understanding of where China has stood in

its main sectors of agricultural output in the last six years before looking at their new

policies and initiatives that have been implemented to encourage growth in this sector.

Figure 1 is a clear illustration of the output produced by Chinese farms since 2000. The

data for Figure 1 was taken from the National Bureau of Statistics of China’s website

(2007). China has always been one of the world’s largest producers of grain (including
rice, wheat, corn, beans, and tubers), and this remains, by far, their largest output today.

One output that has grown significantly since 2000 is fruit. Fruit has increased in output

by about 160% over a five year span. Other outputs that China is well-accomplished in

are sugarcane, oil-bearing crops (including peanuts, rapeseed, and sesame), and cotton.

These crops have seen slight increases and decreases since 2000, but by 2005, they were

all a little above the levels of five years prior.

Figure 1

Output of China's Farm Products

60,000
Output (in 10,000 tons)

50,000

40,000 Grain
Oil-bearing Crops
30,000 Cotton
Sugarcane
20,000 Fruits

10,000

0
2000 2001 2002 2003 2004 2005
Years

Another aspect of agriculture is the dairy industry, and it is important to look at

the trend of milk production in China since 2000 if a general picture of the agricultural

sector is the main goal. According to an article that appeared in the March 29, 2007

edition of The Economist, titled “Getting Creamed,” China’s milk production has

increased dramatically since 2000. The demand for new dairy products was about equal

to this increasing supply until the middle of 2002 when the demand slowed, but the

supply continued to rise. This is illustrated in Figure 2 (Economist, 2007).

Figure 2

Many families were sure that by producing milk, they would see increases in their

income, so they spent everything they had to take out loans from banks in order to buy

cows. In this time period, the number of dairy cows tripled. People were uneducated on

how to breed good animals, and they were not efficient in milking the cows. It was very

expensive to feed the cows, and milk prices fell, so with time, it has become less

attractive for farmers to produce dairy products (Economist, 2007).

Keeping in mind these general trends, the policies and initiatives that the Chinese

government has implemented can be examined better and more in depth.

Abolition of Agriculture Taxes

One main problem that China is facing today is the increasing gap between the

urban population and the rural population in the area of income. The urban population is

able to gain a rather substantial living with today’s industrial work that is found in

China’s cities, but this is not the case for the people who live in rural areas. People in the

rural areas make up approximately 60% of the population. The World Bank reported that

the wealthiest 10% of China’s population increased their incomes by more than 16%

from 2001 to 2003, whereas the opposite end on the spectrum of wealth experienced a

decrease in income by 2.4% (BusinessWeek, 2007b).

 William MacNamara wrote an article titled “Finding China’s Missing Farmers” in

November of 2005, and in this article he discussed the dwindling attitudes of Chinese

peasants and solutions being implemented to alleviate this problem. Because there were

such heavy taxes on agriculture, many farmers were paying taxes that were either higher

than, or almost as high as, their total incomes. The poverty that was experienced in rural

China was horrible, and the Communist Party felt that there might be a rebellion if

conditions did not change. Premier Wen Jiabao decided to abolish the agricultural tax

completely by 2006. This was an initiative designed to allow the farmers to keep more of

their profits and increase their standard of living. There was hope that the expanding gap

between the rural and the urban populations’ incomes would decrease with this new

policy.

Although the new policy would, in essence, give farmers an extra 100 Yuan a

year because they did not have to pay it in taxes, the farmers, according to MacNamara,

are not convinced that they will see this increase in income (2005). Prices are rising, so

farmers have to pay more to live and will not be able to use this “extra” 100 Yuan a year

for further investments that could lead to a future increase in profits. There is also the

same problem that Chinese peasants have faced for thousands of years: there is simply

not enough land for the farmers to farm.

MacNamara (2005) also discussed the trend that is happening in Chinese rural

labor. Because people are seeing higher incomes in urban areas, many young peasants

are moving to the cities to find work in industrial jobs. Not only are peasants moving

away from rural areas, but the people who are staying in rural areas are moving towards

other sectors rather than agriculture. This is demonstrated in Figure 3 which was created
using data from the website of the National Bureau of Statistics of China (2007). It is

illustrated here that the number of rural laborers in every sector other than agriculture has

been increasing since 1999. It also shows that the number of people working in

agriculture has been decreasing since 1999. Despite these two very apparent trends, it is

worth mentioning that the number of rural laborers who work in the agricultural sector

compared to any other sector is still extremely large.

Figure 3

Number of Rural Laborers by Sector in China

by Sector (10,000 persons)

35,000
Number of Rural Laborers

Farming, Forestry, Animal

Husbandry & Fishery
30,000
Industry
25,000
Construction
20,000
Transport, Storage, Post and
15,000 Telecommunication Services
10,000 Wholesale, Retail Trade and
Catering Services
5,000 Other Non-agricultural Trades

0
1999 2000 2004 2005
Years

New Technology in Chinese Agriculture

China has a very large need for higher technology in their agricultural sector.

Because they are feeding so many people on such little land, it is important to have the

most output possible which makes increased technology a necessity. There is a rectified

concern that by 2030, if water usage continues at current levels, there will be a shortage
of water that will put China below a crisis level. Because China uses 70% of its water for

agriculture, it is clear that this is the area to improve (BusinessWeek, 2007a).

Lindsay Manufacturing is a company that produces center-pivot irrigation

machines; these machines save 50% of the water usually used for irrigation, and

according to an article in BusinessWeek called “Can Foreign Ag Firms Help Feed

China?” (2007), Chinese farmers bought 30-40 machines last year. The expected sales of

machines for 2007 are over 300 machines. The majority of the buyers for these

wonderful irrigation machines have been the minority, large corporate farms. It is often

difficult to convince private farmers, who only farm small pieces of land, that it is a good

investment to spend money on higher technology so that their yields will be increased.

Along with the challenge of convincing the private farmers, there is also the problem that

many of the high technologies available are only effective if used on large pieces of land

where economies of scale can be realized. Large, multinational companies, such as

Cargill or ADM, are helping make it possible for higher technology to reach small,

private farmers. Because they sign forward contracts with farmers that guarantee future

income, they are able to influence the farmers to use pesticides and fertilizers that will

help decrease disease and increase yield. These companies are providing education to

inform the farmers on how technology can improve their crops and help make their

activity more efficient (BusinessWeek, 2007a).

Figures 4 and 5 paint a picture of how technology is being implemented into

Chinese agriculture at a pretty rapid pace. The consumption of fertilizers increased

greatly since 2000, and the number of large and medium agricultural tractors have also
continuously risen, almost doubling, since 1999. (Graphs were designed using input data

from the National Bureau of Statistics of China, 2007.)

Figures 4 and 5

C o n s u m p tio n o f C h e m ic a l F e rtiliz e rs in C h in a N u m b e r o f L a rg e a n d M e d iu m A g ric u ltu ra l

T ra c to rs in C h in a
5, 0 0 0
4, 8 0 0 1 ,5 0 0 ,0 0 0
Consumption of Chemical
Fertilizers (10,000 tons)

4, 6 0 0
1 ,0 0 0 ,0 0 0

Number of Tractors
4, 4 0 0
4, 2 0 0 50 0 ,0 0 0
4, 0 0 0
3, 8 0 0 0
1999 2000 2004 2005 1999 2000 2004 2005
Y e a rs Ye a rs

Fresh Produce in China

Exports of fresh produce are increasing significantly in recent years. Imports of

fresh fruit, fresh vegetables, and fruit and vegetable juices, from China into the US

increased by 279%, 66%, and 98% respectively from January to March of 2007. The

main reason for this huge increase in demand is the number of large retailers (Wal-Mart

and Albertsons/Kroger) who want to supply fresh produce to their customers year-round

(BusinessWeek, 2007c).

There are pros and cons to China producing more and more organic crops for sale

abroad. First of all, it is usually a large corporate farm or government officials who

decide to grow organic food, so the small farmer is forced into going along with this. Dr.

Sjoerd W. Duiker, a Penn State University professor in soil management, explains that it

takes more land to grow organic crops because this type of farming produces lower

yields, so it is logical that not many private farmers would choose this route seeing that
land shortage is already a problem (BusinessWeek, 2006). A major problem with fresh

produce, organic and other, is that it is perishable, and it becomes more susceptible to

contamination the farther it must go around the world (BusinessWeek, 2007c). Besides

these downfalls of growing organic crops, the benefits include that there is a growing

demand for them, which will always encourage some producers to seek this potential

profit.

Conclusion

China is continuing on their historical path with grains being their most produced

output in the agricultural sector, but it is quickly increasing the amount of fruit, and

vegetables, grown and sold, especially in foreign markets. Government officials are

attempting to increase the demand for dairy again with statements like the following

made by Premier Wen Jiabao, “[My] dream [is] that all Chinese drink half a litre of milk

a day, especially schoolchildren” (Economist, 2007). They are also promoting Chinese

milk in Russia. A market research firm predicts that from 2007 to 2011, China will see a

19% annual growth in its dairy industry (BusinessWeek, 2007a).

As far as improving the large gap in income between the rural and urban

populations, the abolition of the agriculture tax is a good start. Hopes are that this will

aid farmers in increasing their profits, but prices will have to stay somewhat stable for

this to make a real difference. There is also the apparent trend of rural laborers leaving

the agricultural sector and moving to other sectors or to urban areas.

New technology is a desired aspect for the future of the Chinese agricultural

sector. With improved machinery and methods of farming, China is on their way to

increasing their farming efficiency. Fresh produce is growing rapidly in China, and this
is leading to great increases in output. Figures 6 and 7 are graphs that were created using

data from the website of the United Nations Statistics Division (2007). These are two

final illustrations of how China is on the rise as far as agricultural production since 2000,

and the number of undernourished Chinese people is on the decline as a direct result of

this increase in output.

Figures 6 and 7
 Agricultural Production (Index 1999-2001 = 100)

120

Agricultural Production
115

110

105

100

95

90
2000 2001 2002 2003 2004
Years

Undernourished People in China as Percentage of Total

Population

35
% of Undernourished

30
25
Chinese

20
15
10
5
0
1980 1991 1996 2002
Years
 References

BusinessWeek (2007), “Can Foreign Ag Firms Help Feed China?” (April 3)

http://www.businessweek.com/print/globalbiz/content/apr2007/gb20070403_149239.htm

BusinessWeek (2007), “China:Seeds of Hope” (April 2)

http://www.businessweek.com/print/globalbiz/content/apr2007/gb20070402_101105.htm

BusinessWeek (2007), “China’s Growing Exports: Food and Fear” (May 23)
http://www.businessweek.com/print/bwdaily/dnflash/content/may2007/db20070523_447
291.htm

BusinessWeek (2006), “Online Extra: Why the Stink Over China’s Organic Food?”
(October 16)
http://www.businessweek.com/print/magazine/content/06_42/b4005007.htm?chan=gl

Economist (2007), “Getting creamed” (March 29)

http://www.economist.com/world/asia/PrinterFriendly.cfm?story_id=8929260

MacNamara, William (2005), “Finding China’s Missing Farmers,” Far Eastern Economic
Review (June 2007) http://www.feer.com/articles1/2005/0511/free/p026.html#top

National Bureau of Statistics of China (2007), Agriculture Yearbook (2006)

http://www.stats.gov.cn/tjsj/ndsj/2006/indexeh.htm

United Nations Statistics Division (2007),

http://unstats.un.org/unsd/cdb/cdb_topic_xrxx.asp?topic_code=17