Repor No. 5206-CHA China: Long-Term Issues and Options Annex B: Agriculture to the Year 2000: Prospects and Options May 22, 1985 Agriculture Division 3 East Asia and Pacific Reigional Ofiice FOR OFFICIAL USE ONLY Document of the World Bank This report has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS The Chinese currency is caLled Renminbi (RMB). It is denominated in Yuan (Y). Each Yuan is 1 Yuan = 10 jiao = 100 fen In earLy 1984 the official exchange rate of the Yuan to the US dollar was around Y 2 = US$1. The internal settlement rate (!SR) of Y 2.8 = SI, however, was used in most merchandise transactions. The official exchange rate is now about Y 2.8 = $1. On January 1. 1985, the Government abolished the ISR. WEIGHTS AND MEASURES Chinese statistics are usually in metric units; in addition, mu and jin are often used: 1 mu = 0.1647 acres = 0.0667 hectares jin = 0.5 kg FISCAL YEAR January 1 - December 31 TRANSLITERATION The Pinyin system is used in this report. Note: In tables, individual items may not sum exactly to totals because of rounding errors. FOR OMCIAL USE ONLY CHINA: LONG-TERM ISSUES AND OPTIONS ANNEX B: AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Table of Contents Page No. EXECUTIVE SUMMARY .................................................... vi 1. PERFORMANCE SINCE 1979 ........................................... I A. Introduction. 1 B. The Changing Policv Environment. I C. Growth and Productvity. 9 D. Incomes and Consumption .13 2. FUTURE DEMANDS ON THE SECTOR ..16 A. Present Consumption Levels .................................. 17 B. Projections of Consumption to 2000 .18 3. DETERMINANTS OF FUTURE GROWTH ..28 A. Land and Water Development .28 B. Fertilizers and Seeds .34 C. The Policy Environment .40 D. Agricultural Support Services .50 4. PROSPECTS FOR MAJOR AGRICULTURAL PRODUCTS .57 A. Food Crops .57 B. Industrial and Specialty Crops .64 C. Forestry .70 D. Livestock .72 E. Aquatic Products .87 5. OPTIONS AND ISSUES ............................... ...... 91 A. Projections of Agricultural Growth .93 B. International Trade ......................................... 101 C. Adjustments in Domestic Structure ........................... 103 D. Geographic Differencials and Income Distribution ............1 09 E. Prices ............ ......................................... 113 List of Tables in the Text 1.1 Agriculture in the State Budget. 6 1.2 Estimates of Rural Gross Capital Formation, 1982. 7 1.3 Effects of Price Reform on Returns to Crop CuLtivation .10 This document hasa resaied disribution and may be use by recpients only in the perfornance of |their ofricia dutis Its contents may not odise be discesed without World Bank authorifion| Page No. List of Tables in the Text (cont'd) 1.4 Production Changes, 1979-83 .. ............................... 12 1.5 Composition of Rural Income and Expenditure, 1979-83 . . 14 2.1 Projected Demand and Consumption Targets for Selected AgricuLturaL Products, 2000 ..................... 20 2.2 Estimated Requirements in the Year 2000 for Concentrates and Feed Grains .. 24 2.3 National Supply Requirements in 2000 and Comparisons with Historic Rates of Production Growth . . 25 3.1 Cultivated and Irrigated Land, 1970, 1975, 1977-82 . . 30 3.2 Selected Data from Two Gullies on the Loess Plateau, Shaanxi Province, Undergoing Treatment for Erosion Control .. 32 3.3 A Comparison of Application Rates for Chemical Fertilizer, 1980 .. 35 3.4 Comparison of 1982 Border Prices with Domestic Procurement Prices .. 43 3.5 Ratios of Farm Level Prices for Nitrogen and Grain, Selected Countries .. 45 3.6 Comparison of Price Ratios of Animal Products to Feed with Efficient Feed Conversion Rates . . 46 3.7 Annual Investment in Capital Construction of Agricultural Development, 1984-2000 . . 48 4.1 Projections of Grain Production, Area and Yields by the Planning Bureau, MAAF .. 58 4.2 Gaps Between Provincial and TriaL Yields of Wheat . . 62 4.3 International Comparison of Industrial Crop Yields .. 65 4.4 Cotton Production, Consumption and Trade, 1980-83 . . 66 4.5 Area and Volume of Commercial Forests . . 71 4.6 A Comparison of Selected Aspects of Livestock Production in China and the United States, 1980 . . 74 4.7 Food and Feed Value of Various Oilseeds, China, 1981, per Hectare .. 85 4.8 Approximate Protein Requirements per Animal or Bird for Efficient Production of Pigs, Poultry and Eggs .. 86 4.9 Indicative Costs and Returns of Fishpond Improvement . . 89 5.1 Preliminary Government Targets for Agricultural Production and Employment ............... .. ................. 94 5.2 Agricultural Growth Projections, 1981-82 to 2000 . . 97 5.3 Comparison of Alternative Growth Patterns ......... ......... 100 - Lll - Page No. Appendix A - Tables A.1 Net Changes in Annual Lending to the AgriculturaL Sector, 1980-82 .............................. 116 A.2 Indices of Weighted Average Prices Received by Producers, 1978-82 ..................................... 117 A.3 Composition of Gross Agricultural Output, 1978-82 ........... 118 A.4 Rural Income Distribution, 1979-82 .......................... 119 A.5 Selected Rural Indicators for Major Regions, 1982, and Changes, 1979-82 ................................ 120 A.6 Food Balance Sheet, 1982 .................................... 121 A.7 Per Capita Food and Nutrient Availability in China and Other Countries .............................. 122 A.8 Characteristics of the National Grain Bases ................. 123 A.9 Comparison of 1982 Border Prices with Domestic Procurement Prices (Y/ton) ....................... 124 A.10 Timber Production, 1981 ..................................... 125 A.ll Investment Requirements for Hypothetical Agricultural Development Program .......................... 126 A.12 Commodity Prices and Price Projections ...................... 127 A.13 Basic Characteristics of Comparator Countries ............... 128 A.14 Agriculture's Shares and Relative Economic Performance in ComDarator Countries ....................... 129 A.15 Per Worker and per Hectare Contribution to Agricultural GDP in Comparator Countries .................. 130 Appendix B - Specialization in Industrial Crops B.1 Provincial Comparative Advantage and Cropping Patterns, India 1977-78 and China 1981 .................... 133 B.2 Interprovincial Specialization in Industrial Crops in China and India .................................. 134 Appendix C - Potential for Ruminant Livestock C.1 Pastoral Herds and Grassland Area by Type, 1971 ............. 139 C.2 Metabolizable Energy by Source, 1980 ........................ 140 C.3 Potential Metabolizable Energy with Improved Management..... 141 C.4 Dry Matter Production Under Alternative Development Scenarios, 1980, 2000 ......................... 142 C.5 Overall Ruminant Production and Dry Matter Requirements..... 143 - iv - MAPS 1. Growth of Gross Value of Agricultural Output, 1979-82 2. Rural Per Capita income, 1982 3. Chemical Fertilizer Use per Sown Hectare, 1982 4. Major Commercial Crop Production Bases 5. Meat Production Per Capita 6. Pastoral Areas v ACRONIYMS AND ABBREVIATIONS ATEG - Agro-technical extension center BGDH - bao gan dao hu ("contracting all actions to the household"') CAAS - Chinese Academy of Agricultural Sciences CAS - Chinese Academy of Sciences CBE - commune and brigade enterprise cu m - cubic meter cun - village FCR - feed conversion ratio GBSF - General Bureau of State Farms gm - gram GVAO - gross value of agricultural output, including sidelines GVAOR - a restricted definition of GVAO which excludes sidelines ha - hectare IARC - international agricuLtural research center ICOR - incremental capital-output ratio K - potassium kcal - kilocalorie m - million MAAF - Ministry of Agriculture, Animal Husbandry and Fisheries MCI - mulciple cropping index MWREP - Ministry of Water Resources and Electric Power N - nitrogen NGB - national grain base NSC - National Seod Corporation NVAOR - net value of agricultural output excluding sideLines NYJJLC - Nong Ye Jing Ji Lun Ceng (Essays in AgriculturaL Economics) P - phosphorous PRS - production responsibility system SH - specialized households SSB - State Statistical Bureau xiang - township - vi - CHINA AGRICULTURE TO THE YEAR 2000 Executive Summary Performance Since 1979 1. In an effort to improve incentives and mAnagement at all Levels of the agricultural economy, the Chinese Government since 1979 has moved ahead rapidly to implement a comprehensive restructuring of rural institutions. The major feature has been introduction of the production responsibility system (PRS), the generic name for various contracting arrangements which define the rights and responsibilities of owners of assets (state, collective, or pri- vate), on the one hand, and managers of these assets on the other. The common PRS variant used in agriculture is the bao gan dao hu (BGDH) or "contracting all actions to the household" system. Under BGDH, the individual household has replaced the collective (production team) as the basic farm management and production unit. At higher levels, the commune is being renamed township (xiang), with its economic role confined to managing commune and brigade enterprise (CBE) development, while zhe brigade is reverting to the designa- tion village (cun) and losing much of its managerial and technical staff. Management of collectively-owned land is now contracted to households, usually in proportion to household size or labor force. Other coLlective assets are divided up, sold or contracted to individuals or groups willing to manage them. The household is obligated to pay taxes, make contributions to collec- tive welfare funds, provide its share of state procurement requirements, and contribute labor to maintain or construct public infrastructure. All remain- ing output may be retained by the household. BGDH has provided substantial rewards to those farmers who are able to increase production since obligations to the collective have been fixed in absolute terms, rather than on a percent- age basis, although amounts vary with the productivity of assigned land. 2. The shift in control over resources from collectives to individuals has raised the question of the adequacy of investment for rural development. Collectives appear to be handicapped by diminished income from agriculture and growing difficulties in drafting team labor for public works projects. The uncompensated "social labor obligation" to maintain infrastructure was estima- ted in 1982 to amount to Y 12 billion out of a total of about Y 65 billion in rural gross investment. Recent budget cuts designed to reduce the central Governmernt deficit have meant declining state investments in agriculture. Of the 1982 investment figure of Y 65 biLlion, investment by the state appears to have accounted for only 5%, though it represents perhaps one fourth of directly productive investment. Collectives accounted for Y 13 billion of fixed investment in 1982, of which about 60% was derived from the net incomes of the CBEs. Estimates suggest that private rural savings are large enough to be a major source of finance for ruraL development, if these savings can be effectively mobilized without undermining the newly-established production incentives. - vii - 3. In order to improve living standards for farmers and provide incen- tives for increased production of certain essential commodities, the Government in 1979 made major adjustments in the level and structure of farm prices. Prices were increased by about 21% for grain, 15Z for cotton, 25% for oilseeds, and 25% for pigs. The farm price structure was built around quota, above quota, negotiated and free market prices. After fulfilling obligations for quota and above quota deliveries, producers may sell remaining supplies at negotiated prices which fluctuate at approximate parity with free market prices. Negotiated prices apply to sales to the state by individual farmers for production which may be legally sold on the free market. If no quota exists for a product, the above quota or negotiated price normally applies. As a result, increased procurements generally take place at higher than average prices and impart an uptrend to the weighted average price received by producers. With this more flexible, if complex, price structure in force, the number of agriculturaL commodities subject to state-established prices is declining. Measures are underway to further simplify the structure of agricultural prices. 4. The agriculturaL sector has performed exceptionally welL since 1979. The gross value of agriculturaL output (GVAO) in 1983 grew by 9.5%, following growth of 11% in 1982, 5.7% in 1981, and 2.7% in 1980. Grain pro- duction in 1983 reached a record 387 million tons, some 17% higher than in 1979, due Largely to a remarkable 22% increase in average yieLds. Though Chinese agriculture continues to be heavily crop oriented, the period has seen a steady decline in the share of crop production, a marked increase in side- line production (gross value of hunting and gathering and industries run by brigades and teams) and more modest relative gains in livestock. 5. Both incomes and consumption have risen markedly since 1979. In nominal terms, per capita incomes of farmers in 1983 were 2.3 times those of 1979. Incomes of employees in state enterprises (mostly urban dwellers) rose by 66Z during this period and were nominally 70% higher than rural incomes in 1983. In real terms, rural incomes may have increased by 70% while urban incomes were up by about 40%. Consumption gains have been substantial, espe- cially in red meat (up 53%) and vegetable oils (up 48%). By 1982 the daily average Chinese diet provided over 2,700 kCal of food energy. Urban residents generally have access to more animal protein, edible oils, fruits and vegetables, whereas rural residents consume considerably more grain per capita. While urban/rural and interregional disparities remain in per capita nutrient availability, China's food procurement and distribution system has provided basic food nutrients to most of the population most of the time. Future Demands on the Sector 6. Average per capita consumption levels in China markedly exceed those of other low income countries and an unusually high proportion of calories comes from grain. At 2,580 kCal (1980-82 figures), the daily energy avail- ability exceeds the 1975-77 average for middle income countries (2,560 kCal) and the world (2,570 kCal). While daily protein availability of 66 g exceeds the average for all developing countries (57 g) and approaches the world aver- age (69 g), only about 10% of protein intake is from animal sources, as compared to a world average of 35% and 21X for developing countries. - viii - Similarly, the availability of animal and vegetable fat in 1980-82 was 5% below the average in developing countries and more than 40Z under the world average. At present, per capita availabilities in China exceed estimated requirements of food energy by more than 20X and of safe minimum levels of protein intake by more than 85Z. 7. If consumption patterns in China follow those observed in other countries, higher incomes will bring about a substantial restructuring of con- sumption over the coming decades. This would involve a marked reduction in direct per capita consumption of grain and a corresponding increase in con- sumption of animal products, along with other forms of dietary diversifica- tion. Analysis of food consumption demands in 2000, using alternative assump- tions of 3.5% and 5.5Z per capita CNP growth, shows in both cases a radical adjustment from the present dietary pattern to a more varied diet, in which meat, eggs, fish, milk, pulses, fruits, sugar and vegetable oil are larger components. Direct consumption of cereals and tubers would decLine by 15-20% overall, largely in the coarse grains and tubers. Within the fine grains category, it is Likely that per capita consumption of wheat, in China's cities in particular, will rise steadily in response to higher incomes and preferences for more convenience foods. 8. The amount of indirect grain consumption depends heavily on the efficiency of production in the animal husbandry and food industry sectors. While estimates based on high and low feeding efficiency factors vary considerably, they clearly indicate that high future demand for livestock products would require correspondingly large increments of feed grains and protein meals. Assuming rapid economic growth, the difference between added feed-grain requirements under efficient versus inefficient livestock produc- tion systems would exceed 85 million tons of feed-grains annually by the year 2000. More difficult to project are the requirements of the industrial sector for non-food products and additional demands which might be placed on the sector to generate export earnings in support of overall economic growth. If the Government's income and population growth targets were met, total grain supply in 2000 would have to increase by about 50% from 1980-82 levels (2.2% p.a.) and more than a third would be committed to livestock feeding (versus 10% at present). Feed grain requirements would exceed Government projections of supply. On the demand side, price and foreign trade restrictions can be used to encourage consumption behavior to conform to available production. Other countries, both developed and developing, have used these measures to hold food consumption to levels below those expected or "normal" for a given level of GNP per capita. Present Chinese price policy has probably had the reverse effect, because food prices have been kept low relative to prices of industrial consumer goods and the supply of urban services (e.g., housing) has been subsidized and restricted. Because basic nutritional requirements have already been met on the average in China, some restraint of consumption may be acceptable from a nutritional point of view. On the supply side a key consideration may be the nutritional and resource tradeoff between direct consumption of grain and its use in livestock feeding. - ix - Determinants of Future Growth 9. Land and Water Development. Unique features of Chin.-'s agriculture include the relatively smaLl portion of the total land area which is culti- vated (about 10Z as compared with 75% in India) and the large portion of the total cultivated area which is irrigated (45Z, as compared with 23% in India). Uncertainties exist regarding the actual cultivated area in China. Although official figures of just under 100 million ha continue to be used, the actual figure may be a quarter to a third higher (and actual yields correspondingly lower). Official figures indicate that the cultivated area has declined marginally in recent years. The reported area of cultivated land in 1983 (98.4 m ha) was only about half a million ha larger than it was in 1949. Future availability of agricultural Land largely depends on (a) the extent to which reclamation -will compensate for land lost to non-agricultural uses and (b) the extent and effectiveness of future irrigation development. 10. The Government assumes that China's cultivated area will remain essentially unchanged over the next 15-20 years, as land lost to roads, urban- ization and industrial development is approximately offset by newly-reclaimed Land. Estimates show perhaps 3-5 m ha as suitable for development in the medium-term for sustained production of annual crops. These figures may be compared with the reported loss of about one m ha annually to non-agricultural uses in 1959-78. Annual losses at present are not known but, outside major municipalities, there are few legal restrictions on conversion of farm land to non-agricultural uses. The current surge of rural housing construction suggests that losses of agricultural land will continue to be substantial, despite government efforts at prevention. 11. Given China's land scarcity, irrigation and drainage take on par- ticular significance as means to increase the sown area. MWREP projects additions to the irrigated area by 2000 of 8-10 m ha (from 45 m ha to 53-55 m ha). The amount of land actually irrigated has not increased significantly in 1978-83. About half (4.3 m ha) of MWREP's planned expansion of irrigated area would fall in the rice region south of the Huai River, largely through upgrading of existing facilities. Another large component (1.6 m ha) wouLd occur in the North China PLain, primarily through the project to divert Yangtze River water northward. The remainder would be split between the Northeast and the arid areas of the Northwest Loess region as well as the two provinces of Xinjiang and Gansu. In addition to expansion of irrigated area, an estimated 23 m ha of cultivated land require drainage facilities to prevent waterLogging and to reduce salinity. 12. Fertilizers. Increased use of chemicaL fertilizers has been an important factor in China's impressive agricultural performance in recent years. Application rates for chemical fertilizers doubled between 1977 and 1981 and by 1982 averaged 169 kg of nutrients per cultivated ha. Since 1979 chemical fertilizer use has been stimulated by greater availability and improved fertilizer:product price ratios resulting from recent price reforms. China also has a long history of using organic fertilizers and organics will continue to be important sources of nutrients, particularly for phosphorus, potassium and some trace elements. MAAF estimates that half of nutrient offtake will come from organic sources by 2000. This is likely to be optimistic if utilization patterns in China follow those in other countries as agriculture modernizes. 13. About 85%, or 13.8 million tons, of China's total consumption of chemical fertilizer is produced domestically in some 2,200 plants. Production is characterized by a small number of product types and low nutrient content. Recently China has developed the capacity to design and construct efficient. large-scale plants for the production of nitrogenous fertilizers, but the four plants expected to be operational by 1990 will increase total production by less than a million tons. For both potassium and phosphate production, achieving rapid growth will require an early commitment of funds and manpower co master new technologies in the design and construction of large plants. By the year 2000 MAAF expects consumption of chemical fertilizers to reach 30 million tons of nutrients or half of total fertilizer requirements. It assumes domestic produczion of 24 million tons, elimination of imports of L._trogenous fertilizers, but continued imports of phosphorus and potassium to meet large domestic shortfaLls. In recent years, fertilizer imports have averaged ten million product tons (2-3 million nutrient tons) at a foreign exchange cost of over US$ I billion p.a. 14. About 20% of domestic fertilizer production is distributed through the state system at centrally-estaolished prices. This system of allocating fertilizer has been used as a policy instrument to encourage production and marketing of key commodities. In the past it has tended to favor food crops relative to feed grains and pulses; the high, stable yield areas relative co lands of lower quality; irrigated areas relative to non-irrigated areas; and the state farms relative to the collective sector. This pattern of allocacion appears much less efficient today. At the new higher levels of application, marginal yield responses in the high yield localities are reportedly below marginal yield responses in the low yield areas. There is therefore reason to reallocate availabLe supplies, perhaps by allowing the market to play a large role. Important tasks for the Government are to improve the efficiency of distribution and strengthen fertilizer testing programs to guide production and utilization. 15. Seeds. Recognizing that high quaLity seeds in adequate quantity are critical inputs to increased crop yields, the Government since 1979 has given special support to strengthening China's seed industry. Now in place is a National Seed Corporation (NSC) under MAAF which functions as China's chief regulatory and policy/planning agency for seeds. There are also about 2,300 NSC-affiliated but locally-financed and administered seed companies which handle multiplication, processing, storage, certification and distribution of stock and certified seed. Breeder seed is supplied primarily by provincial agricultural research institutes. Multiplication of stock and certified seed is carried out by seed farms either managed by or under special contract to the local seed companies. The Central General Bureau of State Farmer (GBSF), also under MAAF, operates a parallel system of seed companies and farms. Though the basic mechanisms are in place, both processing facilities and qual- ity assurance procedures are inadequate. NSC and GBSF-affiliated companies supply about 40% of total national seed requirements (17 million tons), but less than 1% of this seed has been properly processed and certified using modern methods. As a result, farmers for the most part are forced to rely on - xi - poor quality seed swhich translates into high seeding rates, high production costs, and less than optimuim vields. The Government's current program of seed industry devel-opment is aimed at modernizing over 300 seed production, processing and distribution centers by the year 2000. 16., The Policy Environment. introduction of the PBRS has siLgnificantly improved agricultural production incentives and can share credit with price reform for the outstanding growth rtzord of Chinese agriculture since 1979. Recent movement cowards an enlarged role for prices and market forces can be expected to enhance the climate for agricultural growth. There is a concern within the Covern-ment. however, that for a farm sector comprising a vast number of indeDendent decision makers, such moves would lead to imbalances in the quantities and mix ofl crops grown relative to national requirements. Quotas for sown area of grain thus reportedly have been retained in order to prevent farmers from shifting a large portion of land under their control from grain to more profitable industrial crops. Analysis of domestic procurement prices relative to border prices for major commodities suggests the need for continued adjustments as the basis for promoting growth and efficiency in the sector. A number of important commodities, including timber, fish, and pork, appear to be underpriced relative to international prices and in fact may be too low to stimulate expanded production. On the other hand, some products such as sugar crops, natural rubber and edible oils may be overpriced. With regard to production inputs, prices of chemical fertilizers appear to be near economic leveLs. Prices of electric power in rural areas are relatively cheap while some farm machinery remains costly by international standards. 17. A key question iZ whether over the next two decades productive investment in the sector will be adequate to sustain agricultural growth at rates needed to achieve national growth and income targets. State investment in agriculture, according to current Chinese estimates, is not expected to grow by more than Y 1-2 billion annually. Collective investment (excluding that in CBEs) may continue to decline. Therefore, the ability to effectively tap private savings for productive investment is likely to be a critical determinant of the adequacy of agriculturalA investment. Measures to attract private savings might include granting private use rights over collective or state property, making time deposits attractive through higher interest rates, instituting a tax on idle assets, and encouraging rural credit institutions to devote a larger proportion of credit to longer-term lending. '18. The Governmcat's investment priorities in agriculture appear to differ substantially from present subsectoral shares. The share of proposed investment which would benefit crop cultivation (about 30%) is less than half of the crop share in GVAOR (about 75%), whereas the other subsectors' shares are at least twice their present product shares. While these investment "iweights" are generally consistent with the structural change that the Govern- ment supports in agriculture, they may not be an effective means of achieving production and income objectives. More than half of total investment would be absorbed by dairy and forestry development. Given the current high costs of dairying operations, massive investment in dairy development appears difficult to justify on efficiency grounds. And, while forestry development in general warrants priority on need and environmental grounds, expenditure on afforesta- tion wilL add relatively little to annual product in the next few years because of the slow maturing nature of this type of investment. - xiL - 19. Agriculture Support Services. aecause yield increases will be the source of most of China's agriculturaL growth, a strong research program aimed at improving production technology is of particular importance. Although it is difficult to prescribe an optimum level of investment in research, esti- mates elsewhere suggest that building an effective national research capa- bility requires an investment of up to 2Z of the annual value of agricultural output. For China, this would imply an annual expenditure of up to Y 4 bil- lion, considerably more than current levels. The bulk of agricultural research in China today is carried out by 390 research institutes at the pro- vincial level and above which operate under the general professional guidance of MAAF's Chinese Academy of Agricultural Sciences (CAAS). Research personnel in these institutes number about 18,800. Another 15,300 researchers work in 49 crop and livestock research institutes run by the provinces. Some research is also carried out in China's 8i agricultural colleges and universities. Despite some very notable research achievements, work at many research insti- tutes is hampered by inadequateLy qualified staff and poor research facili- ties. A large part of the inteLlectual leadership for agricultural research in China is provided by staff who are more than 60 years of age. 20. China has some 85 institutions of higher education in agriculture and related fields, with a student enrollment (1981/82) of about 100,000. This represents only 8% of those enrolled in institutions of higher learn- ing. Agriculture is generally not the first choice of candidates for college and those admitted into agricultural college and universities frequently have lower scores on admission tests. There is also a problem of retaining agri- cultural technicians in this sector after training is complete. SDecial quotas for admission of rural students to agricultural training institutions and additional salary incentives for those working in rural areas have been implemented to ease these problems. 21. The restoration of a farming system organized around individual households has placed new demands on agricultural extension services. Whereas previously the various levels of colLective organization could serve as major foci in the delivery of production inputs and technical assistance, now the extension organization must establish direct links to nearly 200 million pro- duction units which operate much as do small family managed farms elsewhere. In response to this requirement, the Government is in the process of consoli- dating previously separate locaL agricultural services, including seed production, fertilizer distribution, and soil analysis units, into a single, county-leveL agrotechnical extension center (ATEC). Efforts also are underway to link extension more closely with agricultural research and education. ATECs already in existence - about 300 out of a projected 2,300 - are working more closely with local research institutes and colleges in such areas as varietal testing, extension methodology, and training and upgrading of local farmers and technicians. - xiii - 22. Provision of agricultural machine services has also been affected by development of the household farming system. Reductions in field size, as well as the farmer's desire to obtain maximum control over timing of farm operations and to minimize cash expenditures, have caused a decline in demand for large and medium-scale machinery, a corresponding rise in demand for draft animals, and continued strong demand for small-scale pedestrian tractors. About one third of all tractors in the colLective sector now are privately owned. The emerging organizational form for provision of machine services involves private or collective custom land preparation by specialized operators or teams whose earnings are supplemented by short-haul transport work. Successful deveLopment of custom hire machine services would help reduce grain and forage consumption by draft animals. 23. Efforts to restructure agriculture and increase specialization are constrained by the limited capacity of the rural transportation, processing, storage and distribution systems. Inland transport - especially the rural road svstem - and port facilities must be improved in order to handle the projected expansion in traded commodities. Relative neglect of transportation networks under past poLicies of local self-sufficiency has made rural trans- port a particularly acute problem. Solutions have been slow in coming in large part because of inadequate coordination between agricultural planning agencies and agencies responsible for transportation. Grain storage is becoming an increasingly serious problem largely because of inadequate investment in the past and the surge in production in recent years. Cold storage capacity for perishable fruits, vegetables and animal products will have to grow very rapidly if the changing pattern of consumer preferences is to be accommodated. Improved inland transportation and storage facilities in turn would provide a basis for agro-industriaL development which requires assured deliveries of high-quality, uniform raw materials. Prospects for Major Agricultural Products 24. Food Crops. The Planning Bureau within MAAF has targeted grain production to grow by about 2% annually from the average 1980-82 base while the area sown to grains would continue to decline marginally by about 0.1% p.a. The roughly 40% projected increase in rice production is expected to come entirely from higher yields. A major factor expected to contribute to increased yields is the projected expansion in area planted to hybrids from the 1983 level of nearly 6.8 million ha to 13.3 million ha by 2000. With a net yield advantage (taking into account the larger areas required for seed production) of about 20% over conventional varieties, an increase from current levels of the hybrid area by the implied 7.7 million ha, would generate nearly a third of the projected increment in rice production by 2000. Area expansion for hybrids would depend on successful introduction over the next few years of new early maturing varieties in double cropping systems. This seems feasible from technical and organizational viewpoints. With a yield advantage fer hybrids of 0.75-1.0 tons per ha, the incremental benefit-cost ratio of about 5:1 suggests that hybrid rice is economically attractive to producers. 25. Wheat is the second most important grain in China after rice and accounts for about 20% of grain production and 25% of the area sown to grain. MAAF's Planning Bureau projects both wheat and corn production to grow - XLV - more rapidly (2.6Z p.a.) than other major grains. With an assumed smaLl decline in the sown area, this implies annual growth in wheat yields of 2.6Z p.a. to 3.3 tons per ha. This would require continued attention to wheat disease problems, good water control in irrigated areas, and a proper nutrient balance in fertilizer applications. 26. Corn production accounts for about three quarters of coarse grain output and 18Z of total grain output. Production since 1979 expanded at 3.2Z p.a., or about one-half as fast as wheat. The Government projects virtually no change in the cropped area to 2000. but yields are to grow by about 70Z, or 2.8% p.a., 1979-81 to 2000. China's corn yields (adjusted for likely under- reporting of the planted area) are slightly higher than average yields in developing countries, but less than half those in developed countries. Much the same pattern hoLds for other coarse grains. Factors restraining yields of coarse grains include poor seed quality, inadequate irrigation during times of moisture stress, low application of chemical fertilizer and Doorer cultural practices compared with e.g., wheat and rice. Growth of total coarse grai.n production at a substantially higher rate than the Government targec would be required to provide the feed grain necessary to meet output targets for livestock and poultry. 27. Industrial and Specialty Crops. With the significant exception of cotton, national average yieLds and per capita production of industrial crops (oilseeds, fibers, sugar crops, tobacco, tea) on the whole appear to be lower in China than in a number of comparator countries. The demand for these crops as well as for specialty crops such as fruits and vegetables is expected to grow rapidly as incomes rise. In the case of cotton, special encouragement given to production by price and procurement reforms and the planting of improved varieties stimulated a 22% expansion of cropped area and a 72X increase in yields during 1978-83. As a result of these area and yield gains, China has moved from being a large importer of cotton to basic self-suffi- ciency. Prospects seem good for further yield increases. 28. Production of oilseed crops (including rape seed, peanuts, sesame and sunflower seeds, but excluding soybeans and cottonseed) more than doubled during 1978-82 due to both increased area and yield. Soybean production has grown by about 5.2% p.a. since 1978, largely due to increased yields, but still is the only major crop grown in China in which the reported national average yield is less than that for developing countries as a whoLe. A steady increase in soybean yields will be required if China is to meet future needs for high quality protein meal for livestock feeding. Prospects for tea are clouded because of possible marketing constraints at home and abroad. Produc- tion of tobacco is likely to be increasingly influenced by the public percep- tion in China of the health dangers inherent in its use. Caution may be required also with other crops in this category - e.g., sugar cane and sugar beets - for which China may have little overall comparative advantage and domestic procurement prices exceed world prices by substantial margins. For these crops the primary emphasis probably should be to improve yieLds through better cultural practices, improved planting materials and careful choice of planting location. - xv - 29. Forestry. Development plans call for the area under forest to increase from the present 13% of China's total land area to about 20% by the year 2000 to meet expected rapid growth in demand for forest products. Annual per capita wood consumption is about 0.05 cu m (excluding fuelh.-:od). compared to about 0.02 cu m in India and 1.5 cu m in the US. Reflecting iocal short- ages and increased demand from population and income growth, imporcs of forestry products rose from US$242 million in 1976 to peak figures of US$642 millLon in 1980 and about US$540 million in 1981. Major thrusts of future development include afforestation, increased exploitation of mature and over-mature forests, expansion of forest industries and strengthening of forest research, education and extension. Investment programs by the stace forest farms, of which there are some 3,900, have been hampered by the relatively Low price they receive for industrial round wood sold to the Government. Despite recent increases, state procurement prices for timber are only about one-half negotiated prices. 30. Livestock. By the year 2000, the share of the livestock seccor in GVAO Is projected by the Government to rise from the present 15Z to 25%, with meat consumption more than doubling. Achievement of targets will depend heavily on use of animals with higher genetic potencial, better production and management systems, improved veterinary services and the availability of much Larger supplies of grass, grain and protein suppLements. Low grain feeding systems and seriously inadequate levels of protein supplementation are major factors contributing to present technical inefficiencies in China's livestock sector. Solution of the toxicity problems in China's rape seed and cottonseed meals would greatly enlarge potential supplies of protein meal, although soybean meal is still the most appropriate meal for poultry and swine rations because of its amino acid balance. In the absence of adequate local supplies, the development of a capacity to produce synthetic amino acids warrants consideration. 31. China's extensive grazing areas of the North are viewed as a pocen- tial source of much of the large incremental supplies of beef, mutton and wool in future years. However, overgrazing problems in areas such as Nei Monggoi and northern Hebei have been exacerbated by policies since 1979 which have stressed expansion in herd numbers and the rapid introduction of the PRS. While the PRS has encouraged individual care of animals, with the result that mortality rates in some areas are down, it also appears to have destroyed the mechanism by which collectives formerly were able to control animal numbers and to implement pasture management systems. The combination of privately managed herds on a common grazing resource has added pressure to an already overburdened range land. The most important immediate requirement is to match livestock numbers with carrying capacity through herd reduction and improved range management. Although the focus of ruminant livestock development in China has been on the pastoral areas of the North and Northwest, more than 40% of the large animal population, including about half of China's cattle, is located in 12 southern provinces. While these areas may be technically suitable for pasture development, the financial and economic viability of ruminant development in South China also needs careful assessment. 32. Several different production systems are being tried in the live- stock subsector. Official policy increasingly favors animal production by - xvi - specialized households (SH), although most of the dairy development heretofore has been on state-owned enterprises. The term SH refers to small-scale commercial animal farms, which differ from state or collective enterprises in their household management and/or ownership of animals and use of private funds and capital saving production techniques. A major problem faced by the SH system is ensuring adequate supplies of balanced feeds. In some areas, authorities have encouraged SH animal producers to subcontract their land to other farmers who serve as SH feed producers. This form of specialization avoids some of the costs of transporting feed grains, though it is not a fully reliable mechanism for providing adequate feed supplies. China also has a growing number of large-scaLe, commercialized pig and poultry operations, mostly in the suburbs of major cities, to serve urban or export markets. These operations employ confined feeding systems and modern production technology with varying degrees of success. Local management in some cases is inexperienced and a few joint ventures with overseas interests are being organized. 33. China's dairy development policy is to promote production initially near large cities, stressing production by collectives and individual house- holds and using state farms as sources of improved animals and modern tech- nology. With high investment and operating costs, many of the larger dairy enterprises which are already operational do not appear to be financially viable, despite local prices for dairy products which exceed world prices by a substantiaL margin. Viability of some operations has been improved by integrating dairying with more profitable activities such as fish farming or fruit growing which use the manure as feed or fertilizer. But pig or poultry raising is likely to be a less costly source of nutrients for these opera- tions. The economics of large-scale dairy operations in suburban areas warrants careful study. Smaller production units owned by SH and located closer to cheap forage supplies may be preferable. For the inland areas, higher productivity from improved breeds and better pastures may establish the basis for economic expansion of dairy production. 34. Aquatic Products. China's aquatic products sector (marine and freshwater) accounts for only about 1.5% of GVAO. China's fisheries rank third internationally in total production, but one hundredth in per capita production. Production in 1983 totalled about 5.3 million tons, of which more than two-thirds was accounted for by marine capture fisheries. The Government plans to expand aquatic products output to 11 million tons by the year 2000 by emphasizing intensive fish cultivation, particularly in freshwater ponds. There is good potential to increase fish yields in many of the fish farming areas. Factors which have contributed to low yields include poorly designed pond layout, inappropriate breeds of fish or stocking rates and poor feeding systems. With regard to the marine resource, additional consideration should be given to the production of fish meal for the livestock and poultry industries by expanding the collection and processing of fish species now considered to have little economic value. Options and Issues 35. Between the present and the turn of the century, China's agriculture will be required to feed at better nutritional levels a population growing by - xvii - at least 10 million per vear and to supply the raw materials to meet rapid growth in industrial demand. This will be a challenging task. At best, the land area under cuLtivation will not increase and the sown area is likely to remain at present levels as land reclamation and irrigation are approximately offset by lands converted to nonfarm uses. Competition for available water in some parts of China between agriculture, industry and human consumption will increase and make agricultural expansion more difficult. Most of the produc- tion gains will have to come from increased yields on presently cultivated land. The general direction of development is clear, viz., the shifting of more resources into activities (1) which are less constrained by fixed resources (land and water); (2) for which improvement of management and labor skills has a high nayoff (specialty crops, modernization of livestock and poultry production); and (3) for which the gap between existing and advanced technology is greatest (agro-industrial production). 36. It may be suggested that two decades (1980-2000) is too short a time to bring about major structural change in the sector, but examples exist and some lessons may be learned from them. Structural change in Korean and Japanese agriculture has been striking over a roughly similar period of time (1960-80) and began from levels of development in some respects comparable to China today. These structural shifts were not "tplanned," but were largely the response of agricultural sectors in those countries to high rates of indus- trial growth and the attraction of agricultural labor to nonfarm employment. The comparison clearly suggests that rapid growth of the nonfarm economy is a requisite to rapid structural change in agriculture. 37. Projections of Agricultural Growth. Preliminary pLanning by the Government calls for rapid growth in livestock, poultry and sideline produc- tion and a relative decline in the crop share of GVAO by 2000. The farm labor force would decline sharply, while the rural nonfarm work force would rise extremeLy rapidly. The area sown to grain would remain unchanged, although wheat and rice production would grow slightly less rapidly than coarse grains. No significant increases are planned for areas planted to nongrain crop, aLthough yields are expected to increase. 38. If the present generally favorable policies in agriculture continue, agricultural growth to the year 2000 is likely to be more rapid than long-run historical growth rates and structural change would be more rapid. However, this change may not be as rapid as indicated by Government supply targets or consumption demands under targeted income growth. Growth of crop production value is unlikely to greatly exceed the 3.7% p.a. achieved in 1965-83. Potential annual growth rates of grain production would be about 2.4% and nongrain crops 6.8%. Among grains, the MAAF target growth rates for fine grains seem feasible, but corn and soybean production would have to grow more rapidly to provide the feedstuff required to meet targets for the production of livestock and poultry. Nongrain crops would be required to grow at annual rates exceeding historical rates by 1-2 percentage points. Other components of GVAOR (excluding sidelines) are less subject to diminishing returns because of the land constraint and their growth rates will be determined more by the extent of Government and private investment, including that for agricultural support services. - xviii - 39. Though a wide range of alternatives is possible, under one set of reasonable assumptions regarding technical progress, agricultural investment, use of industrial inputs and prices, GVAOR would expand by about 4.4Z per annum while NVAOR would increase at a rate of about 3.8Z yearly. If the farm Labor force expands by about 0.6Z p.a., these increases in output would translate into an approximate doubling of gross labor productivity in agriculture by the year 2000. The share of crops in GVAOR would decline by about eight percentage points and the livestock share would increase from 18% in 1980-82 to 24% by 2000. While this projection of potencial growth is slightly higher than the growth rate of total suppLy needed to satisfy consumption requirements in 2000, the structure of potential production is quite different from that projected for consumption. The value of potential crop production would significantly exceed consumption requirements (particularly of rice), whiLe that of livestock and fisheries would fall short of requirements. Faced with such potential imbalances, the options could include measures to (1) adjust price and area for the crops in surpLus, (2) encourage the production of feedgrains in the rice areas; (3) attempt to develop export markets for crops in surplus; (4) trade them for products in short supply (livestock products, forest products, etc.) or (5) import sizeable quantities of feedgrain and high protein meals to support livestock production. A challenge to Covernment policy would be to convert China's potential for rice and nongrain crop production into increased feed supply either through external trade or a major restructuring of domestic cropping patterns. 40. International Trade. Planning in China continues to be premissed on basic self-sufficiency in agriculture, although it is acknowledged that trade will continue to play a roLe in baLancing supply and demand for farm products and in generating foreign exchange. However, a seLf-sufficiency orientation may well conflict with satisfaction of future consumption patterns and raises the question of the extent to which international trade could balance supply and demand at lower cost to the economy. Global suppLy and demand considera- tions suggest that in the next decade overall world trade in grains is not Likely to grow as rapidly as in the 1970s. With generally abundant supplies, world prices for the major grains in real terms are expected to decline about 10% from 1976-82 levels. Because of the large volume of world trade in feed grains, it seems unlikeLy that a gradual increase in imports of these grains by China to support rapid growth of the livestock and poultry industries would have a significant effect on world prices. China's potential impact on the world rice market could be much larger because of the "thinness" of that market relative to the quantities which China could supply. The best export prospects in agriculture are likely to be for a wide variety of labor- intensive, high-value products for which international income elasticities of demand are high. But the successful production, processing and marketing of them in world markets would require strengthened support services in research, extension, market infrastructure and market development. - xix - 41. Adjustments in Production. Reflecting expected changes in domestic consumption patterns and world markets, the needed adjustment in cropping patterns might involve some reduction in the area planted to rice and expan- sion of the area under crops such as corn and soybeans required by a much larger livestock program. This might well include conversion of some of the uplands of the south from the production of low-yielding rainfed rice to feedgrains and oilseeds. Such a shift would alLow peri-urban areas to plant higher value crops on lands now under grain and forage crops and provide a basis for more diversified production systems in the low income upland areas where rainfed rice is a major source of income. For the nongrain crops, bottlenecks in transport, storage and processing are major constraints to expanded production. For the oilseeds, the most urgent tasks, in addition to expanding production of high quality protein meals, are to improve varieties and processing technology so as to increase the suicabilitv of these meals (particularly from rapeseed and cottonseed) as Livestock and poultry feeds. China seems likely to maintain its position of basic self-sufficiency in cotton and may have supplies for export. Study is needed to compare the relative economic merits of further expansion of cotton for export or use of the land to, e.g., increase production of animal feedstuffs. For high value fruits and vegetables, the major challenges lie in expanding production to meet the expected sharp increase in domestic demand and exploiting possible export markecs. It is in the processing, packaging and marketing of semi- perishables such as these chat China's existing systems are most deficient. This appears to be an area where joint ventures with established foreign firms -iouLd be useful as a source of both technology and market access. 42. Central planners have posed ambitious targets for meac, dairy and egg production. Beef, mutton and wool production from the northern grasslands are likely to grow no faster than in the recent past, and possibly slower, because of serious overgrazing and deterioration of range lands. Shortage of feed and forage are also likely to limit livestock production in the southern grasslands and the agricultural areas. A solid technological base Pxists to expand pork production, but the rate of growth will depend heavily on the adequacy of high quality energy feeds and protein. China's poultry industry should be accorded high priority because (1) poultry meat and eggs are pre- ferred products among Chinese consumers, (2) modern production systems are efficient converters of plant materials to animal protein, and (3) technology to substantially improve production efficiency is available internationally and readily transferable. In light of the high investment costs, the objec- tives and means in China's proposed dairy development program should be recon- sidered. Production by state enterprises in suburban areas is increasingly handicapped by high economic costs of land and scarcity of abundant forage. In the medium term, increased milk supplies for urban consumers might well be provided at lower economic costs through the importation and reconstitution of relatively low cost milk powder. Greater emphasis on specialized households and smaller-scale production units would be expected to improve efficiency in the dairy industry. This would require improved access by these groups to better milking stock, good veterinary services and high protein feed sources to supplement local feed supplies. The technology to double the output of aquatic products is available, particularly for freshwater fish cultivation, but realization of that target will depend heavily on whether adequate supplies of feeds (manure, grass, some grain) can be made available at suitable prices. - xx - 43. Income Distribution. Recent rural reforms have significantly narrowed urban-rural income differentials, although in 1982 average per capita income in urban areas continued to be about twice that in rural areas. rn the 1978-82 period, interpersonal income differentials in the rural areas almost certainly increased as a consequence of policies to improve production incen- tives and foster entrepreneurship. Interregional income differences originate in differences in land and water availability, access to markets for inputs and outputs, and tax, procurement and price policies of the Government. In 1979-82, some of the poorest areas were among the first to introduce the BGDH system and consequently realized the earliest benefits from the reforms in crop production (e.g., Anhui, Sichuan, Guangxi and Guizhou). Some of the better endowed areas (e.g., parts of Jiangsu and Guangdong) benefitted from expanded production from sideline industries and access to free market and export prices. Relative poverty remains characteristic of much of the northwest and parts of the north and southwest - areas with poorer soiLs, little irrigation and difficult access to modern inputs such as fertilizers or to urban or export markets. Although one element of Government policy is to provide special assistance to the poorer areas, significant results may be difficult to achieve. The Central Government controls directly only about 20% of chemicaL fertilizer production and current plans for water resource devel- opment continue to emphasize the better endowed provinces. On the other hand, pricing poLicy for farm products and production inputs has tended to favor the poorer, more isoLated areas and criteria for assessing returns to irrigation in such areas are frequently less rigorous than elsewhere. The emphasis on dairy and poultry production around urban centers probably tends to widen interregional income differences, as does rural industrial development which is faster near major urban areas. 44. Policy options which would substantially change these general trends are difficult to identify. The areas of extreme poverty are typically resource poor; investments to substantially alleviate this situation may not be justified on economic grounds alone. In some of the poorest areas, outmigration is certain to be one of the required policy measures. Elsewhere, improved transport and access to markets for agricultural products and inputs are likeLy to be among the most important measures needed to address the relative poverty issue. But to be effective, these must be buttressed by stronger agricuLturaL research and extension oriented to difficult agro- climatic circumstances. Issues related to inter-regional income distribution are likely to remain important in China. 45. Prices. The budgetary cost of the continuing upward drift of average procurement prices has encouraged changes in the multi-tier pricing system. An approach, currently applied to oilseeds and cotton and soon to be introduced for grain, is a system whereby fixed proportions of farm sales receive quota and above quota prices. Marginal prices received by farmers for additional sales are reduced to a weighted average of quota and above quota prices, and state procurement agencies cease to serve as buyers of last resort. With this approach, incentives to sell to the state and to use pur- chased inputs might decline and budgetary costs would be little affected unless the system were applied to reduce average procurement prices as well. A preferable alternative might be to replace this system with a single market price structure, with government intervention as necessary to maintain price - xxi - stability. The indirect tax resulting from low procurement prices could be replaced with direct taxes based on the productivity of Land and other resour- ces. Procurement agencies would purchase only the quantities needed to meet urban and rural resale requirements and to maintain emergency reserves and price buffer stocks. 46. Some changes in relative prices for specific farm products and inputs seem to be required in order to enhance incentives and encourage effi- ciency. Some of the required changes emerge from the fact that much larger output of, e.g., livestock products, requires new production technologies (e.g.. more intensive grain feeding) which are not profitable if grain is priced at current market (or marginal) prices. In pork production, for example, the policy has been to subsidize grain and other coscs for producers who use grain intensive systems. A more efficient alternative would be to allow both product and input prices to rise and employ direct taxes as necessary to meet efficiency and equity objectives. 47. To stimulate necessary investment, comprehensive price reforms in agriculture are likely to require price increases for livestock, forestry and fisheries relative to most crops. This selective increase in farm prices might permit an increase in incerest rates on agricultural loans and in the rates paid on deposits, thereby helping to mobilize more savings for produc- tive investment. While non-Government funds are likely to be the major source of investment in the sector, an increase in Government resources also wilL be required. CHI'A AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS 1. Performance Since 1979 Introduction 1.01 China's agricultural sector has undergone substantial change since the visit of the World Bank's first Economic Mission in November 1980. The introduction of the "production responsibility system" (PRS), price reforms and other changes in the organization and management of production units and support services have had very positive effects on the performance of the sector in recent years. This chapter of the annex describes these changes in some detail and examines agriculture's performance since 1979. The second chapter explores future demands for food and other agricultural products, while the third and fourth chapters look at determinants of future growth and production prospects for major products, respectively. A concLuding chapter considers some of the issues and options which face the sector over the next 15-20 years. 1.02 The basic objective of this report is to bring tagether the material available to the Bank which bears most directly on future development of China's agriculture and, from that base, to discuss development prospects and options. The size and diversity of the agricultural sector makes this a formidable task. The work has been made somewhat easier by extensive discuss- ions with authorities in Beijing and through visits by the Economic Mission to Hubei, Jiangsu and Gansu Provinces during the first four months of 1984. The Bank's ongoing agricultural project work also has deepened our knowledge of the sector. The material which follows should be viewed as part of the World Bank's continuing effort to understand and assist an agricultural economy which provides basic sustenance to more than one billion people and liveli- hoods for some 800 million individuals. The Changing Policy Environment 1.03 Institutional Reforms. Beginning with the experimental abolition of collective farming in the more impoverished areas, the Chinese Government has moved swiftly since 1979 to implement a comprehensive restructuring of rural institutions. The reforms, a major feature of which is implementation of the PRS, were designed to improve incentives and management at all levels of the agricultural economy. By 1983 the farm household had become the fundamental unit of management and production in the agricultural sector, within a frame- work of collective or state ownership of land and major fixed assets. The continuing process of reform is directed at shoring up the new structure, dis- mantling redundant collective institutions, and facilitating a higher degree of commercialization and specialization. 1.04 The PRS is based on a system of contractual relationships which define the rights and responsibilities of owners (state, coLlective, or pri- vate) and managers of assets. The contract system is also applied to define vendor-consumer or supplier-procurer relationships. It is intended to provide scope for increased, albeit constrained, independence of decision making and encourage relationships based on negotiation rather than administrative fiat. A wide variety of contractual forms have been tried, and in agriculture one system has become nearly universal: bao gan dao hu (BGDH). This, loosely translated, means "contracting all actions to the household". 1.05 In BGDH, management of collectively-owned land is contracted to households, usually in proportion to household size or Labor force. Other collective assets are divided up, sold or contracted to individuals or groups willing to manage them. The household is obligated to pay taxes, make contri- butions to collective welfare funds, provide its share of state procurement requirements, and contribute labor to maintain or construct public infrastruc- ture. All remaining output may be retained by the household. Food rations and the work point system are abolished. Under this system, teams of 20- 40 households function largely as administrative bodies, make periodic adjust- ments in the distribution of land and other assets, collect taxes, procure production quotas on behalf of the Government, and implement family planning activities. Teams may continue to promote the development of service or subsidiary production activities, but this is done usually through subcontrac- ting rather than direct management. 1.06 Some teams have retained less radical forms of the PRS and continue to play a major role in management or distribution. Usually these are teams in areas where extensive indivisible collective assets exist. The state farm system initially tied bonuses to contractual performance of individual workers on fixed basic wages, but has now begun to implement a scheme similar to BGDH. 1.07 As part cf the trend toward a reduced role for administrative bodies in economic management, higher level institutions are also undergoing restruc- turing. The commune is being transformed into the township (xiang) with its economic roLe confined largely to fostering commune and brigade enterprise (CBE) development. The brigade is being renamed the village (cun) and is los- ing much of its managerial and technical staff. The Supply and Marketing Cooperatives are being restored to their initial role as dividend-paying, shareholder-managed institutions owned largely by farm households. At higher levels, Jiangsu Province is experimenting with the integration of cities, towns and surrounding countryside into single administrative units in order to reduce administrative obstacles to commercial development. State farm reforms include the establishment at provincial level of semi-autonomous Agriculture, Industry and Trade Corporations which will be responsible for, inter alia, interprovincial and international trade in products from state farms. These corporations also will be permitted to engage in construction work outside of the state farm system. 1.08 BCDH has provided substantial rewards to those farmers who are able to increase production. Tax, welfare fund contributions, and quota procure- ment obligations have been fixed in absolute terms, rather than on a - 3 - percentage basis, although amounts vary with the productivity of assigned land. The total obligation to the collective and the Government, counting the underpricing of yocurements, anpears to be in the range of 20-30% of gross value of output.- 1.09 A State Council regulation of early 1984 permits the transportation and marketing of most agricultural products by collectives and in2ividual producers after quota and above quota deliveries have been made.- After licensing by local commercial bureaus, producers may transport agricultural products, including livestock, aquatic products and processed foods, for sale across county and provincial lines. Similarly, private merchants in urban areas may cross jurisdictional boundaries to purchase eligible products directly from producers. Prices are to be established through negotiations and may vary within the bounds, if any, specified by local or national policy. In the case of inter-county or inter-provincial movements of goods, itineraries of transport vehicles must be approved by authorities at county level or above. 1.10 The shift in control over resources from collectives to individuals has created new policy issues, among them how to sustain a high rate of investment in the farm sector. Perhaps reflecting uncertainty over the dura- tion of the PRS policies, households were initially inclined to devote their new surpluses to housing construction and the accumulation of consumer durables or commodity stocks. The Government has responded with policy changes designed to encourage private investment, notably by lengthening land contracts to up to 15 years in the case of annual crops and 50 years for tree crops, machinery and equipment. Since the inception of the PRS some 1.2 mil- lion households have purchased pedestrian tractors. 1.11 Part of the new policy environment is to encourage specialization and commercialization, thereby reversing-the self-sufficiency orientation of Chinese coLlective agriculture. This requires better functioning markets in labor, purchased inputs, services and output. These have begun to deveLop with official sanction. A clear example relates to labor and land. It is widely held that about one-third of the rural labor force is not required in agricultural production with existing technology. To encourage more efficient use of rural labor, recent Government decisions have allowed farmers to hire labor at negotiated wage rates and to surrender or subcontract land use rights in order to engage in off-farm activities. 1/ Assuming that 50-60% of total sales are at quota prices and the "market equilibrium price" is perhaps 50% higher than the quota price. 2/ State Council, "Regulations Issued by the State Council Concerning the Transportation and Sale of Farm and Sideline Produce by Collective Com- mercial Units and Individuals," February 25, 1984 (World Bank translation of Xinhua release of March 8, 1984). 1.12 The growth of BGDE and the focus on farm households as production units has required new structures for agricultural extension and research. Here the Government is using new concepts such as the model farmer and is appLying the contractual features of the PRS to extension work by experiment- ing with a fee-for-service system to provide technical assistance to producers. The farm household is the new target for support services, and the "specialized household" (SH) is considered to be the major vehicle to demon- strate improved technology. Some 14Z of farm households now possess suffi- cient degrees of production specialization and/or comnercialization to be classified as SH. The SH at present is something of a hothouse product, nurtured with subsidies and often headed by individuals with some technical training. Government policy reflects an increased awareness of the need to establish an institutional framework for agriculture which provides a "complete service structure supporting commercial production, including such requirements as technical assistance, investment, marketing, storage. processing, transport, commercial credit, and management assistance."31 Achievements are encouraging, but much remains to be done in each of these areas. 1.13 Rural Reforms and Investment. Spread of the PRS appears to have been accompanied by a contraction in rural investment in production infra- structure. In the past, accumulation by collectives, together with investment in kind by collective labor, represented a major part of agricultural invest- ment. In recent years, in-kind investment by collective labor has become much less important, although this may have been offset to some extent by increased labor invescment by households on lands contracted to them. The transfer of control over resources from collectives to farm families has resulted in an increase in private rural savings which now are equal to about 20Z of annual income. Until recently, most of these savings had been funneled into housing construction or stock accumulation, possibly reflecting a reluctance to make long-term on-farm investments due to uncertainty about tenure arrangements or the permanence of reforms. In early 1984 the Government reacted to this pro- blem by issuing decrees to guarantee long tenure and to encourage private investment in productive activities. The rapid increase in crop marketing in 1983 suggests that on-farm stock accumulation may have reached its limits. 1.14 The collectives now appear to be handicapped by diminished income from agriculture and growing difficulties in drafting team labor for such works as irrigation, land improvement and local road projects. Compensation for labor on large projects must be paid in cash or kind, at rates which com- pete with the earnings possible from private farming and sideline activi- ties. However, an uncompensated "social labor obligation," perhaps averaging 20 work days per farmer per year, may be tapped to maintain infrastructure, construct small projects with Local benefits, and fight natural disasters. Costed at about Y 2 per day, this may amount to as much as Y 12 billion in potential rural gross investment per year. In addition, rural collectives 31 China Farmer's News 16 (February 1984), p. 1, describing the contents of the 1984 No. 1 Party Directive. -5 - accounted for Y 13.1 billion of fixed investment in 1982, of which about 60% was derived from the net incomes of CBEs. 1.15 State investment has been adversely affected in recent years by increased budgetary stringency, designed to reduce the central Government deficit. Investment by the state in agriculture appears to have suffered more than some other sectors. The Y 3.0 billion budget in 1982 for fixed capital investment in agriculture (including forestry, water conservancy and meteoro- logy) represented a decline in this component to 9.7X of total Government investment in basic construction, compared to the 11-12% reached at the end of the 1970s (Table 1.1). Actual totaL investment in agriculture, including extra-budgetary funding by state-owned units at all levels, fell from 10.5X of the total during the Fifth Five-Year Plan to 5.8% in 1983. Much of this was absorbed by major projects receiving state support, e.g., Heilongjiang drain- age and land reclamation, Tianjin municipal water supply, and various projects in Guangdong, some of which appeared to be only indirectly related to agricul- ture. The source of financing of water conservancy projects has shifted away from state budgets to provincial and local funds. In 1983 only about a quar- ter of expenditure for this purpose originated in the state budget. 1.16 The agricultural credit system also may have been used to restrain investment. Available data suggest that increased rural deposits exceeded the net increase in rural lending in recent years (although more rapid loan repay- ment due to good harvests may account for this phenomenon). The portfolio of rural lending institutions also was undergoing restructuring, as individual farmers received a growing proportion of new loans and the financing of state farms shifted increasingly from central government grants to loans by the Agricultural Bank (Appendix Table A.1). 1.17 A rough estimate of the magnitude of rural gross capital formation in 1982 is about Y 65 billion (Table 1.2). Investment by the state appears to have accounted for only 5% of this total, but represents perhaps one-fourth of directly productive investment in agriculture (Y 3.4 billion of Y 14.5 bil- lion, the latter being the difference between the Y 26.5 billion in "other use"' and the Y 12 billion for uncompensated labor). About one-half of collec- tive investment was directed to CBE expansion from CBE profits, which also provided more than one-quarter of the financing for other collective invest- ments (excluding "social labor"). The value of net increases in pedestrian tractors, draft animals, and pigs alone, presumably components of private investment, totalled nearly as much as state investment in agriculture. 1.18 The estimates in Table 1.2, notwithstanding their imprecision, suggest that by 1982 only a limited proportion of rural savings was being directed into investments which would contribute directly to agricultural productivity. A sizeable proportion of this investment undoubtedly was used to replace aging infrastructure or was offset by abandonment of collective assets such as large-scale farm machinery. On the ocher hand, the estimates suggest that private rural savings are large enough to be a major source of finance for rural development, if the savings can be mobilized without under- mining the newly-established production incentives. - 6 - ' Table 1.1: AMRICULTURE IN THE STATE BUDGET (Y billion) /a 1957 1965 1975 1978 1979 1980 1981 1982 Total budgetary allocations /b 30.4 46.6 82.1 111.1 127.4 121.3 111.5 115.3 Of which: Basic construction investment /c 12.4 15.9 32.7 45.2 51.5 41.9 33.1 30.9 Budgetary allocation for agri- culture, forestry, water conser- vancy and meteorology /c Basic construction investment 1.1 2.4 3.6 5.1 6.2 4.9 2.5 3.0/d Administrative expenditure 0.9 1.7 3.3 6.1 7.9 7.0 6.5 6.2 Working capital expenditure U.1 0.3 0.3 0.8 0.5 0.4 0.2 0.2 Subsidies to communes - 0.1 0.9 1.6 1.1 1.2 0.9 1.0 Rural relief assistance 0.3 0.7 0.7 0.7 1.0 0.7 0.7 0.9 Total 2.4 5.1 8.9 14.3 16.8 14.2 10.8 11.3 Allocation for basic construc- tion in agriculture as Z of: Total budget 3.6 5.0 4.3 4.6 4.9 4.0 2.2 2.6 Total basic construction 8.8 14.8 10.9 11.3 12.1 11.6 7.4 9.7 Budget allocation for agriculture as x of total budget allocation 7.9 10.9 10.8 12.9 13.2 11.7 9.7 9.8 /a Relates to magnitudes in the unified national development plan and therefore includes those allocations by the central, provincial and local governments which are normally included in the national plan. lb From 1982 China Statistical Yearbook, p. 449. Refers to budgeted expenditure. /c From 1982 Yearbook, pp. 452-53. /d Actual expenditure, which was probably higher than budgeted expenditure. Table 1.2: ESTINATES OF RURAL GROSS CAPITAL FORMATION, 1982 Amount Percentage (Y billion) (x) By origin: State /a 3.4 5 Collectives lb 13.1 20 Private /c 48.5 75 (of which uncompensated labor) (12.0) (19) Total 65.0 100 By use: Commune & brigade enterprise /d 6.8 10 Private housing /c 15.7 24 Stock accumulation /e 16.0 25 Other uses 26.5 41 Total 65.0 100 /a From Table 1.1. Includes investment by state-owned enterprises and farms outside the state budget. /b Report in State Statistical Bureau, Outline of Chinese Statistics, 1983 (Beijing, 1983), p.57. {c The sum of estimated components, including investments in private housing and other buildings (Y 16.9 billion, from source in note b), stock accuu- lation (Y 16 billion, based on difference between income and consumption in kind as reported in rural income surveys), net investments in produc- tive assets except buildings (Y 3.5 billion, net of transfers from collec- tive to private ownership). The increased numbers of pedestrian tractors, draft animals, and pigs alone would account for Y3.1 billion, and uncompensated "social labor" (assumed to average 20 workdays per year at Y 2/day for each of some 300 million farm workers) would have a value of about Y 12 billion. /d The portion of retained earnings of commune and brigade enterprises which was not distributed or used to support agriculture. Includes Y 4.7 billion reinvested in CBE expansion and Y 2.1 billion for "other uses," primarily infrastructure such as roads, bridges, and housing related to CBE production as well as some "administrative expenses". As reported by the CBE Bureau, MAAF. /e Accumulation of grain stocks and other agricultural commodities, including private working capital. - 8 - 1.19 Price Reforms. The Chinese government in 1979 made major adjust- ments in the Level and structure of farm prices because of concern that the existing structure did not provide sufficient income and incentives for the crop mix which the Government wished to encourage. Because these reforms forced sharply higher budgetary costs for consumer subsidies, the Government has indicated its unwillingness to consider further significant increases in the farm price level over the medium term. However, as seen below, this pricing system guarantees an upward drift in the weighted average price received by farmers as long as production and procurement continue to grow. 1.20 Prior to further reforms announced in Late 1984, the farm price structure encompassed four distinct prices: (a) quota; (b) above quota; (c) negotiated prices; and (d) free market prices. Quota prices applied to crops sold in fulfillment of procurement quotas; above quota prices were paid for that part of crop sales in excess of quotas. Quantities to be delivered to the state at quota and above quota prices were stipulated for each producer. After fulfiLling these two obligations, producers could sell remaining supplies at negotiated or free market prices. Ratios of above quota prices to quota procurement prices, which were 30% for grain prior to 1979, were increased to 50% for grains and oilseeds, 20% for bast fibers, and 30% for cotton (which previously had no above quota price premium). Procurement prices for soybeans were increased 15% in 1979 and 50% in 1981. Quantity narms or obligations for sales at above quota prices have been typically determined for a three-year period, but no penalty is attached to underful- fillment, as currently there is little differential between above-quota and free market prices. The number of agricultural commodities with state- established prices is declining and the pricing structure is being simplified. In Gansu Province, for example, the number of agricultural and sideline prices controlled by the price bureau declined from more than 100 to about 40 by early 1984 (of which 30 were for medicinal herbs). Beginning with the 1984 crop, all cotton in China was to be procured without regard to quota fulfillment under a one-price system in which a weighted average of quota and above-quota prices will apply, with weights varying by region but not over time. It is expected that a similar system would be applied to grains beginning in 1985. 1.21 Negotiated prices fluctuate at approximate parity with free market prices. They apply to sales to the state by individual farmers for production which may be legally sold on the free market. In 1980, negotiated prices were 10-20% higher than above quota prices, reflecting procurement shortages and high free market prices. Recently, negotiated prices for some grains have fallen in some areas to less than above-quota prices, reflecting bumper har- vests. Overall, in 1979 the average procurement prices (each type of price weighted by the share of sales transacted at that price) rose about 25% for grains, 40% for oilseeds, 17% for cotton and 37% for pigs. 1.22 Procurement quotas for the two major commodity groups, grain and cotton, were last fixed in the early 1970s and have remained substantially unchanged. Quotas for other crops such as oilseeds varied from year to year. If no quota existed for a product, the above quota or-negotiated price normally applied. As a result, increased procurements have generally taken place at higher than average prices and imparted an uptrend to the weighted average price, even with an unchanged price structure. The effect can be - 9- sizeable. Of the total value of net procurement of agriculture and sideline output in 1983, 48Z was at quota prices, 28Z at above quota prices, and 13X at negotiated or market prices. Just under 11Z represented free market sales to the nonfarm population. The increased volume of sales in 1983 over 1981 at quota prices was only 9%, but was 49-78% for each of the other three categories. As a result, ave-'age weighted prices in agriculture appear to have continued to grow in recent years at about 5% p.a (Appendix Table A.2). Reforms announced in late 1984 are expected to effectively abolish procurement quotas for most agricultural commodities. Under the new system Government procurement would be limited largely to contracted amounts needed for urban consumers. Excess production is to be retained by the farmer or marketed by :he farmer on the free market. 1.23 Price reforms of recent years were designed to improve levels of living for farmers and to correct incentive imbalances among crops. However, there has been little public information on how these objectives were transLated into specific prices. Some inferences can be drawn from post- reform surveys of farm production costs (Table 1.3). It appears that quota prices were set at leveLs which roughly equalized the net return (wages, rent, nrofit) per labor day for different crops (with the exception of sugar, where the intent apparently was to provide an incentive for expanded production), with the value of rural consumption per labor day which has been reported at about Y 1.40. This leads to significant differences among crops per sown ha, although these differences are greatly narrowed if cropping systems are con- sidered which would typically occupy land for an entire year (e.g., rice, corn or soybeans combined with wheat or rape, and compared with crops such as cotton, jute, tobacco or sugar cane where only a single crop per year is possible). 1.24 Average quota procurement prices appear to bear a reasonable rela- tionship to historical production costs for the "average" region or situa- tion. However, the new price structure is based on past levels of input use which, in turn, were influenced by the previous price structure. Thus, price adjustments which restored profitability relative to past production costs tend to perpetuate any inefficiencies existing in the previous price struc- ture. Further, average cost-price relationships mask regional variations in subsistence costs, land quality, the extent of multiple cropping, etc. Some local observers regard the new level of quota prices as too low to promote increased production and biased against grain production. However, agricul- ture's good performance since the 1979 price adjustments does not provide support for these assertions. Some anomalies, such as the low return per ha for soybeans (which are single cropped in the main producing region), have been corrected through subsequent price or quota adjustments. Growth and Productivity 1.25 The period since the 1979 reforms has been characterized by excep- tionally good performance of the agricultural sector. The gross value of agricultural output (GVAO) in 1983 grew by 9.5% folLowing growth of 11.1% in 1982, 6.6% in 1981, and 3.9% in 1980. Since 1978, GVAO has grown at an annual average exceeding 7X, or more than twice the rate achieved over the previous two decades. Weather during much of this period was normal, but unusually good growing conditions in 1982 and 1983 made important contributions to high - 10 - Table 1.3: EFFECTS OF PRICE REFORM ON RETURNS TO CROP CULTIVATION /a Net return per Net return Rate of return Crop labor day /b per ha /b on cost /c Rice 1.56 782* 47 Wheat 1.13 411* 19 Corn 1.31 500* 33 Soybean 1.37 352 39 Cotton 1.34 1,087 40 Rapeseed 1.17 491* 25 Peanuts 1.27 570* 45 Jute 1.39 l,289 42 Tobacco 1.36 1,540 36 Sugarcane 1.98 1,769 66 Sugar beet 3.37 810 106 /a Computed from survey data covering over 800 production teams and reported in the Handbook of Agrotechnical Economics (Beijing, 1983), pp. 642-57. Data refer to prices and costs which prevailed after the 1979 reforms. /b Net return defined as gross value of main product at quota prices less material costs (net of value of byproduct); that is, rent + wages + pro- fit. Refers to crop area, not cultivated area. An asterisk designates crops which frequently occupy land in one of two crop seasons per year. /c Net returns exclusive of "wages," valued at Y 0.80/labor day (an account- ing wage used in cost surveys since the 1950s); as a percentage of mater- ial costs + "wages." - 11 - growth in those years. During the 1979-83 period, China's cropped area declined by 3.0%. The area sown to grains fell by more than 4%, while the area under non-grains rose by 20%. 1.26 Grain production in 1983 reached a record 387.3 million tons, some 17% higher than in 1979 (Table 1.4). Grain production in 1979-83 increased at an annual average rate of 3.9Z, as the steady decline in sown area was more than offset by a remarkable 22% increase in average yields. Factors contri- buting to yield gains included more rational selection of areas planted to grains, improved production incentives and greater use of purchased inputs. The largest production gains have been centered on the fine grains. Compared with 1979, wheat production in 1983 was up by 30%, rice output was some 17% greater, but output of coarse grains increased by only 9%. An important con- tributor to grain production was hybrid rice, which now accounts for about 26% of China's rice production and has a yield advantage over conventional varie- ties of 15-20%. 1.27 Oilseed production in 1983 (excluding soybeans and cottonseed) totalled 10.6 million tons, down 10.7% from 1982 but 66Z more than production in 1979. In contrast to grains, the area planted to oilseeds increased stea- dily until recently, with most of the increase coming in rapeseed- The area planted to rapeseed was cut in 1983 in response to market surpluses and state prices were reduced slightly. Good harvests permitted steady gains in per capita availabilities of edible oils to about 4 kg per annum, thereby helping to alleviate scarcities of this important food item. Soybean production in 1979-83 varied markedly from year to year in response to weather conditicns, but trended upward. Imports of soybeans for crushing declined while soybean exports for food use have moved up slightly. Production in 1983 was 9.8 mil- lion tons, up 7.7% from the 1982 crop. 1.28 China's cotton crop more than doubled in 1979-83, reflecting both higher yields (up 56%) and larger planted area (up 36%). The 1983 crop was up more than 28% from the 1982 level. The rapid growth in production is due in large part to specialization incentives and the introduction of new varieties. These incentives are encouraging expansion in the traditional areas well- suited to production in North China, while the planted area declined in less well-adapted areas where production had been encouraged by previous policies. The planted area in 1983 in Shandong Province, the largest producer, was 40% greater than it was in 1981, while the cotton area in Sichuan Province was down about 50% from 1981 levels. Cotton imports continued to decline and in 1983 were only about lOZ of levels in the peak years of 1979 and 1980. Stocks of cotton in early 1984 Y!ere about 1.6 million tons, equivalent to nearly half a year's consumption requirements, and export markets were being sought. Rationing of cotton textiles ended in 1983 in conjunction with a price adjust- ment (cotton _ip 20%; synthetic textile prices down 30X) designed to balance supply ard demand and pass on increases in raw material prices. 1.29 Sugar production increased by 52% in 1978-82, in response to attrac- tive price incentives. Despite these gains, sugar imports continue to increase rapidly as part of the Government's efforts to improve per capita consumption levels of key commodities. Annual per capita consumption of sugar of 4.5 kg remains low by international standards (e.g. 20 kg in Thailand). In the 1979-83 period, tobacco production rose by 43%, tea by 45%, and silk cocoons by 26%. - 12 - Table 1.4: PRODUCTION CHANGES, 1979-83 % annual Percent growth change rates Production Unit 1979 1983 1983/1979 1983/1979 Rice (Paddy) Sown area mln ha 33.9 33.1 -2 Yield tons/ha 4.3 5.1 +20 Output mln tons 143.8 168.9 +17 4.1 Wheat Sown area mln ha 29.4 29.1 -1 Yield tons/ha - 2.1 2.8 +31 Output mln tons 62.7 81.4 +30 6.7 Corn Sown area mln ha 20.1 18.8 -6 Yield tons/ha 3.0 3.6 +20 Output mln tons 60.0 68.2 +14 3.3 Others /a Sown area mln ha 35.9 33.0 -8 Yield tons/ha 1.8 2.1 +15 output mln tons 65.6 68.8 +5 1.2 Total Grain Sown area mln ha 119.3 114.0 -4 Yield ton/ha 2.8 3.4 +22 Output mln tons 332.1 387.3 +17 3.9 Cotton Sown area mln ha 4.5 6.1 +36 Yield kg/ha 88 763 +56 Output mln tons 2.2 4.6 +109 20.2 (ginned weight) Oilseeds /b Sown area mln ha 7.1 8.4 +18 Yield kg/ha 913 1,260 +38 Output mln tons 6.4 10.6 +66 13.4 Sugar (refined) mln tons 2.5 3.8 +52 11.0 Tea '000 tons 277 401 +45 9.7 Meat /c mln tons 10.6 14.0 +32 7.2 Tobacco (cured) '000 tons 806 1,151 +43 9.3 /a Soybeans, pulses, sorghum, millet, barley, oats, tubers, miscellaneous grains. /b Excludes soybeans and cottonseed. /c Pork, beef, and mutton only. Source: State Statistical Bureau. - 13 - 1.30 Meat production (pork, beef, mutton) in 1983 was 32Z greater than in 1979, with most of the gains coming in pork production. Per capita availabi- lity of meat in 1983 reached 13.7 kg. Cattle numbers have increased sharply in recent years, partly in response to the PRS which now permics farm house- holds to own draft animals. The PRS in the grazing areas also is providing strong incentives to increase animal numbers, but thereby exacerbating the problem of overgrazing. Milk production is in the range of 1.8 million tons annually, but consumption remains low by international standards (about 1.7 kg per capita in China; 10 kg in Malaysia; 103 kg in the United States). The Government has just begun to collect statistics on poultry production. House- hold surveys suggest that per capita egg consumption has grown by nearly 50% since 1978. Modern enterprises for the production of eggs and poultry meat are being established near some of the larger coastal cities and are providing larger shares of total broiler and egg production. 1.31 Output of aquatic products in 1983 totalled nearLy 5.5 million tons, of which the marine catch was 3.6-million tons and fresh water production 1.8 million tons. Output of fisheries products, after a decline in the late 1970s; has begun to expand as rapidly as most other subsectors of agricul- ture. Total fisheries production in 1983 was about 27% greater than the 1979 level. Sluggish growth of salt water fisheries is attributed to over-fishing of the marine resource. In contrast, fresh water fish culture has grown by 64% since 1979 and now accounts for about a quarter of total production. 1.32 Output from sideline activities (gross value of hunting and gathering and industries run by brigades and teams) increased by 110% since 1979 and 20X in 1983 alone. Sample surveys of househoLds indicated that in 1983, 36% of farmers' net incomes came from private household activities. The comparable figure for 1978 was 27%. Output of commune-run industries (which are not included in GVAO) in 1983 was 87% higher than in 1978. Appendix A, Table A.3 notes the continued decline in the relative importance of crop pro- duction, the marked increase in sideline production and more modest relative gains in livestock. Chinese agriculture continues to be heavily crop orien- ted, with a crop:livestock ratio of about 92:8 (net value added) as compared with 52:48 in the United States and 83:17 in India. Incomes and Consumption 1.33 Recently published household survey data provide some measure of the extent of income and consumption gains in rural China (Table 1.5). In nominal terms, per capita incomes of farmers in 1983 were 2.3 times those of 1979. Incomes of employees in state enterprises (mostly urban dwellers) rose by 66% during this period and were nominally 70% higher than rural incomes in 1983. In real terms, rural incomes may have increased by 70% while urban incomes were up by about 40%; however, the urban/rural income ratio in real terms is still well over 2:1. Consumption gains have been substantial. Between 1979 and 1983 annual per capita consumption of grain in rural China increased by only 1% while per capita consumption of vegetable oils rose by more than 48%. Consumption of red meat (excluding poultry) on a per head basis was up bv more than 53%. Consumption patterns in China's rural areas continue to differ markedly from those in urban areas with rural residents consuming - 14 - Table 1.5: COMPOSITION OF RURAL INCOME AND EXPENDITTURE, 1979-83 Percent increase, 1979 1983 1979-83 Rural net income (Y/capita) 160.2 309.8 93 Composition (%): Collective income 64 55 Private income 27 36 of which from: Crops 10 12/a Livestock 12 13/a Other private 6 13/a Remittances & other 9 9 Rural consumption expenditure (Y/capita) 134.5 248.3 85 Composition (%): Food 64 59 Clothing 13 11 Fuel 6 5 Housing 6 11 Other commodities 8 11 Services 3 2 Consumption of (kg/capita): Grain (unprocessed) 256.5 260.0 1 Edible vegetable oils 2.4 3.5 46 Red meat 6.5 10.0 54 Poultry 0.3 0.8 159 Fish and shrimp 0.7 1.6 128 /a 1982 figures; 1983 not yet available. Source: State Statistical Bureau. Commodity income in 1979 valued at 1978 quota-procurement prices; in 1983 at 1983 procurement prices. - 15 - substantially more grain and less meat on a per capita basis, but the patterns have been converging. 1.34 It would be natural to expect that the PRS and associated reforms provided the incentives to accelerate agricultural growth but, in doing 4o, may have increased the inequality of income distribution in the sector.- The rationale behind this expectation is that ability and ambition are unequally distributed in the population and the earlier rural distribution system rewarded neither. Indeed, it put a "cap" on distributed income whenever abil- ity, effort and access to unusually productive agricultural resources would have led naturally to increased income differentials. Initial analysis of data through 1982 on the distribution of rural income suggests that the PRS in fact may not have increased the concentration of rural incomes (Appendix Table A.4). Rural income surveys suggest that between 1979 and 1 82 poorer house- holds shared more than equally in the benefits of the PRS._5 A possible explanation for these results is that the PRS, and in particular the BGDH ver- sion, was extended first to the poorest teams and most backward areas which therefore realized the earliest income benefits from the reforms. Only in 1982 and 1983 did the wealthiest teams and areas adopt BGDH. Improved incen- tives for growing cotton in the relatively poor North China Plain and sugar- cane in the poorer areas of South China may also have narrowed regional dif- ferences. Moreover, BGDH was initially applied to crop production, and was of greatest benefit to families or areas with few non-crop activities. Recent reforms (1983-84) promote development of commercial sideline and CBEs, and will be of most benefit in wealthy areas. In short, the geographical reduc- tion in inequality through 1982 may have "swamped" the effect of reforms on inter-family income differentials. On this rg7soning, the full effects of BGDH on the richer areas have yet to be felt.- 41 Egalitarianism has been officially discredited. A recent article in the Beijing Review stated: "For more than two decades after the cooperative movement, China has tried to bridge the income gaps between the peasants with large-scale egalitarian collective management and egalitarian methods of distribution. By arbitrarily equalizing peasants' income, these methods only crippled the peasants' enthusiasm for work and held back the growth of agricultural production which even came to a standstill in some places". (September 19, 1983). 5/ The Gini coefficient estimated from these data declined from 0.257 in 1979 to 0.225 in 1982. 6/ A factor complicating the interpretation of these results is that size of the sample surveys more than doubled between 1978 and 1982 and composi- tion also may have changed. Other statistical phenomena which would influence the computed coefficients include: (a) family divisions which would increase the weight of particular income groups seem more likely to occur among middle income families, rather than the poorest (who lack savings) or the richest groups (comprised mostly of young, nuclear families); and (b) migration out of the rural areas - and the rural statistics - may be highest among the poorest groups. - 16 - 1.35 While the full imlpact of rural reforms on income growth and distri- bution remains to be seen, the rapid income gains of all groups clearly reduced 17 solute poverty. Various estimates document the decline in absolute poverty.- In the 1977-79 period, about 200 counties were designated as poor. By 1982 only 42 counties were classified as in poverty. Measured somewhat differently, Appendix Table A.4 shows that families with yearly per capita incomes of less th n Y 100 dropped from about 20% of the total in 1979 to less than 3% in 1982.8 2. FUTURE DEMANDS ON THE SECTOR 2.01 Consumption of agricultural products in China will be strongLy influenced by future trends in growth of per capita income and population. At the same time, consumption will be affected by policy measures intended to balance supply and demand. At any level of per capita income and popuLation size, different price structures, rationing, or foreign trade patterns can be used to achieve balance at quite different levels and structures of food con- sumptian. The projections of consumption made below are of potential demand in the particular situation where relative commodity prices are similar to those in other Asian countries at comparable income levels. 2.02 Peculiarities of the present Chinese consumption pattern, involving relatively high per capita levels of direct grain consumption, suggest that higher incomes would bring about a substantial re0ructuring of the Chinese food consumption pattern over the coming decades.- The directions and magni- tude of this restructuring are accepted in China as long-term economic goals. Broadly speaking, it involves a substantial reduction in direct per capita consumption of grain and correspending increase in consumption of 71 A commune (township) is officially designated as poor if its per capita distributed collective income for three successive years is no higher than Y 50. Since the standard is not adjusted for price changes, use in intertemporal comparisons is misleading. 8/ Part of this change may reflect changes in accounting practices. In poor teams or areas, most of the distributed income is in kind. Official sta- tistics on distributed incoce are very sensitive to changes in accounting prices. In 1981-82 distributed commodities were revalued upward in income surveys by about 30%. Presumably, officially-reported distributed income was similarly revalued. This may suggest that a substantial num- ber of previously poor teams were pushed above the poverty line artifi- cially by this change in accounting prices. 9/ Direct consumption of grain refers to consumption by humans of processed rice, wheat, corn, other minor grains and tubers (at one-fifth fresh -weight). Consumption of soybeans and other pulses is excluded from this definition. Indirect consumption of grains would be grain consumed by livestock and poultry, the products of which are then eaten by man. - 17 - animal products, along with other forms of dietary diversification. This restructuring of consumption would require changes in the composition of domestic production, including its regional dimensions, and perhaps increased foreign trade in agricultural products. Present Consumption Levels 2.03 After severe reversals and famine in 1960-61, China has made substantial progress in improving average per capita levels of available energy and protein. By 1982 the average Chinese consumed (directly) about 205 kg of cereals, 12.8 kg of red meat (pork, mutton, beef) and 4.2 kg of vegetable oil. This average diet on a daily basis provided over 2,700 kCal of food energy, 68 g of protein, and 38 g of fat (Appendix Table A.6: Food Balance Sheet, 1982). These availabilities exceed estimated requirements of food energy by 24% and of safe minimum levels of protein intake by 87Z. Declines in per capita availabilities were registered in the late 1950s, the 1966-69 period, and again in the early 1970s. Generally rapid increases have occurred since the 1978 reforms. 2.04 These national average figures do not mean that nutritional levels throughout China are fully satisfactory. Interregional Ui LtLL=LC= lit Y=f capita nutrient availability exist, although they are not well documented, and malnutrition is undoubtedly present in some localities from time to time. But China's food procurement and distribution system has been successful in provi- ding basic food nutrients to most of the population most of the time. Because interprovincial shipments of food are relatively small, data on provincial meat and grain production provide crude measures of differences in per capita nutrier.t availabilities. These data suggest that in 1981 per capita produc- tion of grain varied from 202 kg (Guizhou) to 420 kg (Jiangsu), while in 1980 average per capita availability of protein ranged from about 38 g (Guizhou) to more than 100 g (Heilongjiang). Average per capita meat production in 1981-82 ranged from 19.3 kg in Sichuan to 5.4 kg in Ningxia. 2.05 Survey data for 1979 suggested that in most relatively high-income locations such as urban Beijing, there was virtually no malnutrition among children. Rural-urban differences were substantial, although somewhat less so in weight-for-age than in height-for-age. The data indicated that more than a third of 7-year old boys in Sichuan were stunted, as compared witr. less than 4% in Tianjin. The rural-urban gap in per capita energy and protein levels may have narrowed by 1982. Urban residents generally have access co more animal protein, edible oils, fruits and vegetables, whereas rural residents consume considerably more grain per capita. 2.06 At the national level, average per capita consumption levels markedly exceed those of other low income countries, but in China an unusually high proportion of calories comes from grain. Average availability of energy in China on a daily per capita basis in 1980-82 (2,580 kCal) exceeds the 1975- 77 average for middle income countries (2,560 kCal) and the world (2,570 kCal). Protein availability of 66 g exceeds the average for all developing countries (57 g) and approaches the world average (69 g). However, in China only about 10% of protein intake is from animal sources, as compared to a world average cf 35% and 21% for developing countries. Similarly, the - 18 - availability of animal and vegetable fat in 1980-82 was 5Z below the average in deveLoping countries and more than 40Z under the world average. Direct per capita consumption of grain (about 209 kg p.a. in 1980-82) is among the world's highest and exceeds that in India by 60X and in Indonesia by more than 3OZ. In sumnary, by consuming relatively more grain and less animal products per capita, China achieves a diet substantially higher in energy and total protein content than that of countries with comparable inoeme levels (Appendix Table A.7: Per Capita Food and Nutrient Availability in China and Other Countries). Projections of Consumption to 2000 2.07 Assumptions. The projections of consumption discussed below assume that relative commodity prices would be similcr to levels elsewhere in Asia with sizeable Chinese populations, and examine the implications of changes in real per capita incomes for future consumption patterns. Three scenarios are examined: (a) a "target growth" case, wherein present Covernment targets tor increased per capita GNP and population growth are achieved (requiring an average annual growth of 5.5t in per capita GNP and 1% in population); (b) a "low growth" case, where annual per capita GNP growth is only 3.5Z and the Covernment's population growth target of 1% p.a. is met; and (c) a "high growth" case, in which the Government's targeted per capita GNP growth is com- bined with population reaching 1.3 billion in the year 2000 (1.4% p.a. growth in 1980-2000). 2.08 Ideally, future changes in consumption resulting from these proj- ected growth rates of per capita income could be estimated from income elasti- cities of demand derived from Chinese household consumption data. At present, the only_Iata available permitting such estimates are for Beijing con- sumers. ° Analysis of this data indicates consumer behavior similar to that in other countries, viz., as per capita incomes increase from relatively low levels, preferences move sharply toward animal products, fruits, vegetable oils and nonfood consumer goods, and away from direct consumption of grain. However, the narrowness of the statistical base, its urban orientation, and possible distortions arising from rationing make these data unsuitable for projecting demand at the national level. Moreover, these data are inappro- priate as the basis for projecting future demand because future incomes are expected to substantially exceed the range observed in Beijing today. 2.09 In view of the difficulties referred to above, the approach employed here assumes that consumption patterns of Chinese populations outside of the Chinese mainland at higher per capita income levels would approximate those which might be reached in China by the year 2000. For these populations the income elasticity of total grain consumption appears to have been about 0.25 over a considerable period of income growth. Applied to 1980-82 base year per capita total consumption of grain in China, this elasticity produces estimates 10/ Basic data are from the Beijing City Offices of Statistics, "Year-end Data from the Survey on the Livelihood of Working Families, 1982;" (Beijing, 1983). - 19 - of total per capita grain consumption in the year 2000 1fabout 390 or 430 kg, if per capita GNP growth is 3.5% or 5.5%, respectively.- The analogue Chinese population had roughly similar per capita consumption levels in 1970- 72 and 1976-78 respectively. The pattern of direct consumption of a selected number of commodities at these times is examined in Table 2.1. 2.10 Per Capita Consumption. In either the target growth or low growth scenario, Little or no change from average T2980-82 levels would occur in per capita consumption of energy and protein.- However, compared with 1980-82, consumption of fat would roughly double, and the proportion of protein derived from animal sources would more than triple. The difference between the high and low income variants in per capita consumption in 2000 of various food items is less significant than the radical adjustment from the present dietary pattern to a more varied diet, in which meat, eggs, fish, milk, pulses, fruits, sugar and vegetable oil are larger components. Direct consumption of cereals and tubers would be expected to decline by 15-20% overall, reflecting a sharp decline in direct consumption of coarse grains and tubers and a slight increase in consumption of fine grains (rice and wheat) in the low growth case or during a transition period in the target growth case (Table 2.1). 2.11 Within the fine grains category, there is a question of how per capita consumption of wheat and rice in China will change in response to higher incomes. In developing countries, higher incomes typically lead to a significant shift toward wheat consumption relative to rice. In India, for I1/ Projections of total grain consumption per capita are: Assumed Growth in per Total grain annual growth capita grain consumption in GNP/capita requirements per capita Analogue 1980-2000 1980-2000 /a in 2000 /b years /c …------_ (Z) ____________-- (kg) 3.5 18.7 394 1970-72 5.5 30.9 434 1976/78 /a Based on an income elasticity of demand for total grain of 0.25. 7T In terms of unprocessed grain; excludes tubers and pulses. The com- parable figure in 1980-82 was about 332 kg/capita. /c Years in which analogue Chinese populations had similar levels of total per capita grain consumption. 12/ Compared to SSB estimates of daily nutrient intake in 1982, the high income growth projection would involve equal per capita energy intake and a slight decrease in protein intake. SSB, Statistical Yearbook of China, 1983, p. 509. - 20 - Table 2.1: PROJECTED DEMAND AND CONSUMPTION TARGETS FOR SELECTED AGRICULTURAL PRODUCTS, 2000 (kg per capita per year) Consumption in 2000 with per capita GNP growth of:/a CAAS /b 1980-82 3.5% 5.5% 2000 Crops Cereals /c 193.0 164.8 153.1 132.0 Fine grain 146.0 160.1 144.8 - Coarse grain 47.0 4.7 8.3 - Tubers /d 16.0 4.1 2.1 7.2 Pulses /e 11.3 15.3 15.5 18.0 Sugar 4.1 12.4 19.4 6.0 Fruit 5.7 44.2 58.0 48.0 Vegetables 92.0 89.1 118.6 120.0 Vegetable oil 3.2 5.7 7.0 6.0 Cotton /f 3.4 4.1 4.5 Synthetics /f 0.8 1.3 1.8 Animal Products Red meat 12.7 19.8 24.1 24.0 Pork 12.0 19.2 22.8 Beef 0.3 0.5 1.1 Mutton 0.5 0.1 0.1 Poultry 0.9 6.5 10.3 Eggs 2.1 4.3 6.6 12.0 Fish 4.5 34.6 35.6 6.0 Milk 1.5 14.4 27.6 24.0 Grain Requirements /h 340 404 445 440 /a Consumption patterns of analogue Chinese population in 1970-72 and 1976-78 respectively. lb Figures represent the most optimistic of targets consldered by MAAF. From Wu Daxin, "Briefing on Agriculture of the PRC", in E. M. Reisch ed., Agri- cultura Sinica (Berlin: Duncker and Humboldt, 1982). /c In terms of milled rice, whole grain wheat, maize and other miscellaneous coarse grains. /d Tubers at one fifth wet weight. 7e Pulses include soybeans, soybean products, peanuts and other pulses. /f Estimates from the income elasticities of demand projections, based on the Beijing consumption survey. /g Derived from the CAAS production target of 3.75 million tons of cotton, assuming a population of 1.196 billion. Cotton imports of 0.74 million tons (i.e., the average annual imports for 1979-81) have been included to facili- tate comparison with the figures for cotton consumption 1979-81. /h On Chinese definitions, viz. unprocessed weight, including tubers at one fifth wet weight, soybeans and pulses other than peanuts. - 21 - example, wheat's share in total grain consumption rose from about 20% in 1960 to 30Z in 1980. In Indonesia, which grows no wheat, the share of consumption accounted for by wheat rose from about 1Z to 5Z during that period. In the Chinese analogue population, per capita consumption of wheat increased very rapidly until recently, when consumption of both rice and wheat declined. In Japan per capita consumption of milled rice fell from 118 kg to 76 kg p.a. in the 1962-82 period. It is likely that per capita consumption of wheat, in China's cities in particular, will rise steadily in response to higher incomes and preferences for more convenience foods. 2.12 These projections of per capita consumption are compared in Table 2.1 with a projection by CAAS (the most optimistic of three sets of pro- jections for the year 2000). The CAAS projection is based on total grain supply (unprocessed weight) of 440 kg/capita (including tubers, soybeans and pulses other than peanuts). Even though the CAAS number for total grain supply available for direct and indirect consumption is only slightly below our high estimate of consumption, the CAAS estimates assume smaller direct consumption of grain as well as Less fat and animal protein. One result is 14% less energy in the average diet. In part this is explained by CAAS' assumptions of less efficient conversion of feedgrain into animal products and rapid growth of nonfood requirements. Equally important, the CAAS estimates derive from international standards of x5utritional "requirements", rather than the preferences of Chinese consumers.13 Judging by the consumption patterns of the analogue Chinese population, it is unlikely, ceteris paribus, that Chinese consumers at GNP levels of US$800 per capita would be satisfied with direct consumption of grain 30% below present Levels if this would result in the significant decline in total food energy intake implied by the CAAS figures. 2.13 Feed Requirements. The estimated per capita consumption demands, in combination with the alternative population growth estimates, are used to estimate total supply requirements in the year 2000. In addition to direct consumption requirements, it is necessary to add indirect consumption via conversion of grain to animal products, as well as industrial and other demands. The amount of indirect grain consumption depends heavily on the 13/ The CAAS targets are reportedly based on the concept of "objective" nutritional needs, taking into account resource availability and produc- tion efficiency. Underlying the CAAS targets is a daily nutritional standard for an average adult of 2,400 kCal and 50 g of protein,- below .iutrient availabilities already attained in China. - 22 - efficiency of production in the animal husbandry and food industry sectors.14/ At one extreme, one could suppose that production efficiency would be as high as that of the analogue Chinese economy used here to estimate direct consump- tion requirements. In that case, the per capita direct and indirect require- ments shown in Footnote 11 could be used to estimate total needs. 2.14 Alternatively, we could examine the effects on grain requirements of different efficiencies in livestock feeding as measured by FCRs. Little detailed information is available on FCRs in China and available data must be interpreted cautiously. In these circumstances, a reasonable approach to estimating additional concentrate required for additional meat production is to employ alternative FCRs, representing modern, efficient production systems on the one hand (low FCRs) and less efficient production practices (high FCRs) 14/ The largest additions to the per capita requirements for direct grain consumption are the agricultural products used in feeding of animals. The major components of animal feeds, together defined as concentrates, include feedgrains, by-products of grain milling and high protein meal or cake from oilseeds. The efficiency with which concentrates are converted into meat, milk and eggs can be measured crudely by feed conversion ratios, defined in this analysis as the kilograms of concentrate per kg of animal product (dressed carcass weight, eggs, etc.), with dressed weight assumed to be 72% of liveweight in the case of pigs. FCRs depend on: (a) the amount and quality of concentrate and, in particular, the amount and quality of protein meal; (b) the genetic potential of the animals being fed; and (c) general standards of animal husbandry in these production systems and, in particular, the quality of disease control measures. Little detailed information is available on FCRs in China and available data must be interpreted cautiously. Information does not always distinguish live weight from dressed weight, and marginal from average quantities, nor clearly specify whether, and how much, noncon- centrates are being fed. - 23 - on the other.15/ Neither necessarily reflects China's existing household production systems, which typically minimize grain and protein meal use, but may apply to specialized households or state enterprises which together are expected to supply a large part of incremental production (Chapter 4). 2.15 The implications of alternative feeding systems for concentrate demand in the year 2000 are explored in Table 2.2. The contrasts in grain requirements between high and low efficiency systems of livestock production are striking. Under the high growth scenario the difference between added feedgrain requirements under efficient versus inefficient livestock production systems would be about 89 m tons of feedgrain. However, an efficient live- stock system would itself require more than 30 million tons of high protein meal, as contrasted with about four million tons used annually in livestock feeding in recent years. Despite the imprecision of these estimates, they clearly indicate that high future demand for livestock products would require correspondingly large increments of feed grains and protein meals for live- stock feeding. Furthermore, increased protein meal availability could lead to improved FCRs and large potential savings of feedgrains. 2.16 Total Requirements. Grain requirements for direct and indirect consumption may be added to projected requirements of other products to pro- vide indicative estimates of total agricultural requirements in the future. These requirements for the year 2000 are shown (Table 2.3) under the most optimistic assumption of efficient animal production systems (FCRs as defined in footnote 15), and with the three income and population scenarios defined in para. 2.07. If the Government's income and population growth targets were met, total grain supply in 2000 would have to increase by about 50Z from 1980-82 levels (2.2% p.a.) and more than a third of supply would be committed to livestock feeding (as contrasted with perhaps 10% at present). Supply of red meat would have to grow at 4.6% p.a., poultry at 14% and eggs at 7%. Very high growth rates would also be registered for sugar, fruit, fish and milk. A 15/ This analysis assumes an FCR (grain to meat) in pork production of 8:1 as the lower efficiency bound characterizing traditional systems and 5.1:1 as the higher efficiency FCR indicative of modern production systems. The 8:1 FCR is considered typical of traditional pork production systems in developing countries; the 5.1:1 figures represents a high standard of feeding efficiency somewhere between average commercial results (5.3:1) and "best practice" in the United States (4.1:1). An FCR of about 6:1 is reported for Japan's pork industry. Alternative FCRs assumed for incre- mental production of poultry meat are 5:1 and 2.9:1. For incremental production of beef and eggs only modern system FCRs are assumed viz., 10:1 and 3.5:1, respectively. The FCR assumed for milk (converted to powder at one-tenth fresh weight) is 5.0:1 (modern) and 10:1 (tradi- tional). On these assumptions, a "composite modern system FCR" for the year 2000, estimated by weighting FCRs for individual livestock product shares by projected shares of livestock products consumed in 2000 under the low GNP/capica growth assumptions (3.5%), would be about 4.2:1. Similarly estimated, the "composite traditional system FCR" in 2000 would be about 6.5:1. - 24 - Table 2.2: ESTIMATED REQUIREMENTS IN THE YEAR 2000 FOR CONCENTRATES AND FEED GRAINS (Million metric tons except where noted) Requirements under assumed feed conversion rates in feeding systems which are: Modern Less efficient Average Per capita GNP growth Per capita GNP growth 1980-82 3.5% 5.5% 3.5% 5.5% Output Requirements of Livestock Products Pork 12.0 23.7 28.1 23.7 28.1 mutton 0.5 0.1 0.1 0.1 0.1 Beef 0.3 0.6 1.4 0.6 1.4 Subtotal (red meats) 12.7 24.5 29.7 24.5 29.7 Poultry meat 1.0 8.2 12.9 8.2 12.9 Subtotal (all meats) 13.7 32.6 42.6 32.6 42.6 Eggs 2.3 5.4 8.3 5.4 8.3 Milk 1.6 18.2 34.7 18.2 34.7 Concentrate requirement 65 169 231 226 320 Of which: high protein meal 4 22 33 - - Availability of grain milling byproducts and oilseed cake 32 45 49 45 49 Feed grain requirement 33 124 183 182 271 Total cereal requirement 288 431 473 494 571 Feed grain as a Z of cereal production 12 29 39 37 47 Notes: An average population growth of 1% p.a. is assumed for 1980-2000. Figures include a waste coefficient of 3% for pork, beef and mutton, and 5% for poultry, eggs and milk. Concentrate requirements for 1980-82 calculated as 10% of total grain pro- duction plus grain milling byproducts and oilseed cake. (Only 40% of oilseed assumed available as animal feed.) Concentrate requirements for the year 2000 are estimated as the sum of 1980-82 concentrate requirements plus incremental require- ments calculated as the product of incremental meat production and meat conversion rates. Feed conversion rates are as defined in Footnote 15. Seventy percent of oilseed cake production is assumed available as animal feed in the year 2000. Total cereal requirements are the sum of rice, wheat and coarse grain for direct human consumption and indirect consumption as animal feed. Figures are expressed in unprocessed form and include seed and manufacturing requirements plus an allow- ance for waste. Table 2.3: NATIONAL SUPPLY RRQUIREMENTS IN 2o00 ANI) COMPARISONS WIT11 HISTORIC RATES OF PRO)UIJCTION GROWTHf ActuaL average 1980/82 Target growth scenario Low growth, scenario HfigBt growth scenario CAAS target annual growth, (actual) (Inc. 5.5X: Pop. 1.0%) (Inc. 3.5%; Pop. 1.02) (Inc. 5Z; Po 1,4X) for 2000 1955-57 (mil t) mil t X growth mil t X growtht mil t X growtih mil t 2 growth to 1980-82 p.a. ____p,a. __ Pon. B.fl. Crop Product ReLilirementg Graiii /a Cereal /b 291.0 473,0 2.6 431.0 2.1 5(9.0 3.0 2.7 Fine grain 208.0 259.0 I.' 287.0 1.7 278.0 1.5 1,8 Coarse grain /d 83.0 215.0 5.1 144.0 2.9 232.( 5.6 (Feedgraln) (33.0) (183.0) (9.4) (124.0) (7.2) (198.0) (9,9) (293.0) (12.2) Tubers /e 26.0 3.0 -10.7 6.0 -7.4 3.0 -10.7 0,9 Pulses 7? 15.0 22.0 2.0 22.0 2.0 23.0 2.3 1,7 Subtotal, Grain 332.0 498.0 2.2 459.n 1.7 536.0 2.6 530.0 2.5 2,2 Sugar /g 2.8 23.7 11.9 15.1 9.3 25.4 12.3 7.2 5.1 6.4 Fruit 6.8 77.0 13.6 58.7 12.0 82.6 14.0 57.6 11.9 3.4 Vegetables 101.0 157.6 2.4 118.4 0.8 168.9 2,7 144.0 1.9 Vegetable oil /h 3.6 9.1 5.0 7.5 3.9 9.8 5.4 8.0 4.3 3.0 Cotton 3.5 5.9 2.8 5.3 2,2 6.3 3,1 3.8 0.4 3.4 Synthetic fibers 0.8/i 2.3 5.7 1.7 4.0 2.5 6.2 N Animal Product Requirements Pork 12.0 28.1 4.6 23.7 3.6 30.1 5.0 heef 0.3 1,4 8.4 0.6 3.7 1.5 8.8 Mutton 0.5 0,1 -8.1 0.1 -8.1 0.2 -4,7 Subtotal, Red Meat 12.7 29.7 4.6 24.5 3.5 31.8 4.9 31,4 4.9 4.7 Poultry 1.0 12.7 14.3 8.0 11.6 13.6 14.7 Subtotal, All Meat 13.7 42.4 6.1 32.5 4.7 45.4 6.5 Eggs 2.3 8,3 7.0 5.4 4.6 8.9 7.4 14.4 10.1 Flsh 4.8 44,8 12.5 43.6 12.3 48.0 12.9 8,5 3.1 3.8 Milk 1.6 34.7 17.6 18.2 13.7 37.1 18.0 28.8 16,4 /a Total graln requirements correspond to China's "total grain production" figures which include fine nnd coarse gralns, tubers, soybeans and pulses, 7b Cereals Include rice, wheat, corn and other coarse grains, but exclude tubers and pulse production. 7T Wheat and rice, The 1955-57 - 1980-82 growth rate Is for rice, 7R Corn, sorghum, millet and other minor grains. 7ie At one-fifth fresh wet. 77 Soybeans and other pulses. The historic growth rate is for soybeans. 4 Historic growth rate Is for sugarcane. h Historic growth rate is for oLlseeds. 7j Figures are for average availability, 1977-81. - 26 - lower income growth rate would Lead to more modest changes in grain require- ments (1.7% per year) and use of grain as feed (to 27% of total supply), but high growth rates would stilL be required for sugar, fruit, poultry, fish and milk to reach a pattern of consumption commensurate with consumer demands at higher per capita income levels. 2.17 The assumption of both high income (5.5Z p.a.) and high population (1.4% p.a.) growth rates adds some 38 million tons to total grain requirements over and above the Government target scenario, and raises the necessary growth rate of supply to 2.6% p.a. Feed grain requirements would be about 198 mil- lion tons. This scenario approximates the CAAS "optimistic" estimates for total grain and red meat supply (although the latter presumes a lower popula- tion growth rate). However, the CAAS estimate assumes a doubling in the number of draft animals, a substantial increase in industrial food demand, and less efficient feed conversion rates, so that more grain is required for feed and nonfood uses and less remains for direct human consumption. 2.18 Each of the three projections based on consumption patterns of the analogue Chinese population reflects much higher consumption levels of sugar, fruit and fish than might reasonably be expected in China (as is apparent from the CAAS projections). These food items account for substantial fractions of total energy and protein supply. To maintain the same energy and protein levels in China with much lower consumption of these products, direct or indirect grain consumption would have to be increased reLative to the projected levels. 2.19 Grain requirements above those projected in these scenarios also would result if China were not able to increase the efficiency of feed conver- sion as livestock production expands. As noted in Table 2.3, the difference in feed grain requirements between high and low efficiency feeding systems is in the range of 60-90 m tons annually by 2000. This is some 35-50Z greater than the projections by MAAF's Planning Bureau for grain production excluding rice and wheat. Improvements in FCRs will depend largely on supplies of high- energy and high-protein feedstuffs, which in turn are likely to require changes in future cropping patterns, increased transport of feed and/or live- stock among regions, and greater dependence on international trade. 2.20 This analysis has not taken into account the requirements of the industrial sector for nonfood products or any additional demands which might be placed on the sector to generate export earnings in support of overall economic growth. There are many opportunities for substitution of industrial intermediate products for agricultural raw materials, notably fibers and oils, which makes it difficult to project future requirements of these materials. China is now an exporter of both animal products and a variety of agricultural specialty products, and the potential for expansion of these exports will be considered below. Both industrialization and foreign trade policy could either augment or diminish net requirements fo the agricultural sector. 2.21 The overall potential for increasing the production of various types of agricultural products will be examined more closely in Chapters 3 and 4. The analysis of this Chapter suggests that future domestic supply potential may be insufficient for the radical restructuring of consumption implied by - 27 - projections based on consumption patterns of analogue Chinese populations. The opinion of MAAF's Planning Bureau is that growth of grain production will be more modest than assumed by CAAS' optimistic projections and will reach a level of about 480 million tons by the year 2000. Within this total, the 300 million tons projected for fine grains (rice and wheat) would exceed estimated requirements for direct consumption in all scenarios above. On the other hand, domestic supplies of coarse grains would be deficit relative to projected requirements. At best, availability of feed grains would be suffi- cient for the low growth projection. Under the high growth scenario at least 30 m tons of high protein meal would be required to meet projected consumption of livestock products (Table 2.3). If 70% of oil meal production was fed to livestock in 2000, China's oilseed meal supplies for livestock might equal about 15 m tons. Another 15 m tons of imports at 1984 prices would cost some US$3.3 billion. 2.22 The question emerges of how to reconcile possible future imbalances between domestic supply of agricultural products and consumption patterns which reflect likely income and population growth. Policy measures which both constrain demand and encourage supply are likely to be required. On the demand side, the instruments of price and foreign trade restrictions can be used to shape consumption patterns to better conform with available produc- tion. Other countries, both developed and developing, have used these measures to hold food consumption to levM1s below those expected or "normal" for a given level of GNP per capita.' Present Chinese price policy has probably had the reverse effect, bec4suse food prices have been kept low relative to prices of industrial consumer goods and the supply of urban services (includ- ing housing) has been subsidized and restricted. Because basic nutritional requirements have already been met on the average in China, some restraint of consumption may be acceptable from a nutritional point of view. On the supply side a key consideration may involve the nutritional and resource tradeoffs between direct consumption of grain as opposed to its use in livestock feed- ing, the products of which are then consumed by the human population. If con- sumed directly, the cereals or pulses from one ha in China yield at least five times as many calories and two and one-half times as much protein (albeit of lower quality) as if those grains wyre first fed to animals or poultry and the products then consumed by humans.- The amount of China's agricultural resources committed to livestock and poultry production is likely to be a key consideration in balancing future supply and demand for farm products. 16/ Among developed countries, Japan is a good example of how price and trade policy influence consumption patterns. Despite income levels roughly similar to those in the United States, per capita consumption of red meat, poultry and fish in Japan is only about half as high. Reflecting high food prices, 32% of consumer expenditure goes for food. The comparable figure in the US is 20%. 17/ Assume the 1982 mix of grain crops with a weighted average yield (rice on a milled weight basis) of about 2,800 kg and each kg containing 3,550 kCal and 95 grams of protein. With an FCR of 4.2:1, this grain mix is adequate to produce some 670 kg of animal products (assume largely pork and poultry) with 2,700 kCal/kg and 97 kg of protein. - 28 - 3. DETERMINANTS OF FUTURE GROWTH 3.01 This section discusses those factors considered to be the most important determinants of growth of Chinese agriculture through 2000. They include the availability of key production inputs such as agricultural land, irrigation, fertilizers, and improved seeds, as well as less tangible institu- tional factors related to the sector's research and extension, rural credit and transportation, storage and marketing services. Perhaps the most impor- tant determinant of agriculture's future performance is the economic environ- ment in which China's farmers will operate. As agriculture's rapid growth since 1979 graphically iLlustrates, Chinese farmers respond positively to a favorable economic environment characterized by attractive input-output price ratios, assured access to land and markets and stable policies upon which to base production and investment decisions. Land and Water Development 3.02 The unique features of China's agriculture include the relatively small portion of the total land area which is cultivated (about 10X as com- pared with 57% in India) and the large portion of the total cultivated area which is irrigated (45Z, as compared with 23X in India). At present more than a quarter of China's cultivated lands of just under 100 m ha is classified as high and stable yield areas, with average grain yields in excess of 2.2 tons per ha per crop. Another 40 m ha are medium yield lands with grain yields in the range of 1.2 to 2.2 tons per ha. One third of the cultivated area is con- sidered low-yielding (less than 1.1 tons per ha) and subject to drought, waterlogging or flooding. Because of past efforts in irrigation, drainage and flood control, adverse weather now affects agricultural production to a smaller extent than it did in the years immediately after 1949. 3.03 There is considerable uncertainty regarding the actual cultivated area in China. Although official figures of just under 100 m ha continue to be used, considerable evidence, based on satellite imagery and a cadastral survey in progress, suggests that the true cultivated area is substantially higher. In 1981 the State Agricultural Commission provisionally revised the cultivated area to 133 m ha. A general view within the Government is that the actual cultivated area is a quarter to a third greater than the official figure. The largest discrepancies between official and actual cultivated areas appear to be in North and Northwestern China where crop yields are considerably lower than in the eastern and southern areas. Assuming that total output figures are accurate, a larger cultivated area would imply significantly lower yields than official figures and lower per ha usage levels of key inputs such as fertilizer. Notwithstanding, this analysis uses official production, yield and input data unless otherwise specified. 3.04 Official figures indicate that the cultivated area increased rapidly during the 1950s, but declined marginally in recent years. The reported area of cultivated land in 1983 (98.4 in ha) was only about half a million ha larger than it was in 1949. The irrigated area grew rapidly through about 1973, but has shown no significant increase since that time. The Government assumes that China's cultivated area will remain essentially unchanged over - 29 - the next 15-20 years, as land lost to roads, urbanization and industrial development is approximately offset by newly-reclaimed land. The national multiple cropping index (MCI) is projected by MAAF to increase from about 1.47 at present to 1.60 in 2000 in response to irrigation development, although the KWREP considers this to be optimistic. The major questions determining future availability of agricultural land include: (a) the extent to which reclama- tion will offset land Lost to non-agricultural uses; and (b) the extent and effectiveness of future irrigation development. The MCI appears to have de- clined marginally in 1979-83, reflecting a reduction in triple cropping in the South and double cropping in the North. This seems likely to continue. 3.05 Land reclamation. Bringing into cultivation unused or underutilized land has been a major thrust of China's agricultural development effort over the past 25 years. In the 1957-77 period, the reported gross loss in cultiva- ted area of some 33 m ha of generally high quality land was partiaLly offset by some 21 m ha reported of newly-reclaimed land, much of which was located in less favorable agro-climatic areas. Chinese sources suggest that about 33 m ha of "waste land" are "reclaimable" for some type of agricultural use, with perhaps 60% (20 m ha) of this suited primarily for pasture.h81 Of the remaining 12-13 m ha, about 6 m ha are in the Northeast, 5 m ha in Xinjiang and the balance is in Nei Monggol and elsewhere. Much of the area in Xinjiang may be of questionable quality and land use conflicts with herdsmen are important in other places. In short, perhaps 3-5 m ha are suitable for deveL- opment in the medium-term for sustained production of annual crops. These figures may be compared with the reported loss of about one m ha annually to non-agricultural uses in 1959-78. Annual losses at present are not known, but outside major municipalities, there are few legal restrictions on conversion of farm land to nonagricultural uses. The current surge of rural housing construction suggests that losses of agricultural land will continue to be substantial, notwithstanding government efforts to restrict conversions of this type. In Jiangsu Province, where pressure to convert agricultural land to nonfarm use has been particularly intense, the cultivated area declined by about 1% p.a. in 1979-83. A national average figure half as high would imply losses of about half a million ha annuaLly. Although some conversions may be economically justified, institutional reforms might be devised which would make disincentives for land conversion as costly as the economic loss to society. For example, if a land tax were to replace the agricultural tax and quota system, it should apply with at least equal incidence to land in agricultural and non-ag-icultural use. 18/ Kang Qingi, "Problems of Rationally Developing China's Wastelands Suitable for Cultivation," NYJJLC, 5 (1984), pp. 259-262. - 30 - Table 3.1: CULTIVATED AND IRRIGATED LAND, 1970, 1975, 1977-82 (1) (2) (3) (4)=(2)-(1) Cultivated Crop Irrigated Multiple land area land /a cropping index million ha 1970 101.1 143.5 36.0 1.42 1975 99.7 149.5 43.3 1.50 1977 99.3 149.5 45.0 1.50 1978 99.3 150.1 45.0 1.51 1979 99.6 148.5 45.0 1.49 1980 99.3 146.4 44.9 1.47 1981 99.0 145.2 44.6 1.47 1982 98.4 144.7 44.2 1.47 1983 98.4 144.0 44.6 1.46 /a Figures for irrigated areas refer to "effective irrigation," i.e., command areas with adequate water and engineering structures to permit irrigation appropriate to crop requirements. Source: Various official sources. 3.06 Grain bases. Much of the reclamation emphasis of recent years has been on the relatively productive areas designated as national or provincial commercial food grain bases (Appendix Table A.8 and Map 4). The 15 national grain bases (NGBs) together account for more than a quarter of total grain production and about 40% of the grain procured by the state. The southern grain bases typically are densely-populated, have high and stable yields from good water control and benefit from high levels of input use and good management. Most of these lands are double cropped and potential for expansion of the sown area appears to be limited. The grain bases in the North have lower yields, but are sparsely-populated and thereby serve as important sources of commercial grain. The new NGBs, located mostly in the north, have benefitted from large-scale water conservancy works and land development efforts in recent years and are important producers of commercial grain. 3.07 Another 15-20 areas are designated as provincial grain bases because of their potential for commercial grain production to meet intra-provincial - 31 - needs. Further development of these national and provincial grain bases would alLow other areas to increase their specialization in industrial crops. Based on incomplete data, it appears that another 3 m ha could be developed in the NGBs. All of this is located in the Northeast or Northwest where only single cropping is possible. 3.08 The Loess plateau. The Loess soils, covering some 50 m ha in North and Northwest China are uniform and generally fertile, with a pH level of 8.0- 8.5 which permits establishment of soil renewing crops such as legumes. Most of these areas are now used in cropping or livestock, but at low levels of productivity. Rainfall, if carefully husbanded, can sustain annual cropping at low yields over a Large part of the pLateau. Precipitation varies from about 500 mm in the southeast, through a 400 mm zone of former grassland to a northern desert zone of 200 mm or less. In the southern parts of the plateau rainfall and irrigation permit two crops per year, but in much of the region the short growing season precludes double-cropping and deep water tables make irrigation from groundwater uneconomic. The rationale to rehabilitate these lands includes the need to reduce erosion and the transport of sediments to reservoirs and canals below, and to increase the productive capacity of these lands which continue to support, albeit at low levels, a sizeable human population. 3.09 In some parts of the plateau where labor is abundant, conventional soil conservation measures have been used successfully. In the more rugged and sparsely-populated areas, new technology involving, e.g aerial seeding of grasses and legumes show considerable promise. With available technologies it seems possible that productivity of up to 20 m n.a of loess soils might be substantially improved. Major elements in the improvement of such lands include the conversion of the most erosion-prone croplands to grass and trees, control of grazing particularly by sheep and goats, and the planting of better adapted crop varieties. Sizeable production gains within a relatively short period seem possible (Table 3.2). Whether such development would be economi- cally justified is a matter deserving further study. - 32 - Table 3.2: SELECTED DATA FROM TWO GULLIES ON THE LOESS PLATEAU, SHAANXI PROVINCE, UNDERGOING TREATMENT FOR EROSION CONTROL 1979 1983 a/ (before treatment) Chuen Jia Gully Cultivated area (ha) 234 163 Grass land (ha) 16 79 Forested area (ha) 60 100 Livestock numbers Large animals 51 89 Sheep 72 257 Swine 169 172 Goats 280 9 Income from livestock (yuan) 8,500 21,300 Crop production b/ (tons) 249.5 337.4 Crop yield (tons7ha) 1.1 2.1 Ratio of cropland:trees:grass 15:3.8:1 2:1.5:1 Gao Jia Gully Cultivated area (ha) 168 147 Grassland area (ha) 12 50 Forested area (ha) 31 43 Crop production b/ (tons) 169 241 Crop yield (tons7ha) 1.0 1.6 Agricultural income (yuan) 65,000 119,000 Ratio of cropland:trees:grass 14:2.6:1 2.9:1:1 a/ Some data for Chuen Jia gully refer to 1981 or 1982. hi Assumed to be largely grain and oil seeds. Source: Reports from Comprehensive Control Experiment Station, Mizhi County, Shaanxi Province 3.10 The red soils. Another group of problem soils widely regarded to have some development potential are the red and yellow soils in the warm, humid regions of South and Southwest China. Most of these soils are acidic, of low fertility and, although originally forested, some of these areas now support little more than shrubbery. About 8 million ha are under cultivation at low levels of productivity and perhaps 2-3 million ha more can be reclaimed for agricultural purposes. The challenge of the red soils is to find a range of cultural practices which permit sustainable crop, tree crop or livestock production systems which are economically viable. The necessary technology is - 33 - available and has been practiced with good results in parts of the south- eastern United States, Brazil and Peru. Success in these instances is highly dependent on sophisticated soil testing, fertilization, soil management and plant protection measures, all guided by skilled scientists supported by adequate laboratory equipment. Terracing of sLoped Lands, crop rotations including legumes, general applications of time and other chemical fertilizers and careful monitoring and treatment for deficiencies of soil micronutrients are components in rehabilitation. The possibilities seem sufficiently promising to warrant the beginning of development efforts. 3.11 Irrigation and Drainage. In China's environment of land scarcity, irrigation and drainage take on particular significance as means to increase the sown area. The MWREP assumes that future irrigation development will permit an increase in the total irrigated area from the present level of about 45 million ha to something over 53 million ha by 2000. Other estimates are somewhat higher. These differences reflect different assessments of trends in conversion of irrigated area to nonagricultural use, availability of budgetary funds for water conservancy, and investment requirements for rehabilitation of aging existing works. Expanded irrigated area is not necessarily more important than improved water management in existing installations, a high proportion of which lack adequate facilities for distribution to the farm level. Under present average standards, the area actually irrigable falls short of official total area in one year out of four, due to water shortage. 3.12 Over half (4.3 m ha) of MWREP's planned expansion of irrigated area would faLL in the rice region south of the Huai River, largely through upgrad- ing of existing facilities. Another large component (1.6 m ha) would occur in the North China Plain, primarily through the project to divert Yangtze River water northward, which ultimately could add 2.5 m ha of newly irrifated area and supplementary water for 1.8 million ha now under irrigation.9- The remainder would be split between the Northeast (1.0 m ha, including Nei Monggol) and the arid areas of the Northwest Loess region (0.6 m ha) as well as the two provinces of Xinjiang and Gansu (0.7 m ha). Additions to irrigated area will generally be costly, even in the South where improvements would come in hilly or mountainous areas. MWREP estimates total costs to average Y 4,500-6,000 per ha where new reservoirs or major drainage works are not required, and Y 6,000-15,000 along the upper reaches of the Yellow River, where a lift of 100-300 m is usually required. The economics of such development may be questioned. 191 Data from MWREP and the Yangtze River Basin Commission indicate that some 4.3 m ha would benefit 'rom the project. Of the 2.5 m ha to be newly irrigated, most is in Hebei, Henan and Shandong Provinces. Hebei and Jiangsu would benefit most through the supplementary irrigation of already-cropped areas. Beneficiaries of the first stage of the water transfer project would be northern Jiangsu and southern Shandong. The middle diversion, which is not included in the-present project but which might be developed at a later date, involves another 3.8 m ha of newly irrigable land. - 34 - 3.13 It is estimated that about 23 m ha of cultivated area require drainage facilities to prevent waterlogging and, often associated with these areas, there exist some 7 m ha of salinized land, including 3.3 m ha in the North China Plain. Over several decades, some drainage improvement has been made to 18 m ha (including 4 m ha subject to salinity), of which 10 m ha now meets a protection standard of 1:5 years. Government ojectives for 2000 call for increasing the area thus protected to nearly 17 m ha, eliminating salini- zation problems in the North China Plain, and making on-farm drainage improvements to an additional 1-2 m ha of low-yield fields. Areas benefiting would include the North China Plain, the Jiang-Han Plain, Northeast and South China. However, failure to combine irrigation with on-farm and higher Level drainage works is a persistent problem in North China, and frequently leads to further salinization. The shortage of investment funds has contributed to the problem of inadequate drainage. Fertilizers and Seeds 3.14 Present use. Improved irrigation, better crop varieties and higher levels of chemical fertiLizer use have been the most important material inputs behind China's good agricultural performance in recent years. Application rates for chemical fertilizer doubled between 1977 and 1981 and by 1983 aver- aged 169 kg of nutrients per cultivated ha (equivalent to about 115 kg per sown ha). About 70% of available fertilizer is used on grains and 30% on other crops. Consumption growth rates of over 11Z p.a. in the 1970-80 decade are among the fastest registered for any developing country over a similar period of time. Current levels are more than three times those in India, about equal to levels in the United States, but a third those in Japan or South Korea, where price subsidies encourage use in excess of economic levels (Table 3.3). Fertilizer use has been stimulated by greater availability and improved fcrtilizer: product price ratios growing out of the 1979 price reforms.20' The N:P:K ratio for China (1981) of 100:31:4 may be compared with a wcrld average of 100:52:10. This serious nutrient imbalance reduces syner- gism and the benefits from the relatively high levels of nitrogen use. 20/ In 1976 the ratio of the price of nitrogen from urea to the price of paddy was about 4.4: 1, the highest of any major rice producing country in Asia. The average price for rice in 1981 was about 40Z higher, reflecting a higher quota price, an above quota premium, and larger average deliveries to the state at these higher prices. This increase in the price of paddy was a major factor behind the decline in the nitrogen:rice price ratio to about 3.2:1. N. Lardy, Agricultural Prices in China, World Bank Staff Working Papers No. 606, 1983. - 35 - Table 3.3: A COMPARISON OF APPLICATION RATES FOR CHEMICAL FERTILIZER, 1980 Kg/ha of arable land /a N:P:K Country N P205 K20 Total ratio China 87 27 2 116 100:31:2 India 21 6 4 31 100:29:19 United States 56 26 30 112 100:46:54 Japan 126 141 105 372 100:112:83 South Korea 204 89 83 378 100:44:41 /a Includes cultivated area under temporary crops, temporary meadows for hay or pasturing, land under market and kitchen gardens, land temporarily fallow and land under tree crops. Source: FAO for all countries except China. Estimates for China were calcu- lated from application and sown area data from MAAF and SSB. 3.15 China has a long history of using organic fertilizers and, until very recently, organics probably supplied a major share of total nutrients from fertilizers. Estimates of nutrients from organics must be interpreted with some caution, since quantities, particularly of nitrogen, available for plant use depend heavily on the type of raw material and methods of storage and handling, etc. Estimates in China of the amount of N supplied by organics in 1980 range from 5-10 m tons. Possibly 4-5 m tons of P205 and 5-6 m tons of K 0 came from this source. On this basis, total nutrients from organics (4-21 m tons) would have accounted for at least 40Z of all nutrients applied in 1980. While these estimates may exaggerate the importance of organics, organic fertilizers continue to be important somy'es of nutrients in China, particularly for P, K, and some trace elements- MAAF estimates that only half of nutrient offtake will come from chemical sources by 2000. 3.16 Production and imports. About 85Z of China's total consumption of chemical fertiLizer is produced domestically (89% for N, 72% for P and 6% 21/ Based on the results of Chinese experiments comparing plant offtake of nutrients from chemical and organic sources applied during the same crop season, the Mission estimates that chemical fertilizers accounted for 712, 24% and 4% of 1981 total offtake of N, P and K respectively. The remainder came from either organic fertilizers or mining the soil, and soil mining of P and R may be significant at present offtake levels. - 36 - for K). In 1983 some 2,200 plants in China produced 13.8 m tons of fertilizer (nutrients), of which 11.1 m tons were N, 2.7 m tons were P205 and about 29,000 tons were K20. Domestic production is characterized by a small number of product types and low nutrient content. Nitrogenous fertiLizer production is about 60Z ammonium bicarbonate (16-0-0) and aqueous ammonia; 33Z is in the form of urea (46-0-0) and the balance is largely am-onium nitrate. About 70% of P production is single superphosphate (12-20% P205) and 30% is calcium magnesium phosphate (14-18% P205). Users of local products complain of Low quality, lack of uniformity and, occasionaLly, poor bagging. Urea and diammo- nium phosphate (18-46-0) are commonly preferred products on quality and price grounds. Imports of fertilizer have averaged 10 million product tons (2-3 m nutrient tons) in recent years at a foreign exchange cost of more than US$l billion p.a. 3.17 Distribution and use. Farm sales of chemical fertilizer are made by the Agricultural Means of Production Corporation, although the local distribu- tion network is essentially that of the National Federation of SuppLy and Marketing Cooperatives which handled the job until 1982. Most imports are handled by SINOCHEM, but smaLL amounts are brought in directly by provincial trading companies. About 20% of domestic production is from relativeLy large plants owned by the central and provincial Governments and is usually distri- buted through the state system at centraLly-established prices. In the 1973-79 period, the portion of chemical fertilizer distributed through the state system declined from 48% to 23%. That portion has probably continued to decline. A substantiaL share of state supplies is allocated as rewards or exchange for items procured by the state and typically goes to intensively cultivated areas where application rates and yields are high. Fertilizer produced by county owned or lower level units is allocated locally under a state-recommended pricing system which is not always honored if market imbal- ances exist. This distribution system, and the use of fertilizer as rewards in pursuit of production objectives, has spawned a complex bureaucracy. In 1982 some 16 government agencies at state level, and more than twice this number at lower levels, were involved in the production and distribution of - 37 - chemical fertilizer. The system is cumbersome and seemg likely to result in high marketing costs and, commonly, delayed deliveries.20 3.18 The state system of allocating fertilizer has been used as a policy instrument to encourage production and marketing of key commodities. Fragmen- tary infc ..mation suggests that the allocation process in the past has favored food crops relative to feed grains and pulses; the high, stable yield areas relative to lands of lower quality; irrigated areas relative to non-irrigated areas; and the state farms relative to the collective sector. Surveys of crop production expenses (1981) indicate that per ha costs of chemical fertilizer applications averaged about Y 150 for paddy rice, Y 120 for wheat and corn, Y 50-75 for other grains and tubers, Y30-85 for soybean and major oilseeds, Y 175 for cotton, Y 160 for other fiber crops, Y 250 for sugar cane, and Y 45 for sugar beet. Differences in application rates among crops have narrowed considerably since the mid-1970s. Regionally, application levels of nutrients per sown ha (Map 3) ranged from less than 50 kg (Xinjiang, Gansu, Nei Monggol, Heilongjiang) to over 150 kg per ha (Fujian, Jiangsu, Shandong and Liaoning). 3.19 Consumption and supply prospects. Fertilizer, both chemical and organic, will obviously continue to be a major factor contributing to future agricultural growth within an environment of unchanged cultivated area. The question is whether inability to increase supplies rapidly enough can be anticipated to be a major constraint on growth. Based on crop offtake of nutrient at production levels projected for 2000, MAAF expects consumption of chemical fertilizers to reach 30 m tons of nutrients, equivalent to about 240 kg per cultivated ha (adjusted for underreporting) - or more than twice current US levels, yet well below those of Japan and South Korea. This projection assumes, perhaps optimistically, that use of organic fertilizer would continue to grow, so that only half of total nutrient requirements need be supplied from chemical sources. If the targeted N:P:K ratio of 100:50:40 were achieved, chemical fertilizer applications would consist of about 16 m tons of N, 9 m tons of P205 and 5 m tons of K20. 3.20 Unofficial production targets for 1990 by the Ministry of Chemical Industry place total nutrient production at 17.1 m tons, of which 13.0 m tons are N, 4 m tons are P and 0.1 m tons are K. Thus, growth rates of N produc- tion would slightly exceed 2% p.a., while P would grow by 6% p.a. and output 22/ These factors are costly in economic terms. Delayed delivery and application reduces potential benefits from fertilizers. Multiple handling increases physical loss and raises distribution costs. The International Fertilizer Development Center (IFDC) estimates average physical loss in developing countries at 10% each time fertilizer is warehoused. Marketing costs are often 50% or more of the retail price in these countries. China appears to be no exception. Price data for 1979 indicate factory to farmgate markups of about 30% for urea and 40% for ammonium nitrate. These logistical difficulties explain in part the continued popularity of fertilizers from smaller plants outside the-state system, despite their problems with product quality and process inefficiencies. - 38 - of K would quadruple by 1990. MAAF assumes domestic production of 24 m tons of nutrient by 2000, elimination of imports of nitrogenous fertilizers, but continued imports of P and K to meet large domestic shortfalls. If the chemicaL industry were to accept these goals, they might aim to produce 16 m tons N, 7 m tons P and 0.6 m tons K by 2000. This would leave a supply short- fall of 2 m tons P and 4.4 m tons K which could be imported at a projected cost of about $1.7 billion (1983 dollars). As this only exceeds the current bill for fertilizer imports by 50%, the projected burden on foreign trade is not large. 3.21 Adjustments in organic fertilizer use are also warranted. Due to the scarcity of rural fuel supplies, a high proportion of crop residues are burned for heat and cooking. In the south, straw from the early rice crop is commonly burned in the fields even in areas where the soil is short of organic material, while oilseed meal is often used as fertilizer where feedstuffs lack protein. While there are usually technical or economic reasons why such practices are difficult to change, the situation could be improved through, for example, development of alternative rural fuel sources, including coal, fuel wood, and biogas (in association with commercial livestock production); and chemical replacements for nutrients and microelements supplied by oilseed meal fertilizers. 3.22 China has developed a capacity to design and construct efficient, large-scale plants for the production of nitrogenous fertilizers. Two new nitrogen production facilities began trials late in 1983, each with an annual capacity of 220,000 tons of N. Two additional nitrogen plants are planned to come into production before 1990. Total increased capacity in all four plants would be less than a million tons by 1990. If raw material supplies are made available (coal, fuel oil or gas), the rather modest production targets for N would seem realizable. The higher growth rates for P and K raise more ques- tions, aLthough they are from a low base production level. Existing phosphate deposits are located in the central south and the mountainous southwest, in areas where transportation facilities are poor. Plans are to establish phos- phate fertilizer plants near mines and produce high analysis products (such as TSP or DAP) for shipment to distant markets. Because China has limited exper- tise in the design and construction of large plants for these materials, it expects to rely on foreign technology and advice. Domestic deposits of potash are limited to the Qaidam Basin, where a 1 m ton potassium chloride plant will eventually be constructed. For both P and K production, achieving year 2000 targets demands an early comitment of funds and manpower to a process requiring mastery of new technologies. 3.23 Questions remain regarding the availabiLity of the 30 m tons of nutrients projected annually from organic sources by 2000. If the projected increase in organic fertilizer use does not occur, proportionately more foreign exchange will have to be committed to chemical fertilizer purchase, or else fertilizer availability will be inadequate to meet requirements of targeted production. Assuming that organic fertilizer on average contains about one percent nutrients by weight, these targets imply the need to collect, store, transport and apply some 3 billion tons of organic materials annually. Although these materials may be available if high growth rates of livestock are achieved, would the use of such large quantities of labor be - 39 - economically desirabLe? It would almost certainly not be consistent with declines in the farm labor force projected by MAAF. Willingness of sufficient labor to undertake these frequently onerous tasks is also a consideration, as indicated by experience in other countries where commercialization of agriculture and growing opportunities for labor have resulted in steady declines in the use of organic fertilizers. Much depends on the future oppor- tunity cost of labor. If projected increases in labor productivity in the rural economy materialize, through opportunities for slack season and non- agricultural employment, it should be asked whether farmers in the year 2000 would be wiLling to put in the work time required to apply organic fertilizers at a rate approaching 25 t per ha. If alternatively, this were forced by, for example. tying chemical fertilizer distribution to organic fertilizer use, it would have undesireable consequences to the efficiency of fertilizer distribution. 3.24 Adjustments in policy and practice regarding fertilizer use and distribution seem warranted. To favor particular commodities (food grains) or production systems (state farms) or agro-ecological zones (high, stable yield areas) may have been more economically rational when fertilizer application rates were relatively low. This pattern of allocation appears much less efficient today.23 At the new higher levels of application, marginal yield responses in the high yielding localities are frequently below marginal yield responses in the low yield areas. CAAS studies suggest that marginal yield responses in some high yield areas on average declined from 15-25 kg of grain per kg of nitrogen in the 1960s to 5-10 kg of grain today. These results would imply a decline in the incremental benefit-cost 2atio from nitrogen application (urea derived) from about 3.4:1 to 2.3:1.- The decline in incremental return in the high yield areas is reported to have stimulated illegal resales of fertilizer to areas where marginal returns are higher. 3.25 The general objective for fertilizer distribution is to facilitate the use of economically-optimum quantities in a timely manner. In the past, with generaL scarcity of chemical fertilizers and only nitrogenous fertilizers to distribute, a system of rationed distribution was easier to administer and could serve efficiency objectives. Today, with more abundant nitrogen but continuing scarcities of P, K and microelements, there is strong reason to allow the market to play a large role in allocating fertilizers. The most critical task for Government is to develop fertilizer testing programs and related extension work, involving both economic and technical considerations, which could guide the processes of production, distribution and utilization. 23/ Guo Jinju and Lin Bao, "A Study of China's Chemical Fertilizer Problems," Turan Tong Bao (Soils Bulletin), No. 2, April 6, 1983, pp. 25-27. 24/ Assume an average farmgate price for paddy of about YO.17 per kg in 1965. By 1981 the paddy price had increased to about YO.31 per kg (YO.20 as the 1973 average quota price for japonica and indica rice, adjusted for 20% price increase on quota price received by producers in 1981). The price of nitrogen from urea at farmgate is estimated at about YO.98 (Y450 per ton of product @ 46Z N.). - 40 - Fertilizer import priorities should be closely aligned with the nutrient needs established by research. 3.26 Seed supplies. Good quality seeds in adequate quantity are critical inputs in high-yield agriculture. At the central level, MAAF's National Seed Corporation (NSC) is responsible for national seed policy and planning. The NSC regulates international trade in seeds, coordinates domestic seed produc- tion and distribution, and provides technical guidance to provincial and county seed companies. The 2,300 local comoanies are responsible for the multiplication, pro,7sing, storage, certification and distribution of stock and certified seed.- The breeding and development of pure strains is carried out primarily by provincial agricultural research institutes. Multi- plication of stock and certified seed is done by seed farms operated by local seed companies. Special contracting arrangements also exist where brigades, teams and households, under supervision of center technicians, produce certi- fied seed which is then returned to the company for processing and ultimate distribution to users. The CentraL General Bureau of State Farms also oper- ates a system of seed companies and farms which produce seeds for both state farms and collectives. The 2,600 seed farms under both NSC and GBSF serve about 90Z of all counties. 3.27 Although basic mechanisms are in place, the national seed system has a number of shortcomings. Supervision and technical services are inadequate and storage and processing facilities are in short supply. The national supply of seed produced under NSC supervision totals about 2.5 m tons and meets less than 12.5X of total seed requirements. Less than one third of this supply has received proper treatment and certification. Most farmers there- fore continue to rely mainly on retained seed of uncertain quality and paren- tage. In recognition of these shortcomings, the NSC has established pilot projects in 120 counties, and the provincial governments in 200 counties, to improve seed processing, storage, and distribution. The national target is to produce up to 10 million tons of seed under NSC supervision by the year 2000. The government is also considering developing a system of seed testing centers, independent of NSC control, which would certify seed quality. The Policy Environment 3.28 The policy environment refers to the economic circumstances in which Chinese agriculture will operate and includes a wide range of policy measures which influence levels of work effort, production, consumption, savings and investment by farm families. The prospects for agricultural growth in any country are strongly influenced by both the structure of production incentives and the level and form of investment in the agricultural sector. The promulgation of the PRS has significantLy improved agricultural production incentives, and can share credit with price adjustments for the outstanding growth record of Chinese agriculture since 1979. Its benefits have been 25/ Stock seeds are progeny of genetically pure strains. Certified seeds are improved seeds available for distribution to farmers and conform to specified purity and quality standards. -41 - manifested primarily in greater labor effort and improved production manage- ment. Additional benefits might be gained by improved allocation of resources among productive activities, often associated with various forms of special- ization. The Government recognizes this, and is conscious of the need to develop markets in productive resources to facilitate specialization. As noted in Chapter 1, recent directives open the way for development of a labor market and allow subcontractiDg of land. 3.29 China still relies to a considerable degree on administrative measures to distribute production inputs and assign land to major crop catego- ries. Despite considerable loosening of the system through recent reforms, the Government continues to circumscribe the decision-making freedom of farmers beyond the requirements for efficient use of common infrastructure. Further measures to permit an enlarged role for prices and the market were announced in late 1984 and should provide an enhanced environment for agricul- tural development. However, there appears to be a continuing concern within the Government that the present price system may not provide appropriate sig- nals which would lead a farm sector, composed of a very large number of inde- pendent decision makers, to grow and market the quantities and mix of crops needed to meet national requirements. Thus, quotas for sown area of some crops are reportedly being retained in order to prevent farmers from switching a larger portion of land under their control from grain to more profitable industrial crops. 3.30 Production incentives. Despite substantial increases since 1979, average procurement prices appear to be lower than the level required to in- duce voluntary sales of an equivalent amount of produce and therefore involve a tax on the farm sector. However, since in theory the procurement quota is fixed in absolute amount but varies among teams in proportion to land produc- tivity and cultivated land per capita, it satisfies the criteria which econo- mists have set for the ideal land tax. Eliminating the quota procurement system without instituting some alternative tax scheme would reduce revenues available to the Government, either directly through increased procurement costs or indirectly, as an increased urban cost of living forced compensating wage increases, leading to decreased profits from state enterprises. 3.31 It may be asked whether the new farm price structure provides an appropriate set of incentives to encourage efficient production. In reviewing the price structure, the marginal price received or paid deserves attention, because adjustments in cropping patterns and input use are influenced by relationships between marginal revenues and marginaL costs. Because many of China's agricultural products and modern inputs are internationally traded goods, domestic prices for these items can usefully be compared to border prices (world prices adjusted for transport, trade and processing margins to the farmgate level). The comparisons may suggest needed price adjustments to encourage efficiency. If the ratios of marginal domestic prices of outputs to input prices differ from the corresponding relative border prices, the total supply of a product from domestic and international sources could be increased without increasing its procurement costs. For example, as long as the domes- tic pig:feedgrain price ratio is lower than the border price ratio, it should be possible to increase the domestic pig price, exchange part of the induced additional pig procurement for imported feedstuffs, and increase national - 42 - income in the process. Since quotas are based on Levels of local production which have been attained in the past, crop producers can normally expect that any increments in production can be sold at above-quota prices or higher, or else (in part) retained, in which case the product may be sold at negotiated prices or on the free market. Hence, marginal prices are not quota procure- ment prices, but are some average of the other three prices. Table 3.4 there- fore compares the full range of 1982 domestic price levg6s for major agricul- turaL products and inputs with farmgate border prices.2 3.32 It was suggested in Chapter 1 that China's farm price structure is designed largely on the basis of internal considerations, viz., to give a reasonable return to Labor or land above domestic materiaL costs. Therefore, it is not surprising that the relationship of marginal domestic prices to border prices shows little uniformity, although domestic prices for a number of crops and inputs do not seem far out of line with border prices. Some important products appear to be underpriced relative to international prices. These include rice, timber, pork and fish which together undoubtedly account for a high proportion of agricultural procurement. Three of these (rice, timber, fish) are products for which one would expect production cost as defined in China to be a poor guide to pricing, because it does not reflect rent or returns to past investment in, e.g., paddy fields or fishpond con- struction and water control systems, or depletion allowances for forests. Underpricing of pork may reflect the grain-saving nature of traditional Chinese production methods compared to grain-intensive production systems abroad and the fact that pig manure in China is a valuable product, the benefits of which accrue to the pig producer. 3.33 On the other hand, certain products seem relatively overpriced, including edible oil, sugar crops, natural rubber and milk. For some of these, climate or natural resources may put China at a comparative cost dis- advantage, yet the Government has sought to stimulate domestic production. The overpricing of edible oils does not extend to all oilseeds. The implicit subsidy may accrue to the processing enterprises rather than the farmers. Oilseed meals in China tend to be priced well below international prices for similar products. 3.34 Pricing of industrial inputs has been generally influenced by a Government policy of maintaining a modest profitability of manufacturing and passing along cost reductions to farmers through reduced input prices. Thus fertilizer prices, which benefit from underpricing of energy and raw materials used in the manufacturing process, have fallen to levels which approximate 26/ Exported or imported products may differ in quality from average domestic production. For this reason, as well as possible estimation errors in conversion to farmgate and unit weight equivalencies, conclusions drawn from comparison of border and domestic prices should be taken as indica- tive rather than definitive. Moreover, absolute values of indices, which would change nearly proportionately if other than the official yuan-to- US$ exchange rates were used, are less meaningful than price ratios between products. - 43 - Table 3.4: COMPARISON OF 1982 BORDER PRICES WITH DOMESTIC PROCUREMENT PRICES /a Farmgate Percentage of farmgate border price border Quota Above-quota Free market Average Product price price price price price (Y/ton) Crops Paddy rice 435 53 80 Wheat 411 77 115 122-170 Corn 316 68 102 114-152 Soybean 590 1i7 117 119-136 Lint cotton 2,817 105 136 177-199 115 Oilseeds Rapeseed 927 77 116 Peanuts 738 131 196 Edible oil 1,046 374 265 Jute 660 56 67 73 Tobacco (smoked) 2,927 59 52 Vegetables 460 Sugar cane 26 162 191 Tree Crops Fresh fruit Apples 571 79 68 Mandarin orange 671 92 72 Tea (processed) 3,720 345 95 Natural rubber 1,637 372 Timber 211 41 Animal Husbandry Pork 3,562 50 47 56 Beef 2,435 67 120 Chicken 1,942 113 185 Eggs 1,755 173 106 Milk 213 282 Wool 6,378 56 Honey 1,417 133 Fisheries Fresh fish 3,151 22 67 29 Inputs Urea 428 117/b Ammonium sulphate 213 119iT Phosphate (P205) 898 104/b Potassium chloride 255 103/b Soybean meal 501 667w /a From Annex, Table 3.3. /b State fixed price. - 44 - internationaL prices for equivalent prcducts, but could turn sharply upwards if price reform increases production costs. Farm machinery remains costly by international standards, but diesel fuel is relatively cheap. On the other hand, the price of electric power for irrigation pumping and fees for surface irrigation water both reflect substantial Government subsidies and would have to be tripled to cover average costs (including operations and maintenance costs but not depreciation for the irrigation system). 3.35 Additional evidence on the appropriateness of the present price structure can be derived from comparisons of ratios of prices of output to major inputs. The ratio of the farm-level prices of nitrogen to crop pric19/ is a commonly used indicator of incentives for high input use (Table 3.5). _/ Assuming that above-quota prices approximate marginal prices in China, this ratio for Chinese wheat production is identical to the border price ratio and more favorable than in several other major wheat producing countries. The ratio for rice is substantially less favorable, although not worse than those of some other Asian producers (with lower crop yields and fertilizer use rates). This is significant in view of the high crop yields and levels of fertilizer use, and diminished response to incremental nitrogen applications which appears to characterize much of Chinese rice production. 3.36 Not all producers in China face price signals which are as attractive as those considered above. Quota prices appear to vary consider- ably among geographical areas, as suggested by the considerable differences between reported national averages and local survey data. Quota levels appear to discriminate against areas which had achieved high productivity before introduction of the PRS, and this may be inducing sizeable conversions of cropland to non-agricultural use as in, e.g., Southern Jiangsu. Farmers who normally cannot meet their procurement quotas face quota procurement prices at the margin, and, hence, rather unfavorable incentives to increased input use. Domestically-produced nitrogenous fertilizer varies widely in price per unit of nutrient, and farmers who depend heavily on high-priced fertilizers are penalized. Solutions to these problems might include adjustment of fertilizer prices to reflect quality, nutrient content and transport costs, and reduction of excessive quotas. 3.37 A similar comparison can be made of the ratios of animal product prices to prices of feed input, assuming use of a baLanced feed concentrate (Table 3.6). The price ratios may be compared with FCRs which relate concen- trate input to resulting meat output: production systems using concentrate- intensive techniques are only profitable when product:feed price ratios sub- stantially exceed conversion rates. In terms of border prices, this favorable relationship exists for pork, chicken and eggs. Border price ratios for beef and milk appear to be below levels necessary for profitable production with concentrate-intensive technologies, possibly because international prices are influenced by exports from subsidi7ed production. 27/ It should not be taken to indicate absolute profitability, as low procurement pricing may be a substitute for taxes, which are ignored in the comparison. - 45 - Table 3.5: RATIOS OF FARM LEVEL PRICES FOR NITROGEN AND GRAIN, SELECTED COUNTRIES Selected Price ratio Selected Price ratio wheat of nitrogen rice of nitrogen producers to wheat/a producers to rice /b Mexico 1.3 Japan 0.5 Bangladesh 1.5 Korea, Rep 0.7 Egypt 1.6 (Border price) 1.5 China: above-quota price 2.3 Indonesia 1.6 (Border price) 2.3 Sri Lanka 1.7 Canada 2.4 Bangladesh 2.1 Pakistan 2.6 Nepal 2.2 USA 2.6 China: above-quota price 3.1 Turkey 2.7 Malaysia 3.1 France 3.0 Philippines 3.2 Brazil 3.1 Thailand 3.4 China: quota price 3.5 Pakistan 3.6 India 3.6 India (Orissa) 4.3 Australia 5.4 China: quota price 4.7 /a International statistics from CIMMYT, 1983 World Wheat Facts and Trends, Report Two (Mexico, 1983), Table 6, p. 18. Chinese statistics are from Annex Table 3.3. /b International statistics for 1979 or 1980 are from IBRD-EAPD, Rice Hand- book, February 1981, Table VII-B1. Chinese statistics are from Annex Table 3.3. 3.38 Domestic product:feed price ratios appear to exceed border price ratios for all products except pork. Aside from pork and beef, they are also more than adequate to make concentrate-intensive production financially attractive. Indeed, they may be too attractive to encourage efficiency. For poultry products, where most sales are at free market prices, this high ratio may be a combined reflection of strong consumer demand and low-productivity domestic production systems. The data suggest a need to increase pig procure- ment prices if increases in production are to come from a concentrate- intensive production system. Because of low domestic productivity, the profitability of beef cattle raising and dairy production seems questionable in China even at output price ratios more favorable than border prices. Further study of these price relationships is necessary: given China's agricultural diversity and size, it is important to examine price relation- ships location-by-location. - 46 - Table 3.6: COMPARISON OF PRICE RATIOS OF ANIMAL PRODUCTS TO FEED WITH EFFICIENT FEED CONVERSION RATES Ratios of product prices to feed prices /a Border Domestic Kg feed per prices prices kg product /b Pork 10.1 6.2 4.7-5.8 Beef 6.9 9.0 10.8 Chicken 5.5 11.1 2.5-3.9 Eggs 5.0 5.8 3.5-3.7 Milk 0.6 1.9 0.4 /a Product prices are border or average procurement prices per ton of dressed weight. Feed prices are a weighted average of maize (80%) and soymeal (20Z). The above-quota price is taken to be the domestic price of maize. /b Conversion rates shown (kg feed:kg dressed weight) are averages for countries with efficient production systems. 3.39 Though some agricultural products appear-relatively overpriced, the marginal procurement prices of other products may be too low to elicit expanded production. As together these represent a sizeable proportion of total agricultural procurement, increases in average procurement prices would be costly to the government budget or to urban consumers. Higher prices would create larger profits for existing efficient producers and would improve incomes most in areas which are already weLl off, as the presence of rice and pigs on the list would imply. These effects could be minimized if, e.g. (1) the entire price structure, including quota prices, were adjusted upward, but income effects were offset by quota adjustments and/or resource-based taxes; or (2) if the tiered pricing structure were retained, only the above-quota price was increased. 3.40 Agricultural Investment. In cvery country the linkage between agricultural investment and growth of the sector is obscure. And, as the Chinese experience since 1980 demonstrates, agricultural growth may accelerate while public sector investment declines as long as production incentives remain strong. But this phenomenon of rapid growth in the presence of declin- ing public investment poses the quest;.-i of whether productive investment in the sector is adequate to sustain 4gric:1cural growth at rates needed to achieve national growth and income targets. As noted in Chapter 1, available information on agricultural in-.rataent in recent years relates largely to budgeted funds at the state and provincial levels. Little is known of public sector investment outside the state budget or on-farm investment by individual households. Yet it is at these lower levels that investable savings are growing most rapidly. At the national level, little analysis appears to have - 47 - been done which estimates the size and type of investment in agriculture required to achieve specific production and income targets. Ministries have reached a generaL consensus on the size of technically-feasible programs in agriculture to 2000 and have rough figures on unit development costs. But the major analytical effort relates to five-year plans which ultimately determine the allocation of central Government funds among ministries. 3.41 In these circumstances, the present analysis is Limited largely to a consideration of investment in capital construction required for major development programs noted by Government agencies in discussions with World Bank staff. Because these programs have been developed by separate agencies and have not necessarily been approved at higher levels, they should not be construed as an integrated investment program for agriculture to 2000. Rather, they provide the basis for developing the annual estimates of public investment in agriculture in several development activities accorded priority by the Central Government. As provincial and local goverrments have diffe- rent, more localized sets of priorities, and control over investment resources is shared among governmentaL levels, an all-inclusive program listing might require investment funds which are substantially larger. Moreover, these estimates are partial in the sense that they relate largely to capital construction in the public sector and exclude most capital expenditure for critical support services such as agricultural education, research. extension, marketing infrastructure and transport. Further, they excLude increased working capital requirements for agriculture. The estimates in Table 3.7 should therefore be regarded as illustrative only and as reflecting assump- tions which are not necessarily shared by all ministries concerned. 3.42 The subsectoral structure of this "program" differs greatly from present sectoral shares of output. The share of investment primarily benefit- ting crop cultivation (about 30%) is less than half of the crop share in GVAOR (about 75%), whereas thio8ther subsectors' shares are at the least twice their present product shares.- While these investment "weights" are generally consistent with the structural change sought in agriculture by the Government, an investment pattern of this nature may not necessarily be desirable from an economic viewpoint, or be an effective means of achieving production and income objectives. More than half of total investment would be absorbed by dairy and forestry development. The advisability of massive investment in dairy development will be questioned below. And while forestry development in general warrants priority on need and environmental grounds, expenditure on afforestation will add relatively little to annual product in the next several years. 28/ Chinese statistical convention defines the gross value of agricultural output (CVAO) to include the value of output from production of crops, livestock, fisheries, forestry and "sidelines." Sidelines include industries operated by brigades and teams, as well as hunting and gathering activities. In keeping with more conventional accounting definitions, this analysis defines GVAOR to include only the gross value of production from crops, livestock, fisheries and forestry. - 48 - Table 3.7: ANNUAL INVESTMENT IN CAPITAL CONSTRUCTION FOR AGRICULTURAL DEVELOPMENT (1984-2000) /a Total area Annual Purpose affected expenditure (ha '000) (Y millions, 1982 prices) Crop cultivation Irrigation 6,900 2,264 Drainage, desalinization 11,000 688 Land reclamation 5,970 1,594 Red and yellow soils 3,000 1,042 Subtotal 5,588 Forestry Afforestation 60,000 1,408 Maintenance of immature plantings 60,000 4,388 Subtotal 5,796 Animal Husbandry Pasture improvement 33,330 816 Feed processing facilities 666 Dairy development 5,008 Poultry development 530 Subtotal 7,020 Fisheries Fishpond construction 585 562 Fishpond improvement 800 482 Subtotal 1,044 Grand total 19,448 /a The projected expansion in irrigation is closer to the opinions of IWREP than to those of MAAF, but land reclamation on the scale envisioned by MAAF would often further enlarge irrigated area (investment included in reclamation costs). Pasture improvement investment excludes costs of wells or cultivated pasture. Development of feed processing is assumed to emphasize dispersed, small-scale facilities in order to minimize investment costs. For most other animal and fisheries investments, requirements derive from MAAF production targets for the year 2000. See Appendix Table A.11 for additional detail. Source: Mission estimates, based on information provided by various agencies. - 49 - 3.43 The rate of long term growth will depend heavily on the adequacy of agricultural support services, including the agricultural research and exten- sion systems. Because yield increases will be the source of most of agricul- tural growth, a strong research program aimed at improving production techno- logy is of particular importance in China. Although it is very difficult to estimate an optimum level of investment in research, a study of international experience ha2.yecommended an amount up to about 2X of the value of agricul- tural output.9 For China, this would imply annual expenditure (capital and recurrent) of up to Y 4 billion. Comprehensive information is not available on research expenditure in China, but availablI07vidence suggests current levels are considerably less than this amount.° 3.44 Suppose that the Y 20 billion average annual fixed investment level of Table 3.7, which could mean something like Y 11-12 billion at present, rising to Y 33 billion by 2000, may be taken as a minimum requirement: how easily could this investment level be financed? Although at first glance, estimated 1982 rural investment levels of Y 65 billion (Table 1.2) seem ample, a part of the former would be absorbed by replacement investment and working capital requirements. Moreover, only Y 16.5 billion of this total represents investment resources in public hands (excluding obligatory public service labor), of which Y 6.8 billion is now being committed to CBE development. The opinion in China is that state investment in agriculture wiLl not be increased in the short run by more than Y 1-2 billion annually and coLlective investment (excluding that in CBEs) may continue to decline. Therefore, the ability to effectively tap private savings for productive investment is likely to be a critical determinant of the adequacy of agricultural investment. 3.45 Several approaches could be taken to capture a larger proportion of private savings for productive investment: (1) by bringing more types of developmental activity within the scope of the private sector through the granting of private use rights over collective or state property; (2) by inducing more private direct investment by ensuring stable tenure for families which ;nvest in resource development, assuring access to production inputs, adjusting price levels where necessary, and by offering loans to supplement private investments; (3) by making time deposits attractive through higher interest rates; or (4) by imposing additional taxes on idle assets, offset with tax credits for the productive use of assets. As noted in Chapter 1, the Government has made a start on some of these measures in recent months. But even in the best of circumstances, it will take time for rural institutions to completely abandon preferential treatment for collective or state-sponsored activities and for farmers to become convinced that the present favorable climate for private investment will remain. 291 World Bank, Agricultural Research: Sector Policy Paper, (June, 1981), pp. 102-106. 30/ As noted below in 1982 expenditure by agricultural research institutes at provincial levels and above was Y206 million, of which Y45 m was for constructing and equipping of research facilities. - 50 - 3.46 The banking system will need to expand its role in directing investment to more productive uses. In particular, rural credit institutions should be encouraged to devote a larger proportion of credit to long-term lending, which could bid resources away from consumption or nonproductive use and finance use of rural labor for productive investments. The present trend towards an increasing proportion of lending to individuals seems desirable as a means to support the development of specialized household production. Consideration also should be given to, e.g., a higher interest rate structure and the strict repayment policy necessary to ration credit, supported by measures to improve management of credit institutions. Agricultural Support Services 3.47 The restoration of a farming system organized around individual households has placed new demands on agricultural support services. Previ- ously, the various levels of coLlective organization could serve as major nodes in the delivery of production inputs and technical assistance, with direction below the production team Level left to team cadres. At present the support system requires direct links to nearly 200 million production units which increasingly operate like smalL family-managed farms elsewhere. In response to this requirement, the system has begun to undergo a restructuring based in part on an innovative extension of PRS concepts. The future development of Chinese agriculture will depend to a large extent on the success of this restructuring in providing small-scale farms with the full range of support services needed by production systems which are increasingly complex technologically and more closely linked to markets for production inputs and outputs. 3.48 Agricultural Research. Of critical importance will be the continued generation of yield-augmenting production technology. Much of the agricul- tural research in China today is carried out in the 390 agricultural research institutes at provincial level and above which operate under the general professional guidance of the Chinese Academy of Agricultural Sciences (CAAS) within KAAF. The MAAF also supports other smaller research agencies such as the China Aquatic Sciences Research Institute (under the general guidance of the Aquatic Products Bureau) and the South China Tropical Crops Research Institute (under the General Bureau of State Farms). The Ministry of Forestry is the parent agency for the Academy of Forestry Sciences which provides professional guidance for provincial forestry research institutes. The Ministry of Water Resources and Electric Power oversees 33 affiliated research organizations which carry out some research related to water use in agriculture. 3.49 The various provincial research institutes under CAAS guidance are staffed by some IC,800 research personnel, along with support staff and workers. The CAAS itself has about 3,500 research scientists. This network has available about 13,000 ha of land for research and demonstration work. Another 49 crop and livestock research institutes operate at province level or below, are staffed by some 15,300 scientists, and are under provincial leadership. The Chinese Academy of Sciences (CAS) supervises the work of more than 100 research institutes, some of which carry out research in the agriculturaL sciences. About 11% of the research conducted by institutes - 51 - under the guidance of CAAS is classified as basic research, while the balance is designated as applied (71Z) or development research (18X). The distinction among these categories is not always clear, although the latter two generally relate to specific problems encountered in agricultural production and processing. In 1982 expenditures by agriculture research institutes at provincial Level and above were about Y206 m^jjion, of which Y45 million were for construction and equipping of facilities- . 3.50 China's agricultural research system continues to suffer from the effects of the Cultural Revolution when many major research institutions were closed and staff dispersed to the countryside. Work at many research institutes is hampered by inadequately qualified staff and poor research facilities. Experimental fields and greenhouses need to be established or upgraded and there is a general need for better housing and educational, health and recreational facilities, particularly for research centers in isolated areas. Qualified staff, especially at the middle and senior levels, are in short supply. Of the total research staff noted above, less than 3% hold graduate degrees and more than 35% have not earned a college degree. A large part of the intellectual leadership for agricultural research in China is provided by research staff who are more than 60 years of age. 3.51 Linkages between research institutes and the agricultural colleges and universities tend to be weak. At the ministry level there is some inter- action betweer. bureaus of science and technology responsible for research institutions and bureaus of education which oversee higher educational insti- tutions. At the provincial level, the ties between teaching and research institutions are commonly based on personal contacts and ad hoc arrangements for joint work on specific projects. Cooperative research arrangements are being increasingly encouraged by central funding agencies which may respond to bids on research projects submitted by colleges and research institutes by making joint awards. Linkages between research and extension are to be improved through the work of extension committees which are being established at the provincial level. 3.52 Agricultural Education. China has some 85 institutions of higher education in agriculture and related fields with a total student enrollment (1981/82) of about 100,000. This represents only 8% of the 1.2 million students enrolled in China's 715 institutions of higher education. At the secondary level, some 740 institutions provide training in agriculture in 2-4 31/ Among the agricultural research achievements of international acclaim in China were the early development of stiff-strawed, fertilizer-responsive wheat and rice varieties, the development of hybrid rice varieties, methods to control stripe rust in wheat and, more recently, the develop- ment of high-yielding or shorter season cotton varieties. In 1983 the State Scientific and Technological Commission granted a number of awards for outstanding research achievements by the CAAS system, including the development of a vaccine against equine infectious anemia, the develop- ment of wilt-resistant cotton varieties, and the development of an effective vaccine against swine fever. - 52 - year programs. About 185,000 students were enrolled in these programs in 1981/82. At the university level, agriculture is not generally the first choice of candidates and those admitted to the agricultural colleges and universities frequently have lower scores on admissions tests than candidates entering other fieLds. There is also a problem of retaining agricultural students after training is completed. Since the early 1950s, some 500,000 of the technicians trained in agriculture have left the countryside for jobs in urban areas. Through new policies - a special quota system for admissions of rural students to agricultural colleges and secondary schools and salary incentives to encourage graduates to return to the countryside to work - the Government hopes to develop a much larger group of committed agricultural professionals and technicians. 3.53 Although the precise dimensions of the 3Willed manpower needs in agriculture must await further detailed studies,- recent projections indicate shortages of appropriately-trained personnel at both the professional and technical leveLs. Training institutions are striving to overcome such shortages, but efforts are hampered by limited enrollment capacity and inadequate quality of instruction and range of curricula. Based on present enrollments of postgraduates in the agricultural sciences totaling about 1,200, the Government estimates that requirements between 1983-90 for per- sonnel with advanced degrees will exceed availability by more than 15,000. At the college graduate and technical levels, shortages are most acute in spe- cialized fields such as forestry and meteorology where the present flow of 5,000-6,000 graduates per year can satisfy only half of the requirements over the decade. Overall, it is estimated that there are currently about four agricultural technicians per 10,000 agricultural workers. 3.54 There is a further need to upgrade the qualifications of already- employed personnel, both professionals and technicians. Extension personnel number about 170,000 of whom 35% are graduates of colleges or technical schools and 65% are experienced farmers with no formal technical training. According to MAAF/FAO data, 80,000 of the technicians in the extension network are in need of skill upgrading, as are most of those in the animal husbandry and veterinary service stations. The demand for in-service training in agri- culture for secondary school teachers is also of growing concern as the Government seeks to strengthen the agricultural curriculum in the secondary schools. 32/ Manpower requirements in agriculture and implications for educational planning are being examined in a pilot study in Jiangsu Province launched in 1982 as part of the World Bank-assisted Agricultural Education and Research Project (CR 1297-CHA). One of the preliminary results is that the present deployment at the ratio of about 1:1 between college-trained personnel and technicians trained at the secondary level makes inappropriate use of higher level personnel. This investigation, some version of which may be undertaken in other provinces as part of a nationwide agricultural manpower survey, is to be completed in 1985. - 53 - 3.55 Agricultural Extension. China's past agricultural successes in such areas as the rapid expansion of hybrid rice production can be attributed in large part to the working of a well-structured extension network. Organiza- tional reforms in the rural areas, and the sharply diminished roLes for brigades and teams in agricultural production decisions, have necessitated new approaches to extension. In 1982 a decision was taken to convert the existing county research institutes into county agro-technical extension centers (ATECs) which combine the formerly-separate extension, research, plant protec- tion, seed production, fertilizer distribution and soil analysis, farm machin- ery and animal husbandry stations. Each ATEC is expected to include 10-15 agricultural technicians and support staff. Physical facilities may include some 3-5 ha of land for experimentation and demonstration, 2,000-6,000 sq m of floor space for laboratories, class rooms, audiovisual materials and exhibi- tions. More than 300 such centers have been established, generalLy in the better developed agricultural areas. About a third of these have been created with MAAF funding, while costs of the other centers were met from provincial, prefectural or county sources. The Government intends to establish ATECs in each of the country's 2,300 counties over the next 10 years. 3.56 The ATECs' major functions include training and demonstration and the provision of several support services to farmers such as plant protection, machinery services, soil analysis, weather forecasting and supplies of seeds, fertilizers and irrigation water. Training is provided through a variety of courses offered to farmers and technicians at county and township levels and ranges from field days for farmers to short courses of two weeks' duration to two-year courses for farmer and township technicians. Demonstrations may relate to fertilizer and variety trials, pest and disease control measures and irrigation practices. Higher level technical support to the ATECs in the form of, e.g., more basic research, development of improved crop varieties, and production of teaching materials is provided by agricultural colleges or provincial academies of agricultural science. 3.57 Contracts between the center (or a subcenter thereof) and individual households are other means of providing agronomic advice, plant protection or machinery services. While farm machinery is typically owned by the machinery subcenter, it may be operated under contract by a farm machinery team which provides services to farmers on a fee basis. The system specifies bonuses to be received (or penalties paid) by technical assistance teams in the case of over (under) achievement of yield or production targets. The specialized households or "keypoint" households (similar to model farmers in other extension systems) also are expected to be important means of extending improved technologies to producers. 3.58 The new arrangements to provide agro-technical services vary widely among locations and continue to evolve. Although not yet adequately tested through operation, they are likely to foster greater coordination among units which provide agricultural support services. The close integration of training, demonstration and the provision of production inputs such as seeds and fertilizers should be particularly beneficial to the increasingly complex production systems which are emerging in Chinese agriculture. The consolida- tion of services also should improve the means of ensuring a two-way flow of information between the research institutes and agricultural colleges on the - 54 - one hand and the farmers on the other. MAAF's recently-created Leading Group on Extension has the responsibility to coordinate at the national level all agricultural education, research and extension activities. 3.59 Machine services. Since 1979, Government policy has changed from active promotion of agricultural mechanization to a market-oriented approach in wnich the future rate of mechanization will depend largely on farmer demand and farmer investments. Following the development of BGDH management systems, the reductions in field size, as well as farmer desire to obtain maximum control over timing of farm operations and to minimize cash expenditures, have caused a decline in demand for large and medium-scale machinery, and a corresponding rise in demand for draft animals. The demand for small-scale pedestrian tractors continues to be high. Excluding the 10% of tractors owned by state farms, about one-third of tractors are now privately owned, another one-third privately operated, and the rest collectively owned and operated under contract to mechanization teams or service companies. Mechanization continues to be important in irrigation, pest protection, processing and transport, as well as on state farms, where low labor/land ratios and short growing seasons typically militate against labor-intensive techniques. 3.60 The emerging organizational form for provision of machine services involves private or collective custom land preparation by specialized oper- ators or teams, whose earnings are supplemented by short-haul transport work. The provision of transport services which normally accounts for 40-60% of farm labor input, is far more profitable than custom land preparation for regulated fees. This may contribute to the decline in mechanized plowing and increased demand for draft animals. Tractor hauling is reportedly as effi- cient as truck transport on poorly maintained farm roads, but contributes to clogging of the rural road system. In the long run, the introduction of fuel- efficient, small scale trucks to replace off-farm tractor hauling, wouLd produce important savings in fuel and transport time. In the medium-term draft animals, which now consume over 20 million tons of concentrate per year, are likely to continue to grow in importance. In view of the competition this poses for limited concentrate supplies, successful development of custom machine services would help free resources for production of Livestock products for human consumption. 3.61 Marketing and transport. One of the most important constraints to the restructuring of Chinese agriculture and increased specialization is the limited capacity of the rural transportation, processing, storage and distri- bution system. Most options for accelerating agricultural growth and increasing productivity have as prerequisites investments and organizational improvements in this area. Efforts should be made to both expand the capacity of the rural marketing system and increase its operational efficiency. The system could be improved by policy measures which simplify pricing and pro- curement, reduce administrative barriers to the flow of farm output and production inputs, curtail the number of public intermediaries in the market- ing chain, and encourage larger roles for individuals or small groups in the management and ownership of purchasing and selling points, processing and storage plants and transportation equipment. The demand for marketing ser- vices (transportation, storage, processing) will grow rapidly as commer- cialization of agriculture expands. Experience in other countries - 55 - demonstrates that individuals and small groups can provide these services efficiently and can usefully complement the Government's role in these activities. 3.62 There appears to be inadequate linkage between the work of the agricultural planners in Chine, and agencies responsible for transportation, with a resulting tendency to consider such bottlenecks as largely insuperable constraints. With improved transportation, agricultural specialization could expand to more fully exploit comparative advantage and facilitate the transi- tion to a more commercialized agriculture. For an extreme example, Gansu's Hexi Corridor is less distant from China's Northeastern provinces than California is from the east coast of the United States and shares with some areas in California the dry, sunny climate and fertile soil which provide the basis for high value crop production. At present, melons and deciduous fruit from Gansu sell at high prices in Hong Kong and Chinese cabbage procured in Hexi for Y 0.02-0.04 per kg sells in Northeastern cities for more than Y 0.20 per kg. These price differentials suggest that a reliable system of refriger- ated rail transport might well generate enough revenue to more than cover the cost of supplying additional grain to horticultural producers in Gansu. More generally, there will be little increase in the average national per capita consumption of high value, perishable foods such as dairy products, fruits, vegetables and fish if their commercial production and distribution are confined largely to the vicinity of major municipalities as at present. Improved transportation would permit more rational use of suburban land, reduce input supply problems, distribute perishable products more widely and improve the income distribution effect of high value agricultural production. 3.63 Recent policy decisions to permit individual ownership of trucks and provide for the relatively free movement of privately-owned farm products across jurisdictional boundaries are major contributions toward solving the rural transport problem. More transport vehicles will put additional stress on China's rural road system which is already over-burdened. Because of past policies emphasizing local self-sufficiency and relative neglect of local transportation networks, the problems of rurax 3ransport in China may be more acute than in many other developing countries- . Improvement of the rural road network is essential to a better marketing system. A substantial amount of internal trade in agricultural commodities could probably be moved advan- tageously by barge in terms of cost per ton km, particularly if the cost of new rail or road lines is considered. 3.64 At the production level, the stress on holding local grain reserves, the lack of adequate investment in the past for storage, and the surge in production in recent years is creating an increasingly serious grain storage 33/ The Sahelian countries of West Africa have more trucks per capita than do the rural areas of China. In Northwest India expansion of the rural road network was a major factor behind the farmers' adoption of new production technology and the five-fold increase in commercial grain supplies. These roads, which reduced marketing distances by half, were financed in part by levies on grain sales. - 56 - problem. Reliable measurements of post harvest grain losses are not readily available in China, but post harvest losses in grain in the range of 5-10% of production have been reported and storage problems are likely to be even larger for the more perishable fruits, vegetables and animal products. Cold storage capacity will have to grow very rapidly if the changing pattern of consumer preferences is to be accommodated. Chinese sources suggest that cold storage capacity in the whole of rural China is less than that available in Northwest India which has a total population of only about 50 m. To ensure their efficient use, these cold stores would have to be integrated into retail arrangements for the commodities being handled and would require similar investments in urban areas. 3.65 At the national level, a major problem is an inadequate physical infrastructure for trade in agricultural products, particularly bulky products such as grain. Without major improvements, existing port facilities appear to be capable of handling not more than 16-18 m tons per year. This assumes that improvements at Dalien, Zhanjiang and Qingdao are completed. Little of the unloading appears to be handled by continuous flow equipment and none of the ports can accommodate the Largest and most efficient buLk grain carriers. Shipping charges for these carriers from North American ports are $4-5 per ton below those of the smaller vessels which can be accommodated in Chinese ports. Some idea of the grain handling problem at the major ports may be indicated by demurrage charges which have been estimated at nearly $30 per ton in 1982 for those grain imports which were carried on non-Chinese bottoms (about 20% of total grain imports). 3.66 Agro-processing. Improved inland transportation and storage facilities would provide a basis for agro-industrial development which requires assured deLiveries of high-quality, uniform raw materials. For cereals and oilseeds, the investment priorities include: (1) improved oilseed milling facilities to increase extraction rates and provide processes to reduce toxic substances in processed products; (2) feed milling and mixing facilities to provide balanced feeds for poultry and Livestock; and (3) improved wheat milling and processing facilities, including equipment for the manufacture of convenience foods. 3.67 Substantial investment will be needed to establish a feed milling industry which meets Chiva's requirements. In the rural areas, where trans- port of Large volumes of raw materials will continue to be difficult, live- stock producers are likely to grow substantial quantities of their feed. In this setting, large scale feed mills would be less appropriate than an indus- try organized around the manufacture of feed premixes (vitamins, minerals, some high protein supplements) which are relatively low volume materials and can be purchased and transported by small- and medium-scale producers to be mixed with their supplies of grains. For the large-scale animal or poultry production systems, well served by roads and located near major urban markets, the modern, high capacity feed mill using large volumes of grains, protein supplements and feed additives, is likely to be the most efficient. 3.68 A viable feed milling industry can only be established if the product is demonstrably superior to current feeding materials and justifies the higher cost. In China measures which would contribute to this objective - 57 - include development (or expanded production) of synthetic amino acids, fish and bone meal, and vitamin, mineral and antibiotic supplements. The oilseed processing industry will have to increasingly regard the production of oilseed meal as of equal importance with edible oil. The quality and price of feed concentrates will have to be adjusted to the point where production is profitable and the use of protein meals as fertilizer becomes uneconomic. 3.69 To provide adequate services, China's agricultural processing and distribution system will have to be much more specialized, technically complex and more closely integrated than is the existing system. This modern system will require a high level of technical and managerial skills. Much of this expertise, or necessary training facilities, is not currently available in China. The experience of other countries in developing modern food distribu- tion and agro-industries would be useful and an active program of information exchange and study tours should be encouraged to permit China to benefit from this experience. Foreign technology, including managerial expertise, could make a large contribution to meeting these skill requirements. 3.70 Local management capacity can be augmented through joint-venture contracts with foreign agro-industrial firms. In addition to facilitating the transfer of improved technology, joint ventures often provide the means to break into a competitive export market. The advantages of such links in terms of market access, packaging technology, quality control and assured delivery, often are more important in the export market than being the low price supplier. 4. PROSPECTS FOR MAJOR AGRICULTURAL PRODUCTS Food Crops 4.01 Grain production in China increased by 3.9X annually in 1979-83 as the annual yield increases of 5.1% more than offset the decline in sown area of 1.1Z per year. The most rapid growth rates were reported for wheat (6.7% p.a.) and rice (4.1%). Corn production rose by 3.2% per year while out- put of other grains (pulses, soybean, tubers, other coarse grains) rose by only 1.2% per year. Looking forward, the Planning Bureau within MAAF has targeted grain production to grow by about 2% annually from the average 1980-82 base while the area sown to grains would continue to decline marginally by about 0.1% p.a. This would require average yield gains of 2.1% yearly over the two decades, with individual rates ranging from 1.3% annually for grain: other than rice, wheat and corn to 2.8% annually for corn (Table 4..). Rice yields would increase by only 1.82. - 58 - Table 4.1: PROJECTIONS OF GRAIN PRODUCTION, AREA AND YIELDS BY THE PLANNING BUREAU, MAAF Average annual 1980-82 Pro- growth rate (Z) average 1983 jections 1980-82 (actual) (actual) 2000 to 2000 1979-83 Sown Area (million ha) Rlice~ 33 33 33 0.0 -0.5 Wheat 28 29 28 -0.1 -0.3 Corn 19 19 19 -0.2 -1.7 Others 34 33 33 -0.1 -2.1 Total 115 114 113 -0.1 -1.1 Yields (tons/ha) 1Rce (paddy) 4.4 5.1 6.2 1.8 4.7 Wheat 2.1 2.8 3.5 2.6 7.0 Corn 3.1 3.6 5.3 2.8 5.0 Others 1.8 2.1 2.3 1.3 3.3 Total 2.9 3.4 4.2 2.1 5.1 Production (million tons) R'.ce (paddy) 148 169 208 1.8 4.1 Wheat 61 81 99 2.6 6.7 Corn 61 68 98 2.6 3.2 Others 59 69 75 1.2 1.2 Total 329 387 480 2.0 3.9 Source: Derived from projections of aggregate growth rates provided by the Planning Bureau, MAAF. Other grain includes soybean, lentils, and tubers. As noted in Chapter 3, these figures are considered to understate the actual sown area and overstate yields. 4.02 Rice. MAAF's Planning Bureau assumes that the area sown to rice would remain virtually unchanged from current levels, with the roughly 40% production increase (2000 over the 1980-82 average) coming entirely from higher yields. A major factor expected to contribute to increased yields is the projected expansion in the area planted to hybrids 'rom the 1983 level of nearly 6.8 m ha to 13.3 m ha in 2000. With a net yield advantage (taking into account the larger areas required for seed production) of about 20% over con- ventional varieties, an increase from current levels of the hybrid area by the implied 7.7 m ha (wihout yield increases from 1982 levels for all rice), would generate nearly a third of the projected increment in rice production by 2000. The Government also --ans to stress measures to improve rice yields in low- yield areas where considerable potential seems to exist. 4.03 The major constraint to area expansion for hybrids is the relatively long maturation period for current hybrid varieties in China (at least 135 - 59 - days), a fact which limits hybrid rice largely to the second crop in rice-rice sequences or the single rice crop in wheat-rice sequences in the South. Although not yet in commercial production, promising materials are being tested in China which have maturities of 110 days or less. The successful introduction of these varieties in China over the next few years, which seems possible from technical and organizational perspectives, would permit exten- sion of the hybrid rice area and possibly a cropping system which includes two crops per year of hybrids. China's hybrid rice varieties were developed from a narrow genetic base, and remain somewhat vulnerable to pests and disease, but research efforts in recent years have successfully incorporated much greater resistance in the newer varieties. 4.04 Progress also has been made in reducing hybrid seed costs by improving production technology. Hybrid seed yields in China have been increased on average from about 500 kg per ha in the mid-1970s to 1.0 ton at present. Yields of up to 1.5 tons have been reported in the better areas and genetic materials are available with physical characteristics (long stigmas and anthers, shorter flag leaves) which should permit further increaes in seed set and yields. The cost of hybrid seed in China is up to ten times the cost of conventional seed, although seeding rates are less than 20% of the non- hybrid types. Thus, hybrid rice cultivators spend somewhat more on seed than do cultivators of other conventional varieties. Because conventional seeds are usually produced by the farmer, cash costs for users of hybrid seed are substantially increased. With a yield advantage for hybrids of 0.75-1.0 ton per ha (valued at $100-120), the incremental benefit-cost ratio of about 5:1 (abstracting from incremenal costs of labor and other purchased inputs, which also would be expected to rise), suggests that hybrid rice is economically attractive to producers. Consumers appear to respond less positively. In markets where both hybrid and non-hybrid varieties are avaiLable, hybrid rice sells for about 10% less than traditional varieties. 4.05 China's rice yield in 1983 of 5.1 tons (paddy) per sown ha (about 4.1 t/ha if adjusted for acreage underreporting) lies about halfway between the average for all developing countries and yields in developed countries, but yields are constrained by the need to use short maturity varieties in double cropping systems. Water control in most of China's rice-growing areas is already quite good and fertilizer levels are at relatively high levels. Cultural practices, such as weed control, are outstanding. A major determi- nant of future yield gains is likely to be the speed at which hybrids with shorter maturation periods can be introduced. The steadily-improving system for rice research in China augurs well in this regard. Targets for production and yield increases seem modest relative to recent achievements. 4.06 Wheat. China is among the world's largest producers of wheat. In China wheat is the second most important grain after rice and accounts for about 20% of grain production and 25% of the area sown to grain. KAAF's Planning Bureau projects both wheat and corn production to grow more rapidly (2.6Z p.a.) than other major grains. With an assumed small decline in the sown area, this implies annual growth in wheat yields of 2.6% p.a. to 3.5 tons per ha. China's 1980-82 wheat yield per ha of 2.1 tons (1.7 t/ha, adjusting for underreported acreage) is close to the average yield for all developing countries and well-below yields in developed countries. Among developing - 60 - countries, Mexico, South Korea and Egypt have yields higher than China, due in in part to the fact that virtually all of the wheat area in those countries is irrigated, as contrasted with a figure of perhaps 50Z in China. 4.07 About 60% of China's wheat area is double-cropped, generally with corn (in the North) or rice (in the South).34 Nearly all winter habit wheat on the North China Plain has been double cropped with corn. Most intermediate habit wheats in the Yangtze Valley and spring wheats south of the Yangtze are double-cropped with rice. The sprini Wheats of the Northeast, Northwest and Southwest are mostly single-cropped. 5/ Although the area sown to wheat is projected to decline marginaiiy, some increase in tne double-cropped area can be expected if the Government's efforts are successful to increase the intensity of land use through expansion of the irrigated area. 4.08 Development of early maturing varieties is changing these doubLe- cropping patterns and has important implications for production. A case in point is the cropping system in parts of the Yellow River where, prior to the 1980s, available varieties of cotton were of a duration which required early spring planting, thereby precluding double-cropping with winter wheat. Cotton breeders recently introduced cotton varieties for that area with maturation periods of less than 120 days, or a duration sufficiently short to permit double-cropping with winter wheat. One planning estimate suggests that short season cotton varieties can be combined with winter wheat on up to 1.7 m ha previously idle during the winter months. At yields of about 3.0 tons per ha, this development could add 5 million tons of wheat (6% of 1983 production) with no increase in cultivated area. 34/ Multiple cropping refers to three practices: (a) sequential cropping--the sequential growing of two or more crops on the same land in the same year; (b) relay cropping--a form of double-cropping in which a second crop is planted between rows of the preceeding crop. In China this is widely practiced in a wheat-maize cropping system in which maize is seeded between the wheat rows about 30 days before wheat harvest; and (c) intercropping--two or more crops planted in the same field at the same time, but in alternating strips. Intercropping is widely practiced in Northeast China for various crops, including wheat. 35/ Wheat breeders define winter wheats as varieties which require a resting period induced by cold weather to flower and set seed. Spring wheats require no resting period and are generally planted in late winter after the last killing frost. Intermediate wheats must demonstrate cold tolerance, but require no resting period. About 60% of China's wheat crop is of the winter growth habit; 20% is of the spring habit; and 20% is intermediate-type wheat. In contrast to these definitions, the SSB defines winter wheat as that which is in the ground during the winter months, thereby including wheats grown near Beijing as well as in Guangdong. Wheat breeders would define the varities grown in the South as intermediate types. - 61 - 4.09 Cultural practices in wheat are generally of high standard, although a number of improvements seem possible. Weeds are controlled by hand pulling and the measure of control is quite high. Little is known of the rate of fertilizer applied to wheat, but for this crop, like others in China, applica- tion levels for phosphorus and potassium are likely to be well below economi- cally-optinumi levels, thereby .losing some of the benefits from applied nitrogen. The degree of water control and the efficiency of water use could be improved in many of China's wheat growing areas. Seed quality also could be improved. Mechanization plays only a small part in soil preparation, seeding, fertilizing, threshing and transportation to storage or market. WhiLe this system employs abundant labor, it bears the disadvantage of sLow turn around time between the June harvest (North China Plain) and the planting of corn, cotton or other warm weather crops. To speed these operations and avoid damage from summer rains, some mechanization of harvesting, threshing and hauling may be needed. 4.10 Work by Chinese wheat breeders has produced notable results in such areas as earliness (the best winter wheats in the Beijing area ripen by June 10, i.e. several days ahead of foreign winter wheats), successful spring X winter wheat crosses, and high yields (the world record wheat yield of 15 tons per ha was realized under optimum conditions at the Qinghai Plateau Institute of Botany in 1977). All varieties released for commercial produc- tion since 1965 have yield potential of five tons or more and two varieties released in Shandong Province have a yield potential of about 9 tons per ha. However, the gap between average provincial yields and yields realized in experimental and demonstration trials remAins Large. Provincial yields are generally less than half the yields achieved in trials, suggesting both the need and opportunity for improved practices relating to disease and pest control, irrigation and fertilization and timeliness of seeding, weeding, irrigation and harvest. 4.11 A particular concern for the future relates to wheat diseases, especially scab which may cause annual losses of 10-15% in the Yangtze Valley and losses of up to 25% in that area in two years out of ten. The most severe Losses seem to be associated with heavy spring rainfall in localities with poor drainage. Through joint efforts between Chinese scientists and the international agricultural research centers (IARCs), scab resistant varieties are being identified or developed, but the process may require five to ten years to produce results of economic importance. It is possible that wheat research in China has not paid sufficient attention to developing disease resistance. Wheat losses due to disease may be higher than is commonly recognized in China. Good progress has been reported in dealing with the problem of stripe rust. 4.12 The target wheat yield for 2000 of at least 3.5 tons per ha is likely to require progress on several fronts. Breeding programs might use- fully stress greater disease resistance, using local and exotic germ plasm available from IARCs. Some wheat varieties in China lack plumpness of kernels, a characteristic which is manifested in lower yields, but which can be ameliorated through careful selection of parent materials. Lodging also remains a problem, especially in areas with high levels of fertilizer use. It - 62 - may be necessary for wheat breeders in China to make larger number of crosses each year to identify a few outstanding progeny with stiff-strawed attributes.36 Table 4.2: GAPS BETWEEN PROVINCIAL AND TRIAL YIELDS OF WHEAT Provincial Provincial average as Trials at provincial average Minimum Z of trial research institutes Year Yield yield gap yield (tiha) (t/ha) (tlha) (tlha) Shijiazhuang, Hebei 1977 5-7 2.2 2.8 44 Jinan, Shandong 1977 7-9 2.6 4.4 40 Nanjing, Jiangsu 1977 5-7 3.6 1.4 72 Congzhuling, Jilin 1977 5 1.0 4.0 20 Guangzhou, Guangdong 1981 4 0.9 3.1 23 Taigu, Shanxi 1981 5 1.7 3.3 34 Wugong, Shaanxi 1983 4-5 2.3 1.7 42 Source: SSB and reports by visiting scientists. 4.13 Agronomic research, particularly that related to fertilizer and water use, has been undervalued and, hence underemphasized in China. It would seem useful to undertake more complete fertilizer trials to examine production and economic effects of using alternative types of nitrogenous, phosphatic and potassic fertilizers and of varying the timing and quantity of applications. Further applied research would be useful on effects of alternative timing, amounts of water applied and number of irrigations. As part of the Government's emphasis on crop development in rainfed areas, more research 36/ Visiting scientists have stated that the germ plasm base in Chinese wheat varieties is unduly narrow. This may be incorrect. Through the IARCs, China has access to the world's germ plasm collections, but breeders may not be using effectively the full genetic range of this material. - 63 - seems needed in the semi-arid areas of the Nornh est, including moisture conserving techniques such as minimum t'illage. 7 4.14 Corn and other coarse grains. Corn production accounts for about three-quarters of coarse grain output and 18% of total grain output. Produc- tion since 1979 expanded at 3.2% p.a., or about one-half as fast as wheat. The Government projects virtually no change in the cropped area to 2000, but yields are to grow by about 70Z, or 2.8Z p.a., 1979-81 to 2000. China's corn yields (adjusted for acreage underreporting) are slightly higher than average yields in developing countries, but less than half those in developed coun- tries. Much the same pattern holds for other coarse grains. In comparing wheat, rice and corn yields in China with those achieved in developed coun- tries, the largest difference is in corn. One explanation is that corn in China is usually relay cropped following wheat and therefore may suffer from a shorter growing season and initial competition with wheat for nutrients and moisture. Other factors restraining yields of coarse grains include poor seed quality, inadequate irrigation during times of moisture stress, low applica- tion of chemical fertilizer and poorer cultural practices compared with e.g., wheat and rice which, as principal food crops, benefit from greater care by producers. Although hybrid corn accounts for about 70% of total corn area, quality of much of this seed is questionable. Deficiencies of nitrogen and phosphorous are commonly observed in growing corn. 4.15 Growth of total coarse grain production at a substantially higher rate than the Government target would be required to provide the feed grain necessary to meet output targets for livestock and poultry. Much of China's development effort in grain has focused on the high-yield irrigated areas. One of the major challenges of the future is to raise crop productivity and farmer incomes in upland areas. Much can be done with the traditional grain crops, but other crops such as cassava also have great potential in some of these Less-favored areas. Cassava's potential lies in its multiple-use character and its efficiency as a converter of soil nutrients, sunlight and moisture to carbohydrate energy. With proper inputs, further expansion of this crop may be possible on lower-quality tropical soils not suitable for sustained cropping of annual food crops. Output could be used to meet energy requirements in the local market for mixed feeds. Exports also may be possible to net importers of feed grains, starches and sweeteners. 4.16 Regional Trends. The 6.4% overall increase in grain production in 1979-82 reflects rapid rates of increase in east and south China and near- stagnation in the north (Annex A, Table A.5). There was a modest production increase in the northwest, a significant crop loss in the northeast due to flooding in Heilongjiang, and a decline in acreage in low-yielding coarse grains in the north offset by increased yields for fine grains. Southern and eastern production increases extended to most types of cereals, tubers and 37/ Some countries such as Turkey have been very successful in expanding dryland production of wheat. Wheat production in Turkey expanded by 3.9% p.a. over the past 20 years. The experience of Turkey may be useful to China. - 64 - soybean. Reportedly, 80% of the 1983 grain production increase averaging 7.5% was attributable to provinces in the north, restoring regional balance to the growth pattern. 4.17 The Government does not project any major changes in the regional pattern of the area sown to grain. At present, only the northwest has an overall grain deficit, which the Government hopes to reduce by deveLoping commercial grain bases within the region (Map 4). Lower projected growth rates for rice relative to wheat and corn would imply higher growth rates for grain production in the north. Within the south, there may be a decline in tuber and rainfed rice area and corresponding increase in corn and soybean area, mostly in the hilly or mountainous sections. Broadcast (rather than paddy) rice is expected to expand in the north and two-crop paddy rice area in the south. Industrial and Specialty Crops 4.18 Measured by percent of sown area, national average yields and per capita production, the industrial crops (oilseeds, fibers, sugar crops, tobacco, tea) on the whole appear to be Less well developed in China than in a number of comparator countries (Appendix B, Tables B.1 and B.2). Cotton is a significant exception. The demand for most of these crops tends to grow rapidly as incomes rise. Some of the speciaLty crops, such as fruit and vegetables, bring high returns to producers and typically become more important as agriculture modernizes. Long-term Government plans stress improvement of yields of these crops, in part by careful selection of planting location to take advantage of suitable environmental conditions, but do not call for significant expansion of the planted area. 4.19 One of the issues in a longer term perspective is the extent to which expansion of these crops in China could be economicalLy justified. An international comparison of average yields of these crops relative to grain yields may provide a rough measure of comparative advantage (see Appendix B for details). If average yields are indexed to cereal yields and compared, the most important producing areas in China typically appear to be at least as efficient as comparator countries in the production of oilseeds, fibers and tobacco. Chinese producers appear to be less efficient in, e.g., the sugar crops. These indices may also be taken as rough measures of production inefficiencies in these crops and, therefore, of potential for improvement. - 65 - Table 4.3: INTERNATIONAL COMPARISON OF INDUSTRIAL CROP YIELDS (1979-81, t/ha) Cereals Peanut Rape Seed Jute Tea Tobacco Sugar Sugar sced cotton beet cane China /a 3.0 1.5 0.9 1.3 3.5 0.3 1.9 12.8 47.8 Korea 4.8 1.5 2.1 0.9 9.0 0.3 2.1 - - Japan 5.3 1.9 1.7 - 1.5 1.5 2.4 52.2 64.6 India 1.3 0.8 0.5 0.5 1.2 1.5 1.1 26.1 51.8 Pakistan 1.6 1.2 0.6 1.0 0.8 - 1.5 - 37.9 Thailand 1.9 1.1 - 1.4 1.1 - 0.6 - 37.0 Indonesia 2.9 1.6 - 0.7 2.9 1.1 0.5 - 98.7 Egypt 4.0 1.6 - 2.7 2.3 - - - 83.9 Index of Yields Relative to Cereals: China 100 50 30 44 177 10 63 427 1,593 (Leading province) /b 100 73 43 68 160 N/A 104 836 1,896 Korea 100 31 44 19 0 6 44 0 0 Japan 100 36 32 0 28 28 45 985 1,219 India 100 62 38 38 92 115 85 2,008 3,985 (Leading state) /c 100 87 37 10 66 101 64 N/A 3,644 Pakistan 100 75 38 63 50 0 94 0 2,369 Thailand 100 58 0 74 58 0 32 0 1,947 Indonesia 100 55 0 24 100 38 17 0 3,403 Egypt 100 40 0 68 58 0 0 0 2,098 /a Cereals yield according to FAO definition (excluding tubers and pulses). Chinese yields are likely to be overestimates due to underreported acreage. /b In 1981, province with largest acreage in each crop. 7& In 1977/78, yields of rice adjusted to those of paddy. 4.20 Cotton and other fiber crops. Special encouragement given to cotton production by price and procurement reforms, the increased freedom to deter- mine cropping patterns under the PRS, and the planting of improved varieties stimulated a 22% expansion of cropped area and a 72Z increase in yields during 1978-83. In Shandong Province, the leading producer, the area planted to cotton rose by 150% between 1979 and 1983 and stimulated some concern of increased grain deficits for the province. As a result of these area and yield gains, the cotton production and trade situation has undergone a remarkable transformation. China has moved from being a large importer to basic self-sufficiency (Table 4.4). With cotton consumption presently below - 66 - production, imports have declined sharply to less than 100,000 tons per year and stocks may be approaching two million tons (equal to about half a year's consumption). TabLe 4.4: COTTON PRODUCTION, CONSUMPTION AND TRADE, 1980-83 Con- End of Year Production Imports sumption year stocks …----------- mil tons -----… 1980 2.7 0.7 3.3 0.6 1981 3.0 0.5 3.5 0.6 1982 3.6 0.2 3.6 0.7 1983 4.6 0.1 3.6 1.6 Source: 1980-82 data are from SSB. The 1983 figures are from the United States Department of Agriculture. 4.21 Prospects for continued yield increases for this crop seem good for several reasons. First, the yield gap between average and best practice production is large. In Shandong, where yields of seed cotton have reached an average 2.0 tons per ha, cotton specialists believe that a further 50% yield increase could be obtained with existing varieties through extension of improved cultivation practices and better pest control. Second, cotton, along with vegetables and peanuts, is benefiting from the use of plastic sheet (93,000 ha in 1982), a technology which permits earlier planting, conserves moisture and facilitates weed control. This technique, which reportedly leads to cotton yield gains of more than 50%, appears profitable in labor-surplus regions, although the required cash outlay is a limiting factor. Finally, the CAAS Cotton Research Institute recently released a new early maturing (112-114 days) variety of summer-sown cotton which can be sequentially-cropped with winter wheat. Although yields and quality of this variety are likely to be less than those of longer-maturity varieties, introduction of wheat-cotton double cropping in both the Huanghe and Yangtze River basins may help ease the fear of grain deficits associated with increased cotton acreage. This variety is targeted in the near term for nearly 30X of the total cotton area. 4.22 Future consumption of cotton will depend increasingly on the size of the local market for textiles. In 1983 sales of textile products declined and cotton rationing was abolished. Exports of cotton textiles, which provide a market for less than 10% of production, are likely to depend on China's ability to improve quality and styles. Competition with synthetic textiles also may become increasingly keen as the large new capacity for synthetic tex- tile production comes on stream. Some exports of raw cotton may be possible and have been included in trade agreements with East European countries. - 67 - 4.23 In China the demand for bast fibers such as jute and hemp has declined rapidly due to the availability of cheaper and more serviceable synthetic substitutes. Following a 50% yield increase in 1978-82, domestic consumption requirements have been met and sown area has declined sharply. Prospects are that the area sown to these crops will continue to decline as China's synthetic fiber industries mature. 4.24 Oilseeds. During 1978-82 production of oilseed crops (including rapeseed, peanuts, sesame and sunflower seeds, but excLuding soybeans and cottonseed) more than doubled, due about equally to increased area and yield. Area expansion was partly due to resumption of specialization patterns abandoned in the 1960's during the drive for local grain self-sufficiency. New patterns also emerged such as the rapid adoption of sunflower in the well suited areas of the Northeast. There is also evidence that oiLseeds received larger supplies of chemical fertilizers. As a consequence of these develop- ments, the previous extreme shortage of edible oils was eliminated and rape- seed oil grew rapidly to nearly one-half of edible oil supplies. 4.25 Soybean production has grown by about 5.2% p.a. since 1978, largely due to increased yields. Acreage has shown a small uptrend. Variable weather in major production zones resulted in sharp inter-year fluctuations in output. Soybeans appear to have been benefited less than the major grains from research and relatively small amounts of chemical fertilizers are allocated to this crop. Soybeans are the only major crop grown in China in which the reported national average yield was less than that for developing countries as a whole. Chinese yields (adjusted for acreage underreporting) are at least 20% below average yields in developing countries and 40% below those in developed countries. A steady increase in soybean yields would be required if futun,needs for high quality protein meal for livestock feeding are to be met.- 4.26 Processing of oilseeds could be much improved. Most existing facilities are small-scale operations using inefficient machanical presses and are characterized by low extraction rates, high levels of impurity in the product, and inability to remove toxic substances in rapeseed and cottonseed oil and meal. Less than 20% of China's oil seed processing capacity uses the more efficient solvent extraction methods. 381 Soybeans originated in the temperate areas of Northeast China and most of the world's production takes place at latitudes more than 30 degrees from the equator. Efforts to develop tropical soybeans have been underway for a number of years in various countries. Researchers in Brazil recently released for commercial production three varieties of tropical soybeans suitable for planting within 15 degrees of the equator. Yields may average about 1,850 kg per ha, compared to about 1,100 in China, or 2,000 kg in the United States. Adaptation and introduction of soybeans into China which perform well at lower latitudes could improve the outlook for high quality protein meal and, indirectly, the livestock industry. - 68 - 4.27 Other industrial and specialty crops. These include sugar cane and beets, vegetables, fruits, tobacco, tea, coffee and various tree crops. Per capita production of these crops as a group is low in China relative to most comparator countries. Income elasticities of demand typically are high.39/ Although the projected growth rate of demand suggests that the area sown to several of these crops should expand over the next several years, caution may be required with crops such as sugar cane and sugar beets where the evidence noted earlier suggests that China has little overall comparative advantage and domestic procurement prices exceed world prices by substantial margins. For these crops the primary emphasis probably shouLd be to improve yields through better cultural practices, improved planting materials and careful choice of planting location. It may be that overall efficiency gains can be made by replacing these crops in some areas with crops more suited to the environment. 4.28 Prospects for tea are clouded because of possible marketing constraints at home and abroad. Tea production in 1983 declined by 3.8% from 1982 levels, the first decline in 20 years, reflecting smaller sales at home and abroad. In the major producing province of Zhejiang, 1,000 ha of tea reportedly were converted to other crops because of a difficulty in selling the output. Proposals in China to decentralize tea marketing and permit free market sales would probably encourage larger domestic consumption. Average tea consumption in China of about 150 gm per capita per year is the lowest among tea producing countries and far behind the world average of 430 gm. The World Bank projects the world price of tea to show no change in real terms between the present and 1995 (Appendix Table A.12). 4.29 Production of tobacco is likely to be increasingly influenced by public perception in China of the heaLth dangers inherent in its use. Chinese authorities in the past have been reluctant to acknowledge that increased cigarette smoking may be linked to lung cancer. More recently, smoking has been increasingly recognized as a health hazard, although trends continue to show very rapid growth in tobacco consumption. In 1981 the retail price of cigarettes was increased by about 30% and limits were placed on the land allocated to production in response to the emergence of surplus leaf supplies. Tobacco production rose rapidly in 1981 and 1982 (to about 2.08 m tons) but declined in 1983. 4.30 Increased production of vegetables and fruit present special problems because of their perishability. A primary constraint in the develop- ment of these products is the weakness of the processing, transport and 39/ Vegetables at first glance appear to be an exception. Beijing consump- tion surveys suggest an elasticity as low as 0.20. Meat and fish are substitutes for vegetables in Chinese consumption habits. Replacement of lower quality vegetables such as cabbage or mustard greens with higher quality vegetables and greater consumption during the off season also is associated with increased incomes. Both trends are associated with decreased crop yields. Hence, if the income elasticity for vegetables were defined in terms of value of expenditure, rather than quantities consumed, it would be more meaningful and also probably quite high. - 69 - marketing system. ParticuLarly critical are the shortages of modern process- ing facilities and the lack of refrigerated transport and cold storage. Development of commercial production of perishable products (livestock products, fruits and vegetables) has been largely confined to the peri-urban areas partly in response to the transport and storage problems. However, the high and rising economic value for land near urban areas makes this a less viable solution. This concentration of production also contributes to income inequality within the agricultural sector, inasmuch as suburban producers reap the major benefits from high value production. With improved processing and transport facilities, production of perishable commodities could expand outside municipal boundaries. 4.31 Government plans give considerable emphasis to development of fruit and other tree crop production on lands too steep for annual crop cultiva- tion. The lag between planting of tree crops and first harvest implies that much of the supply of fruit between the present and 1990 has already been determined. Tree crop investment programs in the next few years will largely determine supply after 1990. 4.32 Potential for further specialization. Recent agricultural planning in China has been influenced by the view that a higher degree of specializa- tion, based on economic incentives and careful land use planning, is feasible and promises continued economic gains. Provincial statistics on sown area indicate the expansior: of industrial crops since 1979, with the largest increases in provinces with relative comparative advantage. However, these increases in the industrial crop areas have come primarily at the expense of the area sown to grain. Few examples have been found of declining plantings in areas lacking comparative advantage in industrial crops. This may be related to marketing and transport deficiencies, which encourage self-suffi- ciency, and to a unified price structure which shifts much of the burden of differential transport costs from the producer to the marketing organizations and, ultimately, to the Government. 4.33 Without special studies or access to highly disaggregated data, it is difficult to draw conclusions about whether significant efficiency improve- ments are to be gained from further specialization. This discussion is there- fore limited to suggestive evidence from provincial data in the context of international comparisons. Appendix B examines the extent to which provincial cropping patterns are related to comparative advantage in China and India. Because provinces are large geographic entities with diverse micro-environ- ments, and because transport costs inevitably encourage local production, con- siderable production diversity is to be expected, and indeed is found, at the provincial level in both countries. However, the statistics suggest that pro- vincial specialization in particular industrial crops according to comparative advantage is more characteristic of China (1981) than India (1977-78), even though overall China devotes a smaller proportion of the sown area to such crops. This finding may be explained in part by the observation that many of India's farmers are closer to subsistence and such producers tend to use diversification as a measure to reduce risk. Further, China's rural produc- tion and welfare systems continue to--reduce risk to the individual producer, permitting a higher degree of specialization. Unfortunately, the analysis provides no firm guidelines as to how far specialization could go if the - 70 - weaknesses of China's transport and marketing system were remedied and the residual concerns for regional self-sufficiency in basic foods were relaxed. 4.34 Regional Trends. Increased production of industrial crops in the last few years has come primarily from specialized, commercial production bases (Map 4). Thus Shandong and Hebei Provinces account for 76% of increased cotton production in 1979-82, with traditional producing areas in provinces such as Xinjiang, Shanxi and Jiangsu accounting for smaller increases and southern area declining. Growth of oilseed crops has been broadly based, including rapeseed in all the provinces crossed by the Yangtze River, peanuts in Shandong, Guangdong and other provinces with areas of sandy soil, and sunflower in the northeast. Expansion of sugar cane and beet have also centered on commercial production bases. 4.35 In the Government's view, any further adjustments of industrial crop area should be marginal. Because southern cotton is of higher quality, only slight decreases in acreage should occur, whereas acreage in Xinjiang would further expand if transportation conditions permit. Emphasis in the north will be on quality improvement. Future locational trends for oilseeds are not expected to differ from those of recent years. Additional expansion of sugar cane is to be limited to that permitted by grain yield increases; sugar beet area wouLd be increased, primarily in Neimonggol, Xinjiang and Cansu, in areas in which grain yields are Low. Sugar beet, like sunflower, is especially targeted for areas with saline soils. In short, past patterns of industrial crop specialization have been largely restored, and future stability is expected. Forestry 4.36 Output and employment. Forestry's share in GVAO remains relatively small, but has increased steadily from about 1X in the early 1950s to just over 4% at present. Employment in forestry and forest industries totals 2.2 m (less than 1% of the rural work force), with 60% in wood processing, 30% in land preparation and planting and 10% in nursery operations, logging, etc. Industrial roundwood harvested and marketed within the state plan in 1982 was 50 million cu m, an increase of 2% over the 1981 level, but below the peak figure of 54 million cu m in 1979. (Appendix Table A.10: Timber Production, 1981). A volume of about the same magnitude was produced outside of the plan. Production of timber products includes sawn timber (2 million cu m in 1981), plywood (0.35 million cu m), fiberboard (0.57 million cu m) and particleboard (76,700 cu m). Paper and paperboard output was about 5.7 m tons in 1982. 4.37 The resource base. About 120 m ha, or 13%, of China's land area is under forest cover, with about a third of this in virgin forest, nearly half in secondary (natural) forest and the balance under replanted forest. Since 1949 some 86 m ha have been afforested but plantings on only about one-third of that area are reported to have survived. Survival rates in recent years have been higher. Total growing stock is estimated to be 9.5 billion cu m of which 55% is in coniferous species and 45% is in broadleaved types. About 21% of the forested area is in Heilongjiang Province alone and five provinces (Heilongjiang, Yunnan, Jilin, Guangdong, Sichuan) account for 48% of the total. In contrast, the five provinces with the smallest areas under forest - 71 - (Ningxia, Qinghai, Nei MonggoL, Jiangsu, Shandong) make up less than 2% of the total cover. Heilongjiang accounts for 24% of the country's growing stock of timber, while three provinces (Heilongjiang, Sichuan, Xizang) together make up 54% of the total. As a percent of provincial land area, forest cover ranges from 35Z (Heilongjiang) to 0.3% (Qinghai). A significant feature of China's forest resource is the high proportion of the forested area and the standing volume of timber accounted for by mature forests (more than 30% and 60% respectively). This is due in part to the inadequate network of forest roads which restricts exploitation. 4.38 Consumption and imports. Annual per capita wood consumption is about 0.05 cu m (excluding fuelwood), compared to about 0.02 cu m in India and 1.5 cu m in the US. Reflecting local shortages and increased demand from popuLation and income growth, imports of forestry products (logs, sawn timber, veneer, plywood) rose from US$242 m (CIF basis) in 1976 to a peak of US$642 million in 1980, then declined to about US$540 m in 1981. Between 1978 and 1981, pulp and paper imports rose from less than 600,000 tons (US$150 million) to 1.4 m tons (US$630 m). Expected income gains will alW8?t certainly result in continued rapid growth in demand for forest products.- Table 4.5: AREA AND VOLUME OF COMMERCIAL FORESTS Area Standing volume 7 of billion Z of Age mil. ha total cu m total Not classified 0.2 2 0.2 2 Immature 3.8 39 0.5 7 Middle age 2.6 27 1.8 23 Mature 3.1 32 5.2 68 Total /a 9.8 100 7.7 100 /a Excludes 0.8 m ha in protective forests, 0.9 m ha in economic forests, 0.3 m ha of fuelwood forests and 0.4 m ha in bamboo and other speciaL use forests. Data refer to 1976. Source: Ministry of Forestry. 40/ Rural housing has been relatively neglected for much of the past 30 years. This is being corrected. Surveys suggest that the share of expenditures on housing by rural families in 1982 had tripled from 1978 levels. The housing boom resulted in a 32% increase in the average floor space per rural resident in 1978-82. - 72 - 4.39 Future development. Forestry deveLopment in recent years has been accorded high priority by the Government but has been handicapped by depletion due to over-harvesting. Major thrusts of future deveLopment include affores- tation, increased exploitation of mature and over-mature areas, expansion of forest industries and strengthening of forest research, education and exten- sion. Government plans call for the land area under forest to be increased to about 20% by 2000, an increment of some 60 m ha. Annual harvesting of timber included within state plans is to increase from about 55 million cu m in 1983 to 100 million cu m by 2000. However, much of this would be accomplished by enlarging the scope of the plan to include most of an additional 50 million cu m harvested annually, mostly for self-use by colLective units and private farmers (not counting about 70 million cu m of firewood). "Real" production increases are not expected to exceed a few million cu m, including under 1.5 million cu m from exploitation of mature forests and the product of some 200,000 ha to be developed as intensive tree farms. While total timber production volume would thus remain static, processing industries are to be rapidly expanded. For example, production of wood-based panels (now largely fiber board and plywood) may expand from 1.0 million cu m in 1980 to 3.5-4.0 million cu m by 2000 if the industry receives the Y 4.5 billion investment required. 4.40 The achievement of these objectives will require a very large effort by the agencies concerned. Afforestation of another 65 m ha wouLd require planting of 5-6 m ha annually with survival rates exceeding 60%. Some 4-5 miLlion ha have been afforested annually in recent years, although survival rates reportedly have been less than 50% on average. The application of PRS in forest management is expected to increase this figure substantially. Funding of forestry development continues to be a problem. Although stumpage fees are paid in most areas, the revenues fall well short of development costs of the timber. Efforts are being made to shift a part of afforestation costs from budgetary grants to loans, although financial institutions such as the ABC have been wary of this type of lending operation because of the long gestation period involved. Investment programs by the state forest farms, of which there are some 3,900, have been hampered by the relatively low price they receive for Logs soLd to the Government. Despite recent increases, state procurement prices for timber are only about one-half the negotiated price. New policies announced in late 1984 permit timber produced by coLlectives or on private plots to be sold at negotiated or free market prices. Livestock 4.41 Livestock's share in GVAO was virtually unchanged during the 1979-83 period, although since 1979 growth of this sector has been faster than that of crops. Exports of live animals and livestock products exceeded $1.1 billion in 1982 and accounted for about 5% of China's total export value that year. Exports of live hogs and chilled, frozen and canned pork are in the range of Y 1 billion annually, a value 50% greater than 1982 coaL exports and larger than tea and raw silk exports combined. Discussion of the livestock sector is conveniently divided into ruminants (cattle, sheep, goats, etc.) and non- ruminants (pigs and poultry). China has the largest swine population in the world (some 300 million head, or more than 40% of the total), but only about 5% of the worLd's cattle, 12% of its sheep and 18% of the horses. The - 73 - country's ruminant herds and flocks utilize some of the world's most extensive grasslands (Map 6), variously esji ated at 319 m ha to 340 m ha (of which 225 m ha are defined as usable).- Less is known of poultry and dairy production, although modernization of those industries is beginning. Red meat production (pork, beef. mutton) increased by about 12% p.a. in 1978-82, per- mitting per capita meat availability to grow from 8.9 kg to 13.3 during the period. Poultry meat may add about another kg to annual per capita consump- tion. More than 90% of total meat production (including poultry) is accounted for by pork. 4.42 China's agricultural area is divided into grazing lands (55% of the total) and crop lands (45%). The grazing areas are lightly populated by humans (6% of the total), but provide about half of the mutton production and 40% of the beef output. The crop lands support more than 70% of the large animals and almost all of the poultry and pigs. Patterns of livestock ownership and management have changed sharply since 1981 as a result of the introduction of the PRS. More than 90% of all hogs and a larger share of poultry are privately owned. In the grazing areas livestock previously managed collectively have now been allocated to individuals under sometimes vague agreements which require repayment of live animals to the collective. This system continues to evolve and is resulting in a sharp increase in livestock numbers, with accelerated pressures on already over-grazed lands. In the cropped areas, most large animals also have been allocated to individual households or specialized production groups. 4.43 Management systems tend to minimize feeding of grain and emphasize use of milling by-products, other processing wastes, cut forage produced on waste or marginal lands or natural grasslands. Concentrate consumption in 1981 was probably equivalent to about 37 m t of processed grain and 58 m t of grain and oilseed milling by-products. Most of the poultry flock depends on scavenging, although confined feeding systems are beginning to appear near larger towns and cities. Low grain feeding systems and seriously inadequate levels of protein supplementation are major factors contributing to various technical inefficiencies in China's livestock sector. Dressing rates for hogs and cattle are only about 70% and 40%, respectively, of levels in the United States. Slaughter rates in the United States are more than twice in China and the 4i7riod from farrow to finish in China is two to three times that in the US.- Milk production per cow in the US exceeds the Chinese figure by a similar margin. But these production systems are not without merit. The ability of native breeds of swine to ingest and utilize large quantities of low quality roughage, aquatic plants and agricultural processing wastes should be considered when comparing production efficiencies. The swine population 41/ The SSB gives a grassland area of 319 m ha, of which 225 m ha are "usable." These figures compare with rangelands of about 455 m ha in Australia, 370 m ha in the United States and 140 m ha in Argentina. 42/ The ratio of dressed weight to live weight. 43/ Annual slaughter as a percent of inventory numbers. - 74 - acts as a means of converting Low value organic materials into meat and valuable organic fertilizer which has pLayed a Key role in maintaining soil tilth and fertility in China. 4.44 Ambitious targets have been established for livestock production as part of the Government's efforts to improve consumption patterns. By the year 2000, the contribution of the livestock sector to GVAO is projected to rise from the current leveL of about 15% to 25%. Heat consumption is to more than double to about 27.5 kg per capita (33 m tons) by 2000, whiLe the share of Table 4.6: A COMPARISON OF SELECTED ASPECTS OF LIVESTOCK PRODUCTION IN CHINA AND THE UNITED STATES, 1980 Item China United States Ratio of value of livestock to crop production 18/82 48/52 Year-end inventories (million) Hogs 305.4 67.4 Cattle 71.4 111.2 Dairy cattle 0.6 10.9 Sheep and goats 187.3 14.2 Animal product output (million tons) Pork 11.3 7.5 Beef 0.3 10.0 Hutton 0.4 0.1 Poultry meat 1.0 6.6 Cow milk 1.1 58.3 Per capita consumption (kglyr) Red meat 12.3 72.6 Poultry meat 1.0 27.7 Eggs 2.5-3.0 15.7 Milk 1.4 103.2 Efficiency indicators Farrow to finish for hogs (months) 18-24 6 Slaughter rate, hogs (Z) 62 143 Slaughter weight (kg) 94 110 Dressed weight (kg) 54 79 Dressing rate (Z) 57 72 Pork production/head in inventory (kg) 37 111 Milk production/cow (kg) 1,800 5,300 Source: Adapted from USDA, China: WorLd Agriculture Regional Supplement, 1983, p. 15. - 75 - pork in the total (pork, beef, mutton) would decline to 70Z (23 m tons). This implies that production of beef and mutton would increase from 680,000 cons (1979-81) to 9.9 m tons (14.2% p.a.), while pork output would expand by 3.7% annuaLly. Production targets for other livestock products in 2000 include: eggs 13.8 kg per capita, wool about 1 kg per capita and milk 42.5 kg per capita. These figures imply a 5.5-foLd increase in per capita egg consump- tion, a 7-fold increase in wo6l consumption and a more than 15-fold increase in milk consumption. Assuming these products are locally-produced, these figures imply annual growth in output ranging from more than 11% in the case of eggs and wool to more than 20% for milk. 4.45 Major means proposed to achieve the livestock production targets include more efficient production and management systems, based on higher levels of grain feeding, pasture improvement and use of animaLs with higher genetic potential. Wizh these improvements, the Government projects FCRs to fall, and slaughter rates from herds and flocks to increase. Over the longer- term, sLaughter rates are to increase from about 5% at present to 25% for cattle, 68% to 100I for hogs and 15% to 60% in the case of sheep. 4.46 Technical feasibility of the livestock targets depends critically upon the availabiLity of much Larger supplies of grass, grain and protein supplements. Major efforts will be required to solve the institutional and logistical problems of developing and servicing a modern livestock industry, based on nutritionally-balanced rations, comprehensive veterinary services, and sustainable systems of forage and fodder production. Supplies of coarse grains would fall short of requirements if production expands no faster than it has in recent vears. 4.47 Inadequate supplies of high quality protein meals are perhaps the major causes for the low productivity levels in much of China's livestock industry. Although China produces some 8-10 m tons of oilseed cake and meal annually, at least 70% of this amount has been used as fertilizer. Factors -ontributing to the heavy use of these materials as fertilizers include local shortages of chemical fertilizers in situations where oilseed cakes are readily available, relatively low prices for oil cakes, transportation bottle- necks, and the presence of toxic substances in cakes which limits their use in animal feeds.- Solution of the toxicity problems in China's oilseed meals would greatly enlarge potential supplies of protein meal. However, soybean 44/ Gossypol pigments in cottonseed meal have generally limited use of this meal to feed for ruminant livestock and for fertilizer. Because of its toxicity and high fiber content, only small quantities of China's rapeseed cake can be used in feeding of non-ruminant livestock and poultry. The oil from traditional rapeseed varieties typically has an erucic acid content of at least 25% while the meal contains 6-18% of glucosinolates. Improved varieties, developed in Canada and Europe, contain no more than about 2% erucic acid in the oil and less than 2% of glucosinolates in the meal, which is therefore usable in Livestock feeding. Work is underway in China and elsewhere to deveLop cotton varieties with lower gossypol content. - 76 - weal is the most appropriate meal for poultry and swine rations because of its amino acid balance and its relatively high content of the essential amino acid, lysine. In the absence of adequate lysine supplies for pork and poultry feeding, it may be useful for China to consider developing a capacity to produce synthetic lysine, as other countries have done in similar circum- stances. Priority should also be given to strengthening research programs aimed at introducing oilseed varieties with low toxicity leveLs. 4.48 The grasslands of the North. China's extensive grazing areas (Map 6) are commonly viewed as underutilized resources which can be the source of much of the large incremental supplies of beef and mutton in future years. The potential value of this resource is indisputable, but the extent to which it can support larger livestock populations under present policies is open to question. Available evidence suggests that many of the grazing areas in Northern China are alr-eady seriously over grazed and in danger of progressive and g5yhaps irreversible degradation unless corrective measures are implemen- ted Pasture conditions in the southern and southwestern areas of China are generaLly in better condition, but productivity there also tends be low because of poor soil fertility and low feed value of natural vegetation. Inadequate forage and fodder supplies, particularly during the stressful winter months, are major factors behin 1,ow slaughter rates and winter mortality rates in the range of 7-15Z.401 Lambing and 7calving rates of no more than 70-80% are reported in some of these areas.- Livestock productivity in the northern grasslands is low because most of the available dry matter is required for animal maintenance and little remains for product ion. 4.49 Overgrazing problems in areas such as Nei Monggol and northern Bebei go back to the 1960s, but have been exacerbated by policies since 1979 which stress expansion in numbers and the rapid introduction of the PRS. Herds and flocks, formerly managed collectively, have been allocated to individual households or specialized production groups. While grasslands also are even- tually to be divided up for individual use, in many areas they remain in use as commons. The PRS also has significant positive effects. It has encouraged individual care of animals, with the result that mortality rates in some areas are down. But it appears to have destroyed the mechanism by which collectives formerly were able to control animal numbers, at least to some extent, and to implement pasture management systems. The combination of privately-managed 451 For example, large animal numbers reportedly are growing by 4% p.a. in Gansu's grasslands and the numbers of goats and sheep, whiLe declining, are estimated to exceed carrying capacity by at least 25%. 46/ Winter losses in the grazing lands of the American West, a region with ecological similarities to parts of China's northern grassLands, are generally less than 2% p.a. 47/ Ratio of lambs/calves to number of breeding fpmales. - 77 - herds on a common g1ping resource has added pressure to an already over- burdened rangeland.- 4.50 The policy of encouraging livestock nunbhers appears to be based on inadequate appreciation of the existing condition ana ,_tential of much of China's grassland area. The most important immediate req%tirement is to match livestock numbers with carrying capacity through herd reduction. Controlled grazing and the introduction of improved grasses and legumes could permit higher dry matter yields and ultimately higher meat offtake. FaiLing this, other eLements of an improvement program may not be worthwhile. Measures to improve genetic potential of the livestock population without first increasing feed supplies will not increase animal productivity and might in fact lead to higher mortality rates for the less hardy improved breeds. The economics of introducing irrigation to pasture or forage in the short season areas of north China, or of permanent fencing of rangelands, are open to question. 4.51 Policy objectives should move from those of expanding animal numbers to increasing the output of animal products per unit of land area. Destocking is likely to be required, but herdsmen are not likely to reduce animal numbers unless they can be convinced that it is in their economic interest to do so. Demonstration farms and ranches, backed by sound technical resezrch and management, will be required in this regard, as will successful implementation of the grassland laws which are to shift the management of grassland to indi- viduals or groups who would benefit from better management. It also seems useful to offer price premia for younger animals to encourage destocking. Many of these required changes are socially complex and institutionally difficult. In view of these difficulties and the existing condition of much of China's grazing areas, it seems unlikely that the large targeted increments of meat from beef and mutton are likely to be achieved. 4.52 Ruminant livestock in South China. Although the focus of ruminant livestock development in China has been on the pastoral areas of the North ar:d Northwest, more than 40% of the large animal population, including about half of China's cattle, is located in twelve southern provinces which are con- sidered as "agricultural," rather than "pastoral." The demand for draft animals has been increasing and will remair strong for several years. As the basis for ruminant livestock development, attention has been called to the hilly and mountainous areas as the only underutilized land remaining in South China. In the past, indiscriminant clearing of forest and expansion of cropping has contributed to a serious erosion problem. Much of this cut over area is under grass and is used, or usable, for pasture. 48/ The comment of a livestock technician from Nei Monggol, after visiting the sand hills grazing areas of western Nebraska, is perhaps illustra- tive: "Your sand hills are covered with grass; ours are blowing sand dunes. These people are concerned first with their grass and hay for the winter; we look first to the numbers of our animals. I can remember when our plains were lush grass areas. Now we have desert. We must change our attitude and grow grass first, then get just enough animals to eat it. We are destroying ourseLves." - 78 - 4.53 Chinese sources (1980) indicate about 27 m ha of usable hilly or mountain pasture in South China. However, this figure is generally acknow- ledged to be exaggerated, and faiLs to take into account the quality of grasses, soils and topography, and availability of infrastructure. Aside from the low feeding value of present ground cover, a major obstacle to development is that the areas with high potential are patchy and isolated, while the largest areas are located in sparsely-populated mountain areas with poor access. 4.54 Southern pasture areas may be divided into three subareas of uncertain size, each with distinct development potential and problems. The most promising areas, the "southern mountain and hilly areas," are charac- terized by relatively high altitude and a mild climate, but with steep slopes. Soils are deficient in phosphorus, but are generally suitable for legumes and grasses. At higher elevations, temperate zone pastures such as clovers and ryegrass do well. At lower elevations and latitudes, the climate approaches subtropical and temperate zone legumes perform poorly. The "tropical hilly areas" have less potential because of poorer soils (also generally deficient in phosphorus) and higher temperatures. The area may be suitable for tropical legumes, although an appropriate mix of varieties is yet to be identified. The third subarea, the hill areas north and south of the Yangtze River appear to be least amenable to pasture development. High summer temperatures reduce vields of cool season grasses and legumes, whereas tropical legumes cannot survive winter temperatures. In each of these subareas, research is needed to identify suitable grasses and legumes. 4.55 Pasture development generally would be coupled with fruit and other tree crops on gentler slopes and afforestation on steeper lands. Because of the Longer growing season and more adequate rainfall, dry matter yields tend to be substantialLy higher in these areas than in the North and Northwest. improvement of these pastures could be carried out through hand or aerial seeding with legumes and grasses and applications of phosphate fertilizer. Costs of this technique appear to be under Y 150 per ha and, if done properly, the approach seems as effective as more costLy alternatives involving soil preparation. In the southern latitudes, the long frost-free season and high dry matter yields minimize the amount of winter feeding required and make sub- stantial investment in cattle housing unnecessary. Overgrazing is not as pervasive as in the North, although it occurs in more densely-settled localities. 4.56 While these areas may be technically-suitable for pasture develop- ment, careful study is required of the financial and economic viability of ruminant deveLopment in South China. Justification may depend on indirect benefits such as soil conservation and employment. Southern pasture develop- ment projects examined by the World Bank exhibit economic returns which are modest compared to returns in other potential projects in the agricultural - 79 - sector.491 Moreover, these projects have features which limit their replicability, but which are important to economic viability, viz., minimal. additional requirements for infrastructure (road, buildings, electric power and agricultural support services) and the presence in the project areas of low-cost underemployed labor. Projects to develop the more remote pasture areas of South China are not likely to have these advantages. 4.57 Dairy development. China's dairy development policy is to promote production initially around large cities, stressing production by collectives and individual households and using state farms as sources of improved animals and modern technology. Producer prices of milk are attractive and production can be profitable. State farms in the Northeast report annual profits of Y 700-800 per cow, while collectives and private farms, where production costs are lover, report annual net returns of up to Y 1,000 per animal. The basis for breed improvement is in place. Every province has at least one artificial insemination station and 902 of all dairv cows are artificially bred. 4.58 Dairy production in South China is concentrated in municipal enter- prises in suburban areas which are characterized by high economic costs for - land and a scarcity of high quality forage. This forces heavv reliance on concentrates and contributes to high production costs. Rapid expansion of dairying has compelled import of dairy stock from Europe and Japan at costs approaching US$4,000 per head. With high investment and operating costs, many of these enterprises do not appear to be financially viabLe, despite locaL prices for dairy products which exceed world prices by a substantial margin. Viability of some operations nas been improved by integrating dairying with more profitable activities such as fish farming or fruit growing which use the manure as feed or fertilizer. But pig or poultry raising wouLd be less costly sources of nutrients for these operations. It also is possibLe to improve the productivity of dab ing in the subtropical areas by introducing more heat- tolerant animals.- Under present conditions the question remains whether significant expansion of suburban dairying in this form is economicalLy justi- fiable. 4.59 In view of the low prices of powdered milk products on the international market, one of the most economical means to increase supplies for the large eastern coastal cities may be to increase imports of milk powder for reconstitution. International prices reflect subsidies provided to milk producers in exporting countries. China's economic interests are best served by utilizing these subsidies through imports, rather than subsidizing its own producers. For the inland areas, higher productivity from improved breeds may 49/ Appraised as part of the World Bank-supported Rural Credit Pruject (Credit No. 1462-CH). 50/ Introduction of the Australian Milking Zebu, an animal bred for high production in subtropical conditions, has been suggested. - 80 - establish the basis for economic expansion of dairy production.511 Large- scale dairying in the southern mountain areas may be economic with bei7r animals and improved pastures which permit Low-grain feeding systems.- The scale of farms would have to be large enough to support processing facilities to minimize transport costs. There must be reasonable proximity to a large urban market and good transport and communications. The cost of this infra- structure, as well as herd and pasture development costs, would be important determinants of whether such farms are economically justified. 4.60 In intensive agricultural areas of e.g., the Sichuan Basin, small- scale production units could have an important role. Key requirements include access to markets which offer opportunities for fresh milk sales or sales to processing plants and adequa.e supplies of good quality forage. Other factors would include the availability o, better quality cows, access to concentrates and protein supplements, and farmer training programs in animal health and nutrition and management practices. 4.61 Pigs and Poultry. Both pig and poultry production are dominated by the household sector, which has derived most of its cash income, organic fertilizer, meat and eggs from animal production as a sideline activity. By some measures, productivity of China's pig and poultry raising is low. Chinese pigs are fed for about 19 months on average before reaching slaughter weight, compared to a world average of 12 months and about 6 months in Japan and the United States. Carcass weights are just over 60 kg in China, compared to a world figure of 70 kg and about 80 kg in the United States. Typically, most rural househoLds keep a few chickens or ducks for egg production, wnich depend mostly on scavenging or household wastes, grow slowLy, and have low egg productivity and slaughter weights. There also exist expanding modern pig and poultry industries with productivity norms closer to counterparts in other developing countries. 4.62 These characteristics are partly the result of a long standing gov- arnment policy to minimize the use of grain as animal feed and maximize the use of byproducts, household wastes and low value feeds which have few alter- native uses. Tn the past this policy was enforced by a tight system of grain procurement and feedgrain supply, and by procurement prices which made grain intensive production systems generally unprofitable. Under chese policies, production teams set aside feedgrain, or land to produce it, which was 51/ An example is the development of improved dual purpose animals, such as crosses of water buffalo with imported Murrah or Nili breeds. Chinese literature suggests that a dual purpose (draft and milk) animal of this type could produce some 1,000-1,500 kg per lactation. An on-going World Bank survey of the economics of small farm buffalo milk production in India may provide a basis for appraising this potential in China. 52/ One example is the Nanshan State Farm in southern Hunan. After two years of pasture and herd management improvement, Nanshan reported milk yieLds averaging 3,800 kg per lactation with less than 150 kg of concentrate per cow and 0.85 ha improved pasture per animal. - 81 - provided to households irn return for a commitment to raise pigs and sell some proportion to the state. Deliveries of all manure to the collective were compulsory and compensated with cash or workpoints at attractive prices, but at the expense of those households which did not raise animals. 4.63 Those -iho sold pigs at quota procurement prices to the state received extra compensation in the form of ration coupons which entitled them to the right t3 purchase limited amounts of feedgrain and meat at controlled prices. Feed grains made available from collective and state sources were carefulLy limited to amounts well below animals' nutritional requirements, thereby forcing private households to use bvproducts or surplus food grain distributions, production from private plots and as much roughage as the animal would consume. This system did not extend to poultry, which therefore competed with pigs for the "surpius" resources of the household. Until free market sales of grain and milling byproducts were restored in 1980, unrationed purchases of feed grains were virtually impossible. Up to the Late 1970s, as much as 30% of pork production came from collective enterprises run by com- munes, brigades and teams, most frequently at a financial loss, despite privileged access to feedgrains. Most of these operations have been abandoned in the last few years, although collective operations still keep a large proportion of sows and sell weanling pigs to households. 4.64 This policy of minimizing grain feeding is not likely to be an efficient means to the large incremental meat requirements of the future. The long fattening period and low carcass weights suggest that a significant por- tion of total feed nutrients is being expended simply to maintain the animal. Inadequate grain, protein and mineral supplements probably result in ineffi- cient use of that grain which is made available. The forage used to save relatively small amounts of grain usually involves some economic costs, as when land suitable for higher-valued crops is used to grow forage because of administrative restrictions on feedgrain use. More significantly, the restrictions on feedgrain trade appear to have promoted the use of high vaLue cereals in animal feeding. For example, it is estimated that in South China as much as 10 m tons of rice are used annually as feedgrains. At current world prices, a given quantity of rice could earn twice as much feed energy if it were exported in exchange for lower priced feedgrains such as maize or grain sorghum. 4.65 Small-scale household production. The control system described above has begun to break down as a result of the growth of the PRS in agricul- ture. Production teams have distributed to households the land formerly set aside for feed production. That part of the grain surplus formerly controlled by the team is now largeLy in the control of households and therefore not available for distribution by the collective in return for pig sales. Collec- tives no longer have use for manure nor income to pay for it. Hence, revenues which represented about 18% of total income from collective pig production (essentially the profit margin) have been replaced by the household's vaLua- tion of manure now used by the household. As chemical fertilizer is more abundant, increased manure production appears to be less of an incentive for animal production than it once was. In the future, pig procurement price policy will have to take this into account. - 82 - 4.66 Specialized households. Official policy increasingly is to promote animal production by specialized households (SH). The term SH in livestock production applies to households which raise several times more than te national average of two pigs and five chickens or rabbits per family. 3/ Scale of operations and technology frequently approximate those of production teamrlevel operations which they replace (often by simply taking over team assets under contract). In more descriptive terminology, these are small- scale commercial animal farms, which differ from state or coLlective enterprises in their household management and/or ownership and use of private funds and capital saving production techniques. 4.67 A new set of policies and practices may be required to ensure the viability of che SH production systems. Of primary importance, these opera- tions must be profitable in order to attract private capitaL and encourage expansion. This does not appear to be a serious probLem in poultry raising, as poultry and egg procurement prices are relatively high and state interven- tion in the marketing system has been minimal. Production incentives seem to be less favorable in the case of pigs. To improve financial incentives, a variety of subsidies reportedly have been employed, such as procurement of pigs at higher, negotiated prices, subsidized feedgrain sales, and/or low cost rentals to SH of collective assets. A further requirement is to ensure ade- quate supplies of balanced feeds. The larger scale of SH production implies that these producers can no longer depend on household wastes, nor can house- holds provide the amounts of labor required to collect the large volumes of forage needed in Low-grain feeding systems. It is not likely that non- mechanized farms can simultaneously grow their own feed and raise large numbers of animals. In some areas the authorities have encouraged SH animal producers to subcontract their land to other farmers, who are to serve as SH feed producers. This form of specialization avoids some of the costs of transporting feed grains, but it cannot be expected to provide adequate quantities of balanced feed. Without the latter, concentrate-intensive animal production is likely to be relatively inefficient. Indeed, productivity statistics reported for SH poultry producers imply high FCRs. 4.68 Large-scale production systems. China has a growing number of large-scale, commercialized pig and poultry operations, mostly in the suburbs of major cities, to serve urban or export markets. These operations employ confined feeding systems and modern production technoLogy with varying degrees of success. As relatively new enterprises, local management in some cases is inexperienced and a few joint ventures with overseas interests are being organized. One concern of the Government is that expansion of these suburban activities may not adequately tap rural savings and entrepreneurial talencs. 53/ Statistics on rabbits are grouped together with poultry statistics in China. Rabbits are of growing importance, particularly in North China. Exports of rabbit fur and frozen meat totalLed US$ i61 m in 1982. Growth of the export market for these products may be slowing and future expansion will require increased acceptance by consumers at home and abroad. - 83 - 4.69 E;ach of the production systems above appears to have particular advantages and possible problems. The small-scale household production system will continue to be an important source of cash income and dietary protein in rural areas. This system can continue to utilize low value feeds and family labor in meeting household requirements of animal products. Efforts should be made to provide these households with improved breeds, protein feed and mineral supplements, veterinary services and other support services to foster efficiency. Nevertheless, this system is likely to remain essentially non- commercial in character, depending for its viability on the availability of small amounts of grain, household wastes and roughages to meet feeding requirements. 4.70 The major increase in meat production from nonruminants is likely to come from concentrate-intensive Droduction systems, i.e. the SH and larger- scale confined feeding systems. A major factor will be the need to extend new production technologies and provide supplies of balanced feeds. This can be done more readily to relatively small number of commercial producers than to a large number of dispersed households, each with a small number of animals. Other factors may favor smaller-scale production. ALthough at present effi- ciency in rhe infant SH sector is less than optimal, experience in other countries suggests that private commercial operation 47f limited size tend to be more efficient than larger state-run enterprises.- This may also be true in China. On state farms in Jiangsu Province, for example, the ratio of breeding sows per employee is low compared with many other countries and lower than in collective or individual households. 4.71 It wouLd be useful to re-examine the incentives for producers in these production systems. Low pork:feed price ratios suggest that some adjustment in the price of live hogs relative to grain may be required, at least for SH and larger-scale producers. Consideration should be given to dismantling the present feedgrain control system and replacing it with a market-oriented system to encourage adequate supplies of grain and protein supplements. Attention could usefully focus on the transportation and distri- bution system for feed, the development of a modern feedmilling industry, ade- quate veterinary services, improved processing and celd storage facilities, and extension work to improve SH understanding of animal nutrition and manage- ment practices. 4.72 Breed improvement work also is a requirement. While local breeds of pigs and poultry are typically disease resistant and adaptable to low quality 54/ The experience or Yugoslavia may be instructive. In that country, it is generally accepted that livestock production in the private sector is more economical than public sector production. Major reasons include: (1) substantially lower investment costs per incrementaL animal or bird in the private sector because of lower building costs associated with greater use of home produced materials; (2) lower feeding costs because most of the feed is home grown; and (3) lower labor costs because of overstaffing in the public sector. These differences have been confirmed by the experience of a World Bank-supported dairy project in Yugoslavia. - 84 - feeds, they are not efficient converters of balanced, high-energy rations. Among the breeding problems which require solution are the need for leaner breeds of pigs to satisfy changing consumer demands and broiler or dual pur- pose chickens with improved feed conversion efficiencies. Research on breed improvement in pork should develop selection criteria and procedures for genetic improvement and establish objective measurements for desirable traits. Price differentials favoring leaner pork and younger meat birds would encourage producers to expand output of these types of pigs and poultry. 4.73 Feed for Nonruminant Animals. As noted in Chapter 2, a major determinAnt of future production of livestock products wilL be the avaiL- ability of adequate supplies of high quality protein for animal feeding.55/ Protein quality refers primarily to protein sources which are high in the amino acids required for good animaL nutrition and which do not contain anti- nutritive substances such as gossypol in cottonseed meal or glucosinolates in rapeseed meal. The rapid growth in oilseeds production in recent years has been encouraged primarily to satisfy human demand of edible oils. Production of oilseeds valuable in livestock feeding, such as soybeans, appear to have been given less emphasis. The current emphasis on livestock production requires a reconsideration of this approach. 4.74 In order to minimize FCRs, rations for pigs and poultry should contain 16-20% protein, with an appropriate amino acid balance. Lysine, methionine and cystine are .he most limiting amino acids in pig and poultry nutrition. Amino acid and crude protein content of various oilseeds are indicated in Table 4.7 and compared on a per ha basis using present Chinese crop yields and oil extraction rates. Soybeans, while yielding less edible oil, provide more lysine and as much methionine and cystine per ha as other oilseeds. Moreover, the amino acid balance is close to that required by pigs. Other oilseeds compare less favorably. 4.75 Protein requirements of pigs and poultry (broilers and layers) are estimated in Table 4.8. Poultry generally require about equal amounts of lysine and methionine plus cystine, whereas optimal swine nutrition implies a lysine content about 60% higher than methionine plus cystine. Given the projected increase in demand for edible oils, pork, poultry meat and eggs between 1980-82 and 2000, the amounts and types of oilseeds can be roughly estimated which satisfy requirements for high-protein feed at least "Icost", i.e., in terms of sown area required for oilseeds. Based on analysis in Chapter 2, the increments in annual demand (1980-82 to 2000) are assumed to be 2.4, 16.1, 11.7, 6.0 and 5.5 m tons, respectively, for cotton lint, pork, poultry meat, eggs, and edible oils. These incremental demands for meat and 55/ In 1980, about 820,000 tons of mixed feeds were produced in China (2Z of feed grain supplies). Of this amount, only 30,000 tons reportedly were "balanced" in the sense of containing the proper balance between energy and protein sources. - 85 - Table 4.7: FOOD AND FEED VALUE OF VARIOUS OILSEEDS, CHINA, 1981, PER HECTARE Rape- Soy- Sunflower Sesame Shelled seed bean seed seed peanut Crop yield (tons) 1.07 1.16 1.28 0.62 0.99 Edible oil yield (Z) 33 12 20 45 25 Yield (kglha) of: Edible oil 31 14 26 28 40 Crude protein /a 25 45 43 14 27 Lysine /a 1.5 3.0 1.7 0.4 0.9 Methionine + cystine /a 0.8 1.4 1.4 0.6 0.9 /a In oilseed meal only. Sources: mission estimates based on official crop yield data and inter- national standards of oil, protein and amino acid content. eggs translate into an increase in annual slaughter in 2000 of about 300 m pigs and production of more than 8.2 billion layers and broilers. In this analysis, the "minimum cost solution" to the feed problem is estimated to require production of about 18.6 m, 8.3 and 4.2 m tons of soybeans, rapeseed and cottonseed, respectively, to provide a feed concentrate of which 18X is made up of high protein meal and 82% is comprised of an energy source such as corn. Cottonseed is used because of its ready availability as a byproduct of cotton lint production. This also assumes that all additional supplies of cotton seed meal and rapeseed meal would be suitable for livestock feeding through, e.g. chemical treatment (e.g., adding iron sulphate to bind the gossypol in cottonseed) or plant breeding (producing nontoxic varieties of rapeseed). Soybean production in 2000 of 18.6 m tons at current yield levels would require 16-17 m ha of soybeans, as compared with 8.8 m ha in 1982. The important point is not the quantities (which are orders of magnitude at best), but the desirability of expanding soybean production as one of the most economical sources of high quality protein meal. Expanded production of soybeans, combined with greater use of rapeseed and cottonseed meals, should be considered as one of the major options for meeting the high-protein feed requirements for increased pig and poultry production. Production of appro- priate types and quantities of oilseeds to sacis1fy incremental requirements of high protein feeds would, ipso facto, provide sufficient edible oil to meet projected demand. On the other hand, if increased ailseed is planned with only hlman requirements in mind, availability of high protein feeds wouLd fall short of projected needs. - 86 - Table 4.8: APPROXIMATE PROTEIN REQUIREMENTS PER ANIMAL OR BIRD FOR EFFICIENT PRODUCTION OF PIGS, POULTRY AND EGGS /a Poultry Pigs Broilers Layers Weeks to slaughter 22 8 66 Liveweight (kg) 75 1.9 1.8 Dressed weight (kg) 56 1.4 1.4/b Egg production (kg) /c - - 11.0 Total feed requirement for: Crude protein (kg) 30.0 0.9 6.9 Lysine (kg) 1.3 0.05 0.28 Methionine + cystine (kg) 0.8 0.05 0.24 /a These figures are rough estimates computed from recommended diets based on a combination of high-energy feed such as corn and a good protein source such as soybean meal. /b 1.07 kg on an annualized basis, since the full production cycle is 66 weeks. /c Assuming 50 gm/egg and 220 eggs/year. Sources: Mission estimates based on international standards. 4.76 An alternative option involves use of commercially available synthetic amino acids, such as synthetic lysine, to permit replacement of soybean meal with oilseeds which may be available, but which have less favor- able amino acid balances. The economics of importing synthetic amino acids or producing them domestically, compared to imports of soybean meal or other protein supplements, require further study. In both options, rapeseed meal also appears to be a logical candidate for increased use as a source of high protein meal. Wider use in China would require the introduction of rape varieties developed elsewhere which do not contain substances toxic in pig and poultry feeding. 4.77 Regional Trends. The regional distribution of animal production has changed as a consequence of recent price and institutional reforms (Map 5 and Annex Table A.5). In general, the poor provinces, which were first to imple- ment the BGDH system, have a growing demand for draft animals, reflected in increased stocks of large animals and sometimes corresponding declines in numbers of sheep, goats and pigs. Better prices for pigs and poultry products may have contributed to the declining numbers of sheep and goats in all except the pastoral regions of the northeast and northwest. Only in-the northeast do pasture conditions appear to permit significantly increased herds. Pig inventories have been reduced in all but the south and southwest, but faster - 87 - and heavier fattening have led to increased meat offtake. Consequently overall red meat output has increased in almost all southern and a few northern provinces. Increased poultry numbers are probably a universal phenomenon, but survey or enumeration data to document this have not yet been published. 4.78 Among livestock and poultry products, pork will continue to dominate and production is likely to be concentrated, at least in the medium-term, near consumption centers. If storage, handling and transport facilities for live- stock products could be improved, more meat production would be expected to r:ove nearer the production centers for feed grains and protein meals. Because of strong consumer demand, much of the incremental production of fish, eggs and broiler meat is likely to take place near urban areas in SH or larger- scale production systems. A similar pattern is likely for dairy products, although economic arguments favor production and processing in areas more distant from consumption centers where adequate grain and forage supplies exist. Many of China's grassLands are deteriorating from overgrazing and wind erosion. The potential for increased production of meat and wool on a sus- tained basis is not promising and many such areas are likely to experience declining production unless ameliorative measures are taken. Aquatic Products 4.79 China's aquatic products sector (marine and freshwater) accounts for only about 1.5% of GVAO. China's fisheries rank third internationally in total production, but 100th in per capita production. Production in 1983 totalled about 5.3 m tons, of which, more than two-thirds was accounted for by marine capture fisheries. Between the 1950s and mid-1960s marine fisheries grew more rapidly than freshwater fisheries. However, equipment limitations confine China's fishing fleet to coastal waters which have been seriously depleted from overfishing. Expansion into deep sea fishing in competition with other Pacific fleets would require large budgetary resources which the Government seems reluctant to commit. Fresh water fish culture lately has been the most rapidly growing part of China's fisheries sector. Production of freshwater capture fisheries has stabilized at a level of about 0.3 m tons in recent years, or only about half as high as production of several decades ago. Although over fishing and water pollution have contributed to the decline, the single most important factor has hgen the large reduction of water surface available for capture fisheries- 56/ Much of this loss results from the drainage of shallow bodies of water and conversion to farmland. Of the three largest lakes in China, Dongting Lake has lost two-thirds of its water surface in the last two decades while Po Yang and Tai Lakes have lost about one-half and one- tenth of their surface area, respectively. These developments appear to have reduced the buffering capacity of lakes in regulating river water. Continued conversions of lakes into farm land or ponds would expose surrounding areas to increasing risks of floods. - 88 - 4.80 The Government plans to expand aquatic products output from the present 5 m t to 11 m t by the year 2000 by emphasizing intensive fish culti- vation, particularly in freshwater ponds. The proportion of fish cultivation (marine and freshwater) in total output is expected to increase from the present 40Z to nearly 70% by 2000. With these growth rates, output from aquacuLture would grow by about 250%, while capture fisheries would grow little, if at all. The Government is expected to continue to provide funds to upgrade China's ocean-going fleets, but increased shares of these resources are expected to go to freshwater and marine fish culture. Some expansion of marine fisheries is expected on the basis of joint ventures with overseas interests. Much of the investment in freshwater fish farming is likely to come from local funds. 4.81 Sources of future growth are expected to incLude utilization of presently unproductive water surfaces, conversion of areas of low-lying land to fish ponds, and higher yields in existing fish farms. It is reported that only about 60Z of the potential freshwater area and 12% of the potential saltwater area are currently utilized in fish productin. Of the five million ha of fresh water surface considered suitable for fish farming, less than one m ha are now utilized for this purpose. Opportunities are good to narrow the gap between average yields in pond cultivation (0.8 t per ha) and those on better farms (3.8 ton per ha or more). This gap couLd be closed with suffi- cient investment, improved management, increased inputs and known technology. 4.82 In general, much of the fish farming area is not intensively managed (i.e., with appropriate levels of productive inputs). National surveys which distinguish between intensive and extensive fish farming indicate that in 1979 operations which were intensively-managed averaged 4.8 t per ha with produc- tion costs of Y 680 per ton, whereas the extensively-managed farms averaged only 0.7 ton per ha with costs of Y 590 per ton. Factors which contribute to poor economic results and low yields include: (a) poorly-designed pond layout, with a lack of water supply and control structures which would permit independent filling and draining of individual ponds; (b) overbuilding of dikes or unnecessary use of costly cemented stone walls; (c) insufficient depth of ponds; (d) inappropriate breeds of fish or stocking rates; and (e) poor feed management, such as the tendency to supply manure infrequently, in large amounts, and to localized areas of ponds. 4.83 In the past, low and fixed procurement prices for fish have provided little incentive to improve productivity. Recent price adjustments and policy changes have improved the profitability of fish farming in some areas, primarily because a higher proportion of production can be sold on the free market or at negotiated prices. Emphasis on integration of livestock or poultry production with fish farming has increased the availability of manure for fish feeding. Table 4.9 suggests the potential of fishpond improvement projects in the present economic environment, if investment is accompanied by better management. Investment costs per ha of fishpond or per ton of product are high, but these appear to be matched by high inc-emental returns. Loan financing of these investments, with repayment in 5-10 years, appears to be feasible. - 89 - Table 4.9: INDICATIVE COSTS AND RETURNS OF FISHPOND IMPROVEHMENT /a Hubei Guangxi Investment Costs (Y) Per ha fishpond 6,400 12,200 Per ton increased annual product 3,500 4,900 MateriaL Inputs Cut grass per ton of product (tons) 30 22 Pig manure per ton of product (tons) 8 6 IncrementaL net revenues per incrementaL ton of product (Y) 1,300 1,200 /a Estimated from World Bank appraisal of fishpond improvement subprojects as part of the Rural Credit I Project. - 90 - 4.84 The feeding of concentrate to fish may not be profitable in China in most circumstances.5 I Where possible, fish farming may be usefulLy combined with livestock or poultry raising in which manure from these operations and grass cut from nearby lands are the major feed sources for the fish. On average, each 1.5 tons of fish produced require approximately the manure from one pig and the grass yield of one ha. Much of this grass traditionally has come from the banks of dikes or other underutilized or waste lands. With much larger volumes required in expanded production, these sources would no longer be adequate. If all of-the planned increase of 5.8 m t of aquatic products in 2000 were to come from improved yields for such freshwater fish farms, total investment requirements might be about Y 23 billion and annual input needs would absorb a season's grass/forage production of 3.9 m ha and the manure from nearly 4 m pigs. 4.85 Aside from fish farming, there may be scope for improvement in fresh-water capture fisheries. Compared to fish farming, fish yields per ha are extremely low at present. But operational costs also are low and the largest part of the unexploited water surface is suitable only for capture fisheries. Problems and selutions seem similar to those of managing any common resource. It is necessary to place authority over suitable bodies of water in the hands of authorities responsible for fisheries development, strengthen control to prevent destruction of the resource (such as fish dynamiting or pollution), organize stocking, restore specialized fishing teams, establish clearly-defined fishing rights in particular areas, and provide adequate equipment (including ice for preservation and trucks for delivery to markets). 4.86 There is a clear understanding in China of the problems of marine fisheries and of the measures required to protect and develop these resources. Necessary measures include controlled expLoitation, based on yet-to-be completed surveys of existing resources and the establishment of an adminis- trative structure and facilities for enforcement; control of industriaL pollution in bays and estuaries; and upgrading of fishing fleets with cold storage and processing equipment. 571 The efficiency of feed conversion and feed costs are important considera- tions. With good management, an FCR of about 2.3 may be realized in freshwater fish culture. If the feed cost is Y 0.40/kg (US$200/ton), it would take 2.3 kg of feed costing Y 0.92 to produce one kg of fish. Adding the cost of fingerlings of Y 0.07-0.08 gives a total -ost of Y 1.00 per kg of fish produced. If the fish price is Y 1.20/%.g, it is likely to be difficul to cover costs of labor, utilities and capital investment. Reported prices for fish feed in 1984 ranged from about Y 0.28/kg in Shanghai (where the municipal government provides a subsidy of Y 0.20/kg of feed) to Y 0.52 in Nanchang. Although concentrates will be required in the production of fingerlings, fish yields in fresh water culture of 2-5 tons/ha, as assumed by Government in the Year 2000, can probably be achieved through good management and the use of grass and manure as nutrient sources. - 91 - 4.87 Fish consumption at present is highly localized because of inadequate processing, cold storage and refrigerated transport facilities in areas outside of major production zones. Present development plans emphasize supply to major municipalities and deveLopment of a few large production bases. This poses something of an equity problem, viz., the production, frequently subsidized, of fish for a relatively weLl-to-do urban population. In the future more emphasis is warranted to improve the physical infrastruc- ture in order to make high-quality fisheries products available to a larger share of the population. Estimates of consumption demand in 2000 (Chapter 2) suggest that present targets for production of aquatic products may not satisfy potential future consumer demands at the national level. On the other hand, production might well exceed demand in, or near, major producing areas. 4.88 Other investment priorities can be identified. In view of the protein shortages for livestock feeding, development is warranted8gf facili- ties to produce fish meal from processing wastes and trash fish.-o' Our understanding is that the current goal of 100,000 tons of fish meal in 2000 wouLd primarily utilize processing wastes of cormmercial fisheries. Additional consideration should be given to expanding the collection and processing of fish species now considered to have little economic value. One example may be the largely untapped anchovy (Engraulis) resource on China's continental shelf as the basis for expanding fishmeal production. 5. OPTIONS AND ISSUES 5.01 Between the present and the turn of the century, China's agriculture will be required to feed at better nutritional levels a population growing by at least 10 million per year and to supply the raw materials to meet rapid growth in industrial demand. It will have to provide remunerative employment to part of a rural labor force likely to grow considerably more rapidly than the total population. This will be a challenging task. At best, the land area under cultivation will not increase and could well decline. Similarly, the cropped area is likely to remain at present levels as land reclamation and irrigation development are approximately offset by lands converted to non- agricultural use. Competition for -water supplies in some parts of China between agriculture, industry and human consumption will increase and make agricultural expansion more difficult. The production gains required to feed another 160 million people or more at higher nutritional levels will have to come almost entirely from increased yields on presently cultivated land. This will require more intensive production systems and a more comprehensive range of services and input supplies. 58/ However, the amount of processing wastes may be relatively small. Many of these materials such as head, roe, intestines, liver and stomach, are considered delicacies in China. - 92 - 5.02 Despite these constraints, China's relatively favorable food situation, its agriculturaL diversity and the strength of its rural institu- tions permit it to pursue a somewhat wider range of options than in a situa- tion where the overriding concern was to provide minimally adequate suppLies of basic foods from a poorLy-developed agricultural sector. The general direction of development is clear. It will in-volve efforts to shift resources into activities: (1) which are less constrained by fixed resources (land and water); (2) for which improvement of management and labor skills has a high pay-off (specialty crops, modernization of livestock and poultry production); and (3) for which the gap between existing and advanced technology is greatest (agro-industrial production). But within this framework, there are many important questions and policy options regarding speed, product mix, resources needed, and other means of implementation. 5.03 It may be argued that two decades (1980-2000) is too short a time to bring about major structural change. Indeed, deveLopment experience in a num- ber of countries suggests that structural change in agriculture is a lengthy process. But exceptions exist and some lessons may be drawn from them. Structural change in e.g., Korean and Japanese agriculture has been striking over a roughly similar period of time (1960-80) and began from levels of development in some respects comparable to China today. It is noteworthy that these changes occurred in conjunction with declines in the agricultural Labor force (excluding rural non-farm employment), and in economies more open to trade than China, but with policies which provided increased protection to the agriculture sector and which resulted in steady increases in the urban cost of living. SignificantLy, these structural shifts were not "planned," but were largely the responses of agricultural sectors in those countries to extra- ordinarily rapid growth of industrial output and nonagricultural empLoyment. More generally, there is a close connection - with causation running in both directions - between rgpd growth of the non-farm economy and rapid structural change in agriculture.- 591 In projecting possible development paths for Chinese agricuLture, discretion is required when comparing geographically small countries with relatively homogeneous agricultural sectors (Korea and Japan) with China. Important similarities and differences exist. The three countries share the attributes of high population densities with regard to arable land (Appendix Table A.13), declining population growth rates and high crop yields in the base years (the early 1980s for China; 1960 for Korea and Japan). A key difference is a base period industrial growth rate in Korea and Japan which was twice that in China in 1980 (Appendix Table A.14). This was a strong inducement to pull Labor out of agriculture and permit rapid increases in agricultural labor produc- tivity. Farm labor productivity (GDP/worker) in China today appears to be approximately equal to that in Korea and Japan in 1960. In the 1960-80 decade, farm labor productivity in Korea and Japan rose 6-fold and 20-fold, respectively. In 1980 agricultural labor productivity in China was about equal to that in India, but only about half as high as in Indonesia, Pakistan and Thailand (Appendix Table A.15) Over the 1960-80 period, labor productivity in Indian agriculture grew by only 0.5Z p.a. (see P.R. Brahmananda, Productivity in the Indian Economy, Himalaya Publishing House, Bombay (1982), p. 47. - 93 - Projections of Agricultural Growth 5.04 Government Objectives. The overall development objective of the Government is to improve consumption levels through a major structural change in agriculture, although projeCtiOnS for major crops are not fully consistent wich this assumption. Nor is it apparent that the non-farm rural economy can expand fast enough to permit the envisaged steady decline (relatively and absolutely) in the agricultural labor force. Preliminary planning by the Government calls for rapid growth in livestock, poultrv and sideline production and a relative decline in the crop share of GVAO by the year 2000 (Table 5.1). The farm labor force wouLd decline sharply, while the rural non- farm workforce wouLd rise extremely rapidly. Under these projections, the share of rural workers engaged in agriculture would fall from 94% in 982 to abouc 55% in 2000, a decline which is rapid, but not unprecedented.60 If the projections of MAAF's Planning Bureau are realized, the total area sown to grain would remain unchanged, although wneat and rice production would grow siightly less rapidly than coarse grains and corn would become relativelv more important than other coarse grains, soybeans and pulses. SimilarLy, no significant increases are planned for areas planted to nongrain crops, although yields are expected to increase and regional production patterns of these crops wouLd continue to adjust on the basis of comparative advantage. 61/ 5.05 Projections of Pocential Growth - . Assuming a continuation of present policies, growth of agricuLtural production (excluding sidelines) between 1980-82 and the year 2000 is Likely to be more rapid than Long-run historical growth rates. Structural change, characterized in recent years by a declining share of crop production in total GVAOR,-is also likely to be more rapid, though probably not so rapid as indicated by Government supply targets or consumption demands under targeted income growth. The limits to the rate of structural change have less to do with diminishing returns in crop cultivation than with constraints on financial resources, incentives, and external trade. 5.06 The projections in this section are of potential growth; they are not predictions. They are estimates of the rate of long run performance of domestic supply attainable if Government policies are broadly favorable; in fact more favorable than they have been in the past. They are internally consistent insofar as growth estimates for economic aggregates can be derived from plausible growth rates of component products. Relationships between sub- sectors and gross and net measures are consistent with present and projected 60/ In the 1960-80 period, agriculture's share of the total labor force declined from 66% to 34% in Korea and from 33% to 12% in Japan. In 1980 India's agricuLtural labor force accounted for more than 65% of the total work force. 61/ Additional projections of agricultural production, conzumption, employment and trade made with an economy-wide model (buL with less detail within agriculture) are discussed in Chapters 2 and 3 of the main report, and in Annex D. - 94 - Table 5.1: PRELIMINARY GOVERNMENT TARGETS FOR AGRICULTURAL PRODUCTION AND EMPLOYMENT Z change 1982 2000 1982-2000 la GVAO Shares (Z) Crop production 62.8 40 -36 Livestock production 15.5 25 +61 Forestry 4.1 4 -51 Fisheries 1.7 3 +77 Sidelines 16.0 28 +88 (Of which CBE) (11.6) (n.a.) Grain Production (mln tons) Wheat 68.4 99 +2.6 Rice (paddy) 161.2 208 +1.8 Corn 61.0 98 +2.6 Others 62.8 75 +1.2 Total 353.4 480 +2.0 Rural Labor Force (mln) /b Agriculture Crop production n.a. 150 Other including ag. sidelines /c n.a. 100 Subtotal 304 250 -18 Nonagriculture Collective sector 3 120 Private sector 31 40-50 Contract labor 6 30-40 Subtotal 37 200 +439 Total 341 450 +32 /a For grain production, refers to average annual growth, 1980-82 to 2000. /b Excluding state farms (4.9 million), salaried staff (8.1 million), and collective labor in public service activities (6.2 million). /c 1982 statistic excludes brigade enterprises; 2000 includes only labor in livestock, fisheries and forestry. Source: Planning Bureau, MAAF; 1983 Statistical Yearbook, pp. 120-21,148, 153, 158, 202 and 206. - 95 - input-output relationships, and estimated relationships between aggregate outputs and aggregate inputs conform to economic logic. However, these supply projections are not necessarily fully consistent with consumption projec- tions. The estimates of potential growth rates for output assume tnat the rapid growth of GVAOR since 1980 (8% p.a.), reflecting price and institutional reforms, cannot be sustained, but have brought levels of agricultural produc- tion close to maximum potential at present input levels. However, with favor- able Government policies, growth rates could continue to exceed historical levels. 5.07 The performance of crop production is a fundamental factor. Growth of crop production value is unlikely to greatly exceed the 3.7Z p.a. achieved in 1965-83, but to sustain rapid growth of livestock production, it is crucial that the production of feedgrains, notably corn, soybeans and certain other miscellaneous grains, grow much more rapidly than foodgrains such as rice and wheat. Potential annual growth rates of grain production (including tubers and soybeans) would be about 2.4Z and non-grain crops 6.8%. Among grains, the HAAF target growth rates for fine grains seem feasible if there is little change in crop areas, but corn, miscellaneous grains and soybeans would have to grow more rapidly. The annuaL growth rates of various grains required to meet livestock production targets are compared below with historical rates of production growth: 1965-83 1980-82 to 2000 Actual Required = i __ œr-_____ __ All grain 3.9 2.4 Rice 3.7 1.8 Wheat 6.7 2.6 Tubers 2.2 -10.2 Other 3.1 4.2 Non-grain crops would be required to grow at annual rates exceeding historical levels by 1-2 percentage points (e.g. cotton 5.6%, oilseeds 7.9%, sugar 8.6%, and fruit 9%), with differences reflecting differential consumption elastici- ties and competition from industrial products. 5.08 Other components of GVAOR are less subject ta diminishing returns because of the land constraint, and their growth rates will be determined by the extent of Government and private investment in these subsectors, including support services, as well as the availability of feed supplies from either domestic or imported sources. Assuming a 4Z annual growth rate in crops suit- able for feed use and no feed imports, the following compares average growth - 96 - rates in GVAOR between 1980-82 and 2000, the lower growth rates required in 1983-2000 in view of recent achievements, and the historical growth rates in 1965-83: Cultivation Livestock Forestry Fisheries Total ~~~~~- Z -o.a .- -------- 1980-82 to 2000 3.8 5.9 5.4 5.9 4.4 1983 - 2000 3.2 5.8 5.0 5.4 3.9 1965 - 1983 (actual) 3.7 5.4 6.8 3.6 4.1 5.09 Another way of assessing the potential growth of agriculture is to examine the relationship between major factors of production and outputs in a production function context. As cultivated area cannot be significantly expanded and farm Labor is regarded as in surplus supply for the indefinite future, onLy the growth rates of technical progress, capital accumulation and use of industrial inputs (chemical fertilizers, energy, machine services, transport, etc.) need be considered. The assumption that government policies will remain favorable to growth may be quantified by assuming a modest rate of technical progress (0.4% p.a.), adequate investment levels in fixed and working capital (at least 8Z of total investment, rising from Y 12 billion at present to perhaps Y 38 billion by 2000), moderate growth rates in the use of industrial inputs (about 5X p.a.), and improved prices for livestock, forestry and fisheries relative to crops. Table 5.2 indicates the assumed relationship between input and output in each component of GVAOR. The assumed growth rate of technical progress may be compared with estimates of 1-2% p.a. for the United States and Japan at the most dynamic stages of their agricultural growth. Projected investment levels (which do not include investment in rural industry) would require mobilization of capital fron non-Government sources, but on a reasonable scale (see Table 1.2 and para. 3.42). The average growth rate in the use of industrial inputs is modest relative to historical trends (9% in 1965-83). 5.10 Net output of the agricultural sector, whether measured as NVAOR (net value of output less sidelines) or net supply of agricultural products to consumption and non-agricultural sectors, cannot rise as rapidly as GVAOR, due to a declining net/gross ratio. The net/gross ratio will decline because of diminishing returns in crop production and increased feed requirements in livestock and fisheries. In crops, growth in use of industrial inputs such as fertilizer and energy is expected to continue to exceed output growth. In livestock, a high rate of growth will require use of a feedgrain-incensive technology (cost of feed and forage use by livestock, as a percentage of live- stock CVAOR, would be about 50% higher at the margin than the present aver- age). In fisheries, growth is expected to come entirely from fish farming and, indeed, more feed-intensive pond or estuary fish raising. At che margin, feed requirements, including grass as a nutrient source, may be about 10% of - 97 - Table 5.2: AGRICULTURAL GROWTH PROJECTIONS, 1981-82 TO 2000 Live- Fores- Fish- Per Crops stock try eries Total worker/a Y billions, 1980 prices - - Y GVAOR 1980-82 152 37 10 4 203 710 Share (Z) 75 18 5 2 100 Net/gross ratio (%)/b 78 27 17 81 66 NVAOR 1980-82/b 119 10 2 3 134 470 Share (Z) 89 7 1 3 100 Growth rates of -Technical progress 0.4 0.4 0.4 0.4 Capital stock 5.4 11.0 10.0 11.0 Industrial inputs 5.0 5.9 5.4 5.0 Real product/c 3.8 5.9 5.4 5.9 4.4 Output price index/d 1.0 3.0 1.0 0.5 Net/gross ratio/e -0.3 -0.8 5.4 -0.3 -0.7 Year 2000 Real GVAOR/f 307 110 27 12 457 1,390 Share (7) 67 24 6 3 100 Current GVAORIf 307 132 48 15 502 Net/gross ratio/f 74 23 45 77 58 Current NVAOR 227 30 22 12 290 Real NVAORJg 214 29 20 11 274 840 Share (x) 78 10 7 4 100 Historical Growth Rates (X) /h 1965-70 3.7 2.3 6.3 1.7 3.5 1970-80 2.5 6.3 6.8 3.1 3.3 1980-83 8.1 7.6 7.5 8.4 8.0 /a Assuming 285 million farm workers (excluding labor in sidelines) in 1981 and growth of 15% by the year 2000. Government projections of a declining farm labor force are disregarded (see Table 5.1). /b NVAOR (net value of agricultural output less sidelines) is in 1981 prices whereas GVAOR is in 1980 constant prices; here differences in 1981 and constant 1980 prices are small enough to ignore. Net/gross ratios are Bank estimates. - 98 - /c Assuming Cobb-Douglas type production functions, annual growth of product is estimated as a weighted sum of growth rates of technical progress (T), capital stock (K), and industrial inputs (I). For cultivation, the product growth equals T+0.3K+0.35I; for all others, T+0.5K. The latter is intended to approximate the effects of a capital/output ratio of 2.0. For subsectors other than cultivation, the growth rate of industrial inputs is assumed to equal that of product output, except that the proportion of industrial inputs in fisheries would decline as the share of fish farming in production increases relative to sea capture. Id Growth rates of agricultural prices measured relative to growth of industrial goods pri-ces. In the base case, no relative change in crop prices is assumed, but adjustments to livestock, forestry, and fishery prices would be necessary to prevent rapid decline in net/gross ratios as well as to improve relative profitability of these activities. le The growth rate (rate of decline) in the net/gross ratio (in current prices) is approximated as a mathematical function of growth rates of output and output prices as well as industrial and agricultural inputs and their prices. Aside from the growth rate assumptions shown, it is assumed that marginal input requirements from cultivation for livestock will be 50% greater than present average input requirements; for fisheries, they will be about 10% of marginal output value. If Computed from annual growth rates of output, net/gross ratios and price indices above. /g Real (1981-priced) NVAOR computed from current NVAOR by applying a consumption price index, weighted 50% for agr1cultural products and 50% for industrial products (the prices of the latter being held constant as numeraires). /h From Statistical Yearbook of China, 1983, p. 150. 1970-80 GVAOR growth rates based on adjustment to 1980 prices of components originally expressed in 1957 and 1970 prices. - 99 - output value, as opposed to almost nothing at present (on the other hand, the declining share of capture fisheries will reduce industrial input requirements). Only in forestry, wnere Labor-intensive afforestation is likely to contribute an increasing proportion to GVAOR, is there reason to expect no decline in the net'gross ratios. 5.11 Any increases in the prices of agricultural products relative to industrial products, or of the products of livestock and fisheries relative to crops, will tend to slow the decline in the net/gross ratio. Because domestic prices of pork, beef, fish and timber are Low relative to international prices and also reLative to domestic prices of crops and industrial products, price increases for these products would be necessary to provide incentives to sustain the fairly high growth rates assumed for components of GVAOR other than crops. If annual relative price increases for livestock, forestry and fisheries were to average about 1%, 3%, and 1% respectively, the overalL net/gross ratio may be expected to decline from 66% in 1980-82 to 58% in 2000 (56% without price changes). The rate of decline could be reduced or even arrested if the overall terms of trade of the agricultural sector were further improved, at the expense of urban consumers and/or industrial producers. Depending on the extent of income increases in the urban and industrial sectors, this improvement might be required by distribution policy to prevent deterioration of rural/urban income ratios. 5.12 Under the conditions described above, NVAOR would increase at the rate of about 3.8%, compared to 4.4% p.a. for GVAOR. Assuming a growth rate of 0.6% p.a. for the farm labor force (excluding sidelines), gross labor productivity in agriculture could neariy double by 2000, and net productivity increase by 78%. The structure of agriculture would change significantly, with a decline of 8 percentage points (from 75 to 67%) in the share of crops in GVAOR and of 11 percentage points (from 89 to 78Z) in its share in NVAOR. 5.13 These projections are based primarily on supply considerations, although the directions of structural change are influenced by demand consid- erations. Bow do these projections compare with Government production targets, on the one hand, and projections of consumption requirements on the other? Such a comparison is drawn in Table 5.3, where production targets are constructed from MAAF projections of product output and GVAO shares (Table 5.1) and from the Bank's "target growth scenario" for consumption (Table 2.3). The "target growth scenario" assumes GNP growth rates of 5.5%, and population growth rates averaging 1%. Compared to the Bank's supply-side projections, the MAAF production targets involve a more modest overall growth rate, due to more conservative projections for crop production (especially for non-grain crops). However, MAAF assumes significantly higher growth rates for livestock and fisheries and thus more radical structural change. Where they fall short of demand is in growth of crops, where MAAF may underestimate the consumption requirements for industrial crops as well as the combined consump- tion of feedgrain and foodgrain. Indeed, net supply to consumption and non- agricultural sectors, under MAAF's projections, is likely to be lower in 2000 than in 1980-82. 5.14 The Bank's projection of potential growth of GVAOR is slightly higher than the growth rate of total supply needed to satisfy consumption - 100 - Table 5.3: COMPARISON OF ALTERNATIVE GROWTH PATTERNS /a Live- Fores- Fish- Annual Per Crops stock try eries Total growth worker -- Y billions, 1980 prices Z-- Y 1980-82 Actual GVAOR 152 37 10 4 203 710 Share () 75 18 5 2 100 NVAOR 119 10 2 3 134 470 Share (X) 89 7 1 100 Net supply 130 34 5 4 173 Year 2000 Base Case: Potential Growth GVAOR 307 110 27 12 457 4.4 1,390 Share (%) 67 24 6 3 100 NVAOR 214 29 20 11 274 3.8 840 Share (Z) 78 10 7 4 100 Net supply 229 101 13 12 355 3.9 Implied by Production Targets/b GVAOR 226 142 25 17 410 3.8 1,250 Share (Z) 55 35 6 4 100 NVAOR 158 31 18 15 222 2.7 680 Share (Z) 71 14 8 7 100 Net supply 128 131 12 17 287 2.7 Tmplied by Consumption Requirements/c GVAOR 256 150 25 17 448 4.3 1,360 Share (Z) 57 33 6 4 100 NVAOR 178 32 18 15 244 3.2 740 Share (Z) 73 13 8 6 100 Net supply 152 138 12 17 318 3.3 /a Based on projection methodology described in notes to Table 5.3. Base case presented in Table 5.3. All values are in 1981 prices. /b GVAOR shares as implied by MAAF targets presented in Table 5.1; absolute values as derived from growth of various crops shown as CAAS targets for 2000 in Table 2.3, weighted by their approximate share in GVAOR of culti- vation. NVAOR estimated through the methodology described in Table 5.3 by adjusting growth rates of capital stock and/or industrial inputs to "generate" the targeted GVAOR, assuming the same relative price changes, and deriving implied net/gross ratio growth rates to 2000. /c GVAOR growth based on the "Target growth scenario" in Table 2.3 for products of cultivation and livestock subsectors; i.e. the requirements implied by consumption projections assuming 5.5% annual GNP growth and l.0% annual population growth. For all other assumptions and methodology, see note b. - 10! - requirements in the year 2000. lioweve;, !:he :;Lructure of potential and required supply is quite different. [n the Baink's projections, the value of potential crop production would significantly e:.:ceed, and that of livestock and fisheries fall short of, consumption requireine6s., The growth of production of rice and most non-grain crops would exceed growth ot consumption requiremgn s. A surplus of 30 miLLion tons of rice could be produced annually by 2000. 3 Government could respond to such a trend, as it has already with rapeseed production, by cutting prices and controLling acreage to the extent necessary. It could encourage substitution of feedgrains for rice production (or use rice as feed); or it could make an effort to develop export markets for rice and non-grain crops, exchanging surplus production for products in which supply deficits will remain, including meat, Lumber and fish. Alternatively, as much as 45 million tons of feed grains and high protein meals could be imported in order to meet expected consumption demand for meat from domestic production. 5.15 Assuming that Government is stccessftL in maintaining a high GNP growth rate, low population growth rate, and igriculturaL policies favorable to rapid development, this analysis suggests thaL supplying foodgrains sufficient for human consumption is unlikeLy to be a major problem in the long run. If overall supply deficits appear, they are likely to be in poultry and livestock products, or the feed grain and high-protein meal required to support their production. A challenge to government policy may be to convert China's potential for rice and non-grain crop production into increased feed supply either via external trade or a major restructuring of domestic cropping patterns, and to insure through investment and support services that high. growth rates for the poultry and livestock sectors can be combined with higher efficiency. International Trade 5.16 Planning in China continues to be premissed on basic self- sufficiency in agriculture, although it is acknowledged that trade will continue to play a role in balancing supply and demand for major agricultural products and in generating foreign exchange from the export of agricultural specialties for which China is an important supplier. However, a self- sufficiency orientation appears to conflict with the desire to satisfy a future consumption pattern more like that of a typical middle-income country. To what extent could a planned reliance on trade balance supply and demand at lower cost in terms of domestic resources? 62/ Demand for forestry products is likely to exceed domestic production for the foreseeable future under any conceivable scenario. 63/ If demand for fine grains totals 259 million tons in 2000 (Table 2.3), and production 307 million tons, a net surplus of 48 million tons wouLd exist. Based on present consumption patterns and assuming use of part of the surplus as feed, a surplus of over 30 million tons of paddy, or 21 million tons of milled rice, would be available for export. - 102 - 5.17 Emerging globaL developments suggest generally adequate supplies of grain on the world market during the next decade. if historical relationships between consumption and income continue, world demand for all grains would grow at 2.6% p.a. or less during the 1980s. Between 1950 and 1980, the world's population grew at an annuaL average rate of 1.8Z, while food supplies were growing by 2.6Z. One result hgu,been the more or less steady decline in the real price of the major cereals- !. The world's capacity to produce required supplies of food grains and feed appears adequate at least to the end of the century. In the US alone some 50 m ha of unutilized Land could produce up to 200 m tons p.a. if required. Important new production areas have opened in the Southern Hemisphere which ship to world markets well before the arrival of supplies from the North Amer :6a§n harvest, thus reducing the need for stocks to meet inter-harvest shortages- . There is no reason to believe that global food production will expand at less than the rate of the past 30 years. And while the US remains the world's largest export supplier of grain, it is a less powerfuL force in the market than it has been in earlier years. Alternative sources of supply, particularly for rice and wheat where the US market share is smaller, gives grain impbrters substantial flexibility in MaLng LM=iL JI.V%UJL LL -L L n..I 5.18 Over the next decade, overall trade in grains is not likely to grow as rapidly as in the 1970s. Factors contributing to the slowdown include increased production in a number of countries (e.g., India and China) and continued economic difficulties, particularly in countries with recent records of rapidly expanding food imports. These market fundamentals suggest that the real prices of grains will not rise appreciably over the next several years. Projections by the World Bank suggest prices (1983 dollars; FOB major exporters) in 1995 of about $327 for rice, $149 for wheat and $113 for corn. Compared with average 1976-82 prices, these prices represent declines of about 11%, 13Z and 7Z in the price of rice, wheat and corn, respectively (Appendix Table A.12). 5.19 Because of the large volume of world trade in feed grains, it seems unlikely that a gradual increase of China's imports of feedgrain and soyneal to as much as 45 million tons would have substantial effect on world prices. China's trading practices minimize possibilities for disruptive effects on the international market. Current imports are arranged through Long-term agree- ments designed to be stabilizing in the event of tight markets. The nationaL grain and oilseeds trading agency (CEROIL) demonstrated in 1983 the effective use of price strategies to provide a large degree of forward price protec- tion. Import flows are programmed at least a year in advance on the basis of 64/ Between 1925-29 and 1981 the real export unit value of wheat and corn (deflated by the US wholesale price index) fell by about half. Real export unit values of rice are more than 25Z below levels of 20 years ago. 65/ Annual grain exports from South America (mainly Argentina and Brazil) rose from about 10 m tons in the early 1960s to 400 m tons at present. Production increases of a similar size have been achieved in the European Comunity. - 103 - the Government's distributionaL requirements which are reasonably steady. The main obstacle to increased imports would be limitations of port storage and distribution infrastructure, which could be remedied in time. 5.20 Prospects for substantially larger exports of rice are not very favorable. In recent years, several major import markets for rice have declined due to a combination of growing self-sufficiency and the tendency to substitute wheat for r;ce in the diet. Consequently, the worLd rice market, which now absorbs about 12 million tons per year, is not expected to grow to more than 16 million tons by 1995 and any sizeable additional quantities from China would likely depress world prices relative to long-term averages. How- ever, the projected 1995 rice:wheat international price ratio is more favor- able to rice than present market conditions would indicate (Appendix Table A.12). China appears to have a comparative cost advantage in rice production relative to wheat and trading limited quantities of rice for feedstuffs may continue to be an option which should be considered. 5.21 There also is potential for Chi-na to export some non-grain crops or animal products to fund feed imports. For exampLe, China has recently turned a large import deficit in cotton into a small exportable surplus which might be continued. On the whole, the best export prospects in agriculture are likely to be for a wide variety of high-value and speciaLty products for which international income elasticities of demand are high. China's diversity of soils and climates suggests that a considerable range of such products could be grown. But the successful production, processing and marketing of them in international markets would require a well-developed range of support ser- vices, including research, extension, marketing infrastructure and market development. China's low cost labor in agriculture is a distinct advantage, as is its proximity to Japan and other rapidly growing Asian markets. On the other hand, prospects for rapid export expansion of many of China's tradi- tional specialty products may be less favorable because global markets are "thin" and substantially larger exports from China would depress world prices. Tea, mushrooms, honey, hog bristles, feathers and down, and rabbit meat are examples. Adjustments in Domestic Structure 5.22 Crops. One of the problems to be resolved is the apparent contra- diction between present production trends for grains and the food requirements generated by increased incomes and changing consumption patterns. In the projections of MAAF's Planning Bureau, fine grains (rice and wheat) would constitute more than 60% of total grain production in 2000, while the require- ments for direct grain consumption and animal feeding in efficient systems imply substantially smaller quantities of fine grains and more coarse grains. International trade could provide for expected feed requirements, but some adjustment of domestic production patterns would be needed to eliminate the projected rice surplus. The adjustment in domestic production might logically involve some reduction in the area planted to rice and expansion of the area under crops needed in a much larger livestock program. Corn and soybeans are prime candidates in this regard because of their efficiency in producing energy and high quality protein, but soils and climates in some areas might be best suited for other grain and oilseed crops. The potential - 10" - for further yield increases in crra :and soybeans in China appears to be good, although this would require imrroved production incentives, better quality seeds, and larger allocations of chemical fertilizer. More production of corn and soybeans outside of the traditional areas in the North and Northeast and nearer Livestock production centers in the South and Southeast would ease the transport problems which now result in marketing problems for these crops in the Northeast, while feed shortages constrain livestock and poultry production elsewhere_ Cropping systems which include corn and soybeans are also agrono- mically preferabLe to rice monocuLture. 5.23 One could conceive of a situation where some of the uplands of the south which now grow Low-yielding rainfed rice would be converted to feed- grains and oilseeds. These products wolLd heLp to support local livestock and -poultry industries and perhaps supply feedstuffs to peri-urban producers near the larger cities. But such chnaraes wouid not come without vigorous encour- agement through adaptive aeronomic research and strong extension programs. It would also be necessary to ens'zre a reliabLe suppLy of foodgrains to the areas which specialize in nonfood crops. althaugh this concern would Likely dis- appear in the presence of an :tfecLi-e marketing system and policies which encourage the movement of aaricultural products from surplus to deficit areas in response to economic forces. Greater emphasis on corn and oilseeds would contribute to more rapid growth in grain yields by replacing low yield rice with crops with higher yield growth potential. It would allow peri-urban areas to plant higher vaLue crops on lands now under grain and forage crops and it would provide a basis for more diversified production systems around higher value crops and livestock production in those traditionally low income areas where rainfed rice now is a major source of income. 5.24 Expanded production of nongrain crops continues to be limited by the inability of the marketing system to ensure local consumption requirements for grain and to efficiently dispose of increased cormercial supplies. Yet it appears that pLans for develorment of the transport and distribution system have not been adequately related to the much larger volumes of marketed output which would accompany the structural modernization of China's agriculture. Difficulties in transport and distribution continue to encourage administra- tors at all levels to plan for a considerable degree of self-sufficiency. Similar concerns over market access tend to concentrate production of perish- able high-value products such as vegetables, fruit, fish and dairy products largely in the peri-urban areas, despite sharply rising economic costs of land. 5.25 Factors affecting both demand and supply suggest that China is likely to maintain its present position of basic self-sufficiency in cotton. The domestic market for textiles appears to be slowing in per capita terms and may expand at a rate more nearly approaching population growth. Exports of cotton textiles are uncertain in th face of growing protectionism and could well grow less rapidly ;han hereLofore. Domestic production of cotton will benefit from a solid technological and resource base. In these circumstances, China seems likely to import only relacively small amounts of cotton for specialty purposes and could emerge as a significant exporter of raw cotton. Success in this regard will require continued emphasis on production and the development of cotton ginning and hanCl.ing facilities which enable China to - 105 - I produce exports of acceptable international standard. Particular needs will be to produce cotton bales of uniform international dimensions and weight and to provide facilities for efficient storage, handling and transport of this buLky product. Study is needed to compare the relative economic merits of furtner expansion of cotton production for exports or use of the land to, e.g., increase production of soybeans and coarse grains. 5.26 The surge in oilseed production in recent years, Led by rapeseed, has greatly alleviated the shortages of edible oils and led to some reduction in prices. While demand for edible oils will grow steadily in response to income growth, a major consideration in oilseed production policy should be the need to increase supplies of high protein oilseed cakes and meals for livestock and poultry. The most urgent tasks in this regard are: (1) to increase soybean production and output of soybean meal which is particularly suited to swine and poultry feeding; and (2) increase the suitability for livestock feeding of rapeseed and cottonseed meal by reducing their content of anti-nutritive substances. Through research and extension it may be possible to introduce soybean varieties which can be grown over a wider range of agro- climatic conditions. Much of the work in developing non-toxic varieties of rapeseed has been done elsewhere. The task for Chinese scientists in this regard is to explore means of acquiring these materials and carry out the necessary adaptive research to ensure successful introduction into local cropping systems. 5.27 Fruits and vegetables are of future importance in Chinese agriculture for at least two reasons. Domestic demand will grow rapidly in response to income growth, and as high-value, labor intensive crops, their production offers an attractive means of creating jobs and increasing rural incomes. The major challenges lie in increasing production of the higher quality vegetables and fruit demanded by consumers and in the processing and marketing for domestic and possible export markets. It is in the processing and marketing of semi-perishables such as these that China's existing systems are most deficient and where needs for improvement are particularly pressing. There is a great need for substantially more refrigerated storage capacity as well as processing facilities to provide a high-quality product with longer shelf life. Larger exports of processed vegetabLes also may be possible, particularly if these are high-quality canned or fresh frozen products. The required processing and packaging technologies are new to China and export market development may be difficult. This appears to be an area where joint ventures with established foreign firms would be useful, as a source of both technology and market access. Larger exports of fresh fruit also may be possible, although improvement of product quality and packaging would be required. 5.28 Livestock. Central planners have posed ambitious targets for meat production in 2000 and the Government has recently taken several steps to encourage more rapid development of the livestock and poultry sectors. A key question is whether these targets are consistent with likely future supplies of grass and feed, the weaknesses of the transport, processing and .distribu- tion systems, and the availability-of investment funds. Beef and mutton production, which depends primarily on pasture resources, is projected to expand at a rate which approaches 142 p.a. However, China's pastures for the - 106 - most part are seriously overgrazed and it is unlikely that they can provide additional meat and wool in the short run without further deterioration. At present, little effort is being made to restrict herd growth, and modern techniques of range management are not well-understood and applied. Meat and wool production from the traditional pastoral areas do not seem likely to increase much in the next several years. 5.29 The potential for increased production from ruminants in the agricultural (non-pastoral) areas or through deveLopment of the southern pastures also appears to be limited. Feed and forage supplies again appear to be major constraints. Most crop residues are already well-utilized and generally of limited suitability in high performance livestock systems. The strong demand for draft animals reduces the attractiveness of producing animals for meat and a declining trend in sheep production has been noted in the southern provinces. Increased cultivation of forage crops conflicts with other crop demands for land in many areas and the area suitable for economic development of pasture is likely to be less than current estimates. 5.30 Based on current trends, underlying productior technologies and policies, prospects for pig and poultry are more favorable, but hinge impor- tantly on increased supplies of high quality energy and protein feeds. The historical relationship between pork production, grain retained in the rural areas and pork:grain prices suggests that an annual growth rate of over 3.0% in pork output is sustainable iy grain retained in the rural areas grows no faster than grain production.66 Poultry production has received less development emphasis historically, but favorable priL-s suggest that poultry meat and egg output could grow more rapidly than pork production if feed supplies are available. For both pork and poultry, modern production systems, based on improved management and feeding practices, would provide the basis for expansion. Hoves in the right direction are being made, such as the encouragement of SHs and initial steps toward development of a feed milling industry. This industry would require much larger amounts of grain as raw material, yet growth of coarse grain production is projected to be slower than that of high value rice and wheat. High protein oilseed meals are under- priced, often used as fertilizer and seemingly given inadequate attention in long-term planning. Production incentives favor cereals, rather than soybeans. The South, where pig and poultry raising is concentrated, lacks corn and soybean meal, whereas the Northeast has difficulty in disposing of its surpluses. Doubt also remains as to whether price relationships between feed concentrates and pork are sufficiently attractive to stimulate private investments in pig production based on grain-intensive feeding systems. 5.31 A solid technological base exists to expand pork production. The genetic quality of the animals and management systems generally are better than those in poultry, beef or dairy production. The biggest need is to develop the support system (feed supplies, veterinary services, processing and 66/ With constant relative prices, the elasticity of pork production with respect to retained grain is about 1.5 in China. The price elasticity of pork supply appears to be about 0.9. - 107 - marketing) for the much larger leveLs of production which are envisaged. The problem with feed supplies is that total quantities are likely to be inade- quate and not available in the areas where pork production is concentrated. Most of China's coarse grains and protein meals are grown in the North. If the current spatial distribution of coarse grain and meat production were maintained, the nine southern provinces would require at least an additional 50 m tons of feed grains in 2000 under the efficient feeding scenario discus- sed in Chapter 2. Current production of coarse grains and tubers in these provinces is less than 20 m tons. Looking only at pork, which accounts for nearly 95% of China's red meat production, about two-thirds of the hogs are in the East, Central, South and Southwest regions. These regions produce just over half of the country's coarse grains and tubers and less than half of the soybean meal. The northeast region (Liaoning, Jilin, Heilongjiang) accounts for 40X of the soybear. meal and 29% of the corn, but only 8% of the hog population. These locational problems might be remedied in several ways, all of them requiring substantial capital investment: (1) by encouraging more pork production in the Norch, with corresponding increases in north-south transport capacity for refrigerated livestock products or Live animals; (2) by increasing north-south movements of coarse grains and meal, possibly by water- borne coastal transport; and (3) by exporting rice from the South and importing coarse grain in the feed grain deficit areas. 5.32 Growth in per capita consumption of pork may be expected to slow in some of the higher-income urban areas along the eastern seaboard where intake levels are already high and supplies are abundant. In these circumstances, shipments of excess supplies to nearby export markets may be more profitable than shipments to inland markets. But in order to meet sanitary requirements of larger export markets, the industry will have to improve the hygenic standards and efficiency of slaughtering and processing facilities. Higher domestic incomes also will stimulate demand for a wider range of processed meats and the growing demand for lean pork suggests the need for an improved system of grading carcasses which rewards producers of lean pork with higher prices. 5.33 The Government's ambitious plans to increase per capita supplies of milk are based Largely on the establishment of modern dairy farms in suburban areas and elsewhere where adequate feed is available. Prices for fluid milk have been established at levels which substantially exceed international prices for similar products and large sums have been provisionally allocated for investment in the dairy industry. Government targets have surpassed the earlier goal of insuring that dairy products are available for the young, the sick and elderLy populations of the larger cities. In light of the very high investment costs required, it is worthwhile to reconsider the objectives and means in China's dairy development program. Production in suburban areas is increasingly handicapped by high land costs and the scarcity of abundant forage. Even with high milk prices, some of these operations appear to be nonviable in financial terms. Increased milk supplies for urban consumers might well be provided at lower economic costs through the importation of milk powder for reconstitution, or increased production of soy milk. The use of small-scale manufacturing pLants would permit the decentralization of production and make this product more widely available. - 108 - 5.34 Experience in other countries suggests that dairy production costs of individual households are frequentLy lower than those of state enterprises. This is also likeLy to be true in China. Greater emphasis on the SH as sources of dairy products seems warranted. This will require measures to ensure that such groups have access to improved milking stock, good veterinary services and high protein 'eed sources to supplement the grain and milling by- products of the SH. The existence of an artificial insemination network throughout much of China's potential dairy areas suggests that dairy stock could be improved in a relatively short time. Upgrading of local stock through use of high quality domestic or imported semen is likely to be preferred on technical and economic grounds to Large-scale importation of female stock. 5.35 Compared with the pork industry, the technological base for poultry development in China is considerably weaker and, until recently, little emphasis has been given to research and development work in poultry breeding, management and nutrition. China's poultry industry should be accorded high priority as a means of increasing supplies of animal protein for the humar. population, particularly in the rural areas where consumption of animal protein remains reLatively Low. Poultry are efficient converters of feed to high quality protein and poultry meat is a preferred meat among Chinese consumers. While some economies of scale exist in modern broiler and egg production, the technology is "divisible" and can be carried out on a smalL scale, thereby permitting production by families with limited capital and land. Individual households should also be encouraged to improve production efficiency with the use of improved breeds, good veterinary services and adequate protein feeds to supplement locally available grain. But most of the commercial production for urban consumption is Likely to come from SH and other larger scale production units. Producer prices for poultry products are attractive and production would probably expand rapidly if the requisites of reliable supplies of reasonably priced feeds and improved stock were readily available and if the support systems in terms of veterinary services and processing facilities were improved. The technology of modern poultry production, including high performance broiler and laying stock, is readily available internationally and easiLy transferable. Vigorous efforts should be made to bring this technology into China, make it widely available, and develop the technological and infrastructural base necessary to support a modern poultry industry. 5.36 Opportunities in ruminant production center on the recovery and increase of pasture productivity. An obstacle is that herdsmen must reduce their herd sizes while attempting to maintain or improve their income levels. It is doubtful that pasture and breed improvement programs alone could succeed without temporary reduction in grazing pressure (and vice versa). The extent of necessary herd size reduction cannot be determined until reliable surveys of pastureland conditions have been carried out, which should be the starting point of any improvement program. Both national and local officials respon- sible for animal husbandry need to understand the importance of "range manage- ment", which is based on the principle that animal numbers should not exceed the carrying capacity of the rangeland. - 109 - 5.37 The critical problem is to create incentives which will induce voLuntary reduction in animal numbers. Perhaps the most effective measure would be a differential procurement price policy strongly favoring young, healthy animals of improved breed. If Government subsidies are required, it might be preferable to support such a price policy rather than invest directly in pasture improvement. It appears that investment in pasture development in the south and northeast, where environmental conditions are most favorable, would be more economical and effective than investments in the traditionaL pastoral areas of the north and west. 5.38 Fisheries. With a reasonable amount of investment, and current emphasis on freshwater fish cultivation, the physical infrastructure required to more than double aquatic product output over two decades can be put in place. The major constraints are likely to include the supply of feed at prices which make fish culture economically viable. In most circumstances in China, fish raising appears to be most attractive financially if it is based on manure and grass as major scurces of feed nutrients. But the location of fish ponds now is typicaLly determined by contiguity to an urban market, where there are attractive alternative uses for manure (as fertilizer) and land (for vegetable production). Ultimately, growth of fresh water fish culture may depend on the growth of modern, suburban livestock enterprises which themselves are problematic on economic grounds. 5.39 Forestry. Much of the planned growth in forestry over the next two decades will take place through afforestation and the development of forest industries. Both are high priority activities, but it should be recognized that afforestation will be reflected largely in the expansion of inventories of immature trees, with little or no increments to financial income in the short run. The expenditures proposed would absorb a significant proportion of public investment in the agricultural sector. Financing of these long-term investments is likely to be a continuing problem. Much of the cost of afforestation would probably have to come through investment of rural labor with little or no immediate compensation. Many of the areas most suitable for afforestation provide few alternative sources of income to sustain a liveli- hood until the trees mature. Unless additional income can be generated, the incentive to cut prematurely or prune destructively for fuelwood, rather than conserve until maturity, will be very strong. Geographic Differentials and Income Distribution 5.40 Income differences may be decomposed into urban/rural and intra- rural differentials. The latter in turn may be considered to combine geographic or interregional differentials (controlling for interpersonal differences), and interpersonal differentials (controlling for geographic differences). Urban-rural differentials, which historicaLly have been a major focus of political attention in China, reflect the relationship between overall farm productivity, price and procurement policies on the one hand and urban wages, industrial productivity, and retail price policies on the other. Recent rural reforms in China have significantly narrowed the average urban/rural income differential (para. 1.33), although in real terms it remains large, partially because the Government pays for as much as one half of the cost of noncommodity expenditures in urban areas (rent, water and - 110 - power, schooling, child care, transportation, etc.) and urban residents receive additional consumption benefits through their employers. 5.41 During the same period, interpersonal income differentials in the rural areas almost certainly increased, with official support, as a conse- quence of policies designed to improve incentives and foster entrepreneur- ship. The Government has reintroduced an income tax as an instrument for control of interpersonal income differentials, which has been appLied to SHs, but for the moment it prefers to keep tax rates low. Less attention has been paid by Government to geographical or interregional income disparities. These disparities, which have always been significant in China, originate in diffe- rences in Land quality and availability, water and energy resources, transport convenience, and market access, which vary among localities. The disparities have been variously controlled or exacerbated by corresponding differentials in taxation, pricing, forced savings and input supply. For instance, cotton procurement prices in central China were set somewhat below those in north China to partially offset differences in cotton yields. Although by 1982 the yield differences had largely disappeared, regional differences in quotas and procurement bonuses had resulted in net price differentials extremely favorable to north China producers. 5.42 The 1979-82 rural reforms produced growth which was far from geographically uniform. On the one hand, some of the poorest areas were among the earliest to introduce the BGDH system, which contributed to rapid growth in crop production (e.g., Anhui, Sichuan, Guangxi and Guizhou in Map 1). On the other hand, the suburban areas (Shanghai, Tianjin, Beijing) and prosperous provinces such as Jiangsu and Guangdong benefited from freedom to expand their CBEs and growing access to free market and export prices. Shandong, as a special case, benefited from the improved incentives for northern cotton growing described above. The remaining provinces, including some of the poorest and concentrated in the northwest, central or northeastern regions, for various reasons (including natural disasters in 1982) did not share such rapid growth rates. 5.43 Relative poverty remains characteristic of much of the northwest and parts of the north and southwest (Map 2 and Annex Table A.5). These are areas with adverse natural conditions - they usually lack irrigation facilities, have poor soil, often are isolated from markets and have weak transportation systems. These factors result in extensive (as opposed to intensive) forms of cropping and animal husbandry. These areas are also relatively short of chemical fertilizer and farm machinery (Map 3 and Annex Table A.5), as supply priorities and manufacturing facilities both are centered in the wealthier areas. Similar geographic income differentials exist within provinces, for example, between hilly and mountainous areas and plains or river valleys, or between suburbs and the remote hinterland. 5.44 To what extent will current Government policies widen or narrow geographic income disparities and are there cost-effective policy options which could reduce these disparities? One view within the Government is that the best returns to investment in crop cultivation no longer can be found in the advanced, high-yielding areas; hence purely economic considerations dic- tate emphasis on development of the low and medium-yield areas. This applies - ill - to supply of chemical fertilizers; however, under the current distribution system, the central Government controls only about one-fifth of total supply. It also applies to water conservancy investments. As noted in Chapter 3, the MWREP plans for irrigation development in the next two decades call for expansion of about 8 million ha, of which 15Z would be in the north- west, 12% in the northeast, 20% in the North China Plain, and the remainder south of the Huai River (primarily through completion of existing water distribution systems). As high-yield areas already have reLatively secure irrigation systems, most benefits may be reaped by low and medium-yield areas. But these may lie within well-off provinces: for instance the northern part of Jiangsu would be a major beneficiary of the Water-to-the- North project. 5.45 However, the Government is primarily emphasizing the development of commercial crop production bases (Map 4). Few of these are found in the poorest regions of the country, and those which are (such as the Hexi Corridor Grain Base in Gansu) may be exceptions to the general poverty of the region. The Central Government recently has offered investment funds to upgrade research, extension, pest protection and commercial seed production facilities for crop production bases. In more prosDerous areas, a quid pro quo is demanded in the form of above quota crop sales for five years at a new "trade price" only slightly higher than quota procurement prices. 5.46 Government policies have attempted to assist rhe poorer areas. For example, procurement prices have occasionally been pegged at higher levels in more remote or mountainous areas than in high productivity crop production bases; that is, Government absorbs losses on transport costs. Concern for such pockets of extreme poverty as the Dingxi area of Gansu Province (which new depend regularly on Government welfare funds) has led Government to ear- ma-k investmenz funds for their development or outmigration of some resi- dents. In general, criteria for assessing economic returns to irrigation projects are less rigorous in appraising projects in the northwest, in support of poverty alleviation goals. On the other hand, high yielding grain produc- tion areas, such as southern Jiangsu, have found it difficult to further increase yields, and thus derived little benefit from increased above-quota differentials. 5.47 The present crop price structure is favorable to reduction of geographic differentials, in that industrial crop production is more profit- able than grain, and many specialty crops trade at negotiated or free market prices. Recent policies have permitted areas with low grain yields - usually poor areas - to convert grain acreage to industrial or specialty crops, boosting incomes in these areas. Cotton in northwest Shandong and sugar cane in selected areas of Guangdong and Guangxi are examples where the effect on total provincial agricultural growth has been very positive. By restricting tobacco acreage in north China but favoring its expansion in impoverished Guizhou Province, the Government is using the profitability of this crop to reduce income differentials. Similar effects arise from conversion from low- yield grain production on sandy soils to peanuts or on saline soils to sugar beets or sunflower. However, the use of this instrument for distributional purposes is limited by Government reluctance to expand the scope of grain resales, which are required for specialization in industrial crops. - 112 - 5.48 Although present policies affecting crops on balance contribute to a narrowing of geographic income differentials, those relating to other components of rural production clearly tend to widen disparities. Government gives high priority to increased supply of meat, fish, milk and eggs to the urban areas. Whether this is supported through subsidies to specialized household2 or investment in state and cooperative enterprises, most income- generating benefits are likely to accrue to the suburbs of major municipa- lities if present trends continue. Prospects for income growth in the pastoral areas outside the south are decidedly poor, because degraded pasture reduces production capacity and procurement prices for sheep and beef cattle make production unprofitable. Rural industrial development is faster and more successful near major industrial areas or where agriculture is already highly productive. Thus the fastest growing components of rural production may be concentrated in the eastern coastal areas and around the cities, while growth of income from crops may be most rapid in the poorer areas of medium or high- income provinces, leaving the poorest provinces to Lag behind. 5.49 Policy options which would radically change this outcome are hard to identify. The areas of extreme poverty in the northwest and southwest are typically resource-poor, and changing this situation is extremely difficult or would require investment which may not be justified on economic grounds alone. The constraints to development include lack of irrigation (a sine qua non in the northwest), salinization and harsh climate (northwest), poor soil and inadequate drainage (southwest), depJeMed pasture (northwest) and weak transport infrastructure (both regiuns).-L' In the worst-off areas, out- migration is certain to be one of Ehe required policy measures. 5.50 Nevertheless, policy options exist which could slow the growth of geographic income differentials. Inasmuch as the more backward areas prima- rily require investment in infrastructure and support services whereas the more advanced areas emphasize investment in profit-making enterprises, Govern- ment grant funding could be concentrated on the former, while the latter would be required to rely largely on interest-bearing Loans as well as collective and individual investments. Price reform, without a revised taxation system, would not necessarily be beneficial to backwards areas if the present dispa- rity between prices of industrial and grain crops were narrowed and transport cost differentials allowed to influence farm prices. However this could be resolved by a compensating tax scheme with rates proportional to differential land rents. Generally, any price reform which led to relative increases in beef, mutton and timber prices would help slow the growth of income disparities. 5.51 Investment prospects in the backward areas wouLd become more attractive if the transport system within these areas and links to outside markets were upgraded. Related to this, ways must be found of increasing external supply of foodgrains to these areas at minimum cost; otherwise, the 67/ Provincial data show a strong correlation between the density of road and navigable waterway transport facilities (kilometers per square kilometer of area) and provincial per capita rural income levels. - 113 - potential gains from switching low-yielding griin land into industrial or tree crops and from creating forests and pastures on unused land could not be realized. To benefit backwards areas, research and land development planning should focus on upland cropping, water-conserving cultivation and irrigation techniques, and soil improvement (including drainage works). Because these areas normally lack organic fertilizers and have nutrient-deficient soils, their priority in allocation of chemical fertilizer - especially phosphate and potash - may be justified an economic grounds alone. 5.52 On the other hand, subsidies to more prosperous areas impLicit in present Government policies might jell be removed or reduced. This wouLd probably require an overall reform of the price, tax revenue and distribution system, since the subsidies have been justified as compensation for irrationa- lities in the existing system. The natural advantages of the wealthy areas, especially the suburbs, provide adequate means to generate rapid growth fol- lowing price reform, and local savings (including municipal revenues) provide an adequate source of finance. Supplying the urban and export markets with high value foods should be given some priority as a development objective because it could contribute much to rural income growth. However, if income differentials are to be prevented from widening, the sources of supply must be geographically broadened, through development of marketing and transport infrastructure. If these are unchanged, it is likely that the ever-expanding suburbs will be the main beneficiaries of urban market growth. An attractive alternative may be to identify new potential commercial production bases for non-staple foods remote from the cities and concentrate investment to provide the infrastructure required to make long-distance supply economic. Prices 5.53 Urban/rural income differentials are often taken in China as a key indicator of the adequacy of the overall agricultural price level relative to prices of industrial goods. An excessive differential is to be avoided, but may be more acceptable to Government than a decLine in urban Living stan- dards. Consequently Government has chosen to absorb through its budget most of the increased costs of agricultural procurement rather than pass them on to urban residents. As a result, subsidies for grain, oilseeds and cotton alone (including those on imports from abroad) have rtg7n from 3.4% of budgetary revenues in 1978 to 23% in 1981 (Y 25 billion).- This has contributed to recent budgetary deficits, and has reduced appropriations for capital con- struction. The agricultural sector has suffered more than most other sectors from reductions in state investment. 5.54 Further procurement price increases are not favored by the Government, both because of the budgetary cost, and because post-reform marginal price levels have been sufficient to stimulate rapid agricultural 68/ A portion of these subsidies accrue to farmers, mainly industrial crop producers who receive resales of grain. The amount exceeds the "tax" implicit in the difference between quota and above-quota procurement prices. - 114 - growth, which in turn has driven free market prices of basic foodstuffs down to approximately the leveL of marginal (above-quota) procurement prices. Measures are being implemented to convert the fixed quota and variable above- quota procurement structure into a system whereby fixed proportions of farm sales would receive quota and above-quota prices. This system already has been applied to oilseeds and cotton (para. 1.20), and will soon be applied to grain. While it would-freeze average procurement prices (and subsidies) at current levels, marginal prices received by farmers for increased sales would no longer be above-quota or negotiated prices, but rather would be reduced to a weighted average of quota and above-quota prices. The incentive to sell to the state would be reduced, because the marginal procurement price would again be much lower than current free market prices. There may be an incentive to reduce use of fertilizer and other inputs below levels which maximize farm incomes at present, and this could cause a drop in production. 5.55 A preferable alternative, which would be just as effective in freezing the level of subsidies, might be to replace the present system with a single-tier market price structure, with Government intervention to maintain stability. In these circumstances, the indirect tax resulting from low quota procurement prices could be repLaced with direct taxes based on productivity of land and other resources. Tax levels could be adjusted to leave farm incomes unchanged, and the additional tax revenues could be used to offset budgetary costs of added subsidies. Procurement agencies would be under no compulsion to purchase more than urban and rural resale requirements. How- ever, they could maintain emergency reserves and buffer stocks, which would be available for use in price stabilization. If present above quota prices were maintained as a price floor, marginal prices, and thus production incentives, would be largely unaffected, and there would be no procurement-market price differential to discourage sales. 5.56 Aside from changes in the average agricultural price level, some changes in relative prices of specific products seem to be required in order to provide better incentives or induce greater efficiency. Probably the most complicated are those where production is marginally profitable using current, traditional technologies, but rapid targeted increases in production will require expanded use of technologies which are more costly or even unprofit- able at current prices. Pig raising is a significant example: household production of a few pigs per family using a minimum of concentrates is the prevailing mode, but specialized household or larger-scale production require concentrate-intensive methods of production which are unprofitable if inputs and outputs are all priced at current market (or marginal) prices. A general price increase for pork is one remedy, but this would transfer income unneces- sarily to traditional producers as well as forcing either further price subsi- dies or increased retail prices to consumers. 5.57 Recent policy has been to mix differential procurement prices with differential input subsidies in order to encourage producers who must use more costly production techniques. For example, these producers could purchase grain concentrate at below marginal costs (translating part of the price sub- 3idy on grain into a price subsidy on meat). A more efficient alternative, consistent with a move to uniform market pricing, would be to allow both product and input prices to rise, and tax away the increased incomes of tradi- - 115 - tional producers. Since the advantages of traditional producers derive ultimately from their crop production, which supplies byproducts and forage at little or no cost, the tax should be applied as part of the land tax rather than as a tax on animal production per se. Uniform market pricing does not mean that price differentials according to product quality would be dis- allowed. Rather, the pricing system should reflect market preferences for production of, e.g., lean pork or younger beef cattle. Such quality differen- tials would also tend to favor producers using improved breeds and more concentrate-intensive production techniques. 5.58 As pricing anomalies involve inputs, intermediate products, and finaL products, it is as difficult to specify magnitudes of adjustments required as it is to make piecemeal changes. The existence of several differ- ent prices for each product has been a complicating factor. The effect on incentives of changing state quota or above-quota procurement prices cannot be predicted without reference to the uncertain behavior of free market prices. For instance, unless the state can guarantee adequate supplies of grain at fixed prices, producers will compare the free market price of foodgrain with the procurement prices of industrial crops in deciding whether and how much to specialize in the latter. This also suggests the advantage for price manage- ment of moving entirely to a market price system, elimi..a...g muiicpie procurement prices and replacing hidden taxes or subsidies with direct ones. 5.59 It is likely that any comprehensive price reform will involve price increases in livestock, forestry and fisheries relative to those of crops. These increases will be necessary to stimulate the high rate of investment in these sectors demanded by Covernment production targets, which in turn presuppose correspondingly, rapid increases in consumer incomes and demand. With more profitable investments available in the agricultural sector, demand for development credit from the Credit Cooperatives and ABC should increase. There appears to be excess demand for credit at present prices and interest rates, but low agricultural procurement prices are used to justify low interest rates. If this justification is removed, it should be possible to further increase interest rates on bank loans to agriculture, and correspondingly increase interest rates on deposits to attract the funds needed to satisfy this demand. AD ndix A Table A.1 - U6 - CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Net Changes in Annual Lending to the Agricultural Sector, 1980-82 (Y billion) Loans/deposits 1982 Changes in lending outstanding growth 18191M 191B2 (12/31/82) (Z) Increased Lending to Agriculture Agricultural Bank of China /a Loans to collectives & in Tviduals 3.1 1.0 0.6 17.5 3.6 Loans to state agric. enterprises 0.3 0.7 1.1 2.5 78.9 Crop advances 0.1 (0.1) - 0.7 0.5 Subtotal 3.5 1.7 1.7 20.7 9.0 Credit cooperatives /b Loans to collective agriculture 1.2 0.1 (0.1) 3.5 -2.7 Loans to CBEs 1.7 0.4 0.7 4.2 19.3 Loans to individuals 0.5 0.9 1.9 4.4 74.9 Subtotal 3.4 1.5 2.5 12.1 25.7 Total Lending by ABC & CCs 6.9 3.1 4.2 32.8 14.6 Z to collectives (including CBEs) 87.1 48.7 28.6 76.7 Z to state farms 4.2 23.5 26.2 7.6 Z to individuals /c 7.4 29.3 45.1 13.4 Increased Deposits State banks Id 1.4 0.6 1.9 5.4 54.6 Credit cooperatives 5.6 4.7 7.0 39.0 22.0 Total Deposits 7.0 5.3 8.9 44.4 25.2 Increased Total Lending as Z of Increased Total Deposits 98.7 59.0 46.9 73.9 /a From 1982 China Statistical Yearbook, p. 450, 452. The 1982 figures in the Yearbook were preliminary and have been replaced with estimates drawn from the ABC's year-end consolidated balance sheet, on the asumption that "lending to agricultural brigades and teams" includes loans to individuals. /b From the Yearbook, p. 451. 7Wc By credit cooperatives only; the ABC also does some lending to individuals. 7T "Rural deposits," from the Yearbook, p. 450, less deposits of credit coopera- tives, to eliminate double counting. It is assumed that "rural deposits" include those of credit cooperatives and individuals, net of loans to credit cooperatives. Increases in net depoaits by CCs in the ABC are estimated on the assumtpion that increased deposits in the CCs are either lent or deposited in the ABC. The 1982 balance sheet total is for deposits of individuals only. Appeni A - 117 - Table A.2 CEMNA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Indices of Weighted Average Prices Received by Producers, 1978-82 /a (1978 = 100) Indices Annual growth (Z) 1979 1980 1981 1982 1978/79 1979-82 Grain 126 137 145 149 25.6 5.9 Edible oils 141 151 161 159 40.8 4.1 Pigs 137 155 162 166 37.0 6.6 Cattle 120 153 174 22.5 19.7 23.3 Eggs 122 124 134 135 21.9 3.5 Aquatic products 149 176 199 211 48.6 12.3 Tea 128 132 135 148 27.8 5.1 Sugarcane 124 139 149 138 24.0 3.7 Sugar beet 135 141 144 141 35.2 1.4 Apples 96 111 112 125 -4.2 9.3 Mandarin oranges 97 121 140 131 -3.3 10.7 Cotton 118 139 137 142 17.6 6.5 Tobacco 102 113 129 124 1.6 6.7 Jute 101 95 83 85 1.1 -5.8 Hemp 114 112 101 106 14.3 -2.5 Fresh vegetables 110 127 137 129 9.8 5.6 /a Computed from 1982 China Statistical Yearbook. pp. 478-81. Includes effects due to change in quality mix (or weight, for animals) as well as price. Weights are based on the share of sales transacted at quota, above quota, negotiated and free market prices. Appeudix A Table A.3 - 118 - CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Composition of Gross Agricultural Output. 1978-82 /a (Z) Sideline activities Of which Crop Livestock industry by production production Forestry Total brigades and teams Fisheries 1978 67.2 14.0 4.2 12.7 8.9 1.9 1979 66.4 14.8 3.9 13.2 9.5 1.7 1980 63.7 15.3 4.3 15.1 11.1 1.8 1981 63.2 15.2 4.2 15.7 11.7 1.7 1982 62.8 15.5 4.1 16.0 11.6 1.7 /a Shares for 1978 and 1979 were originally calculated on the basis of 1970 constant prices, but have been adjusted here by subsector to 1980 constant prices. Shares for 1980-82 were calculated from data in constant 1980 prices. Source: SSB, Statistical Yearbook of China, 1983; p. 151. Appendix A Table A.4 - 119 - CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Rural Income Distribution, 1979-82 Percent of households in each group /a Annual income per capita 1979 1980 1981 1982 1983 Below Y 100 19.3 9.8 4.7 2.7 /b YI00 - 200 53.2 51.8 37.9 24.1 /b Y200 - 300 20.4 25.3 34.8 37.0 Fb Y300 - 400 5.0 8.6 14.4 20.8 T7 Y400 - 500 1.5 2.9 5.0 8.7 /b Over Y 500 0.6 1.6 3.2 6.7 11.9 /c Gini coefficient 0.257 0.237 0.231 0.225 /a Based on nationwide sample surveys which increased in size from 10,282 in 1978 to 22,775 in 1982. lb Not available. /c From China Daily, May 3, 1984. Source: Data are from the State Statistical Bureau as provided to the Econo- mic Mission. The Gini coefficients were estimated by the mission. A2IiCULTUAI TO THE1 VIAS 20001 FAGIFECTS AND3 OPTIONSE Salacted lurmi Indicator. tat' Muior gimLo-r.is, 02, and Chanaess 1919-82 output end LIVIstaCk numbers Communa/ I2VAO Rural tno pt Crain produc Ion Shoop 4AnIl, land Crop- Sowdn Tractor I.n1F3rt- br.igad.e diUo(jr Ii 11 jpjjjljjLi GVAOI ~ ' 3d7 ?tag . 5 aGate I I pi. ra change I capita a9.,coins. sln I change hg/ (.ini change (mini changea ln~ 3 a I W Irr- id.1 (ha IChanha (44/aw 090 11 chaonse bin 19.82 aln share (13 (13 79-Il cons uharm 19-82 cap yr ornl) 19-12 yr end) 19-8l ha ghara capita Set ad (5) cap) hp/ha 79.83 Nei (bin) sarae 19-82 NOImLITHE 14.1 IA.I 34.2 b.1 43 (36 19.4 )).' 9.) -7.2 609 22.13 -36.0 1,0 13.6 (4.4 36.1 0.313 Mu, 0.99 0,30 0.0 $4,1 43.0 6.2 Sd1 6U1).' (Ha I o-na 3 ang, Jilin, Liaoning) NORTHWKBT 1~~4.0 21.0 41.6 3.9 294 104 34.9 34.4 1,1 4.0 3M 3i3.4 -lb.1 96.4 3.8 I).% 31.1 0.28 )flu 0.93 0.24 0.49 31.4 39.4 1.4 3.9 83.3 IKiiAjUtii, Xizng, Qinghai, dance, NinguaL. Hal Hoe88oi) NORTH CHINA 69.8 20.3 221.0 21.3 336 33 11,2 54.13 23,8 *0.i M8 03.9 -(1?. 43.6 1.3* 29. 29.9 0.33 49.d 3.34 0.36 0.10 28.9 301.6 21.1 2d.3 33.3 (Baijing, Tianjin, 33.3i, Henan, Shandong, Shaanxi. ShanoL) EAST CHINA 33.3 30.4 124,4 36.0 M3 163 13.i 41.2 (9.0 32.0 32) 44.3 -33.3 ('3.4 -21.4 33.2 33.4 0.0 48.2 1.94 u,31 '3.Ad IS,) 340.9 26.d )3.a 94.6' (sliangleal, Anhuai. Zhejlang. Jian&4u) 1 CINTRL-SMT CHIN 31.2 1.2 33.9 14,13 329 Ill 42.8 01.8 34.4 1.8 332 41.1 -1,1 J.& -33.4 9.1 9.3 0.18 61,0 2.20 3,19 '3.3 2.1 99.1 6.3 33.3. 96.3 0 Jiangxi) SOUTR C" J~~9.12 30,3 303 .3 3J.6 280 338 14.3 43.4 II.?1j32. 406 .3,9 30,') (.9 b.$~ Y1. 1.2 13,111 412.1 3.93 (,14 0.81 0A, 34d. 9,0 32.3 143,3 TGC.aaodong,~ l3llOO5ei Fuji aol JOUTHW1ST CHINA 34.9 29.4 338.3 11.2 202 303 06.b 03.4 33.3 33.3 386 NA. 0.6 39,30 -4.H 33.3 II.$0 3138 39.i 3.65 3.36 0.34 32.3 931.6 4.0 3.J dolt. (Sichuan, Cuisho.a, Ta nnan) 242.~~~~ll9 23.0 803.9 30420 ( 321 L I3 09. 303.4 31W1.20 . j440 "1.,8 A 0 31313 96. I1. If,3 144 341 231 4A_h 29,3 Illu, 13.23 *j- Z i I4a Trosa Ilic ol A rCultuaru Ouroot ICYAO): InCl..des Crnp p roduc t Ion, lltSherlre, torestry, anlzam husbAndJry end brItain- and ttim-4isagde rural enterprlds aiiJ oitlier *idalint achiv3lies. f3gur., 4re In Lterm of 3980 - prIce.. The A091 In currwnt pe3cmo . Ia 238.3 billion. Rural Pouaclt(onr led-year population, from 3982 Consul, Distributed Coilictive t(oom (2033 incas. (in cash 4nd kind) from Co3LIOCiif Oevor aCrIitl. 4dtnrlt.uted tu mashers at pnuiduct3.;n teame. lthea. dAta aeclud. private mncna, (true various houishold activittmel. rase- lance,, cashi voegs paid to workers In rojral *nterprlemo and casuai labo.r paysent. Grain Production: Unprocessed irain. Includes iAbars (4t one 1if1h Iho vat wml8ihl and saybein,. Craosaina Inde.i includoes $reen insure and for4ae crops. 4m: Derived Iron officiaL data eupplied to the lcono.3c mission or g3nmn In ItAilmt3cai Yearbook of ~hins, 19611 Chin... AariaylturaL Tparbooh, 1980, 1981 and 1982. - 121- Appendix A Table A-6 CHINA ALRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Food Balance Sheet. 1982 (National figures in dillion metric tons except where otherwise noted) Domestic use Ia Per capita supply /b Produc- Domestic Nonfood Kilograms Energy Protein Fat Comodity tion Imports Exports supply waste Food per year (keal) (gm) (g8) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Crop Production Total Grains /c 353.43 Rice Id 161.24 0.45 0.74 160.94 60.23 100.71 99.89 1001.64 17.52 2.19 Wheat 68.42 13.26 0.00 81.68 22.30 59.38 58.89 564.74 18.23 2.42 Corn 61.00 0.20 0.00 61.20 26.39 34.81 34.53 342.45 8.51 3.22 Sorghum 6.50 n.a. n.a. 6_50 2.91 3.59 3.56 34.81 0.74 0.23 MiLlet 5.50 n.a. n.a. 5.50 2.66 2.84 2.81 27.30 u.82 0.12 Tubers /c 26.68 n.a. n.a. 26.68 10.67 16.01 - 15.88 223.59 2.61 0.57 Soybeans (food) /f 4.97 0.30 0.14 5.13 0.75 4.38 4.34 47.57 4.17 2.11 Soybeans (oil) /R 4.06 0.06 0.00 4.56 4.09 0.47 0.47 11.34 0.00 1.28 Pulses /h 5.06 n.a. n.a. 5.06 0.66 4.40 4.37 39.94 2.80 0.16 Other grains /i 10.00 n.a. n.a. 10.00 4.64 5.36 5.32 50.43 1.43 0.26 Peanuts (food) Li 1.96 n.a. n.a. 1.96 0.25 1.71 1.69 14.04 0.70 0.90 Peanuts (oil) Sk 1.96 n.a. n.a. 1.96 1.41 0.55 1.54 13.11 0.00 1.48 Edible oils (except soy and peanut) 11 3.27 0.00 0.00 3.27 0.10 3.17 3.15 76.20 0.00 8.62 Sugar 3.16 Z.16 0.00 5.32 0.11 5.21 i.17 55.12 0.00 0.00 Fruit 1m 6.90 0.00 0.57 6.33 0.63 5.70 5.65 7.77 0.06 0.03 Vegetables /n 103.17 n.a. n.a. 103.17 10.32 92.85 92.10 66.11 4.04 0.76 Subtotal - 338.36 2576.00 61.63 24.34 Animal Products Pork, beef & mutton Io 13.51 0.00 0.23 13.28 0.40 12.88 12.78 105.09 4.10 9.73 Poultry meat lo 0.99 n.a. n.a. 0.99 0.03 0.96 0.95 5.17 0.41 0.38 Other meat /o 0.14 n.a. n.a. 0.14 0.00 0.13 0.13 0.46 0.06 0.02 Ftsh /p 5.15 n.a. n.a. 5.15 0.26 4.89 4.85 8.38 1.37 0.28 Eggs 2.34 0.00 0.06 2.28 0.11 2.17 '.15 8.53 0.68 0.60 Milk 1.86 0.01 0.00 1.87 0.09 1.78 1.76 3.06 0.15 0.17 Animal fats 0.99 0.06 0.00 1.05 0.14 0.91 3.90 22.36 0.00 2.48 Subtotal 23.53 153.00 6.77 13.66 Total 361.88 2x729.00 68.39 38.01 /a Percentage losses due to seed requirements, use as livestock feed. nonfood nanufatturing uses, vaste, milling, and other processing (Column 5) are specified in Piazza (1983), p. 94. These losses are deducted from domestic supply (Column 4) to determine food (Column 6). /b Assuming a mid-1982 population of 1,008.2 million. /c Total gralns include rice, wheat, corn and other coarse grains, tubers at one fifth vet weight, and soybeans and other pulses. /d Rice production, trade, and domestic supply expreassed in paddy weight. Food is expressed in dehusked weight. Te One fifth the wet weight. /f An estimated 55Z of soybeans are consumed as beans, milk and curd. /g An estimated 45: of soybeans are crushed for oil. Trade figures are expressed in oil equivalent. /h Pulses are estimated as a residual of total grain production figures (see footnote /c above) and include broad beans, dry beans and other beans. /i Other grains estimated using the USDA's (1983) estimates of barley and oats production. a An estimated 50% of leanuts are consumed directly as food. /k An estimated 50% of peanuts are crushed for oil. Trade figures are expressed in oil equivalent. /1 Edible oil from cottonseed, rapeseed, sesame seed, and sunflower seed. IW Fruits Include bananas, apples, oranges, pears, grapes, pineapples, red dates and persimmons. 7n Vegetables include leafy vegetables, root and stem crops, and fruiting crops. 7; Production figures are dressed weight. 7j Production figures are liveveight. Source: Data sources and methodologies are in Alan Piazza, Trends In Food and Nutrient Availability in China. 1950-81 Staff Working Paper No. 607 (Washington, D. C., The World Bank, 1983). Appendlx A - 122 - Table A.7 CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Per Capita Food and Nutrient Availabillty in China and Other Countries /a Energy (Ccal/day) Grain From Pro- Consumption (kgtyear)/b Z of Animal Z of Oils & Z of teln Fat (1975-77) Total Grain/b total Origin total fats total -(gm/day)- Direct Feed /c Total China (1980-82) 2,548 2,145 84 148 6 102 4 66 35 209 44 253 World average 2,571 1,439 56 435 17 225 9 69 62 N/A Asia average 2,251 1,580 70 196 9 125 6 58 37 V/A All developing 2.260 1,531 68 205 9 134 6 57 38 N/A Low Income Afghanistan 1,896 1,573 83 150 8 59 3 59 26 171 9 180 Bangladesh 1.796 1,563 87 62 3 54 3 39 13 164 0 164 India 1.919 1.294 67 93 5 136 7 47 30 130 4 134 Nepal 2.002 1.713 86 137 7 88 4 48 27 182 1 183 Pakistan 2.281 1,462 64 281 12 195 9 63 42 156 3 159 Sri Lanka 2.059 1,369 66 80 4 67 3 42 44 137 0 137 Tanzania 2.066 1,264 61 202 10 102 5 49 33 97 3 100 Vietnam 2.135 1,740 81 178 8 42 2 53 25 169 7 176 Middle Income Brazil 2.559 1.156 45 421 16 184 7 62 49 103 124 227 Cuba 2,635 1,175 45 574 22 236 9 67 54 115 77 192 Egypt 2,787 1,887 68 179 6 230 8 77 50 194 34 228 Indonesia 2.118 1.628 77 52 2 123 6 43 33 157 4 161 Korea, Rep. of 2,785 2,11i 76 178 6 55 2 73 27 205 33 238 Malaysia 2,613 1.542 59 294 11 229 9 58 46 150 35 185 Mexico 2.655 1.370 52 366 14 206 8 66 6') 137 88 225 Philippines 2,216 1,498 68 216 10 108 5 51 32 140 9 149 Thailand 2.098 1,492 71 146 7 41 2 46 23 157 19 176 Yugoslavia 3.446 1,796 52 715 21 371 11 101 9c 173 393 566 Industrial 3,353 1,014 30 1,073 32 510 15 97 134 N/A Germany. FR 3,382 1.796 53 1,318 39 618 18 86 158 82 283 365 Japan 2.946 1.438 49 547 19 284 10 88 74 137 118 255 USA 3,578 719 20 1.312 37 583 16 106 166 N/A Germany. DR 3.644 1,177 32 1,336 37 668 18 100 151 123 592 715 USSR 3,460 1,598 46 950 27 357 10 103 102 165 435 600 /a For China, 1980-82 average. All other countries are 1977 figures. /b Includes rice, wheat, coarse grains, and tubers at one fifth wet weight. Figures for soybean and other puLse are not included in direct grain consumptlon figures. /c Includes rlce, wheat, coarse grains. tubers (at one fifth wet weight) and pulse. Grain millings (bran, etc.) and oilseed cake have not been included. Source: For China, see Piazza (1983). Data for other countries are from FAo. - 123 - Appendix A Table A.8 CHINA AGRICULTURE TO THE YEAR 2000: PSPECTS AND OPTtONS Characterlseics of the National Gratn Bases (1977) Type of Frost free Average Cultivated Cultivated Total grain Crain Production/ Comercial- bases period precipitation area area/capita produccton yield capita tzation Name of base H.L. /a (day.) () (thousand ha) (ba/capita) (tonsn) (kg/ha) (kg/capita) rate (:) 1- NORTHEAST Songnen lb L 100-130 400-500 5,899.2 0.329 91 to 1.935 473 34.9 Sanjiang /C L 130-115 550* 911.5 0.265 1.'40 1.920 643 37.2 it. NORTrtrEST Hext Corrtdor /d H 125-150 100-20O 606.6 0.217 1.360 3,068 363 27.2 Ningsia Neta oe N ISO' 200* 183.8 0.426 0.605 4,065 301 24.6 irrLiation area tll. NORTH CHINA Huatbei If N 200-225 700-800 1.716.8 0.139 4.350 3.20 339 19.6 EV. EASr CHIzA Taihu IS H 230-250 1000-1200 913.0 0.085 5.805 7.635 490 3Z.7 Jianghuaa /h H 220-230 900-1100 .077.7 0.093 5.390 S.940 6,28 Z3.9 . CENTL-SOLT CHINA rongtinghu It H 245-270 1200-1400 879.5 0.089 4.* So 6,233 620 24.9 Jianghan fL H 265-270 1200-1400 1.464.9 0.121 4.700 5.960 690 30-8 Boyaaghu Ik rt 250-270 1500-1900 T23.3 0A102 3. E0 5.573 635 26.9 VI. SOUTH CHINA Pearl River Delta t1 N 350 1500-2500 794.3 0.092 4.810 7.626 505 36.3 VII. SOUTH1WST CHINA Chengdu f1 H 250-300 900-1300 650.9 0.085 3.170 7,425 370 28.3 /s N - High prodtetlvity baaes. Traditional grain base. generally good cLinate and water resources. However. extremely high populattoan denity mean. future growth will rely on Increased fertitlzer and improved Irrtgation. L - Low productivity bases. Limited by short growtig season, bostly excensive agrtculture. Future growth gill rely on mechsnization. trrigation and dralnage. N - New bases under construction. tn desert or near desert, most tiproved regions since 1949. Future growth mmst rely on irrigation and land reclamation. /b Large. flat and ferctle plain with deep soil. short growing season. frequent spring drought. Heeds Increased irrigation. mechanization. draln- age. fertilizer. fc Similar to Songnen Plain except higher co_ercialzacion race and need for tajor drainage work. /d Drought, sandy soil, irrigation easential, low productivity. With Irrtgation, lacge development potential, wtndbreaks required. Ic Irrtgation highly developed but high salinity and low yield; requires drainage and fertilizer. /f Inter-mttent flood and drought, low yeld. vulnerable to salinization. requIres improved IrrLgatton. draLnaxe and ferctlIzer. L& Highly productive and under intensive cultivation: good ciLmate and irrigation. Little potenctal for further development. lh Drought and flood problems. drainage work required. /i Climate and water resources favorable. flood and drought problems. drainage improvement costly. Li Similar to above. tk Lowest yieldtag of southern bases. unreliable Irrigation and dralnage. low 'CI. Expanded water scorage and irrigation required. tl Frost-free. plentiful supply of water, MCI - 2.10:. highest conereiaizatiCon rCate. uneven productivity. Requires improved drainage and Increased fercilItzer. /s Favorable soil, irrigation and climate, uneven productivity. Requires development of underground water and increased fertilizer. Appendix A Table A-9 - 124 - CHDNA ASRICULTUBE TO TME YEAR 2000: PROSPECTS ARD OPTIONS Comparison of 1982 Border Prices with Domestic Procurement Prices (Ytton) /s Farugate Quota Above-quota Free Average 1982 unit value border procurement procurement market procurement Product Exports Iaports price /b price /c price /d price /e price /f Crops All grain 257 386 581 Paddy rice 687 435 231 347 wheat 394 411 314 472 500-700 Corn 29" 316 214 322 360-480 Soybean 529 S74 590 692 692 700-800 Lint cotton Z,801 2.B17 2,956 3.843 5.000-5.600 3.236 Oilseeds 1.321 1.221 1,238 Rapeseed 910 927 715 1,072 Peaut kernel 721 738 966 1,449 Edible oil 1.029 1,046 3.910 2.773 Jute 64 660 367 441 480 Tobacco (nmoked) 3.107 2,927 1,741 1,532 Vegetables 517 460 Sugar (refined) 564 580 Sugarcane 26 42 50 Sugar beet 75 a5 Forestry Fresh fruit 652 589 Apples 633 571 449 387 nadarin orange 738 671 619 481 Tea (processed) 3.a39 3,720 12.821 3,548 Natural rubber 1,620 1.637 6,090 Timber 194 211 87 Animl husbandry Pork /R 3,774 3.562 1,787 1,671 2.000 Sheep LL 3.056 2.336 Beef Jg 2.590 2,435 1,625 2.925 Chicken 1g 2,072 1,942 2,200 3.600 Egg -I 1.876 1,755 3,036 1,864 ilLk /h 1.SZ0 213 6C0 Uood 6.361 6.378 3.5S0 Honey 1.522 1.417 1.882 Fishery Fresh fish 3,342 3.151 700 2,112 922 Inputs Urea 374 428 500 Am_onium sulphate 170 213 254 Superphoaphate (P205) /i 360 898 938 Pota-Cdu chloride 52 209 255 261 Soymeal 464 501 330 /a Unit values ex customs FOB for exports and CIF for Lmports, computed from Chins StatistLcal Yearbook. 1983 pp- 412-419; or export prices FOB China In USS converted at Y 1.7-USSI. as reported in Rural Credit Project; or 1982 International prices, as eatia£ted by the Uorld Bank. Economic Analysis and Projections Department in USS, adjusted for ocean transport cost and converted to yuan at Y 1.7-USSI. lb Unit values of export or import camodities converted to farmgate equivalency with adjastmente for qual- ity differencees (if any), Internal transport (,sua ing 200 km rail freight at Y 5.1 total. 2, em margins (assumed to be 5:). *and conversion to unprocessed product (if any required). For agricultural product imports, costs between port and consumption potit are added and, between the latter and the farm, are subtracted; for exports, all costs are subtracted; for iaported inputs, all coats are added. /c A reported for 1981 in Handbook of Agrotechnteal Econoices (Beijing. 1983). pp. 742-43 and soybean prices were adjuted for the 502 quota price increases in September 1981, Input for products procured outside the plan would generally be higher. /d 50Z greater than quota-prices for grain and oilseeds (except soybean), 30 for cotton, and 20: for bast fibers. It is believed that other products do not received fixed above-quota premiums, although procure- ment nay take place at negotiated or free-market prices. /e The unit value of 'sales of farmers to the nonfarm population,' from 1983 China Statistical Yearbook, p. 384. Is taken to approximate average free-market prices; where a range is given. prices are those reported in the North China Plain Project area in 1982. /f Am reported In 1983 China Statistical Yearbook pp. 478-82; or. if otherwise unavailable. local procure- mnt prices as reported in World Bank projects. /R Prices of animals given on a per head or per unit basis have been converted to price per ton dressed weight. assuming dressed weights at slaughter of 61.5 kg (1981). 77.5 kg (1979). and 10.7 kg (1979) for pisv. cattle. ald sheep respectively. Eggs were asumed to weigh S0 g apiece. lb the import price of milk In that for powder; the farugate border price converts this to fresh milk on the assuption reconstitution requires 8.3 parts water: I part powder. /I the Import price is for TSP (triple superphosphate. 46Z P205); this Is converted to a border price of phosphate (P20S) and compared with domestic prices of equivalent P205 supplied from ordinary superphos- phatu (about 16Z P205). Appendix A - 125 - Table A.10 CHINA AGRICULTURE TO THE YEAR. 2000: PROSPECTS AND OPTIONS Timber Production, 1981 (million cu m) Total Of which allocated production /a by the state /a Nei Monggol 4.27 3.42 Jilin 6.14 4.22 Heilongjiang 15.40 13.21 Zhejiang 0.64 0.48 Anhui 0.36 0.27 Fujian 3.67 2.83 Jiangxi 2.70 2.37 Hubei 0.65 0.47 Hunan 2.08 1.99 Guangdong 3.27 1.59 Guangxi 1.60 1.10 Sichuan 3.44 2.61 Guizhou 0.83 0.79 Yunnan 2.00 1.87 Tibet 0.19 0.17 Shaanxi 0.33 0.23 Gansu 0.45 0.25 Xinjiang 0.52 0.38 Total 49.42 38.33 /a Totals may not sum due to rounding and reporting errors. Source: Almanac of China's Economy (1982). English translation by the Foreign Broadcast Information Service. - 126 - _____ __ CHINA ACRIC.LURE TO THE YEAR 2000! PR05PfCrS AND OPTI0NS Investment Requirements for H apothecal Agricultural DOveloPWent ProRrm (USS) Investmest range Quantlty Invtent Type of investment Unlts inln Nnx&E!5 nrdion C '000) (millions) Crop Cultivction - So major str.ctures /a S/ha 2.250 3.000 2.630 6.900 18.110 - Mjor works lb S/cu m 0.15 0.35 0.25 - Major works 7c S/ha 5.250 6.880 6.060 -o major tr -.ures ld S/he 1,690 3,710 2,700 650 (1,760) - Power Lift le S/he 3,000 7.500 5.250 550 (2.910) WeLl. 100 a I ft If S/ha 2.250 Tr Ikle Ig S/he 920 Sprinkler /h S/ha 400 Orai1nege 1MaJor it S/ha SOO 1 .000 500 intor Wo maIns) S/he 380 6,E70 2.500 mlnor (no mains) S1k 5/ha 530 1.280 900 1.670 (1.500) With desalinization /1 S/ha 750 3.350 2.500 With desalinizatoan 7i; S/ha 440 560 SO0 Hydroelect. (small) In S/kWh 0.16 0.41 0.28 Land Reclamation A. inel. irrcXation lo S/ha 3.750 6,000 4.880 2.000 9,750 SE. except main drai-nIY S/he 330 3.330 1,090 Coastal It S/ha 3.000 3.750 3.380 570 1.910 Loess plateau artd /r Slsq km lOOO 15,0D0 12.500 70 8O Red-yellow soils Tea planting Is S/ha 230 45,000 10.1:0 Orchard esotbM hnent /t Sl/h 75 15.000 :.130 .or *try OtHe rstatLon ll-rd lu S/ha 230 45.000 10.130 Aaral7v/ - S/ha 75 15.000 1,130 Haistencne 1. S/ha- 590 60,000 35100 Animal Nusbandery Pascuree eVoeL nt bsili jpr= tn Ix S/ha 200 33.330 6,520 With irrig.. encldoure /v S/ha - 1.130 Cult, pasture /z S/ha *90 660 570 11 roc~se le S/r 16 172.000 2.670 Large scale 7W S/t 95 28.000 2.650 SubiWin dairy Icc S/coe 2.500 8.450 21.130 Pastoral daLr, 72T S/ha 1.500 2,250 1.880 10.100 18.940 Poultrv 3mal scale /ee S/coop 280 15 .400 4,240 Fisher ies fishpond creatlon Iff S/ha 10.500 35 370 Fishpond creation 5S 7,500 550 4.130 Pond taprovesent /hIF S/ha 3,750 5,900 4,830 SOO 3.860 Total 156.400 /a Average for marginal lnvesmcnt couts natiowide. 7F Another estisate of mrginal investent costs. 77 NW: two da/canal projects. 77 NY: reservoir enlargement of second stage projects. 77 NW. puoped from Yellow R with Itft of 100-300 m. 77 Keel corridor; pmping costs >Y 120/ha at subsidired electricity prices. ij Including water sources; Chinese-produced ovable system r 750-1 .050/ha. 4W Frlendship farm; including wells and equipmnt; yield increase 1.2 t/ha in dry year. or Sanjiang Plain: cost of main drains divided by area to be cultivated. China: total area requiring improvement. T.[ S: Chtn-: lesser area wthc highr costs sad averagt benefits of *1.6 i/ha. IT N. China saline areas costs based on experimental areas and may be understated. 7W HoKd Corridor project benefits + 1.5-2.3 tlha. 7n Small projects n.i. distributlon lines; m*dium with high-power lies. 7; Yiels of 1.5-2.3 tlha expected. 7j Unit cost based on iHetloog iang Land Reclamation project. excluding farm machtnery. etc. Iq About 33.300 ha/year now reclaimed. 7f Terracing, grasstree planting. Canau only. 77 Red-yellow soila arsr (assumd 20: of total requiring Improvement) 7F Red-yellow soils ars (assumd 80: of total requiring improvsment) 7u Including removal of scrap (asumed 75: of planned national total). 77 Seeding alone (assud 25t of planned national total). 7w Maintenance up to harvest (on both hand and aarial aseded area); primrily labor. 7x Seed. fertilizer, fenaing but no Irrigation or water. 7i Areas such as Nai Monggl. Robot. itc. where irrigation required. s S. Chbna pastoral areas. -a Dna tlhr, voltric miLing. 7ES 3.4 tlhr, 5,500 t/yr. automatic mixing bY wight. 7cc Cocentrate-intntive (assumed 50: of lncreasd; 3.0 t/aninal in stock). 7Z S. China farms. counting stock. infrastructure. pasture development (asumed 50 of Lncrease output, 2.5 t/grasefed animal in atock). /ee Spectalized household coop raising. 100 bird coop including fed and other equipment. 7FF Ten municipalities, conversion from swap; assumd yield 3.75 tRue total area. a Conversiona in other areas (asusued 3.0 t/ha; assumed to be a residuaL soure of increased output). /hh All existing ponds improved, with added yield of about 2.35 t/ha. - 127 - eAoendix A Table A.iZ CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Commodity Prices and Price Projections (19Ui Constant Dollars) Average 1983 Commodity Unit 1976-82 (actual) 1995 Cereals KiTE /a /tMt 369 277 350 Wheat 7b $/mt 172 170 177 Corn P7- $/mt 121 136 135 Oilseeds Soybeans /d $/mt 294 292 299 Soybean meal /e $/mt 249 238 269 Cotton /f USI/kg 185 185 178 Rubber /g US|/kg 124 124 145 Tea /h USI/kg 229 233 237 Sugar /i $/Mt 229 187 315 Fertilizers Urea li $/mt 174 135 260 TSP A?- $/mt 137 135 170 DAP 7T? $/mt 179 184 294 Potaissium chloride /m $/mt 82 75 100 Selected Price Indices /n Agriculture, food 1977-79=100 88 80 87 Agriculture, nonfood " 130 105 112 Metal and minerals " 150 99 129 /a Thai, milled, 5% broken, FOB Bangkok. 7; Canadian, No. 1, Western Red Spring, in store, Thunder Bay. 759 US, No. 2 Yellow, FOB US Gulf Ports. 75T US, CIF, Rotterdam 7ie Dutch, Crude, FOB, ex-mill. 7r Mexican Middling 1-3132; CIF N.W. Europe. 7Zj RSS No. 1, epot, New York. /h London Auction, average price received for all teas. 7T World, ISA Daily price, FOB and stowed at Greater Carribbean Ports. 73I FOB Europe, bagged. k71 Triple superphosphate, FOB US Gulf. 71? Diammoniumphosphate, FOB US Gulf. 7E- Muriate of Potash, FOB Vancouver. 7W- Constant prices. Source: World Bank, Price Prospects for Major Primary Commodities, 814/18, September 19Z4 Appendix A Table A.13 CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Basic Characteristics of Comparator Countries, 1980 Per Popu- Population Population Total gov't Degree of openness Type of capita lation Land area density Arable per ha of exp. in GDP trade (X + H) economic Country GNP ($) ('000) (mln ha) (per ha) land (%) arable land (X) /b share in GNP (1) system La (1) (2) (3) (4) (5) (6) (7) (8) (9) China 290 976,700 930.496 1.05 10 10.0 33 19 CPE Korea 1,520 38,197 9.819 3.89 23 17.3 19 83 HIX Japan 9,890 116,800 37.103 3.15 13 23.9 18 31 H India 240 673,200 297.319 2.26 57 4.0 34 14 CPE Pakistan 300 82,200 77.872 1.06 26 4.0 26 37 MIX Thailand 670 47,000 51.177 0.92 35 2.6 18 47 M Indonesia 430 146,600 181.135 0.81 11 7.5 26 47 MIX Egypt 580 39,800 99.545 0.40 3 13.9 61 34 CPE /a CPE: Centrally planned economy, M: Market-oriented economy, HIX: mixed economy. /b Shares of government expenditure in GDP for China, Korea and Japan are computed from data of national statistical sources. Ratios for India, Pakistan and Egypt are taken from World Bank economic reports or sector reports. For Thailanid and Indonesia, data collected from IMF, International Finance Statistics. Sources: Columns (1), (2) and (8) are from IBRD, World Development Report, 1982. Total and arable land data are from FAO Production Yearbook, 1981. APpendLx A Table EN CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Agriculture's Shares and Relative Economic Performance in comparator countries --Z) Agri- culture's share Ave. annual growth rates ln past decade Agricultural Per ( in Agricultural Industrial products' capita Labor % of rural GDP Popu- production production shares in Z of imports Countrv Year GNP ($) GDP force population (real) lation (real) (real) Exports imports are food (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) China 1980 290 31 71 81 6.0/a 1.3/a 6.0/a 8.4/a 48 54 15 Korea 1960 76 37 66 72 5.1 2.8 5.5 16.4 56 35 10 1 1970 243 28 50 59 8.6 2.5 4.4 17.2 17 26/b 16 H 1980 1,520 16 34 45 9.5 1.7 3.2 15.4 9 27 10 9 Japan 1960 458 13 33 38 8.0 1.3 3.0 18.2 10 66 17 1970 1,890 8 19 28 10.9 1.0 4.0 10.9 4/b 49 14 1980 9,890 4 12 22 5.0 1.1 1.1 5.5 2- 31 12 India 1980 240 37 69 78 3.6 2.1 1.9 4.5 34 19 9 Pakistan 1980 300 31 57 72 4.7 3.1 2.3 5.2 43 19 13 Thailand 1980 670 40 76 86 7.2 2.5 4.7 10.0 57 12 5 Indonesia 1980 430 26 58 80 7.6 2.3 3.8 11.1 22 19 13 Egypt 1980 580 23 50 55 7.4 2.1 2.7 6.8 22 40 32 /a For China, average growth rates over the period of 1978-82 are used. 7T Crude estimates. Sources: Most data are from World Development Report, 1982 and 1983. - 130 - Appendix A Table A.15 CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Per Worker and per Hectare Contribution to Agricultural GDP in Comparator Countries Ag. GDP at current Ag. GDP Cs) per Country Year prices ($ mln) Ag. labor Arable ha (1) (2) (3) China 1980 93,333 298 938 Korea 1960 1,395 288 681 1970 2,287 469 995 1980 8,471 1,819 3,837 Japan 1960 5,598 308 922 1970 12,397 1,182 2,268 1980 41,599 6,291 8,523 India 1980 52,543 317 311 Pakistan 1980 6,653 529 327 Thailand 1980 8,364 526 465 Indonesia 1980 18,148 610 931 Egypt 1980 5,283 888 1,850 Sources: Column (1) from China: Recent Economic Trends and Policy Developments (World Bank Report No. 4072-CHA), Annex 2, Table 20 (Chinese data), country data sources (Korea and Japan), and World Development Report, 1982. - 131 - Appendix B CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Specialization in Industrial Crops 1. A significant issue concerning Chinese cultivation of industrial crops (here referring to crops requiring considerable industrial processing including oilseeds, fiber crops, sugar crops and tobacco) is whether further gains in production efficiency could be realized from a greater degree of local specialization. The issue arises in part because of past Chinese Government encouragement of local self-sufficency in a wide range of crops, a practice abandoned only in the last few years. MAAF plans for the next two decades favor an unchanged overall area in industrial crops, but shifts among those crops to the most suitable locales. According to a MAAF briefing, present production of these crops is regarded as too dispersed. 2. The extent of specialization refers to the t2ndency of some locali- ties to put a higher percentage of acreage in a particular crop than other localities, and the relation of these percentages to comparative advantage. It does not refer to the size of crop area proportions in isolation. One could also distinguish international specialization from internal speciali- zation. The former is dealt with in the Annex (Section 5) whereas this Appendix will consider the latter. The issue will be analyzed using province- level data, but 'ighly disaggregated data could well lead to different conclusions. Whether or not the extent of provincial specialization is in line with comparative advantage, it is possible that specialization between counties, commines, teams and/or farms is not. One hypothesis which merits study is that transport and comercial barriers to specialization becween large geographic areas are more significant than those within such areas. If this is valid, problems of specialization between localities within larger areas are likely to be more amenable to short-run solutions. 3. Because provinces represent large geographic areas with diverse microenvironments, and because long-distance transport costs, even with the best of transport systems, encourage local production, considerable diversity of crops is to be expected at the provincial level. Therefore, the extent of specialization possible or desirable can only be assessed relative to some comparator. As a geographically large LDC ill which cropping decisions are not so constrained by planning, India is a logic.il choice for a comparator country. 4. The question to be addressed is whether the significance of various industrial crops (measured as sown area in a crop relative to total sown area) in different provinces is in accord with provincial comparative advantage. The measure of comparative advantage used here is the provincial average yield of the industrial crop relative to that of cereal grains, normalized by dividing by the same ratio for the country as a whole. Thus, actual yields are adjusted by a measure of overall agricultural productivity (grain yields), and normalized so that a comparative advantage index of 100 indicates no relative advantage compared to national average productivity, whereas anything greater indicates positive comparative advantage. - 132 - Appendix B 5. The comparative advantage index (CAI) constructed has three poten- tial deficiencies: (a) because yield data for a single year have been used in constructing the index, weather anomalies causing intertemporal yield fluc- tuations may affect the index. In the case of cotton in China, this influence has been corrected by using three-year average yields, with notable improve- ment in clarity of results; (b) the existence of a small area of exceptionally high productivity in a province which is otherwise unsuited for production of a particular crop can Lead to anomalous findings. To control for this effect, provinces which plant less than 0.1% of total acreage in a crop (an arbitrary choice) have been excluded frcm the data, along with one or two extreme instances where the area percentage was less than twice this cucoff; and (c) if conditions within a province favor local specialization and such speciali- zation exists, the CAI may give misleading results. For example, Shanghai Municipality has a large area north of the Yangtse River and along the coast which has always been specialized in cotton. Since the CAI compares high cotton yields in this subarea with vezy high grain yields in other parts of the municipality, it does not verify this comparative advantage. 6. With these caveats, Table A indicates the CAI for each state or province in India and China in seven major industrial crops, and the corres ponding proportion of sown area in each crop. The summary Table B indicates the cross-sectional correlation between the CAIs and the sown area percent- ages, along with some statistical attributes of the distributions of these variates. A positive correLation coefficient indicates that cropping proportions bear the expected relation with comparative advantage. A high coefficient of variation and degree of concentration about the mean (kurtosis) for the CAI might also suggest that the presence of significant area in a crop is poorly related to comparative advantage. 7. The conclusion which emerges is that provincial specialization according to comparative advantage is more characteristic of 1981 China than 1977/78 India. This is not to say that in either country specialization has been carried very far; merely that there is a more systematic relationship between acreage proportions and comparative advantage in China. (Tobacco is one exception: the high taxes levied on tobacco products in China, along with a high proportion of the population who smoke, may contribuce toward a tendency for farmers to grow their own). It is also true that, overall, China has a smaller proportion of total sown area in industrial crops (tobacco being the lone exception among the seven crops compared). 8. The conclusion is surprising only because so much has been made of the self-sufficiency ethic and lack of specialization in China. On average, India's farmers are closer to subsistence, and subsistence producers tend to be as diversified as possible. Also, China's collective farmileg cystem, despite recent reforms, probably continues to reduce risk to the individual farmer, permitting a higher degree of specialimation. This has been countered to some extent by the self-sufficiency orientation and weaknesses of the marketing and transport system. Further specialization has occurred in China since 1981. Appendix B - 133 - rable 1.1 DCRICaLTURIE TO TII YEAR 2000: MSOIECTS AND OPTr01tS Provincial Comparative Advantage and Cropping Patterns. Indla (19171M7 and Cbina (1981) Comparative advantage index /a : of crop area /b Relative Croud- Rapeaeede Sugar- Ground- R-peseedl Sugar- cereals out Sesame mustard Cotton Jute cane Tobacco nut Sesame mustard Cottca Jute cane Tobacco yield /c ludiS Ard. Pradesh 113 86 - 63 - 145 95 8.2 1.1 3.4 - 1.3 1.7 96 Asasm - 235 166 b3 104 61 74 - 0.3 3.2 0.1 3.1 1.4 0.2 92 Bihar - 121 97 - 97 68 93 - 0.2 0.9 - 1.3 1.2 0.1 94 Cujarat 124 118 101 147 - I1S t84 19.2 1.1 1.0 17.9 - 0.6 0.8 84 Haryana III - 78 154 - 61 - 0.1 - 3.Z 4.9 - 3.6 - 133 HS_cbhal Pradesh 110 III SO 108 - 30 - 0.Z 0.9 0.4 0.1 - 0.4 - 108 Ja 4Kashmir - 80 15 98 - 11 - - 0.5 3.5 0.1 - 0.2 - 119 Xarnataks 78 175 - 89 - 124 64 8.5 0.9 - 9.0 - 1.4 0.4 105 Ker £- 90 87 - - - 76 - 0.9 0.5 - - - 0.2 - 137 )&dhya Pradesh 93 114 9 70 - 73 - 2.4 1.2 1.1 2.9 - 0.4 - 73 !iaharaabtra 109 162 - 86 - 227 - 4.3 0.9 - 11.8 - 1.3 - 74 Ibnipur - 157 *7 - - 32 - - 1.0 1.4 - - 1.0 - 151 Iegb£Laya - - 116 55 III - - 3.4 3.0 3.0 - - 105 Nagaland - - 15 - - 66 - - - 1.8 - - 2.6 - 86 Ortesa 156 Z35 102 - 177 126 - 1.3 1.9 1.4 - 0.6 0.6 - 85 Punjab 50 174 46 101 - 43 - 2.5 0.2 2.1 9.7 - 1.9 - 232 Rajasthan 146 114 171 zsT - 142 - 1.4 2.1 Z.0 2.2 - 0.4 - 58 Tamtl HNds 8 102 - 101 - 121 98 13.5 1.6 - 4.2 - 2.3 0.3 153 Tripura - 141 95 103 85 69 - - 0.8 1.1 0.5 1.1 0.5 - 113 Uttar Pradesh 8S 62 97 - - 81 - 1.4 3.3 8.7 - - 7.3 - 104 West Bengal - 232 59 - 103 82 78 - 0.4 0.9 - 6.0 0.4 0.2 131 Total 100 100 100 100 100 100 100 4.2 1.4 2.0 4.6 0.5 1.9 0.3 100 China /d Seljing 50 49 38 56 - - - Z.R 0.5 0.4 0.3 - - - 121 Tianjin 82 84 - 40 21 - - 1.4 O.9 - 1.5 0.1 - - 73 Nebel 114 III 78 86 - - - 3.0 0.6 0.2 6.0 - - - 76 Sha-xi 108 85 108 79 - - - 0.1 n.2 0.2 4.9 - - - 75 me:Sengs - - 54 - - - - - - 1.7 - - - - Liaoaing 79 65 31 73 - - 90 2.8 0.3 0.2 1.0 - - 0.3 131 JiSln 67 - - - - - 104 0.2 - - - - - 0.3 93 Heilongilang - - - - - - 165 - - - - - - 0.2 61 Shanghal - - 128 93 _ _ - - - 9.5 15.5 - - - 147 iSantgcu 87 - 101 108 49 - - 1.3 - 3.4 7.8 O.1 - - 139 Zhejiang 60 86 85 86 89 71 - 0.2 0.1 6.1 2.3 0.7 0.2 - 149 Anhut 103 113 117 77 105 - 97 1.9 1.6 6.3 4.2 0.6 - 0.6 105 FujLan 88 78 38 _ 86 106 49 3.4 0.1 1.8 - 0.Z 2.0 0.7 134 JlangxL 63 57 36 67 61 75 44 0.9 1.1 ;.6 1.9 0.2 0.4 0.1 119 Shandong 134 99 95 107 53 - 118 6.4 0.2 0.2 9.0 0.2 - 0.9 100 Honan 6o lUdo 79 113 123 - 14.8 1.8 2.6 Z.3 j.8 ).4 - 1.3 91 Hubei 91 Il9 69 104 106 - 82 0.5 1.9 3.6 8.0 0.2 - 0.5 117 llunan 47 b5 55 73 99 69 55 0.5 s 1.1 4.6 2.1 0.1 0.2 0.7 142 Cuangdong 77 41 31 - 87 I1O1 53 o.7 0.3 0.4 - t).5 3.5 0.5 1ih Guancel hi 47 15 - 74 75 oS 2.8 0.6 0.2 - 0.7 2.6 n.6 It13 Sichuan 70 107 114 63 86 57 60 0.8 0.2 4.7 2.n 0.2 0.4 n.5 1L9 Cu xh ou hl - 104 43 - 57 87 0.5 - 9.9 0.1 - O.: 2.7 111O Tunnan 70 - 76 63 - 95 127 0.7 - 2.4 0. - 1.2 1.9 92 Stzang - - 112 - - - - - - 5.2 - - - - R9 Shaanxi III 72 157 90 - - 94 0.2 0.2 2.6 5.4 - - 0.3 hS Gansu - - 134 - - - 209 - - 1.2 - - - 0.1I S QLnghal - - 11m - - - - - - 1:J - - - -h NlngiaL - - 51 - - - - - 11.3 _ _ _ 63 Xinjlang - - 75 121 - - - - - 3.4 7.8 - - - o6 Total 100 100 100 100 100 100 100 1.7 0.6 2.6 3.6 0.z 0.4 0.5 1oo Is ComparatSve adntge kndex: for each crop. the vleld (tons/ha) dLvided by average cereals yteld for the same locallty; all divtded by the *_e ratio for natlonal average yields as a numeraire, and multplied by 100. Thus a value nf 100 means that the yteld of that crap relative to grain iS the nsae as for the country as a vhole; a value greater than 10l iopLtes a compratttve advantage In that crop relttive to the locales wLth values below 100. /b Percent of crop area sown to each crop. with total sown area In the locale equal to 100. /c Uith national average equal to 100. /d Chinese cotton index is based on three-year average yields of cotCon and grain (1979-81). Appendix B 1.34 - Table B.2 CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Interprovincial Specialization in Industrial Crops in China and India /a Correlation Characteristics of distribution coefficient C.A.I. /b Z of crop area /c India China India China India China R/d R V/e K/f V K V K V K Groundauts 0.16 0.23 113 0.18 66 0.23 218 0.21 138 0.42 Sesame -0.17 0.33 64 0.22 103 0.31 97 0.22 191 0.15 Rape 0.22 0.43 84 0.27 44 0.41 133 0.37 104 0.36 Cotton 0.19 0.42 114 0.22 82 0.24 183 0.25 140 0.32 Jute 0.46 0.45 339 0.12 162 0.21 426 0.48 198 0.25 Sugarcane -0.02 0.54 64 0.27 256 0.12 122 0.22 389 0.23 Tobacco 0.48 0.15 291 0.24 117 0.24 418 0.22 172 0.18 /a Cross-state or cross-provincial data for India (1977/78) and China (1981) from Table B.1. Statistics apply to varying numbers of states/provinces which pro- duce various crops. /b Comparative advantage index. For each crop, the yield (t/ha) divided by the average cereals yield for the same locality, all divided by the same ratio for national average yields as numberaire, and multiplied by 100. Instead of compar- ing allocations for each crop across provinces, it would also be possible to com- pare allocation for each province across crops. This exercise, however interest- ing, would not permit cross-country comparisons. /c Percent of state/provincial crop area shown to each crop. /d Correlation coefficient between comparative advantage index and percent of area sown to crop across states/provinces. /e Coefficient of variation: 100 x standard deviation/mean. /f Coefficient of kurtosis: a measure of "peakedness" of distribution, i.e. concen- tration around the mean (higher K implies greater concentration). /g Chinese CAI based on 1979-81 average cotton yields. - 135 - Appendix C CHINA AGRICULTURAL TO THE YEAR 2000: PROSPECTS AND OPTIONS A Methodology Co Examine Potential for Ruminant Livestock on China's Grasslands 1. If ruminant animal husbandry is to play a major role in the diversi- fication of China's agriculture by the year 2000, the extensive grasslands concentrated in the northern and northwestern provinces will need to be developed as a major animal product base (see Map No. 5). These grasslands, and others throughout China, if managed well, have the potential to support more productive populations of cattle, sheep, goats and other ruminants. However, the present status of these grasslands is one of serious degradation. The poor condition of most of China's grasslands is the result of decades of overgrazing under colLective management, which treated the pastures as a "commons", used by all but protected by none. 2. The various Production Responsibility Systems, along with other rural management reforms, appear to offer a basis for an improvement in pasture conditions in the grasslands and hence higher incomes to the livestock producers based there. Recently promulgated grassland regulations in Inner Mongolia and Hebei anticipate a national grasslands law which allocates management rights of grasslands to individuals and households. Allocation of individual use rights is essential to improved productivity of these lands. Other significant management reforms include the creation of provincial grassland authorities to oversee pasture rehabilitation and protection and to improve rural marketing channels for livestock and livestock products. This note outlines a methodology for estimating the quantitative potential for grassland animal husbandry and applies the methodology to develop a crude estimate of production in the year 2000. Grassland Livestock Development: Technology and Policy 3. Development of ruminant livestock in the grasslands involves two major types of technologies, viz., those related to pasture improvement and those involving herd management. Separate analysis of these two activities forms the basis of this methodology. Pastvre development is as important as better management of herds and flocks. Increases in dry matter output and improvements in its nutritional quality are essential for any significant improvement in China's ruminant livestock industry. 4. The most immediate objective of pasture development can be sumr marized most conveniently in terms of increased metabolizable energy available from the grasslands. This concept combines physical yield and nutrient content into energy yields per hectare of grassland. The ultimate objective, however, is not increased production of plant material. Instead, it is a larger supply of animal products, in terms of meat, milk, wool, hides, and hair. This emphasis on actual off take of livestock products is different from the Chinese measurement of livestock output which makes increased value of animals on the hoof an important component of reported production. In - 136 - Appendix C other words, the key consideration is not the conversion of plant material into more animals but into more animal products. The methodology used below concentrates on this process by focusing on improved herd management: younger herds, better nutrition per head and more rapid growth and slaughter. 5. Appropriate policies for development of grasslands animal husbandry can best be understood in terms of their impacts on pasture improvement and herd management. Pasture improvement is most likely to result from improved incentives for grassland rehabilitation and maintenance and more information on the best techniques to those ends. Modern techniques of rangeland manage- ment, implemented within an institutional framework which allocates private use rights for the range, are among the most important elements in improvement of China's grasslands. 6. Incentives and technical information are also primary ingredients of successful herd management. Incentives for greater efficiency and productiv- ity would most likely come from price reforms which incorporate higher prices for younger animals. With incentives in place, information on the merits of improved herd management and animal nutrition are essential to the introduc- tion of improved technologies. Above all, successful development policies need accurate technical information for land use planning. Surveys of grass- land potential and herd conditions and their analysis should be a prerequisite for any development investments. The information gained in ach surveys also would be invaluable in validating the technical coefficients which underlie the analysis in this note. Estimating Output in the Year 2000 - Stylized Technologies 7. The methodology employed here makes use of stylized technologies to estimate dry matter production and herd management under alternative develop- ment scenarios. Stylized technologies are extremes of poor and good manage- ment. Levels of development are then represented as weighted combinations of poor and good management extremes. The four major steps in the analysis are: (a) Identify and estimate existing areas of different grassland regions from herd population data and available information on carrying capacity [Table 1]; (b) Calculate metabolizable energy yields in these regions under two stylized pasture management technologies, one representing current conditions, the other representing more optimal potential [Tables 2 and 3J; (c) Develop Low, medium and high scenarios for year 2000 pasture devel- opment as different combinations of the two stylized pasture manage- ment technologies [Table 4]; (d) Estimate animal product offtake levels in 2000 in the low, medium and high scenarios taking into account different combinations of poor and improved herd management technologies (Table 51. Herd management scenarios have total metabolizable energy requirements 137 - Appendix C matching pasture production levels. In general, the method esti- mates the dry matter production base, and then calculates the herd size and product offtake levels which that base supports. 8. The first step in estimating the dry matter production base is to determine the area of China's grasslands. Detailed data are unavailable and regional variability is large. Some grasslands are very productive; some are essentially desert. Estimating the dry matter production base therefore requires a breakdown of grassland area by type. Seven types of grasslands are identified. Their areas are estimated from data on herd sizes which graze each type and from crude estimates of carrying capacity. Assumptions about carrying capacity are then adjusted to arrive at a total grassland area which matches the official figure. 9. The second step is to estimate metabolizable energy from each type of pasture and from other principal sources of dry matter (grass and legume hays, silage, concentrates). This estimate is made for two stylized technolo- gies. The first technology represents unimproved grassland conditions as they were in 1980. Dry matter yields and quality are low, as represented by the low metabolizable energy content. See Table 2 for these 1980 "no-improvement" production estimates. The second pasture technology represents output levels, with both high physical yields and high nutrient (energy) content. A more optimal development strategy also would increase areas planted to non-grass dry matter sources (legumes, silage, concentrates). The areas, yields, and energy output levels for optimal development are given in Table 3. 10. These rough estimates suggest that the full development of China's grasslands would quadruple the metabolizable energy from levels currently available. However, it is unlikely that all of China's grasslands will be developed to their full potential by the year 2000. The stage of development will likely be somewhere between the no-improvement scenario and full development. Thus, in step 3 different intermediate development stages are represented by a weighted average of the two extreme, stylized, technologies. This methodology represents only a simplifying technique; actual pasture development is likely to involve a wide range of development levels. 11. The methodology assumes that for each type of grassland and dry matter source, a portion of the area is developed to its full potential while the rest is left unimproved. Furthermore, we can assume that some of the grasslands can be developed more quickly and at lower cost per hectare. As other grassland areas are increasingly more difficult to improve, the per- hectare cost would increase. Hence, different dry matter output scenarios and their associated costs can be projected. This is done in Table 4. The low, medium and high scenarios effectively double, triple and quadruple available metabolizable energy, respectively. 12. Step 4 links dry matter supply and livestock product offtake levels. The methodology assumes two stylized herd management alternatives. With unimproved or traditional management, herds are old, slow growing, and low in per-head offtake levels. Although per-head feed energy requirements are low, per-head offtake is also extremely low. Under improved management, - 138 - Appendix C however, herds are younger, heavier and slaughtered earlier. For a given level of dry matter production, there are fewer animals, but they are better fed. Although the per-head requirement is higher than in the no-improvement scenario, the value-offtake per head is much higher and more than rompensates for the increased feed costs. For example, the two extreme herd management technologies assumed here for cattle suggest that the well-managed herd may require over three times as much metabolizable energy per head on average, but has a value offtake more than ten times greater than in the no-improvement case. 1,. For the year 2000, low, medium and high management scenarios assume different mixes of stylized herds, with total animal numbers adjusted to match metabolizable energy available for each scenario. As a result of improved herd management, the value of offtake obtained from a given level of dry matter increases, amplifying the economic significance of increases in feed availability. Illustrative results are given in Table 5 and highlight the importance of range cattle as sources of meat and milk. A Caveat - The Need for Accurate Technical Parameters 14. The basic purpose of this note is to illustrate a methodology to assess the productive potential of China's grasslands. While the exercise suggests that productivity could be substantially increased, the validity of this conclusion depends heavily on the reliability of underlying information and assumptions in regard to livestock numbers, range conditions, nutritive values of particular plant materials and the relationship in Chinese conditions between the consumption of feed by livestock and the offtake of animal products. In each of these areas, knowledge is limited and better information is required to establish a more accurate picture of the role which the grasslands might play in meeting China's future demands for livestock products. Appendix C - 139 - Table C.1 CHINA AGRICULTURE TO THE YEAR 2000: PROS?ECTS AND OPTIONS Pastoral Herds and Grassland Area by Type, 1971 /a (Sheep animal unit equivalent) /b Rangeland Desert Cold highlands Wooded Dry Moun- Mt. Northern Southern Unit range range tainous Plains meadow plateau mountain Total uivestock (Sheep A.U.) Cattle mln 11.6 5.8 5.8 17.9 37.8 6.7 7.2 92.6 Horses mln 4.7 4.3 3.8 10.5 2.3 0.3 0.2 26.1 Donkeys mln 2.0 0.4 0.2 3.4 0.2 /c 0.2 6.4 Mules mln 0.5 0.3 /c 0.1 0.1 T /c 1.1 Camels mln /c 0.7 0.4 1.8 /c 7_ __ 3.0 Coats mln 0.6 1.9 0.6 3.2 1.3 2.7 0.8 11.1 Sheep mln 1.3 7.1 6.6 23.6 12.2 1.7 3.1 5.6 Pigs mln 11.0 3.5 0.3 2.5 1.1 /b 0.1 18.5 Total sheep A.U. mln 31.7 24.0 17.7 62.9 55.1 11.4 11.8 214.5 Nonpig total A.U. mln 20.7 20.5 17.4 60.4 54.0 11.4 11.7 196.0 Pasture Land Area Chinese mu mln 103 225 523 1,510 486 284 233 3,365 Hectares mln 7 15 35 101 32 19 16 224 Share of total Z 3.1 6.7 15.5 44.9 14.4 8.4 6.9 100.0 Carrying Capacity Mu/sheep A.U. 5 11 30 25 9 25 20 - /a "Wooded" is from the Chinese sen-lin and implies a good water supply. "Meadow" is the Chinese dian and implies well-watered pasture. 15 mu -1 ha. /b Sheep A.U.: sheep - 1, cow - 5, goat - 0.6, horse - 6, =le - 6, donkey - 3, cameL - 8, pig - 2. /c Less than 100,000. Source: "Comprehensive Chinese Agricultural Geography," Economic Geography Division, Geogra- phy Research Institute, National Academy of Sciences, (Beijing: 1980), p. 302 (in Chinese), and author's calculations in Albert Keidel (1984), "China's Pastoral Rumi- nant Livestock: Development Potential in the Year 2000," Parts I and II; Rock Creek Research, Washington, D.C., April 1984. Appendix C - 140 - Table C.2 CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Metabolizable Energy by Source, 1980 Dry matter Energy Energy Total Area Yield % dry yield (MC/kg yield energy (miln mu) (kg/mu) matter (kg/mu) of DM)/c (MC/mu) (bln MC) Grazing land Wooded range 103 300 25 75 0.48 36 3.7 Dry range 225 225 25 56 0.48 27 6.1 Mountain meadow 486 250 25 63 0.48 30 14.5 Northern plateau 284 115 25 29 0.48 14 3.9 Southern mountain 233 130 25 33 0.48 16 3.6 Desert plains 1,510 100 25 25 0.48 12 18.0 Mountainous desert 523 85 25 21 0.48 10 5.4 Grass for hay 125/a 175 85 149 0.96 142 17.8 Legumes, grazed/hay 2/b 350 85 298 1.43 426 0.9 Maize silage 2/b 500 30 150 1.91 287 0.6 Concentrates 5/b 50 40 20 2.63 53 0.3 Farm by-products 10/b 200 15 30 1.59 48 0.5 Total Metabolizable Energy 75.2 /a Grass for hay in 1980 assumed to be one fourth of "meadow" and "wooded" lands. /b Assumed very small for ruminant livestock use, based on data and observation from Inner Mongolia, Hebei and Heilongjiang. /c MC: megacalorie. Source: Grazing areas from Table C.1. Other data from various Chinese sources and yield and energy information from FAO and IFAD livestock and range development projects in North China, and calculations in Albert Keidel (1984), .2. cit. Appendix C - 141 - Table C.3 CHINA AGRICULTURE TO THE YEAR 2000: PROSPECTS AND OPTIONS Potential Metabolizable Energy With Improved Management Dry matter Energy Energy Total Area Yield X dry yield (MC/kg yield energy (mln mu) (kg/mu) matter (kg/mu) of DM) (MC/mu) (bln MC) Grazing land Wooded range 103 500 25 125 1.19 149 15.4 Dry range 225 300 25 75 1.19 90 20.2 Mountain meadow 486 350 25 88 1.19 105 50.8 Northern plateau 284 200 25 50 0.72 36 10.2 Southern mountain 233 250 25 63 0.96 60 13.9 Desert plains 1,510 175 25 44 0.72 31 47.3 Mountainous desert 523 100 25 25 0.72 18 9.4 Grass for hay 200 300 85 255 1.43 366 73.1 Legumes, grazed/hay 50 450 85 383 1.91 731 36.6 Maize silage 15 1,500 30 450 2.39 1,075 16.1 Concentrates 15 150 75 113 3.11 349 5.2 Farm by-products 30 300 15 45 1.59 72 2.2 Total Metabolizable Energy 300.3 Source: As in Table C.2. - 142 - ~~~~~~~~~~Appendix C -1l42 - Table C.4 CHINA AGRICULTURE TO THt. YEAR 2000: PROSPECTS AND OPTIONS Dry Matter Production Under Alternative Development Scenarios. 1980. 2000 2000 Energy 1980 Low Medium Righ yield Area Energy Area Energy Area Energy Area Energy (MC/ru) (mln mu) (bln MC) (-ln mu) (bln MC) (min au) (bln MC) Culn u) (bln NC) Grazing land Wooded Land Unimproved 35.8 103 3.7 83 3.0 33 1.2 - - Improved 149.3 - - 20 3.0 70 10.5 103 15.4 Dry range Unimproved 27.0 225 6.1 165 4.5 65 1.8 - - Inproved 89.6 - - 60 5.4 160 14.3 225 20.2 Mountain meadow Unimproved 29.9 486 14_5 386 11.5 236 7.0 - - Improved 104.6 - - 100 10.5 250 26.2 486 50.9 Northern plateau Unimproved 13.9 284 3.9 134 1.9 24 0.3 - - Improved 35.8 - - 150 5.4 260 9.3 284 10.2 Southern mountain Unimproved 15.5 233 3.6 233 3.6 233 3.6 - - Improved 59.7 - - - - - - 233 13.9 Desert plains Unimproved 11.9 1,510 18.0 510 6.1 110 1.3 - - Improved 31.3 - - 1.000 31.3 1,400 43.8 1.510 47.3 Mountainous desert Unimproved 10.3 523 5.4 223 2.3 73 0.7 - - Improved 17.9 - - 300 5.4 450 8.1 523 9.4 Grass for hay Unimproved 142.1 125 17.8 100 14.2 50 7.1 - - Improved 365.5 - - 50 18.3 125 45.7 200 73.1 Legumes, grazed/hay Unimproved 426.4 2 0.9 1 0.4 - - - - Improved 731.0 - - 15 11.0 40 29.2 50 36.6 Kaize silage Unlnproved 286.7 2 0.6 1 0.3 - - - - Improved 1,075.0 - - 4 4.3 10 10.8 15 16.1 Concentrates Unlmproved 52.6 5 0.3 5 0.3 5 0.3 - - Improved 349.5 - - - - - - 15 5.2 Farm by-products Unimproved 47.8 10 0.5 7 0.3 2 0.1 - - Improved 71.7 - - 10 0.7 20 1.4 30 2.2 Total Improved Land /a 1.709 2 785 3674 Total Energy Available (bln NC) 75.2 143.5 222.7 300.3 Marginal cost/mu (Y) /b 5 20 50 Additional cost (Y mln) - 8,545 21,520 44,450 Accum-lated cost (Y aln) - 8,545 30,065 65,970 /a Total Includes both grazing and nongrass dry matter sources. /b Incremental to the prevlous scenario. Source: Energy yields and area ranges from Tables C.2 and C.3. Cost data estimated from various ongolng IFAD and FAO projects. ADDedisl C Table C.$ CHINA AGRICULTURE TO THEl YtAR 2000: PROSPECTS AND OPTIONS Overall Ruenant Production and Dry N,tter Requitements 2000 Average 1980 Low Hedius Hih _ _ Dry matter oaftaka Total Total total Total Total Total Total Total needs per value energy otftake energy offtake energy offteke energy offtake head per head Herd sIze neede value Hord alse needs value Herd site needs value Herd elre needs vslue (000 itC)I (Y) (000 head) (bln HC)1!. (.ln M)b (000 head) (bin HC)tL (oln Y) b (000 head) (bin HC)/e (min Y)jb (000 head) (bIn NC)IL (mln Y)tk Cattle Draft 2.39 10 Ic S ISl I IC mond eft Wel1t-anaged 3.8? 291 20 0.1 6 11,000 66 4,977 36,000 I13 10,247 55,000 213 16,102 Poorly-managed 1.19 24 18,295 21.9 434 18,OOO 22 421 12,000 6 119 0 0 0 I- Well-mnaged 0.43 23 1,000 0.4 23 40,000 17 916 70,000 30 1,602 150,000 65 1,434 Poorly-sonagod 0,19 12 70,153 20.1 836 50,000 14 596 50,000 14 596 0 0 0 Coats Well-mnalged j.13 10 100 Ic 1 5,000 2 48 5,000 2 48 5,000 2 48 Poorly-emnaged 0.19 4 23,379 4.5 94 S,000 I 20 3,000 13 281 0 0 0 Horses 3.58 - 4,931 177 4,500 16 4,000 14 4,000 14 Donkeys 1.91 - 2,104 4.0 2,000 4 2,000 4 1,500 3 Nules 3.58 - 346 1.2 350 1 35U I 300 1 Camels 4.78 - 471 2.3 400 2 400 2 350 2 Total Energy Requirements 72.2 145 222 299 Total Olitake Levels (IXt 0 (0OU t) j000 t) (000 r) Beef 100 'I2s 9WS 2,512 1,860 5,010 2,743 7,407 Hutton 241 6SU 309 997 520 1,404 755 Al Coat ceat 21 13 22 58 19 52 16 41 milk 559 lo8 9,465 2,Y40 19,260 S,778 28,415 8,661 wool 82 Ib3 215 47U 31U 16U b75 1,350 CG t hAir S 10 3 7 3 e 2 5 Hldslskln ('00 units) 8,b25 i8 7,790 S0 9,040 93 7,850 82 Total Annual Utftake Value (tIn Yi 1.39J b.984 13,083 19,S86 /a HMC; megaalorle. bIn tC: billion aegacelorte. 7ib Frus all pruductm. a,anges in t,atal offtake from htorvea, donkeys, mules and camels cunsidored ne,ilLgible and Ignured. 7V Lea,, thIald 11l million IC. Source. Ury aatgvr isi,'ds and ulilake per head true v.rloug Inter,,atl unl, utllcill Cliii,egu, a*id IVAI), UNbP, ur rAG cunsultant reporft, witil cal a1tQlonb fru Keidel, up cit. Oter data d,irived Ifni rIrwevlIma. tahlws. IBRD AI833 U..S.S.RP . MA 0 N C 0 L. I A *'"'O''*a. .x '..rrxe " z (b 5(4 OF J. .APAN trvr-rtnrrattJte * (S .l .4r>' *, 'V/t tAg-c 177 24 SvaPtonrs _) vf r~~~~~~~~~~~~~~~~~~~~O 'ME ' RPIUBUC\l OO-c 84 rtPas > S ^ F lP^ts~~~~~~~~~~~~~~~~~~~~~~~~~~~~~O \ / S Rks b > ('t\IA C~~~~~~~~~~ H I N IA OUHCH f GROWTH OF GROSS VALUE OF AGRICULTURAL OUTPUT, 1979-1982 '.AWWA"' (PERCENT CHANGE CONSrANT 1980 PRICES) DU M A Nk *20 1 -c 27d0 * 177 -c20 I 139- 177 LQPCOPU5 ) 84- 13.9 jEPI 00- 84 ~ /. \)H~ THAILAND ' ~~SOUtH CHINA 3(CA T H A ILL A N IBRO A18339 ft ,,**d_ fl i^ ,t.9..........-.... fwt _ .....'..... NU **frflf pflf ' * -.G.u... N . . .' eu - -, . aM N - - ft _lq MNWW6 ... ...... .. n... n . U S R :,'g 1. - 40. ':^s J t _ IS6. -< 210. ' ' ltwtuts £ s~~~~~~~~~~~~ f"l Pfl 0.-16 94 tl flv Nf OCkfl Mf ." AC' ~ ~ e"vww t C H N A RURAL PER CAPITA INCOME . FROM ALL SOURCES,1982 rM J'- .02. -C445. 210.- 240. LAO PEO ..L 186. -210. / 'DCWOCRAfCyj s e K i0.0 -c IS. ~PCrmJUA PmDPua T THA IL A N \ DA IBRD A18340 N 'n~.e. n.m , N ne awe - " . we a mWWtE $F4t. Ce,. _Sn - " 1 C N '_. - - PEN - iU. S. S. R. MO0 N 0 O L I A K,z/ / VX. C<;2 H66 I N A j/ I A 3 r oo-co StAG .AP CHEMICAL FERTILIZER USE .AI/ PER SOWN HECTARE,1982 (KILOGRAMS OF NUTRIENTS) 158.9 -' 221.3 S /. 590-c Ts 9 A U R AM/ H ME N 00- 590 wr'"'\K.PM 'NSOUtH CHINA SEA T HA IL AN ti0---- ] ~ ~~~~~~~S O V I I T U N IO N L J I [ rgl g < N O~~~~~~~~M N (i O t I A_r JS o MAJORCOMMERCILC , S4jH-, ,S0< PR0DUCTION oAlllff?~ 1\ Ss Crss 5 R AI N 1 - S W u X ' ' ' ' !-*; . > ............. s s i ANN=7~~~~, i RAPtOIL \, E 't ,, :*§*'8', ' "^,) ' hi'X 5 J < #~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I W PEANUT1 W |U,!l.W; ' .s/.9 :' H t J I A S t~~~~~~~~~~~~~~~~~~~~~~~~PULI AITAlo^¢Ns 4f RE>Aa/ PRDUTONtC l BASES i 44r"" * 4_ 'I '5 tz Ath A11 4 1 - _ rwl i td 1 " wl f0 r;@ - w 1 2 4~~~~~~~~~~~~~~~~Fai C'h * HaX r - r t4f st444 S e w S re C " rw" # D v '_ t s _ z~~~~~~~~~~~~~~~~~ O , _ ) tA0eoMoccipLErl5c } g < < S o lE R ^ C h 1 S7 0~~~~~~~~~~~4 RAPC ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ EP3I OILt NM t vJ5f4 PEArNUTItAS t11 4> \ ^+ IRO A18342 *r.5aw fl 4 _nrtwq r* - ".tMNcI mnr*w4C*skn~- rdw|rik.4bnjI _ nd PM. - ,Pe@* *@ewzz .. M w At.JkP................... 'wi. Jne., J. {r.v&tZ MEAT PRODUCTION PER CAPITA, / / / / / / SE or A m 15.2 -< 200 ,,%osPs0 / r tJ0.0 -c 12.7 )oIUOCRe AnC)c | RK sourH ¢HIWA srj 2 t~S#VM s C~~~~~ H AI N AND s;-._ (KILOGRAMS POK.BEETHAULAND 2 4.3 - 42.7 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ N IBRD AS8416 9~~~~lrrw"rvrw~~~~~~~~~~~"j&sav&eev".*urr"t_t ~~~~~~~~~~~~~~~~~~~~~JUNE 1964 orw_lir~~.oxl*.er.w^Ccunxq_ ~U. S. S. R. - - f ' \_ _J \, * _, L r e ~~~~~~~~~~~~~~~I A 0 N CJI AN e X I N J I A N C 4- r/ , < < - .< ~~~~NErI U OO NCCOL / (,, ', t > - I5 N ti NH A I X t Z A it C & V ) S < ,~~~A N X I I A N HG ' r I kAiHU/, r r f Dryt Romp a u R M A L VIET AM Desert PlaDins 4o o rj Southem Mountalns J REPUMu wp"uPss Mountain Moodow \/ \ \<^J ! Northam PlateauK { T H A I L A N D $ > ourtClN {