Corny excuses

US farmers want China to repeal its restrictions on corn imports

China's Premier Li shakes hands with U.S. Secretary of Agriculture Vilsack before their meeting in Beijing

American farmers have asked Vilsack to help with Chinese corn bans

When American architect Benjamin Latrobe designed Washington’s Capitol in the early nineteenth century, he incorporated two potent symbols of his new nation’s economic identity at the top of the building’s Corinthian columns – tobacco leaves and corn ears.

Even today, images of corn (known also as maize) swaying across the flat fields of the mid-western prairies are as redolent of America as apple pie and denim jeans.

They are also emblematic of the country’s bountiful farmland. According to the most recent World Bank figures, the US has a population density of 34.06 compared to China’s 144, which is one of the reasons why the US still dominates global agriculture. China, by contrast, has a long history of struggling to feed its population – a problem exacerbated by greater extremes in climate.

The issue has become more pressing as urbanisation generates new demand for more (and better) food, whilst also reducing the amount of arable land available to produce it. China hovers just above a self-imposed ‘red line’ of 1.8 billion mu (120 million hectares) of arable land, which represents the amount of farmland it believes it needs to ensure food security.

An increasingly divisive spat between the Americans and the Chinese over corn imports highlights one of the major problems bedeviling the Chinese government – as it attempts to feed its more affluent population. In resource terms China could – and in many instances already does – produce enough food to meet its nutritional minimums. The challenge is that the farming sector is often inefficient and thus under constant threat from cheaper foreign imports.

In recent years, the problem has been further compounded by government efforts to bridge the rural-urban income divide by bolstering domestic prices through subsidies and stockpiling.

The price of futures contracts in corn underscore the differential between the two countries. December deliveries of corn on the Chicago Board of Trade, for example, are currently quoted at around $3.44 per bushel. On the Dalian Commodity Exchange, the equivalent price per bushel is about $9.90 (or Rmb2,400 per metric tonne). According to recent US Department of Agriculture (USDA) figures, both countries are on course to reap record harvests in 2014 – with the US set to produce 14.032 billion bushels and China 8.74 billion. China’s corn haul has been boosted in recent years after large numbers of farmers in northern provinces such as Heilongjiang and Jilin switched from soybeans to corn, which offer twice the financial return. But while the USDA estimates its farmers will achieve nearly 170 bushels per acre this year, Chinese farmers are forecast to produce slightly less than 100. The greater productivity fosters the lower prices for US corn, making imported corn more attractive to Chinese customers than the homegrown crop.

One way the Chinese government tries to bridge the divide is by providing transportation subsidies for its northern farmers to ship their corn to southern processors.

Since 2008, it has also been trying to bolster rural incomes by stockpiling corn, by expanding its network of government silos and storing up to 100 million metric tonnes (equivalent to half a year’s domestic consumption). To keep stockpiling levels under control, the government has also introduced new subsidies to persuade processors to use corn in making products like starch rather than use it to feed livestock (such as pigs and cattle), which accounts for about 72% of current end use.

But American farmers also claim that Beijing has been trying to block corn imports – using the pretext that it’s protecting its domestic crops from contamination by genetically modified (GM) variants.

The dispute first arose last November when Chinese customs discovered the GM corn variant MIR-162 in a shipment from the US. As import permits dried up, Chinese buyers initially got round the ban by switching to shipments of corn-based DDG (distiller dried grain) for their livestock feed instead. But in the spring, DDG permits started being cancelled as well. Chinese customs also started making life more difficult for US exporters by introducing more onerous specifications in areas like pesticide and mould. Matters finally came to a head last month when import permits stopped being issued completely.

The National Grain and Feed Association says American corn farmers stand to lose about $3 billion from the ban, a meaningful percentage of total US exports to China. which reached $120 billion in 2013. Indeed, the chairman of the US Grains Council has written to US Secretary of Agriculture Tom Vilsack asking him to intervene after concluding that China’s actions are “incompatible with its obligations as a member of the WTO”.

“From a US perspective, it looks like the Chinese are being picky and erecting non-tariff barriers for political reasons,” Jim Harkness, senior China advisor for the Institute of Agriculture and Trade Policy in Minneapolis, also told the LA Times.

So why is Chinese farming so inefficient and what should the government be doing to rectify it? China Newsweek has looked at the problem in a different way, analysing the performance of Chinese farmers who have purchased farmland abroad. It cites the example of Zhang Renwu, chairman of Lu Tian Yuan Ecological Farm Company in Beijing. Zhang bought his first alfalfa farm in northern Utah in 2011 with the goal of providing protein feed for China’s enormous pig population. To his surprise, he soon discovered that it required just four locals to complete a similar workload to as many as 300 people at his alfalfa farms in Inner Mongolia – thanks to greater mechanisation and technology. He also found he had to spend far less on fertilisers as American farmers were far more adept at sampling soil and crop yields to determine how much was needed.

Zhang has since bought a second alfalfa farm in the US, although he did not tell Newsweek how he plans to deal with China’s announcement of tougher controls on US imports of that crop too. Securing food sources from abroad has actually become a policy priority in Beijing. In June, the chairman of China’s sovereign wealth fund told the Financial Times that it will diversify its investments into agriculture, particularly projects focused on irrigation, land transformation and animal feed. But the estimates of the amount of overseas land purchased by Chinese are uncertain. A report by the International Institute for Sustainable Development suggests the total is about nine million hectares, roughly the size of South Korea.

Other commentators believe the solution lies closer to home, arguing that productivity will improve if China introduces private ownership of rural land, giving farmers more incentive to invest in technology, as well as mortgage larger, more profitable plots. Surveys from 2011 showed that the average farm in China is just half a hectare, which dates back to 1978 when China’s collectives were partially replaced by a household responsibility system resulting in 30-year leases for the farming of individual plots. In 2008, there was another round of reforms that gave farmers the rights to farm their plots indefinitely. Then late last year, local governments were told they had five years to provide farmers with new land use certificates. Beijing is floating the idea of allowing them to convert these certificates into shares of larger farms, which should improve economies of scale (see WiC199).

The other area of contention is rooted in GM crops, which have the potential to improve the efficiency of domestic agriculture, but have also sparked health fears. China developed a GM strain of insect-resistant rice in 2009, for instance. But the government announced in August it would not be renewing permits supporting its commercial development. The decision followed spot checks at a supermarket in Wuhan that revealed rice packets were contaminated. The supermarket stands across the river from Huazhong Agricultural University where GM rice experiments were supposed to be subject to strict controls. But as Huang Dafang from the Chinese Academy of Agricultural Sciences tells MIT’s Technology Review: “It’s going to be hard to increase the food supply with traditional crop technology.”

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