Agriculture, Talking Point

Grains of truth

Will setbacks in China’s food security plans rattle commodity prices?

A farmer plants paddy on a terrace field in Suichuan county

Crop failure: Anhui’s rice production has dropped with flawed seed technology blamed

Thomas Robert Malthus is best known for his 1798 essay on overpopulation, which warned of a world in which humanity was unable to feed itself. Malthus pointed out that while human populations can increase exponentially, agricultural production grows at an arithmetic rate, suggesting future food shortages and widespread starvation. (Only war and disease served to counter surging numbers of people, the English cleric and demographer believed.)

Malthusian theory seemed to be backed up by Chinese history too, where it was widely held that whenever the population climbed over 100 million, catastrophic unrest followed. Be it a widespread famine or the collapse of a dynasty through war, this population growth would then be checked.

The picture only began to change during the Qing Dynasty when the Middle Kingdom’s population not only exceeded 100 million but topped 400 million by the time of the First Opium War in 1839.

This explosion in people, according to one school of thought, was made possible by the introduction of new staples like corn and potatoes. These easy-growing crops reduced China’s reliance on rice as its main source of starch, increased the food supply in general, and thus helped to fuel a demographic boom without triggering infighting over scarce resources.

Nevertheless Chinese leaders since Mao have often suffered from moments of Malthusian misgiving. China’s population shot past one billion people in 1981 – just three years after the one-child policy had been adopted to contain its growth – and the challenge of feeding one fifth of the world’s population on one tenth of its arable land has always been a pressing concern.

To address this food security issue, policymakers in Beijing have attempted to develop newer breeds of higher-yielding rice, and they have built up the world’s biggest stockpiles of grains.

But both these strategies have suffered major setbacks this month, stimulating debate on the implications for China’s food security policies and the likely impact for global commodity prices.

Who moved my super rice?

The first of the two setbacks emerged a fortnight ago in Anhui province, where serious crop failures were reported. These occurred after a bout of rice blast, which is a fungal disease. More than 10,000 mu (667 hectares) of farms experienced low yields or outright crop failure, according to the Southern Weekend newspaper.

News of the blight soon rippled across the country. Anhui is an important rice-growing base and farmers there have been cultivating higher-yielding rice varietals that are supposed to be more resistant to diseases. They were sold the seeds by Longping High-Tech Agriculture, a firm named after China’s most renowned agricultural scientist. Until this month 84 year-old Yuan Longping has been heralded as a homegrown genius for developing China’s first hybrid rice by cross-breeding two parental lines with distinct genetic backgrounds. Yuan – also dubbed as the “scientist worth Rmb100 billion” – has come to epitomise China’s food security drive. In October last year the Ministry of Agriculture (MoA) announced that Yuan’s harvests broke world records for hybrid rice production, with an average yield of more than 1,000 kilograms per mu (see WiC126 for the first time he broke the record; since then he has even been nominated for a Nobel Prize).

Longping High-Tech carries his name but is run by his son and is backed by the government of Hunan province. But Yuan’s reputation looks to have been tainted by the bad news emanating from Anhui. According to Southern Weekend, the crop failures in Anhui were related to the super-rice strain “Liangyou 0293”, which is produced by the company. The allegation is that Longping High-Tech has engaged in fraudulent marketing and failed to warn farmers about the seed’s resistance to rice blast, the newspaper has reported. The Anhui government has since pledged to the MoA that “Liangyou 0293” will be withdrawn from sale in the province.

Longping High-Tech has explained that the crop failures in Anhui were mainly due to adverse natural conditions including low temperatures (the coldest for two decades). Still, it has stopped selling the strain in question.

Clearly, the MoA does not want to see public confidence in Yuan’s super rice dented too far (although Yuan’s photo is on the back of the packages of failed seed, his secretary told reporters that it was not one of the varieties that Yuan had researched.)

In the face of growing concern, the ministry has insisted that rice varieties assessed as suitable for one province may not be appropriate for another. It also said it would review national standards for different hybrid rice varieties, and it reiterated the need for China to develop rice strains more resilient to adverse conditions.

A huge but rotten grain reserve?

According to the People’s Daily, super hybrid rice now accounts for about 30% of the country’s total rice cultivation area, and has an average yield of 590 kilograms per mu. Thanks largely to this higher output, total grain production (including rice, wheat and corn) has grown for 11 years in a row and hit a record of 607 million tonnes in 2014.

A portion of these harvests ends up in the 346 granaries of Sinograin, a state firm established in 2000 to boost China’s grain reserves. Sinograin normally stores as much as 35% of the country’s annual grain consumption, cushioning farmer incomes in good times while keeping retail prices stable when yields fall. (Critics say the price floors encourage farmers to continue to grow crops when demand is lower, which has contributed to the 11-year run of bumper harvests).

But last week, state broadcaster CCTV aired a damning exposé on Sinograin’s operations.

In a report entitled “Rats in the granary”, its reporters revealed how officials at Sinograin have been storing old or inferior rice bought at discounted levels, and then faking the paperwork to make out the crops were purchased at state-regulated prices.

Rice stocks documented in the report were sprouting and smelled of mildew, CCTV claimed.

The broadcaster proclaimed that two depots in the northeastern provinces of Liaoning and Jilin were engaged in the scam, although it isn’t clear if other granaries are also involved. Sinograin’s track record isn’t inspiring, however. The state firm has been caught out before in two embezzlement scandals in 2010 and 2011. And in 2013, a blaze destroyed nearly 50,000 tonnes of grain in Heilongjiang province, just four days after central authorities had ordered an audit, triggering speculation that the blaze was started on purpose.

Sinograin vowed last week to launch a thorough investigation into the case. But many onlookers are unconvinced. “When a fire destroyed Sinograin’s storage in Heilongjiang in 2013, Sinograin promised to publish the officials responsible and instigate reform to prevent similar incidents,” the Beijing Times has noted. “Now more corruption involving the company has been uncovered and Sinograin has made a similar promise again. The facts prove that internal supervision in powerful SOEs cannot prevent corruption, and more external supervision is obviously needed.”

Why the storm in a rice bowl?

There is no suggestion that the crop failures in Anhui (which happened in October last year but were reported this month) are linked to Sinograin’s latest scandal. But both incidents have drawn public attention at a similar time, as well as linking food security concerns to Wang Qishan’s graftbusting team, which is known to be looking more closely at the agricultural sector.

“We always believe our country can produce enough food for the people. But a few days ago we were informed of the super-rice failures in Anhui. And now we have Sinograin’s rotten grains,” a popular blogger wrote on Sina Weibo. “How many rats are there in our granaries? For the sake of our food security, we need a corruption crackdown in the system.”

A single crop failure doesn’t undermine the advantages of super hybrid rice in general, the China Daily has suggested. But how this incident is handled, it argues, will be a test of the leadership’s “governing capacity”.

The Guangming Daily noted the “obvious flaws” in the way that agricultural regulators approve rice varieties for plantation across the country. It also called for a compensation mechanism that holds seed developers responsible in cases of major harvest failures.

But Sinograin has been drawing most of the wrath. “Sinograin has failed in its self-proclaimed mission (to safeguard national food security), and thus failed the nation,” the China Daily claimed in an editorial. “Fortunately it has not taken a real famine for us to discover the worrisome state of our strategic grain reserves; or the consequences could be unimaginable.”

The national reserve can only be stored in a depot for a maximum of three years, which means that a large portion of expiring grain must be auctioned or removed each year to make room for the next cycle. But China Daily reckoned the latest scandal could mean that replenishment hasn’t happened, and that a sizable part of the current stockpile has gone bad. The newspaper went on to call for an overhaul of the grain reserve system, including the breaking up of Sinograin’s monopoly status: “If it is truly beyond Sinograin’s capacity to single-handedly manage our national grain reserves, changes must be made.”

The China Youth Daily agreed: “So many problems over the years have emerged under Sinograin’s management [of the national grain reserve]. It makes us worry whether this company can safeguard our national security, and we should rethink if the current system is the most scientific or the best way going forward.” The newspaper suggested China should learn from the United States, and encourage the private sector to take on more of a role in stocking up the national food reserve.

What changes could happen?

The State Council said last month that it would allocate $25 billion for the reserving of grains, edible oils and other agricultural products this year. No official data about grain reserves is released, Caixin Weekly magazine points out. But it cited experts who estimate that by the end of this year, total grain reserves will reach 300 million tonnes. That’s equal to 45% of the country’s total grain consumption last year.

The Financial Times noted that CCTV’s report on Sinograin was the first official acknowledgement that parts of China’s agricultural stockpile may have degraded. As China is also estimated to hold about 60% of the world’s cotton stocks and 40% of its stored corn, changes in the country’s reserve system could have global ramifications.

“The true quality of China’s grain reserves holds serious implications for global commodity prices. If the stockpiles include large amounts of unusable grain, China could be forced to increase imports sharply, causing international prices to jump,” the FT said.

Caixin Weekly has also argued that a large grain reserve “comes with equally big problems”. One of these is the result of government subsidies that help to create a price floor in the market. The magazine reports that domestic corn prices are nearly $160 higher (per tonne) than international prices. Perversely, this encourages imports. The MoA has estimated that China imported at least 50 million tonnes of grain that were not needed (and which meant the domestically-grown stockpile grew bigger).

Policy changes seem imminent. Last month, Chen Xiwen, deputy director of the central government’s leading group on rural affairs, called for a “quicker transformation of agricultural development under market rules” and there have also been calls to exploit arable land more efficiently, by growing less rice and planting crops that grow more easily instead.

In January the MoA proposed that the country grow more potatoes, for instance, making it the newest ‘official’ staple food after rice, wheat and corn.

Although the Chinese are already the world’s largest potato producers, with a harvest of 90 million tonnes in 2013, per capita consumption is low. In fact, there is surplus production and China is the world’s 10th largest exporter of the crop. Potato yields are much higher too – 27.2 tonnes per hectare, compared to 6.8 tonnes for cereals, according to government data.

Of course, consumers will need to be convinced as well. “Potatoes can be mixed into bread, steamed buns, and noodles to suit taste and habits,” Xu Xiaoshi, the national planning agency director, told a food policy meeting in Beijing. Still, CCTV has been circulating potato recipes on its weibo account in an attempt to drum up interest.

Most commentators weren’t too impressed, mind you, fearing that China’s prized culinary culture could become “more like that of meat-and-potatoes Britain”.

“Do you know why potato is translated as tudou (earth bean) in China?” one food fan queried. “It is because it is a bean, not a staple food in our rice bowls.”

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