CHINA'S GRAIN TRADE BY FREDERIC M. SURLS CONTENTS I. Summary. II. Introduction... III. Grain trade patterns: A descriptive overview. TABLES 1. PRC grain trade, calendar years 1952-77 2. PRC long-term grain agreements, 1961–77 3. PRC grain trade: Value.. 4. Per capita grain imports and supplies. 5. Factors affecting grain trade levels. 6. Regression results.... 7. Fitted, projected, and actual net wheat and coarse grain imports, 1969-78... APPENDIX TABLES Page 653 654 654 659 666 668 655 656 658 659 661 664 665 1. PRC grain trade, by grain, 1961-77... 2. PRC grain imports by country of origin, 1961-76... I. SUMMARY 669 670 The pattern of grain trade of the People's Republic of China (PRC) shifted abruptly in 1961 when China began a large grain import program. Although the PRC has continued to export rice, it has remained a net importer of grains despite slowly rising per capita grain production. During the 1970's, the annual variability of China's grain trade has increased considerably. Grain imports have become less important in comparison with national grain production, but continue to provide an important part of grain supplies in the urban areas of northern China, as well as adding significantly to the total supply of wheat, a preferred foodgrain. During the 1970's, grain imports have followed fluctuations in per capita production of grains, suggesting that imports have been closely tied to state grain procurements from rural areas in northern China. China's rice exports have covered a substantial part of the costs of grain imports and the net cost of grain imports has fluctuated far less than the quantity of imports. The level of rice exports appears to be correlated with the cost of the grain import program and to a lesser extent with the level of per capita rice production. But, available information does not provide a full explanation of the determinants of rice exports. A survey of factors affecting grain import levels suggests that the growth of domestic demand for grains will increase in the future. Increased domestic feedgrain demand for urban livestock raising is also likely. PRC policy appears to favor self-sufficiency in grains, and imports of industrial goods and technology seem to have the highest priority in coming years. Therefore, unless China is successful in increasing the growth rate of grain production and state procurements, pressures will build for higher grain import levels and other economic policy goals will be compromised. The United States appears at present to be a residual supplier of grain and other agricultural products to the PRC. Until this changes, United States grain exports to China are likely to remain highly variable and substantial on an ongoing basis only if the PRC is unsuccessful in holding down grain import levels. II. INTRODUCTION The PRC has been an important but increasingly uncertain element in world grain markets. The variability of PRC exports and imports of grain has increased markedly in the 1970's. Additionally, with the resumption of Sino-U.S. trade in the early 1970's, China has become a potentially important buyer of U.S. grains. But actual U.S. sales have been highly variable, ranging from a peak of 4 million tons in 1973 to none in the 1975-77 period. This recent variability of trade and uncertainty about PRC purchasing intentions increases the need to understand what influences China's grain trading patterns. The objective of this paper is to describe the past pattern of China's grain trade, to examine the probable determinants of both trends and annual fluctuations in grain imports and exports, and to explore the major forces that will be shaping China's trade in grains in years to come. The PRC has provided neither a full explanation nor the data to make a complete analysis possible. Consequently, past trade behavior cannot be fully explained. Nor is it possible to project future trade levels with any certainty. But it is possible to at least sort out the major factors that are potentially important in determining China's grain trading patterns, to identify some of the variables that seem to have been important in influencing grain trade in the past, and to suggest some of the more important forces at work shaping China's future grain trade. III. GRAIN TRADE PATTERNS: A DESCRIPTIVE OVERVIEW The pattern of China's grain trade has varied markedly since 1949. During the 1950's, the PRC was a consistent net exporter of grains. Grain imports during that decade never exceeded 200,000 tons per year, while exports, primarily rice, rose steadily through 1959. Net exports of grain between 1955 and 1960 averaged over 1 million tons per year (table 1). This pattern of trade shifted abruptly in 1971, when the PRC began a large-scale program of grain imports following a disastrous decline in foodgrain production which began in 1959 and saw 1960 per capita grain production fall to three-fourths of mid-1950's levels. From 1961 to the present, China has remained a substantial net importer of grains despite a return of per capita production to close to pre-Great Leap Forward levels by the mid-1960's. Despite large grain imports since 1961, PRC rice exports have continued to be substantial and an important source of foreign exchange earnings. Grain Imports Wheat has consistently been the PRC's major imported grain, although substantial amounts of coarse grains and small quantities of rice have been imported in some years. Wheat flour was imported in 1961 and 1962 but has not been purchased in significant quantities since then. (See app. table 1 for a breakdown of trade by grain.) TABLE 1.-PRC GRAIN TRADE, CALENDAR YEARS 1952-77 Sources: Riley H. Kirby. "Agricultural Trade of the People's Republic of China, 1935-69." Foreign Agriculture Economic Report 83, U.S. Department of Agriculture, Economic Resource Service, August 1972. Appendix table I. Although the Chinese have said little about the end uses of imported grains, most are used for human consumption rather than for feed. Use is largely limited to the major urban areas in coastal northern China where wheat rather than rice is the staple food grain. It, therefore, appears that coarse grains are an inferior substitute for wheat and have thus far been purchased primarily when grain imports are large and foreign exchange pressures severe or wheat unavailable at desired delivery schedules or prices. During the past, China's grain imports were remarkably stable in comparison with those of other centrally planned economies. Wheat imports during the 1960's averaged 4.7 million tons annually and ranged between 3.9 and 5.7 million tons per year. Combined wheat and coarse grain imports showed a similar stability-an average import level of 5.2 million tons per year and a range of from 3.9 to 6.2 million tons. Between 1971 and 1976, this stability diminished; there is now more uncertainty about the annual level of imports. The average level of wheat imports, for example, was somewhat lower 4 million tons annually-while the range of imports has been considerably greater, varying from a low of 1.9 million tons to a high of nearly 6 million tons. The range of combined wheat and coarse grain imports has been even greater. Since the average level of Chinese wheat imports has not risen appreciably, the PRC share of world imports has tended downward over time. During the 1960's, for example, PRC wheat imports averaged nearly 10 percent of total world wheat imports and China was the world's largest or second largest importer in all but 2 years. China's average market share has declined somewhat during the 1970's to less than 7 percent, although the PRC was still the leading wheat importer during both the 1973-74 and 1974-75 marketing years.1 China's major suppliers of grain have been Canada and Australia and the PRC has been a leading export market for both of these countries. (See app., table 2, for the value of grain imports by country.) In purchases from these countries, China has used long-term agreements to cover a substantial part of import requirements. This is one of the few areas in which the PRC has used such agreements. TABLE 2.-PRC LONG-TERM GRAIN AGREEMENTS, 1961-77 The PRC also signed a preliminary agreement in 1973 with Argentina for 3 million tons of wheat and corn to be delivered between 1974 and 1976. The agreement was never ratified, however, and Argentine shipments during the period fell far below this amount. China has apparently found this an expedient means of insuring grain supplies during periods of high import requirements or tight world market supply situations. The agreements have also presumably been useful in bargaining with the grain boards of the two countries. The PRC was also a major market for U.S. grains during 1973 and 1974. In both years, the PRC was the third largest U.S. wheat export market, accounting for about 7 percent of wheat exports in both calendar years. Grain Exports PRC grain exports since 1961 have consistently included both coarse grains and rice and on an irregular basis small amounts of wheat (table 1, app. table 1). Coarse grain exports have been small in quantity, averaging just over 100,000 tons annually during the 1970's, and are shipped primarily to Japan and Hong Kong. 1 July-June. Rice has constituted the bulk of Chinese grain exports since the 1950's. Between 1965 and 1976, known exports averaged 1.2 million tons per year. Additional amounts, substantial in some years, have been shipped to other Communist Asian countries. Lack of information on these shipments seriously obscures the total of PRC rice exports and changes in this total over time.2 The level of known exports has placed China among the three leading world rice exporters, behind only the United States and Thailand in most years. During the past decade, China's exports have accounted for an average of 16 percent of world rice exports. But, during 1973 and 1974, China was the world's leading rice exporter, accounting for over one-fourth of total world exports in both years. The majority of Chinese rice is marketed in the Far East, with Hong Kong, Malaysia, Singapore, and Sri Lanka the consistent purchasers. In recent years, Indonesia has been an important but variable market. The Far East and Cuba combined, generally account for at least three-fourths of total PRC exports of rice. The majority of China's rice sales appear to be straight commercial transactions aimed at generating foreign exchange. However, trade with both Sri Lanka and Cuba is conducted on a barter basis, rice for rubber and rice for sugar respectively. These relationships are not strictly commercial; China has frequently met a sizable part of its commitment to Sri Lanka with rice purchased in Southeast Asia. The Domestic Role of Grain Trade China's grain import program has provided an important safety valve to the PRC economy since 1961 by supplementing domestic grain production. On the export side, the program has also provided a significant source of foreign exchange earnings. One measure of the importance of the grain import program to the PRC is the amount of foreign exchange allocated to grain purchases. Between 1961 and 1965, grain purchases accounted for 26 percent of total imports (table 3). By the 1970's, this figure had dropped, but grains still averaged 11 percent of total imports for the 1971-75 period. Since grain imports involve hard currency payments, another measure of the size of imports is its relation to total hard currency exports. Between 1961 and 1964, PRC grain imports amounted to over 50 percent of the value of hard currency exports. Between 1971 and 1975, the average was nearly 15 percent. Thus, the cost of the import program in terms of nongrain imports foregone would appear to be substantial. China has only infrequently mentioned the size of its grain trade. One statement referring to 1972 mentioned 5 million tons of cereals imported and 3 million tons of rice exported. This implies exports of 2 million tons in addition to those listed in table 1. If true, most of this would have gone to Communist Asia. It is unlikely that unreported exports have been this high in most years. FBIS 1-251, Dec. 29, 1972, p. B5. |