What Determines China's Grain Imports and Self‐sufficiency? The Role of Rising Domestic Costs and Varying World Market Prices

• Author: Tianxiang Li,Wusheng Yu,Jing Zhu
• DOI: http://doi.org/10.1111/cwe.12299
• Published date: 01 September 2019
• Date: 01 September 2019

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 1–24, Vol. 27, No. 5, 2019

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*Wusheng Yu, Professor, Department of Food and Resource Economics, University of Copenhagen, Denmark.

Email: wusheng@ifro,ku.dk; Tianxiang Li, Postdoc, College of Economics & Management, Nanjing

Agricultural University, China. Email: txl0428@njau.edu.cn; Jing Zhu (corresponding author), Professor, China

Center for Food Security Studies, Nanjing Agricultural University, China. Email: crystalzhu@njau.edu.cn. Zhu

and Li acknowledge nancial support from the National Natural Science Foundation of China (No. 71803085

and No. 71673142), the China Postdoctoral Science Foundation (No. 2017M621766), Fundamental Research

Funds for the Central Universities (No. KJQN201949) and Priority Academic Program Development of Jiangsu

Higher Education Institutions.

What Determines China’s Grain Imports and

Self-sufciency? The Role of Rising Domestic

Costs and Varying World Market Prices

Wusheng Yu, Tianxiang Li, Jing Zhu*

Abstract

China’s grain sectors have faced unprecedented challenges in recent years as the

ever-increasing and historically high level of grain output has failed to reduce grain

imports. On the contrary, high grain imports and high domestic stock have accompanied

historically high domestic output, a situation dubbed the “triple high” phenomenon

in current policy discussion. This paper explores the role of widening domestic–world

market price gaps in determining the triple high phenomenon. Unlike earlier studies

that relied on production capacities, this paper argues that domestic production and

demand (hence imports) are functions of domestic and world market prices and proposes

an analytical framework to explicitly capture such price gaps under restricted trade

linkages in general equilibrium. Following this approach, a set of price scenarios for the

2011–2020 period are constructed and simulated in a computable general equilibrium

model. Results from the core scenarios, in which recent domestic and world market

price trends are assumed to continue, suggest that further widening price gaps would

substantially increase grain imports and reduce domestic output (by 60 million tons) and

self-sufciency ratios from base levels. In the alternative scenarios with larger (smaller)

price gaps, we nd higher (lower) imports and larger (smaller) decreases in domestic

output and self-sufciency ratios. Such results provide important policy implications as

China’s agricultural policy undergoes signicant adjustment.

Key words: computable general equilibrium model, domestic–world market price gaps,

food security, grain imports, self-sufciency ratio, triple high

JEL codes: Q11, Q17, Q18

Wusheng Yu et al / 1–24, Vol. 27, No. 5, 2019

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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I. Introduction

As the world’s most populous nation, China has largely managed to feed approximately

21 percent of the world population using less than 10 percent of the global cultivated

land (Cater et al., 2012; Li et al., 2016). Because of its enormous size, China’s changing

grain demand and supply balance in connection with its declared self-sufciency goals

signicantly inuences global food security (Anderson and Strutt, 2014a; Huang et al.,

2017) and has attracted persistent analytical attention (Fukase and Martin, 2016; Zhu

et al., 2018). While China’s main policy goal used to be to secure sufcient domestic

supply to meet ever-growing domestic demand with trade playing a minor role, a new

situation characterized by increasingly higher domestic grain prices relative to the

corresponding world market prices has emerged since 2014, despite rising domestic

grain output in the same period. This has led to the hotly debated situation of high

domestic output (produced at costs higher than world market prices), high stockholding

and high imports, the so-called “triple high” phenomenon. This new situation has

prompted major changes to China’s agricultural policy making in the most recent past

(Yu, 2017) and also demands new analytical support for policy making.

While a substantial body of literature has projected China’s grain demand, supply,

trade and self-sufciency ratios, we argue via a critical review that the analytical methods

used in these studies are generally not suited for analyzing the current situation. Existing

projections range from simple extrapolations based on historical trends of demand

shifters (such as income growth and demographic changes) and supply shifters (such as

developments in yields and availabilities of land and water) to projections based on more

sophisticated structural economic models that have a certain degree of representation of

domestic–world market linkages. As shall be reviewed in detail in the next section, the

rst type of projections tend to emphasize the concept of “production capacity” rather

than effective market supply, whereas the second type either suffers from inadequate

representation of domestic–world market linkages or relies upon outdated market

situations in which the pressure to import was relatively minor. Thus, they offer limited

value vis-à-vis the triple-high challenge that China is confronting at the moment. We

therefore argue that a new analytical approach is needed to address the current situation.

Following the existing literature, supporting domestic supply at the capacity level

for reducing the need and extent of imports is therefore quite apparent, as it is consistent

with the policy goal of a very high level of grain self-sufciency. Much of the related

policy research is then carried out for the purpose of designing policy to boost domestic

grain production to the capacity level (e.g. by incentivizing plating decisions, increasing

yields and ensuring affordable input supply) to meet growing domestic demand. In this