The future of Chinese agricultural policy
Opportunities and challenges for Australian grains, beef and dairy exports
Author: James Fell
China announced major changes in its direction of agricultural policy.
Each year China sets out policies in its No. 1 Document. The 2017 No. 1 Document was unique because it marked a clear directional change for Chinese agricultural policy. The emphasis of the new policy direction is on supply side reform. The longevity of the reforms in the 2017 No. 1 Document was unclear, but the 2018 No. 1 Document and Rural Revitalisation Strategic Plan 2018–2022 confirmed a continuation of the 2017 reform direction, with an emphasis on the revitalisation of rural areas. This report provides a qualitative assessment of the reforms, focussing on the 2017 announcements.
The changes feature principally supply-side structural reform of Chinese agriculture.
Broadly speaking, the reforms described in the 2017 No. 1 Document include industrialising agriculture, increasing the size of farms, identifying regions for production specialisation, broadening the range and quality of crops, improving the quality of livestock products and using international markets to complement domestic supply. Commodity-specific policies include reducing corn production and stockpiles, continuing the market pricing of corn, maintaining current production levels of pork, rice and wheat, and raising sheep, goat and beef production.
Reforms are also regulatory, with a major focus on food quality and safety rules.
Food safety and quality are a major focus of the new policies. Other institutional policy adjustments include strengthening international agricultural cooperation and strengthening scientific research.
The outlook for Australia's grain exports to China is mixed.
Moves to improve production specialisation and grain quality are expected to make Chinese grain more price-competitive and could soften demand growth for Australian grain for milling purposes. On the other hand, livestock sector developments should increase demand for imported feed wheat and barley once China's corn stocks have fallen from elevated levels.
The changes present new opportunities for Australian livestock product exporters.
Overall the picture appears positive for livestock exporters. Demand for Australian milk powders is expected to be boosted by China's dairy product production goal, which would likely require higher powder imports. The improvement of food safety standards is expected to boost import demand for meat from countries like Australia that can readily comply with higher standards. The industrialisation of China's livestock industries is expected to result in higher demand for Australian live feeder cattle.
Other countries are already exploiting the demand for improved livestock genetics.
The Chinese Government's direction for genetic improvements in dairy and beef cattle provides Australia with opportunities to increase breeder cattle and bovine semen exports. Despite concerns that selling Australia’s genetic stock reduces demand for Australian livestock products in the long term, if Australia doesn’t export high quality genetic material then other countries will do it and take advantage of short term demand. Australia would forgo an opportunity. Australia is currently a minor exporter of genetic material to China where the market is dominated by Canada and the United States.
Strong income growth is likely to offset the effects of policy changes.
The growing demand from China for agricultural products is expected to remain a major influence on Australian agriculture regardless of policy changes. However, an understanding of the changing policy environment will be important for Australia’s agriculture industry if it is to maximise gains into the future.
The policy reforms present mutually beneficial cooperation opportunities.
Based on the direction of China’s agricultural policies and Australia's growth in trade with China, there are potential areas for greater focus to achieve outcomes that are in the interest of both countries. At present, agricultural cooperation in the areas of biosecurity, genetics, food safety and policy development appear the most promising.
Every five years since the 1950s the Communist Party of China (CPC) has released a document known as the Five Year Plan, which provides the broad policy direction of the CPC. It issued the thirteenth and most recent Five Year Plan in December 2015, which covers the period from 2016 to 2020. The thirteenth Five Year Plan sets forth China’s strategic intentions and defines its major objectives, tasks and measures for economic and social development (CCCPC 2015).
Additional to the Five Year Plans, the Central Committee of the CPC and the State Council jointly produce annual policy documents. These documents are more detailed, containing policies for achieving the objectives and tasks outlined in the Five Year Plans. The first policy document, known as the No. 1 Central Document (herein referred to as the No. 1 Document), was released in 2004 and rural and agricultural issues have been a common focus. Common themes have included addressing low producer incomes, agricultural consolidation and modernisation, rural transformation, water security and water infrastructure.
In addition to the annual No. 1 Documents, the Chinese Government produces multi-year plans. Examples of these are the Development Plan for the Milk Industry 2016–2020, the National Beef and Sheep Meat Development and Promotion Plan 2013–2020 and the Rural Revitalisation Strategic Plan 2018–2022.
By its nature, the No. 1 Document outlines policies without providing specific details. Consequently, only generalised qualitative inferences about economic impacts of the No. 1 Document’s policies are able to be made. A key change in the 2017 No. 1 Document was a focus on supply-side reforms. This was highlighted in the title of the document, "Several Opinions of the CPC Central Committee and the State Council on Carrying forward the Structural Reform of Agriculture on the Supply Side and Accelerating the Cultivation of New Kinetic Energy Driving the Development of Agriculture and Rural Areas." Such a focus is more specific than in past years and contrasts with the 2016 No. 1 Document, which focussed on modernising agriculture and improving the prosperity of farmers. Many of the other themes in the 2017 No. 1 Document have been carried over from previous years.
The longevity of the 2017 reforms was unclear because new policy announcements are made annually. However, the broad direction of that year’s policy changes was confirmed in the release of the 2018 No. 1 Document, which had a new emphasis on the revitalisation of rural areas. The new direction was also confirmed in the release of the Rural Vitalisation Strategy 2018–2022 Now that the general policy direction has been confirmed, this report focusses on the changes that came to prominence in the 2017 No. 1 Document.
The 2017 No. 1 Document advocates openness to international markets. This acceptance of a role for international markets has become stronger over the past decade. The 2017 No. 1 Document states that China should create a favourable environment for trade in agricultural products and should utilise international markets. While this appears to be overall positive for China’s demand for imported agricultural products, trade in the coming years has potential to be affected by China's caveats to this point. It wishes to "refine laws and regulations concerning anti-subsidy, anti-dumping and security measures against agricultural products, and investigate trade subsidies against imported agricultural products according to the law". Depending on interpretation, this could signal a heightened focus on import-related measures, such as anti-dumping.
The analysis in this report uses translations of the 2017 and 2018 No. 1 Documents in USDA–FAS (2017) and USDA–FAS (2018). ABARES released a summary of China’s current policies in Fell & Waring (2017), which was informed by the 2017 No. 1 Document and was updated by Fell (2018).
The key policy adjustments that came to prominence in the 2017 No. 1 Document can be categorised broadly into two groups: structural and institutional. This is not a comprehensive list, but includes policies that are expected to have particular significance for Australia’s agricultural trade. The structural adjustments include policies that target price-setting mechanisms, and set production and food supply goals. The institutional policy adjustments focus on the broader systems that support China’s agricultural sector. Specific policies from the 2017 No. 1 Document are organised under these categories as follows.
Announced policy adjustments
Structural policy adjustments
Price policy adjustments
- restructuring soybean subsidies
- dismantling and replacing the three-subsidies system (payments for general income support, seed and machinery). This involves replacing the old three-subsidies system with other subsidies and separating corn subsidies from prices.
- recommitting to the minimum prices for rice and wheat
- continuing the practice of allowing the market to determine the price of corn
- restructuring the dairy industry.
Production and supply policy adjustments
- using international markets to complement domestic supply
- reducing corn stocks.
- increasing the size of farms
- targeting zero growth for chemical use in agricultural production
- identifying the most productive regions for particular commodities
- broadening the range of crop varieties, and quality and range of crop outputs, such as high and low protein wheat
- maintaining current production volumes of rice and wheat
- reducing corn production
- raising herbivorous livestock production
- maintaining current pig meat production volumes.
Institutional policy adjustments
- Strengthening international cooperation in agriculture
- Refining food safety standards
- Strengthening scientific research
How to read this report
Chapters 1, 2 and 3 of this report provide an assessment of the policy changes and the potential consequent impacts on China’s import demand for Australian grains, beef and dairy products, in that order. The impacts are presented according to key economic themes. Chapter 4 discusses the opportunities for enhanced agricultural cooperation between the two countries stemming from the new policy direction. Chapter 5 summarises the potential implications of the policy changes for Australia.
ABARES Insights: Analysis of the future of Chinese agriculture
What China wants: Analysis of China's food demand to 2050
2018 No. 1 Document (US Department of Agriculture translation)
2017 No. 1 Document (US Department of Agriculture translation)
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