1. 1 Agricultural Policy Outlook Speaker: Fang Yan Rural Economy Division, NDRC November 13, 2013

2. 2 Challenges Facing China’s Agriculture Sector Growing import despite growth in grain production for consecutive nine years Agricultural subsidies substantially increase with descending policy effects Sustainable development restricted by resources and environment Protection of enthusiasm for production in main producing areas

3. 3 Food supply & demand has changed from “basically balanced with surplus” to “tight overall supply with emerging structural contradictions” Three key food products turned from net export to net import since 2009 Structural Changes in Food Supply & Demand

4. 4 Agricultural Commodities: Net Import since 2001 Trade deficit of agricultural commodities grew 10.4 times from 2004 to 2012 to reach USD49.1 billion FoodGrain Soybean Edible vegetable oil Cotton Sugar

5. 5 Note: Import tariff quotas represent the level of commitment in 2004. Actual imports of cotton and sugar went beyond import tariff quotas in 2012 because importers leveraged the price difference between domestic and overseas markets. Agricultural Commodities: Import Tariff Quotas vs. Actual Imports 10kt Wheat CornRice Sugar Cotton Import Tariff Quota Import 2010 Import 2012 5.8 times

6. 6 Agricultural Commodities: Global Production & Trade Volume Note: Global production, China production and China import are average values of the last three years. 59% 908 44% 21% 12% 8% 36% 34% 33% 6.68 8.57 4.62 2.57 14300 9900 3717 9334 1.72 5595 100mmt 10kt Wheat Corn Rice Soybean Cotton Sugar Global Production Global Trade Volume China’s Import

7. 7 Food Supply & Demand in International Market Share of grains per capita varies in different continents: food shortage mainly caused by poverty.Share of grains per capita varies in different continents: food shortage mainly caused by poverty. Share of Grains per Capita In kg World N. America OceaniaEuropeAsiaAfrica 33714001020640290160 1995/19962012/13Increase Food Production 173mmt2280mmt550mmt Trade Volume 210mmt290mmt80mmt Inventory-to-sales Ratio 17%22%5% 2013/14 estimate: 22.3%, record high since 2001/02. Source: FAO

8. 8 China’s Investment in Agriculture Financial support from central government Investment in agricultural infrastructure Total Green box Yellow box 1998 - 20121996 - 2010 Est.

9. 9 Central government spent more than 530 billion Yuan on food in 2012, i.e. 320 Yuan/mu (divided by sown area) or 0.9 Yuan/kg (divided by food production). The “four subsidies” totaled 166.8 billion Yuan, food subsidy plus comprehensive agricultural subsidy: 76 Yuan/mu food subsidy plus comprehensive agricultural subsidy: 76 Yuan/mu Per mu cost of food production increased by 110% when compared to 2003, average annual growth 9.7%. Per mu revenue from food production only equals to a migrant worker’s salary per eight days. Descending Policy Effects

10. 10 In Yuan/50kg Price of Agricultural Commodities since 2004 Moderate advances in price now “capped” Min. Purchase or Temporary Storage Price Domestic Purchase Price Early indica rice Late indica rice Japonica rice Wheat Corn Soybean Cotton Rapeseed Temporary Storage Percentage Change 2012 over 2004 (%)

11. 11 Profit rate of cost (PRC) varies substantially among different crops and years PRC of japonica rice grew from 40% in 2009 to 59% PRC of japonica rice grew from 40% in 2009 to 59% Wheat drop from 27% to 17%; Wheat drop from 27% to 17%; Rapeseed dropped from 10% to 2%; Rapeseed dropped from 10% to 2%; Soybean maintained at 30% or so; Soybean maintained at 30% or so; Cotton volatized between 13% and 74% Cotton volatized between 13% and 74%

12. 12 Year Total Cost Net Profit Cash Earnings Materials and services LaborLand Seeds Fertili- zers Pesti- cides Machi- nery Yuan 200337718719589241385334211.5 20043952002171123214154197373.9 20054252122584143815162123318.8 20064452252687164715268155356.7 20074812402891185416082185404.6 2008562288311182169175100186434.3 2009600297341182173188115192466.7 2010673312401112285227133227551.4 2011791358461282399283150251642.2 Growth 2011 over 2003 (%) 11092144121154309106184633204 Food Production Cost

13. 13 It is becoming more and more difficult to defend the redline of 1.8 billion mu arable land Space left for increasing food acreage is smaller than ever Potential to increase effectively irrigated area remains low Two pressing issues: and degrading quality of arable land Two pressing issues: non-point source agricultural pollution and degrading quality of arable land Sustainable Development Restricted by Resources and Environment

14. 14 Two pressing issues: and degrading quality of arable land Two pressing issues: non-point source agricultural pollution and degrading quality of arable land  China consumes 57 million tons of pure chemical fertilizer every year, or 480kg per hectare, which is 4.1 times of the world’s average consumption.  Pesticide consumption is also above the world’s average level.  Soil erosion seen on 360 million mu of arable land; soil thickness in Northeast China reduced by 70%. Sustainable Development Restricted by Resources and Environment

15. 15 Two pressing issues: and degrading quality of arable land Two pressing issues: non-point source agricultural pollution and degrading quality of arable land  240 Groundwater drawdown funnels formed in the country; North China Plain has become the largest funnel in the world, with overdraft area of deep confined ground water more than 70,000km 2.  150 million mu of wetland reclaimed, total wetland area reduced by 50% or more.  Waste water discharged by animal husbandry and aquaculture exceeds 10 billion tons, more than the sum of industrial wastewater and domestic wastewater.  90% of grassland subject to degradation at varying degrees, including 2.3 billion mu of moderately and heavily degraded grassland; wetland area reduced by 50% or more. Sustainable Development Restricted by Resources and Environment

16. 16 How to protect the interests of main grain producing areas? Distribution of Core, Non-core and Backup Grain Producing Areas Core grain producing areas: 37.1 billion kg Non-core grain producing areas: 2.25 billion kg Legend Core grain producing areas Non-core grain producing areas Backup areas

17. 17 How to protect the interests of main grain producing areas? National Average Main Grain Producing Provinces National Average Key Grain Producing Counties RevenueExpenditure

18. Agro Products Consumption Forecast 2015 Urbanization rate: 51.5% (52.6% in 2012) Per capita disposable income of urban residents: 26810 Yuan Per capita net income of rural residents: 8310 Yuan - The 12 th Five-year Plan 2020 Urbanization rate: 60% Per capita disposable income of urban residents: more than 38000 Yuan Per capita net income of rural residents: more than 10000 Yuan (equivalent to per capita income of urban residents in 2006) 18

19. Food Intake per Capita by 2020 Grain: 135kg Edible vegetable oil: 12kg Beans: 13kg Meat: 29kg Egg: 16kg Milk: 36kg Vegetables: 140kg Fruits: 60kg Aquatic products: 18kg Factors boosting agro products consumption: growing population, accelerated urbanization and optimized consumption structure 19

20. 20 Agricultural Policies Food safety: a basic national policy that should always be adhered to Market-oriented price regulation Sustainable development of agriculture

21. Food safety as a basic national policy must be adhered to by “retaining essence and removing dregs” Priority given to staple food Cultivation of comprehensive production capacity Interest compensation mechanism for producing and marketing areas Utilization of resources from international market Food safety: a basic national policy that should always be adhered to

22. Market-oriented price regulation To break through the “ceiling” that caps prices of agricultural products

23. 23 Sustainable development of agriculture Sustainable development of forests, grasslands and seas to relieve the pressure on domestic resources; Solution to outstanding environmental issues Adjustment of planting structure, crop rotation, ecological restoration

24. 24 To facilitate advancement of agricultural technologies: Improved varieties; new cultivation techniques; water-saving technologies; recycle of straws; utilization of biogas; promotion of pesticides with low toxicity/pesticide residues and slow-release fertilizers with high efficiency; farm machinery and equipment Improved varieties; new cultivation techniques; water-saving technologies; recycle of straws; utilization of biogas; promotion of pesticides with low toxicity/pesticide residues and slow-release fertilizers with high efficiency; farm machinery and equipment Sustainable development of agriculture

25. To provide subsidies to governance projects and affected farmers by utilizing available funding sources Sustainable development of agriculture

26. 26 Thank You!