WHEAT IN CHINA: SUPPLY, DEMAND, AND TRADE IN THE 21ST CENTURY

The future role of China in world wheat markets is a compelling and important issue for producers in the Northern Plains. Some analysts have estimated that China will continue to demand large quantities of imported wheat. Others have forecast that China will gradually move to a position where domestic supply will meet the nation's demand for wheat. China's own economists also have conflicting views. Chinese Academy of Agricultural Sciences researchers have predicted that the nation will remain at least self-sufficient and could be a large exporter. China's net imports of grain decreased steadily between 1989 and 1993. Moreover, despite large imports in 1994 and 1995, China has had an overall agricultural trade surplus with the United States during most of the 1990s. In contrast, other economists continue to argue that China will remain a large importer of grain, including wheat. The overall goal of this paper is to explore the special features of China's wheat economy and increase our understanding of its domestic wheat sector and its current and future participation in global markets. The report establishes a comprehensive, transparent, and empirically sound basis for assessing the future growth of China's wheat supply, demand, and trade needs. The first steps in creating a framework to assess China's future grain balances are to examine China's current grain balance sheet and to evaluate a series of factors, beyond income and prices, which may have an important impact on Chinese grain demand and supply. Currently, wheat producers still face serious obstacles in maintaining yield increases. Potential for future productivity increase are difficult to gauge since more of China's wheat area is irrigated than that of any other main producing nation. China's research system, which historically produced some of the world's most advanced wheat technology is in disarray. As China's markets develop, its patterns of demand are changing, but pressures move in many directions. China is the only country in East and Southeast Asia that has a large wheat-producing, wheat-consuming rural population, and so future income rises and population shifts may create demand pressures different than those observed elsewhere in Asia. This discussion also necessarily entails a close look at the impact of recent measures to liberalize China's grain sector. A wheat supply and demand projections model is developed. In this model, a series of important structural factors and policy variables are accounted for explicitly, including urbanization and market development on the demand side, and technology, agricultural investment, environmental trends, and institutional innovations on the supply side. After reviewing baseline assumptions and forecasts, the results of the baseline projections are presented. Then, alternative scenarios are examined under different rates of growth in income, population, and investment in research and irrigation, and policy implications are derived from the alternative scenarios. The projections show that under the most plausible expected growth rates in the important factors, China's wheat imports will rise slightly in the late 1990s to 13 million metric tons before peaking and gradually declining to zero through 2020. Wheat import trends are in stark contrast to those of feed grains, which by 2000 are expected to expand sharply and continue to rise throughout the first two decades of the next century, eventually exceeding 20 million metric tons. Increasing maize imports mainly arise from the accelerating demand for meat and feed grains. Increasing wheat imports in the short run are caused by steadily expanding demand and a slowing of supply due to reduced investment in agricultural research in the late 1980s. After 2000, wheat imports are expected to stabilize, as demand growth slows due to increasing urbanization, declining population growth rates, and changes in the Chinese diet. As supply growth is sustained with the ongoing recovery of investment in agricultural research and irrigation, supply is projected to increase and slowly begin to meet most of the national demand by 2020. This means that China's future role in the world wheat market may be quite different than its role in the past