Famine to Feast: China's attempt to feed itself roils wheat trade

June 22, 2004 -- CropChoice news -- Charles Hutzler, Wall Street Journal, 06/18/04: When Chen Yuanyong of Fulou Village surveys his crop on the North China Plain, wheat producers around the world want to know what he sees.

A smile brightens Mr. Chen's sun-darkened face as he tears the top from a stalk and examines the grain. "Long and thick," he says, approvingly. He thinks the harvest will provide food for his family as well as a surplus to sell on the local market.

The world's most populous country is the world's top wheat producer and a huge wheat consumer. It's also the biggest conundrum of the global food market. How much of China's demand will be met by Chinese farmers? Will the country need imports? Could advances in biotechnology one day unleash China as a major exporter?

The Chinese Ministry of Agriculture says this season's wheat harvest is expected to yield 3% more than 2003. That means less export opportunity for the rest of the world, including the U.S., which has long relied on the economic might of its agricultural exports and has been hoping for a surge in Chinese wheat imports.

But Chinese agriculture is largely a mystery to outsiders thanks to a series of constantly changing proclamations from a government anxious about feeding its own people. Wheat has become an icon of China's push for food self-sufficiency, and its production is closely monitored by the government.

A decade ago, a report from the Worldwatch Institute, a Washington-based environmental research group, set off a firestorm in Beijing. Chinese imports were rising after a series of lackluster harvests and Worldwatch predicted that China's demand would suck up a huge amount of the world's wheat and other grains, forcing up prices.

In response, Beijing ordered each province to be self-sufficient. To encourage farmers, the government set a minimum price and gave state bureaus subsidies to buy grain. Wheat production boomed to 123 million tons in 1997 from 99 million tons in 1994, according to the U.S. Department of Agriculture. Imports, accordingly, fell sharply.

But as surpluses swelled, storage costs rose and market prices fell. Farmers turned their energies to other crops such as cotton and vegetables and the USDA reckons the 2003 wheat harvest fell to 86 million tons.

To the chagrin of overseas exporters, China imported less wheat than it needed to fill the gap. Analysts at the USDA and the United Nation's Food and Agriculture Organization think China chose instead to eat into its reserves. China doesn't release figures on its grain stocks.

Visits by Chinese delegations to Chicago and the Pacific Northwest in recent months prompted speculation in Washington that China could once again become a major customer. U.S. Wheat Associates, an American trade group, is courting the Chinese and earlier this year sent congratulatory Chinese New Year wishes, "for a smooth path to happiness and prosperity in the year of the monkey."

But China's appetite for imports is far from clear. The government wants to cut dependence on foreign markets and earlier this year began another push to increase production. The government now talks of "self-reliance." According to Han Jun, a senior government agriculture expert, that means filling 95% of domestic demand for wheat.

Government officials still worry that large Chinese imports would push up prices. China accounts for a third of the world's trade in soybeans, which feeds its burgeoning livestock industry, but similar huge purchases of wheat "would be a disaster for the whole world," says Mr. Han.

Mr. Chen and other wheat growers in Fulou Village, which is in China's central Henan province, say the government has cut the grain tax by 60%. They recall in April seeing a notice posted in town offering a subsidy of about $1.60 for every sixth of an acre sown with wheat.

"This is really lightening our burden," says Mr. Chen, who farms one and two-thirds acres. His plot is several football fields in length but only wide enough for his 17-horsepower Golden Bull tractor to make one turn. Farmers are contemplating boosting wheat plantings next year, although Mr. Chen and his neighbors wonder if they'll receive their subsidies. Previous promises of government support have gone unmet.

After Mao Tse-tung ordered farms collectivized in 1958, the country was beset by famine. In Fulou, people took to wandering the land, eating grass and begging for food. Mr. Chen, who is now 40, says that his parents lost their hair from malnourishment. To prove the success of its agricultural system, China exported grain as the country starved.

Free-market reforms in the late 1970s allowed a return to household farming. National wheat production began to soar as farmers were able to buy chemical fertilizers and new seed strains. The Chen family's harvests have increased seven-fold since China's market reforms. Chinese scientists are now developing genetically modified wheat, although the government hasn't yet approved it for commercial use, the scientists say.

China 's newfound self-sufficiency has freed up the year's second planting for a myriad of cash crops, such as radishes and garlic, which are sold across the world. That's helping to boost China's political influence, particularly in Asia.

Happy with his wheat prospects, Mr. Chen is eager to join the export game and is planning to plant chili peppers in his fields when the wheat harvest is in. "Would Americans buy them?" he asks.

--Roger Thurow and Scott Kilman contributed to this article.

Write to Charles Hutzler at charles.hutzler@wsj.com

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