what china wants: analysis of china’s food demand to...

WhatChinawants

AnalysisofChina'sfooddemandto2050PatrickHamshere,YuSheng,BrianMoir,FarazSyedandCarolineGunning‐Trant

Research by the Australian Bureau of Agricultural

and Resource Economics and Sciences

Conferencepaper14.3March 2014

Paper presented at the 44th ABARES Outlook conference 4–5 March 2014, Canberra, ACT

WhatChinawants ABARES

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©CommonwealthofAustraliaOwnershipofintellectualpropertyrightsUnlessotherwisenoted,copyright(andanyotherintellectualpropertyrights,ifany)inthispublicationisownedbytheCommonwealthofAustralia(referredtoastheCommonwealth).CreativeCommonslicenceAllmaterialinthispublicationislicensedunderaCreativeCommonsAttribution3.0AustraliaLicence,saveforcontentsuppliedbythirdparties,logosandtheCommonwealthCoatofArms.

CreativeCommonsAttribution3.0AustraliaLicenceisastandardformlicenceagreementthatallowsyoutocopy,distribute,transmitandadaptthispublicationprovidedyouattributethework.Asummaryofthelicencetermsisavailablefromcreativecommons.org/licenses/by/3.0/au/deed.en.Thefulllicencetermsareavailablefromcreativecommons.org/licenses/by/3.0/au/legalcode.Thispublication(andanymaterialsourcedfromit)shouldbeattributedas:Hamshere,P,Sheng,Y,Moir,B,Syed,F&Gunning‐Trant,C2014,WhatChinawants:AnalysisofChina'sfooddemandto2050,ABARESconferencepaper14.3,Canberra,March.CCBY3.0.Coverphoto:AmyGuihotCataloguingdataHamshere,P,Sheng,Y,Moir,B,Syed,F&Gunning‐Trant,C2014,WhatChinawants:AnalysisofChina'sfooddemandto2050,ABARESconferencepaper14.3,Canberra,March.ISSN:1447‐3666ABARESproject:43433InternetWhatChinawantsisavailableat:daff.gov.au/abares/publications.DepartmentofAgricultureAustralianBureauofAgriculturalandResourceEconomicsandSciences(ABARES)PostaladdressGPOBox1563CanberraACT2601Switchboard+61262722010|[email protected]/abaresInquiriesregardingthelicenceandanyuseofthisdocumentshouldbesentto:copyright@daff.gov.au.TheAustralianGovernmentactingthroughtheDepartmentofAgriculturehasexercisedduecareandskillinthepreparationandcompilationoftheinformationanddatainthispublication.Notwithstanding,theDepartmentofAgriculture,itsemployeesandadvisersdisclaimallliability,includingliabilityfornegligence,foranyloss,damage,injury,expenseorcostincurredbyanypersonasaresultofaccessing,usingorrelyinguponanyoftheinformationordatainthispublicationtothemaximumextentpermittedbylaw.AcknowledgementsTheauthorsthankJammiePenmforhisinsightsduringtheprojectandforcommentsonthedraft.


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Contents

1 Summary....................................................................................................................................................1

2 Introduction..............................................................................................................................................3

3 Driversoffooddemand.......................................................................................................................4

Population.................................................................................................................................................4 Urbanisation.............................................................................................................................................5 Incomegrowth........................................................................................................................................6 Consumptiontrends..............................................................................................................................8

4 ProductionconstraintsinChineseagriculture.......................................................................10

Ahistoricalperspective....................................................................................................................10 Productivitygrowth...........................................................................................................................10 Inputuse..................................................................................................................................................11

5 Referencescenario.............................................................................................................................14

Consumption.........................................................................................................................................15 Production..............................................................................................................................................20 Imports....................................................................................................................................................21

6 Impactsoftheremovalofdomesticsupport...........................................................................24

Results......................................................................................................................................................24 7 Conclusion..............................................................................................................................................27

AppendixA:Sensitivityanalysis..............................................................................................................28

Populationassumptions...................................................................................................................28 Incomeassumptions..........................................................................................................................29

References..........................................................................................................................................................30

Figures

Figure1Chinapopulation,actualandprojected.................................................................................4

Figure2China,totalpopulation,male+female,distributionbyage..........................................5

Figure3China'surbanandruralpopulations......................................................................................6

Figure4Perpersonincomebyincomegroup......................................................................................7

Figure5Annualaverageincomegrowthrates.....................................................................................7

Figure6China–calorieconsumptionbysource.................................................................................8

Figure7Agriculturalmachinery,China................................................................................................12

Figure8FertiliseruseinChina.................................................................................................................12

Figure9Totalagrifoodconsumptionto2050,China.....................................................................15

Figure10Consumptionofselectedagriculturalcommodities,China.....................................16

Figure11Urbanconsumptionofselectedagriculturalcommodities,China.......................17

Figure12Urbanmediumandhighincomeconsumptionofselectedagriculturalcommodities,China............................................................................................................................17


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Figure13Ruralconsumptionofselectedagriculturalcommodities,China.........................18

Figure14Urbanperpersonconsumptionofselectedagriculturalcommodities,China20

Figure15Productionofselectedagriculturalcommodities,China..........................................21

Figure16Importsofselectedagriculturalcommodities,China................................................22

Figure17Removalofdomesticsupportscenario–totalagrifoodproductionin2050,China.........................................................................................................................................................25

Figure18Removalofdomesticsupportscenario–totalagrifoodconsumptionin2050,China.........................................................................................................................................................25

Figure19Removalofdomesticsupportscenario–totalagrifoodimportsin2050,China.....................................................................................................................................................................26

Figure20Removalofdomesticsupport–importsofselectedagriculturalcommoditiesin2050,China.......................................................................................................................................26

FigureA23Populationsensitivity–totalagrifoodconsumptionin2050,China...............28

FigureA24Populationsensitivity–totalagrifoodimportsin2050,China..........................29

FigureA25Incomegrowthsensitivity–totalagrifoodconsumptionin2050,China......29

Tables

Table1AverageproductivitygrowthratesbycommoditygroupinChina,from2009to2050..........................................................................................................................................................11


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1 Summary China’seconomicgrowthandprocessofurbanisationarebringingaboutprofoundchangestoChina’sagrifoodsector.Withdemandforagrifoodproductsprojectedtodoublebetween2009and2050,China'sagriculturalsectorispoisedtocontendwiththechallengesofdepletingnaturalresourceandrisinginputcoststomaintainorimproveproductivitygrowthofmostmajoragriculturalcommodities.

WiththepopulationofChinaexpectedtoincreasetoabout1.38billionin2050,thenatureoffooddemandwilldependonanumberoffactors,includingincomegrowthandurbanisation.Toinvestigatethesedevelopingtrends,thisstudyconsidersdemandacrossthreedifferentincomegroups:urbanhighincome,urbanmediumincomeandruralhouseholds.AnupdatedversionoftheABARESagrifoodmodel(Linehanetal.2012a)wasusedfortheanalysis.Thismodelisaneconomicsimulationmodelofglobalagriculturalproduction,consumptionandtrade.Inthisreport,agrifoodproductsincludeprimaryagriculturalproductsandlightlytransformedagriculturalproducts,suchasflourandmeat,butexcludehighlyprocessedfooditems.

WhileitisprojectedthatthemajorityofChina'sfuturefooddemandwillbemetbyanincreaseindomesticproduction,therearesignificantchallengeswithwhichtheChineseagrifoodsectorwillneedtocontendtomaintainorincreaseproductivitygrowth.Investmentintheindustryisongoingandrequiredtoensurethedegradationandavailabilityoflandandwaterresources,andrisingcostsforintermediateinputs,donotimpedeproductiongrowth.

TheriseintherealvalueoffoodconsumptioninChinawillbecharacterisedbyamovetowardmorewesternstylediets,withhigherintakeofhigh‐valuefoods,suchasdairyproducts,beef,sheepandgoatmeat,fruitandvegetables,andlowerintakeofstarchystaplestoward2050.Specifically,between2009and2050,therealvalueofbeefconsumptioninChinaisprojectedtorise236percent,dairyconsumption74percent,sheepandgoatmeatconsumptionby72percentandsugarconsumptionby330percent(in2009USdollars),albeitallfromarelativelylowbasewhencomparedwithdevelopedcountries.Withtheexceptionofdairyproducts,thisprojectedriseintherealvalueofconsumptionisprincipallyattributedtoanincreaseinthequantitydemandedratherthanasignificantprojectedriseinrealprices.Formeatanddairyproductsinparticular,thetrendismostpronouncedamongurbanhighincomehouseholds,whoseincomegrowthisassumedtobesignificantlygreaterthanthetwootherincomegroups.

Forruralconsumers,growthinhighvaluecommoditiesisalsoprojectedbuttheincreasesaresmaller,onaverage,thanboththehighandmediumincomehouseholdsinurbanareas.Thisisattributabletotheassumeddeclineoftheruralpopulationcombinedwithrelativelylowerincomegrowth.

FortraditionallyimportantstaplegrainsinChina,suchasrice,therealvalueofconsumptionisexpectedtofallacrossallthreehouseholdgroupsgiventheincreasingtrendtomorewesternstyledietsinurbanareas,combinedwiththedecliningsizeoftheruralpopulation.

China'sproductionofagrifoodproductsisprojectedtoincreaseformostcommoditygroupsbuttheincreaseissmallerthanthatofconsumption.Asaresult,aportionofthedemandforbeef,sheepandgoatmeat,oilseedsanddairyproductsisprojectedtobemetbyimports.Forthesecommodities,mostoftheimportgrowthisprojectedtooccurbetween2009and2029,ratherthanbetween2030and2050,becauseofhigherpopulationgrowthexpectedovertheearlierperiod


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Toinvestigatetheeffectpolicycanhaveonagriculturalprices,thisreportincludesascenariothatassumesthegradualremovalofalldomesticconsumerandproducersupportinChinabetween2030and2050.Inthisscenario,agrifoodproductionandconsumptioncontinuetorisemarkedlyoutto2050becauseofChina'sincomegrowth.However,therespectiveincreasesaremoresubduedthaninthereferencescenariobecausetheremovalofconsumerandproducersupportraisesproductioncostsandconsumerprices,andhencetotaldemandforagrifoodproductsislower.

TheopportunitiesthatChinesedemandgrowthwillprovidetofoodproducersandexportersto2050aresignificant.Tofullyrealisethoseopportunities,itwillbeimportantforAustralianindustriestoutilisetheworkingrelationshipswithdifferentagentsinthefoodsupplychaininChina.Forexample,supermarketsandhypermarkets,whichhaveanincreasingpresenceinurbanfoodretailinginChina,areplayinganimportantroleinmeetingthedemandforhigh‐valueproductsbyurbanconsumers.Withhigherincomes,urbanconsumersarealsoexpectedtoincreasetheirexpenditureonconveniencefoods,fastfoodandrestaurantfood.AustralianindustrieswillneedtoberesponsivetothesechangesiftheyaretosuccessfullycompeteintheChinesemarketoverthelongterm.


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2 Introduction Worlddemandforagrifoodproductsisexpectedtoincreasesignificantlythroughto2050,withtherealvalueofAsianagrifooddemandexpectedtodouble(Linehanetal.2012b).Theriseintheglobalpopulation,perpersonincomesandratesofurbanisation,especiallyindevelopingcountries,aredrivingthisincrease.NowhereisthismorepronouncedthaninChina,theworld'smostpopulouscountry,whereoverthepasttwodecades,realgrossdomesticproduct(GDP)hasrisenbyanaverageof10percentayearandfoodconsumptionhasalsorisensharply.Overthelongterm,therealvalueoftheprojectedincreaseinfooddemandinChinaaccountsformorethan40percentoftheglobalincrease(Linehanetal.2012b).

GivenChina'sgrowingimportanceinworldagrifoodmarkets,theobjectiveofthisreport,thesecondintheWhatAsiawantsseries,istobuilduponexistingABARESanalysisofglobalfoodconsumptionandproduction(Linehanetal.2012b,2013;ABARES2013)byexaminingthefactorslikelytoinfluencethefuturepatternofChinesefoodconsumption.TheanalysisisdistinctfromthatcarriedoutinWhatAsiawants:Long‐termfoodconsumptiontrendsinAsia(2013)becauseitfocusesonprojectedhouseholdconsumptiontrendsacrossthreedifferentincomestratainChina:urbanhighincome,urbanmediumincomeandruralhouseholds.

Urbanconsumersgenerallyaccountformostofthegrowthinhigh‐valueproductsovertheprojectionperiodbecauseofrisingurbanpopulationsandincomes.Asaresult,perpersonconsumptionofhigh‐valuecommoditiessuchasmeat,eggs,dairyproductsandfruitismuchhigherinurbanareasthaninruralareas,whileconsumptionoffoodgrainsislower.Sinceincomegrowthamonghighincomehouseholdsisalmostthreetimesthatofurbanmiddleincomehouseholds,mostoftheconsumptiongrowthisoccurringinthehighincomegroup.Fortraditionallyimportantstaplegrainssuchasrice,consumptionisexpectedtofallacrossallthreehouseholdtypesashighincomehouseholdsmoveawayfromstaplegrainstomorehighvalueproductsandasthesizeoftheruralpopulationdeclines.

Forthisanalysis,anupdatedversionoftheABARESagrifoodmodel(Linehanetal.2012b)wasdeveloped.Thismodelisaneconomicsimulationmodelofglobalagriculturalsupply,demandandtrade.Theagrifoodproductsincludeprimaryagriculturalproductsandlightlytransformedagriculturalproducts,suchasflourandmeat.Highlyprocessedfooditemsarenotincluded.Themodelhasbeenupdatedtoanewbaseline(from2007to2009).Consumptioninthemodelisapparentconsumption,whichreflectsthetotaluseofagrifoodproducts(food,feedandindustrialuse).Incomegrowthestimatesacrossthethreeincomestrataarealsoincluded,asidentifiedabove.Otherdemandandsupply‐sideassumptionscanbefoundinLinehanandcolleagues(2012b,2013).

Section2ofthisreportexaminesthedemanddriversexpectedtoinfluenceChina'sfooddemandtrendsto2050andpresentssomeoftheincomeandpopulationassumptionsusedintheanalysis.Section3discussestheproductionconstraintsorchallengeswithwhichChinawillhavetocontendoverthelongerterminordertomaintaingrowthinitsagriculturaloutput.Section4providesresultsfromthereferencescenario,whichidentifyprojectedconsumption,productionandtradetrendsto2050.Section5investigatesanalternativesetofconsumption,productionandimporttrendsifalldomesticconsumerandproducersupportisgraduallyeliminatedbetween2030and2050.Section6summarisessomeofthemainfindingsoftheanalysisanddiscussessomeofitsimplicationsforAustralia.


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3 Drivers of food demand Foodconsumptionatthenationallevelrelatestothesizeofthepopulationandtheamountoffoodconsumedbyeachperson.Changesinthetotalquantityoffoodconsumedperpersonaswellasinthemixoffoodsinthedietarelargelyinfluencedbydevelopmentsinlevelsofaffluenceandfactorssuchaschangesintheagestructureofthepopulationandlifestyle.Forthatreason,urbandwellerstypicallyhavedifferentdietsfromruraldwellers.Thischapterbrieflydiscussesthesefactorswiththeaimofdemonstratingtheireffectonfoodconsumptionovertime.

PopulationBetween1970and2010China’spopulationgrewfrom0.8billionto1.37billion(Figure1).Therateofgrowthoverthisperiodwasnoteven.Overthefirsthalfoftheperioditaveraged1.8percentayear,whileinthelatterhalfitslowedtoanaverageof0.8percentayear.Accordingtothemedium‐variantprojectionsoftheUnitedNations(UnitedNationsPopulationDivision2013a),slowerpopulationgrowthof0.3percentispredictedbetween2010and2030,beforethepopulationdeclinestoabout1.38billionby2050.

Figure 1 China population, actual and projected

Data source: United Nations Population Division 2013a

PartoftheslowinggrowthinpopulationhasbeenattributedtoChina’sone‐childpolicy,(Morgan,Guo&Hayford2009).However,therearenowadditionaleconomicandsocialfactorsrestrainingcouplesfromhavinglargefamilies,suchasdemandsformoreschooling,higherprofessionalaspirationsandeconomicinsecurity.AnyincreaseinChina’sfertilityratethatmightresultfromachangetotheone‐childpolicywouldthereforebelikelytobesmall,atleastafteraninitialsurge,andfertilitywouldcontinuetoremainbelowthereplacementrate(Morgan,Guo&Hayford2009).

China’sdecliningbirthrate,coupledwithincreasinglongevity,hasresultedinnotablechangestotheagedistributionofthepopulation(Figure2).Theproportionofyoungerpeopleinthepopulationhasdeclined,andisexpectedtocontinuetodecline,whiletheproportionofolderpeopleisincreasing.Thenumberofpeopleaged65andoveraccountedforonly5percentofthe

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populationin1990butisexpectedtoreachalmost25percentby2050(UnitedNationsPopulationDivision2013a).

Figure 2 China, total population, male + female, distribution by age

Data source: United Nations Population Division 2013a

Notes: 1970 and 2010: Estimates; 2050: Medium‐variant projections.

Thischangingagestructurehasaneffectonfooddemand.Olderpeoplehavelowernutritionalneedsandlowerfoodexpenditures.However,consumptionofdairyproducts,forexample,ishigherwhentherearechildreninthehousehold.

UrbanisationAnotherdriverofthechangesinfoodconsumptionistheproportionofthepopulationlivinginurbanareasinChina,whichhasincreasedmarkedlyinthepastfewdecades.In1990justover25percentofChina’spopulationlivedinurbanareas;in2011ithadincreasedto50percent;anditisprojectedtoincreasetomorethan75percentby2050(Figure3).Urbandwellershavehigherincomesanddifferentdietaryandshoppingpatternsfromruraldwellers.Perpersonconsumptionofmeats,eggs,dairyproductsandfruitismuchhigherinurbanareasthaninruralareas,whileconsumptionoffoodgrainsislower.

Whilemanyworkersfromruralareasmigratepermanentlytothecities,othersworkinthecitiesforanumberofyearsbeforereturninghome.PermanentmigrationhasbeendiscouragedbytheHukousystem,alsoknownasthehouseregistrysystem,thatrequirespeopletoregisterattheirplaceofresidenceandallowstheprovisionofhealth,educationandsocialwelfareservicesonlyintheplacetheyareregistered(Mullan,Grosjean&Kontoleon2011;Carrillo2004).

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Inthisreport,theurbanpopulationisdividedintotwostrataaccordingtoincome.Theyaredefinedasurbanhighincomeandurbanmiddleincome.Theterm"middleincome"isusedtodistinguishitfromruralincomes,whichare,onaverage,lowerthanurban"middleincomes".In2009,urbanhighincomehouseholdswereconsideredtocomprisethetopthirdofurbanperpersonincomesinChina(NationalBureauofStatisticsofChina2013a,b,c).Inthisreport,thisdefinitionisassumedovertheprojectionperiod.

Figure 3 China's urban and rural populations

Data source: United Nations Population Division 2012, National Bureau of Statistics of China 2013c, ABARES model

assumption

IncomegrowthChina’sGDPhasgrownmorestronglythaninmanyothercountries.Therehavebeenonlyafewyearsinthepast3decadesthatgrowthdidnotexceed8percent.Chineseconsumersnowhavemuchhigherrealincomesthantheydid30yearsago.

Urbanincomesare,onaverage,threetimesthoseoftheruralpopulationandthegapbetweenurbanandruralincomeshasbeenincreasing(Figure4).Incomeinequalityisalsohighandincreasingwithineachgroup,anditisassumedtodosoovertheprojectionperiod.Despiteaverageincomeshavingincreasedmarkedlyoverrecentdecades,thereremainsaconsiderableportionofthepopulationlivinginpovertywithlimitedcapacitytobuyfood.

AplantoaddresstheseinequalitieswasreleasedbytheStateCouncilinFebruary2013.(Salidjanova2013).Areductioninincomeinequalitywouldbeexpectedtoleadtoincreasesinthelevelandchangesinthecompositionoffoodconsumption.

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Figure 4 Per person income by income group

Note: 2009 incomes by income group were reported originally in yuan and were converted to US dollars according to a

fixed exchange rate of 6.8310 yuan/USD, as provided by the US Federal Reserve (2013). This exchange rate was applied

over the projection period.

Data source: Bureau of Statistics of China 2013a, b; ABARES agrifood model assumption

China'sGDPisexpectedtocontinuetogrowbutatadecliningrate.ItisassumedinthisanalysisthatChina’sGDPgrowthwilldeclineto5.5percentannuallyto2030,thentoanaverageof2.2percentayear.Despitethelowerassumedrateofgrowth,China’sGDPinrealtermswillneverthelessmorethanquadruplebetween2012and2050.Urbanhighincomesareassumedtocontinuetogrowfasterthanbothurbanmiddleandruralincomes,furtherwideningtheabsoluteincomedisparitybetweenthesegroups(Figure5).

Figure 5 Annual average income growth rates

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Data source: ABARES agrifood model assumption

ConsumptiontrendsHigherincomesinChinahaveresultedinanincreaseinfoodconsumptionandinchangedpatternsoffoodconsumption.Between1980and2009,totalfoodconsumptionperperson,measuredincalories,increasedby40percent(Figure6).Totalproteinintakeincreasedby73percent.Thecontributionofcerealstothetotalcalorieintakedeclinedfrom66percentin1980to48percentin2009andconsumptionofpulsesandstarchyroots,particularlysweetpotato,alsodeclined.Consumptionofmeat,whichcontributed5.9percenttoChina'scalorieintakein1980,grewto14percentin2009.Consumptionoffruit,vegetablesandmilkalsoincreasedoverthisperiod(FAO2013a).

Figure 6 China – calorie consumption by source

Data source: FAO 2013a

ThechangingdemographicsanddietsoccurringinChinahaveledtoachangeinthewayfoodismarketed.Modernandefficientfoodmarketingchainswithestablishedqualityandsafetyregimeshavebecomeincreasinglyprevalentinresponsetoconsumers’changingdemands(OECD‐FAO2013).SupermarketsaccountforanincreasingproportionoffoodretailinginChinaandthisisexpectedtocontinueastheurbancentresexpand.

ConsumptionoffoodinrestaurantshasalsoincreasedinChinaasincomeshaverisenandasthepopulationhasbecomemoreurbanised.Expenditureonfoodconsumedoutsidethehomebyurbanconsumersincreasedfrom15percentoftotalfoodexpenditurein2000to22percentin2009(Zhouetal.2012).Consequently,theconsumptionofsomefoods,suchasmeat,hasrisenbecauseitformsalargercomponentofrestaurantmealsthanofmealsconsumedathome.

GrowthinChina'spopulationandincomeswillcontinuetoinfluencefoodconsumptionintheperiodto2050.Despitetheslowingrateofpopulationgrowth,Chinaisexpectedtohave26millionmorepeoplein2050thanin2010,withthemajoritylivinginurbanareas(UnitedNationsPopulationDivision2012).WithGDPgrowthexpectedtoremainstrongbyinternational

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standardsovertheprojectionperiod,China'spopulationwillenjoythebenefitsofeconomicdevelopment.Risingincomeswillensurethatdemandwillgrowforawidervarietyoffoodsthaninthepast.Theformofthatdemand,intermsofthecommoditiesthatwillbedemandedandbywhichconsumergroups,isthefocusofthisanalysis.


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4 Production constraints in Chinese agriculture

China'sagriculturalsectorwillbechallengedtosupplythequantityandvarietyoffoodsbeingdemandedoverthenextfortyyears.WhileitisprojectedthatthemajorityofChina'sfuturefooddemandwillbemetbydomesticproduction(ABARES2013),thiswillnotbeeasy.Therearemanychallengestoimprovingproductivitygrowth,includingincreasinginputcostsanddepletedordeterioratednaturalresourcesusedinagriculturalproduction.Thischapterbrieflyaddressessomeoftheseissues.

AhistoricalperspectiveAgriculturalproductioninChinahasincreasedstronglyoverthepastthreedecades.Between1980and2011productionofvegetablesincreasedby10times,meatby5.5times,andwheatproductiondoubled(FAO2013b).Coarsegrainwasoneofthefewcommoditygroupswhereproductiondeclined.

Theincreaseinproductionhascomefromtheincreaseduseofsomeinputsandadvancesinproductivity,thatis,intheefficiencyofinputuse.Theinputsusedinagriculturalproductionincludelabour,land,capital(suchasmachineryandstructures)andintermediategoodssuchasfertiliser,pesticides,energy,seedandfeed.Wangandcolleagues(2013)estimatethatgrowthinproductivitycontributed2.7percentayeartoagriculturaloutputgrowth,equivalenttojustoverhalfofthetotal5.1percentannualgrowthbetween1985and2007.Theremaining2.4percentoftotalannualgrowthwasattributabletoincreasedinputuse.

Theuseofcapitalinagricultureexpandedby3.5percentandintermediategoodsby6.4percentayearbetween1985and2007.However,theuseoflabourandlandcontractedby0.4percentand0.6percentayear,respectively,throughthisperiod(Wangetal.2013).

Significantimprovementsinyieldscontributedtotheriseinproduction.Forexample,wheatyieldsincreasedfrom1.9to4.8tonnesperhectarebetween1980and2011,maizefrom3.1to5.7tonnesperhectareandsoybeansfrom1.1to1.8tonnesperhectare(FAO2013b).

ProductivitygrowthAgriculturalresearchanddevelopmenthasbeenamajorcontributortoproductivityadvancesandhencetogrowthinagriculturalproductioninChina.However,whileChina’saggregatespendingonagriculturalresearchexceedsthatofanycountryotherthantheUnitedStates,researchspendingrelativetothesizeoftheagriculturaleconomyhasbeenlowcomparedwithothercountries.Agriculturalresearchintensity(agriculturalresearchexpendituresasaproportionofagriculturalgrossdomesticproduct)inChinawas0.38percentin2000,whiletheaveragefordevelopingcountrieswas0.55percentandfordevelopedcountries2.35percent(Chen&Zhang2010).Whiletherehasbeensomeincreaseinprivateresearchexpendituresince2000,publicexpendituredominates.

GiventheongoinginvestmentinChina’sagriculturalsector,theanalysisinthisreportassumesproductivityinChineseagriculturewillcontinuetogrow,permittingChina'sfoodproductiontoincreasedespiteconstraintsontheavailabilityoflandandwater(discussedbelow).Theuseofcapitalandintermediateinputsisalsoassumedtoincrease.


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TherearetwotypesofproductivityimprovementsintheABARESagrifoodmodel:improvementinlandproductivityandimprovementsintotalfactorproductivity(TFP).Improvementsinlandproductivityreflectareductionintheinputoflandperunitofoutputofcroppingorlivestockproduct.Thisisapartialmeasureofproductivity,wherethemoreeffectiveuseofasinglefactor,land,leadstotechnologicaladvancement.TFPisameasureoftheratiooftotaloutputrelativetototalinputs,ofwhichtherecouldbemany.MoredetailsaboutproductivityassumptionsinABARESagrifoodmodelcanbefoundinLinehanandcolleagues(2013)

TheproductivityprojectionsusedinthisstudyareprovidedinTable1.TFPandlandproductivitygrowthratesareprojectedtobehigherforlivestock‐basedindustriesthanforcropping.

Table 1 Average productivity growth rates by commodity group in China, from 2009 to 2050

Productivitytype

Meat

(%)

Dairyproducts

(%)

Cereals

(%)

Fruitandvegetables

(%)

Otherfood

(%)

Total

(%)

Landproductivity

2.35 2.35 1.12 0.54 0.18 n.a.

Totalfactorproductivity

1.58 1.55 1.06 0.71 1.54 0.97

Note: other food includes sugar, eggs and oilseeds.

Data source: Agricultural Modelling Intercomparison and Improvement Project (AgMIP); ABARES Global Trade and

Environment Model (GTEM); ABARES Agrifood Model

ProductivityprojectionsusedinthisstudyarelowerthanOECD–FAO(2012)2001–2040projections.Forworldagrifoodproductionasawhole,theOECD–FAO(2012)projectstheaverageTFPgrowthtobe1.38percentayearfrom2001to2040.Thiscompareswithanassumptionof1percentayearfrom2009to2050usedinthisstudy.

InputuseFormanydecadesChinahadapoolofexcessrurallabouravailabletoagriculture.However,withindustrialprogressandthemovementofthepopulationtocities,thisexcesslabourhasdiminished.Kwan,Wu&Zhuo(2012)estimatethatbetween1995and2009thelaboursurplusfellfrom119millionto55million,orfrom37percentoftheagriculturalworkforceto22percent.Mai&Peng(2009)forecastthatsurplusrurallabourwillfalltoabout25millionby2015.Asitcontracts,wagescanbeexpectedtorisefurther.Asaresult,increasesinfoodproductioncannolongerbebasedontheutilisationofcheapsurpluslabour.

Asthesupplyoflabourhasdecreased,theuseoffarmmachineryinChineseagriculturehasgrownmarkedly.China'sstockoftractorshasincreasedsteadily,from7.8millionin1990to22.5millionin2011,anincreaseinaggregatecapacityfrom287millionkilowattsto977millionkilowatts(Figure7).Notably,theuseoflargeandmediumtractorshasincreasedatafasterratethansmalltractorssincetheearly2000s,reflectingthemodernisationoftheagriculturalsectoraslandhasbeenconsolidatedintolarger,morecommercialholdingsthaninthepast(ChinaEconomicReview2013).


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Figure 7 Agricultural machinery, China

Data source: National Bureau of Statistics of China 2013d

China'sagriculturaloutputgrowthcouldnothavebeenachievedwithouttheincreaseduseoffertiliser.Theannualuseofnitrogen,phosphorusandpotassiuminfertiliserincreasedby3.7percent,4.3percentand9.1percent,respectively,between1980and2012(Figure8),makingChinanowoneoftheworld’slargestusersoffertiliser.However,therateofgrowthinfertiliserusemaybereducedinthefutureastheircostsrise,particularlyifsubsidiesweretobereduced.Inaddition,restrictionsonfertiliserproductionandusecouldbemandatedinChinainthelongtermgiventheassociatednegativeenvironmentalimpacts.

GiventheresearchanddevelopmentbeingundertakeninChina’sagriculturesector,thereisconsiderablepotentialforChinatoimprovetheefficiencyoffertiliseruse,therebystabilisingorreducingthequantityoffertiliserrequiredbutstillachievingimprovementsinyields(Juetal.2009).

Figure 8 Fertiliser use in China

Data source: FAO 2013b

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45

50

1983 1987 1991 1995 1999 2003 2007 2011

Nitrogen (N)

Phosphate (P2O5)

Potassium (K2O)


13

Likemanyagriculturalproducingcountries,Chinaischallengedbydecliningavailabilityoflandandwaterforproduction.Theconversionoflandfromfarmingtourbanandindustrialpurposeshasresultedinthelossofapproximately8.2millionhectaresofarablelandsince1997.Inthisreport,itisassumedthatlandavailableforcroppingwilldeclineby4.2percentandpastureby5.1percentovertheperiodto2050.

China'sagricultureisheavilydependentonirrigation.Some62millionhectares—55percentofthelandundercultivationinChina—isirrigated.Tosupportirrigatorsandotherwaterusers,Chinahasconstructed86000reservoirsanddrilledmorethanfourmillionwellssincethe1950s(Yu2011).TworecentprojectsaimedatprovidingadditionalwaterresourcesaretheThreeGorgesDamandtheSouth‐NorthWaterDiversion.Thelatterwasconstructedtocarrywaterfromthesouth,whichhasanabundanceofwater,tothedriernorth.

Historicallytheproductivityofwateruseinagriculturehasbeenlowbecauseofextensivewasteinirrigationsystemsandsub‐optimalallocationamongcropsandbetweenregions.However,investmentinthesectorhasledtoconsiderableachievementsinimprovingwaterefficiency.Annualwateruseperirrigatedhectarehasdroppednearly19percent,from7935to6450cubicmetresoverthepastdecade(FAO2011).

Whiletheavailabilityandcostofirrigationwaterislikelytocontinuetobeachallengetoagriculturalproduction,thereisscopeforfurtherefficienciestobefoundinavarietyofways,includingtheuseoftechnologiessuchasdripirrigation,coupledwithpricingpoliciesthatencourageeffectiveallocationofwater(FAO2010a).Continuedimprovementsintheefficiencyofwateruseareexpectedtopermitanincreaseinagriculturalproductionfromexistingwaterresources,andwillallowtheagriculturalsectortobeincreasinglyresilienttothepressuresplacedonitbycompetingdemandsforwater.

ThegradualdeteriorationinthequalityofarablelandandwateralsoposeschallengesforChina’sagriculture.Landdegradationisextensive,anditisestimatedthatpollutedwaterisusedon7.4percentofChina’sirrigatedland(Xie2009).Whilevariouspoliciesandprogramshavebeenimplementedtoaddresstheseproblems,andagriculturalproductionhascontinuedtorise,improvementsinresourceproductivityarenotaccountedforintheABARESagrifoodmodel.

DespitethechallengesChinaisfacingwiththedeterioratedstateofitsresourcebase,foodproductionhasincreasedmarkedlyoverthepastfewdecades,andisexpectedtocontinuetodoso.Asinothercountries,pastincreaseshavebeenbasedonimprovedyieldsthatwererealisedthroughtheeffectiveuseofinputsandimprovedtechnology.Theintroductionofmoreadvancedtechnologies,encouragedbyappropriatepoliciesandsupportedbyongoingresearchanddevelopment,isexpectedtodrivefutureproductivitygains.This,coupledwithongoingcapitalinvestmentinagriculture,shouldensurethatfoodproductioninChinacontinuestoincrease.


14

5 Reference scenario TheobjectiveofthisanalysisistoidentifyandtoquantifyprojectedchangesintheChinesedemandforarangeofagriculturalcommoditiesoverthelongertermacrossurbanandruralhouseholds.AnupdatedversionoftheABARESagrifoodmodel(Linehanetal.2012a)wasdevelopedtoinvestigatethesepotentialtrends.Amongthechangestothemodelwasanupdateofthebaselinedatafrom2007to2009.Otherchangesincludeare‐aggregationofsomecountryandcommoditygroupstoallowformoredetailedanalysis.

TheprojectionsdeterminedinthereferencescenarioforChinaoftheagrifoodmodelaredependentonasetofassumptions,asdiscussedinChapter2.Tosummarise,

populationgrowthwillaverage0.3percentbetween2010and2030,beforethepopulationdeclinestoabout1.38billionby2050

theproportionofthepopulationinurbanareasisassumedtoincreasefrom50percentin2009to75percentby2050

averageGDPgrowthof5.5percentayearisassumedforChinabetween2009and2030,and2.2percentayearfrom2030to2050

agriculturalproductivityinChinawillcontinuetogrowaccordingtotheestimatesprovidedinTable1

landavailableforcroppingwilldeclinebyatotalof4.2percentandpastureby5.1percentovertheperiodto2050.

Thepopulationisdividedintothreeincomestrata,includingurbanhighandmiddleincomehouseholds,andrurallowincomehouseholds.Acrossthesethreehouseholdtypes,theassumptionsonincomegrowthto2050aremadebasedonhistoricalincomedatafromtheNationalBureauofStatisticsofChina(2013a,b).Amongurbanhouseholds,incomegrowthisassumedtocontinueatahigherratethanruralhouseholdsgiventhefasterrateofeconomicdevelopmentinurbanareasandthewagespaidintheseregions.Additionally,withintheurbanconsumergroup,incomegrowthissignificantlyhigherforhighincomehouseholdsthanformediumincomehouseholds(Figure5).Thehighincomeurbanhouseholdsareassumedtocomprisethetopthirdoftheurbanpopulationovertheprojectionperiod.Chinesehouseholdfoodconsumptiondata(NationalBureauofStatisticsofChina2013e,f)havebeenusedasthebasisforaninvestigationofconsumptionacrossurbanandruralhouseholds.

China’sagriculturalsectorisheavilyprotected.Ontheproductionside,theprincipalformofmarketsupportisprovidedthroughtariffs,tariffratequotasandstatetrading.Additionally,Chinaoffersaguaranteedpriceforriceandwheatandhasotheradhocinterventionsonarangeofagriculturalcommodities.Producersalsobenefitfromdirectpaymentsforgrainproducers,agriculturalinputsubsidiesandsubsidiesonagriculturalinsurancepremiums(OECD2013).ThehighlevelofsupportfortheagriculturalsectorinChinahassignificantlyloweredthecostofproductionfacedbyproducersandhas,asaresult,ledtomuchhigheragriculturalproductionthanwouldhaveoccurredwithoutthesupport.Consumershavealsobenefittedfromgovernmentsupportsincethepricepaidforfoodislowerthanwouldotherwisebethecase,andhenceconsumptionishigher.Inthereferencescenario,nochangetoChina'smarketsupportpoliciesisassumed.However,apreliminaryexaminationoftheeffectonagrifoodconsumptionofchangestodomesticconsumerandproducersupportispresentedinsection6.


15

Asinanyforecastingexercise,thereisuncertaintyaroundtheprojectionsinthereferencescenarioforChina’sagrifoodconsumptionandproduction,astheyareconditionalontheassumptionsmade.Anychangestotheassumptionscouldresultinchangestotheprojections.Inordertoimproveunderstandingoftherelationshipsbetweentheassumptionsonincomeandpopulationgrowthusedinthereferencescenario,weconductsensitivityanalysis,resultsforwhicharereportedinAppendixA.

ConsumptionTherealvalueoffoodconsumptioninChinaisprojectedtoincreaseby104percentbetween2009and2050(Figure9).Theincreasereflectsadietaryshiftawayfromstarchystaplestohighvaluedproductsasrealperpersonincomesincrease.

Figure 9 Total agrifood consumption to 2050, China

Data source: ABARES model output

Whileconsumptionofmostcommoditiesisprojectedtorise,thelargestincreasesareforhighvalueproductssuchasbeef,dairy,sheepandgoatmeat,andsugar(Figure10).Consumptiongrowthisprojectedtobehigherbetween2009and2029thanbetween2030and2050becauseofprojectedhigherpopulationandincomegrowthovertheearlierperiod.

0 500 1000 1500 2000

2009

2050

Billion(2009 US$)


16

Figure 10 Consumption of selected agricultural commodities, China


Between2009and2050,beefconsumptionisprojectedtorise236percenttoUS$37.4billion(in2009USdollars);dairyisprojectedtorise74percenttoUS$26.1billion;sheepandgoatmeatisprojectedtorise72percenttoUS$7.9billion;andsugarconsumptionisprojectedtorise330percenttoUS$8.2billion.

Forcerealsandstarchystaples(potatoes,yamsandsweetpotatoes),consumptionisprojectedtoeitherincreasemoreslowlythanhighervaluedproductsorevendeclinebetween2009and2050.Wheatconsumptionisprojectedtorise102percenttoUS$79.8billion(in2009USdollars),whileformaizeitisprojectedtorise9percenttoUS$27.0billion.Theseincreaseslargelyreflecttheprojectedincreaseinfeeddemandgiventheexpectedriseinlivestockproduction.Partlyoffsettingthisriseisthelowerconsumptionofriceandpotatoes,whichareprojectedtofall8percentand11percent,respectively,toUS$12.1billionandUS$10.5billion.

UrbanandruralconsumptionHighvaluecommoditiesUrbanconsumersgenerallyaccountformostofthegrowthinhighvaluedproductsovertheprojectionperiodbecauseofrisingurbanpopulationsandincomes.Between2009and2050,urbanbeefconsumptionisprojectedtorise328percenttoUS$36.9billion(in2009USdollars).Fordairy,urbanconsumptionisprojectedtorise88percenttoUS$22.6billion;andsheepandgoatmeatby162percenttoUS$6.8billion(Figure11).

0 50 100 150 200 250 300

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseeds

Cereals

Vegetables

2050

2009

Billion(2009 US$)

72%

74%

236%

52%

3%

866%

‐13%

330%


17

Figure 11 Urban consumption of selected agricultural commodities, China


Withintheurbanpopulation,foodconsumptionanditsprojectedchangesto2050arenotthesameacrosshouseholds.AsillustratedinFigure12,consumptionofbeef,dairy,sheepandgoatmeatandsugarisfarmorepronouncedinthehighincomegroupthaninthemiddleincomegroup.Thisreflectsthehigherassumedincomegrowthfortheurbanhigh‐incomegroup.

Figure 12 Urban medium and high income consumption of selected agricultural commodities, China

0 20 40 60 80 100 120 140

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseeds

Cereals

Vegetables

2050

2009

7%

42%

320%

‐9%

328%

88%

Billion(2009 US$)

162%

309%

0 50 100

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseeds

Cereals

Vegetables 6%

45%

268%

72%

126%

Billion(2009 US$)

381%

‐12%

284%

Middle income

0 50 100

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseeds

Cereals

Vegetables

2050

2009

8%

39%

374%

99%

190%

Billion(2009 US$)

266%

‐7%

326%

High income


18


Forruralconsumers,growthinhighvaluecommoditiesisalsoprojectedbuttheincreasesaresmaller,onaverage,thanforboththehighandmediumincomeurbanhouseholds.Thisisattributabletotheassumeddeclineoftheruralpopulationcombinedwithrelativelylowerincomegrowth.Thelargestincreaseinthevalueofruralconsumptionbetween2009and2050isforcereals,whichisprojectedtorise97percenttoUS$75.4billion(in2009USdollars).Ofthat,about72percentofmaizeandaround36percentofothercerealsareusedforlivestockfeed.Theriseinconsumptionofsomeproducts,suchasbeefanddairyproducts,islargeinpercentagetermsbutfromaverylowbase(Figure13).

Figure 13 Rural consumption of selected agricultural commodities, China


Forallincomegroups,theriseintotalconsumptionofbeef,sheepandgoatmeat,andsugarin2050isprincipallytheresultofanincreaseinthequantitydemandedratherthanasignificantprojectedriseintherealprice.Thisisespeciallypronouncedinurbanhouseholds.Beefconsumptionbyurbanhouseholdsin2050isprojectedtorise234percentfrom2009to10.8milliontonnes,sheepandgoatmeat193percentto4.3milliontonnesandsugar93percentto10.8milliontonnes.Incontrast,ruralbeefconsumptionin2050isprojectedtorise49percentfrom2009to1.4milliontonnes,andsheepandgoatmeat37percentto1.5milliontonnes.

Thechangeintotalvegetableconsumptionin2050isprojectedtobedrivenbyincreaseddemandforhighvaluevegetablesinurbanhouseholdsandis,again,mostpronouncedinhighincomehouseholds.Inquantityterms,totalurbanvegetableconsumptionisprojectedtorise6percentbetween2009and2050to138.4milliontonnes.Forhighincomehouseholds,growthisexpectedtobehigherat7percentwhileformiddleincomehouseholdsitisprojectedtobeslightlylessat5percent.Theprojectedmarginaldeclineinruralvegetableconsumptionisattributableprincipallytotheexpecteddeclineintheruralpopulation.

Growthindairyconsumptionisprojectedinbothurbanandruralhouseholds,althoughthegrowthismoreprominentinurbanhouseholdsbecauseofhigherincomegrowth.Growthin

0 20 40 60 80 100 120

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseed

Cereals

Vegetables

2050

2009

839%

‐3%

97%

‐13%

91%

22%

Billion(2009 US$)

33%

726%


19

urbandairyconsumption,particularlyinhighincomehouseholds,isexpectedtobedrivenbythedemandforhighvaluedproductssuchascheeseandmilk,whilegrowthinruralconsumptionisprojectedtobelargelyformilk.

Whilethepercentageriseindairyconsumptioninrealvaluetermsissignificant(Figure12),itreflectstheprojectedincreaseindairypricestoward2050.Theprojectedriseinthequantityofdairyproductsdemanded—asreportedinmilkequivalents—ismoremodest,withurbanhighincomeconsumersprojectedtoincreaseconsumptionby62percent,mediumincomehouseholdsby40percentandruralhouseholdsby8percent.

Cereals

Thevalueofcerealconsumptionisprojectedtoincreasethemostamongruralhouseholds.Thisispartlybecauseofariseinfeeddemand,giventheprojectedincreaseinlivestockproductiontoward2050.Between2009and2050,ruralconsumptionofwheatandmaizeisprojectedtorise128percentand110percent,respectively,toUS$64.2billionandUS$2.5billion(in2009USdollars).Riceconsumptionisprojectedtofall3percenttoUS$8.3billionastheruralpopulationdeclines.

Amongurbanconsumers,consumptiongrowthisprojectedtoincreasethemostamongurbanmiddleincomehouseholdsbecauseoftheirrelativelylowerincomesandhigherpopulationgrowthratesthanhighincomehouseholds.Between2009and2050,consumptionofwheatbyurbanmiddleincomehouseholdsisprojectedtorise65percenttoUS$6.7billionandmaizeby30percenttoUS$0.2billion(in2009USdollars).Riceconsumptionisprojectedtofallby5percenttoUS$1.5billion.

Forurbanhighincomeconsumers,theconsumptiongrowthoutto2050forthethreecerealgrainsarelowerthantheothertwoincomegroupsasthesehouseholdssubstituteawayfromgrainstomeatandotherhighvalueproducts.Wheatconsumptionisprojectedtorise61percenttoUS$5.8billionandmaizeby27percenttoUS$0.3billion.Riceconsumptionisprojectedtofall8percenttoUS$1.5billion.

DietsonaperpersonbasisAsagreaterproportionofChina'spopulationisexpectedtoliveinurbanareasin2050,moreChineseconsumerswillhavemorewesternstylediets,characterisedbyloweramountsofcerealsandvegetables,andgreateramountsoffruit,meatsanddairyproducts.Thisdietarychangeismostpronouncedforurbanhighincomeconsumersandisexpectedtodrivedemandforhighvalueproducts.

Invalueterms,totalurbanperpersonconsumptionofbeefisprojectedtoriseby195percentbetween2009and2050,dairyby27percent,sheepandgoatmeatby81percentandsugarby175percent.Thiscompareswithadeclineof29percentforvegetablesand7percentforcereals(Figure14).


20

Figure 14 Urban per person consumption of selected agricultural commodities, China


Ruraldiets,incontrast,areprojectedbeorientedaroundcerealsandstarchyvegetables,suchaspotatoesandyams.Perpersonconsumptionofcerealsisprojectedtorise357percentbetween2009and2050,whileconsumptionofstarchyvegetablesisprojectedtodouble.Althoughruralperpersonconsumptionofbeef,dairy,sheepandgoatmeatandfruitisexpectedtorisesignificantlyinpercentageterms,itisfromamuchlowerbasethanurbanconsumers.

ProductionChina'sproductionofmostagrifoodcommoditiesisprojectedtoincreasebutatalowerratethanconsumption.Asaresult,foodimportswillbeanincreasinglyimportantcomponentofChina’sfoodsupplytoward2050.

Chinaisprojectedtoproducesignificantlymorelivestockproductsin2050(Figure15).Therealvalueofbeefproduction,forexample,isprojectedtorisebetween2009and2050by171percent,andsheepandgoatmeatby30percent.Dairyproductionisprojectedtoriseby70percent.

0 100 200 300 400 500

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseeds

Cereals

Vegetables

2050

2009

‐7%

162%

‐40%

195%

27%

81%

2009 US$

‐29%

175%


21

Figure 15 Production of selected agricultural commodities, China


Theincreaseddemandforfeedwillbeamajorfactordrivingtheprojectedincreaseincerealandoilseedproductionoutto2050.China'sproductionofwheatandmaizeisprojectedtorise58percentand4percent,respectively.Theincreasedproductionofthosetwograinswilloffsettheprojected8percentfallinriceproductionstemmingfromthedeclineindemand.Theproductionofoilseedsandmeal,namelysoybeans,isalsoprojectedtoincreasesignificantlygiventherisingdemandforbothfeedandfoodproducts.

ImportsChina'sconsumptionofrice,wheat,vegetables,pigmeatandpoultrymeathasbeenmetmainlybydomesticproduction,withtradeplayingarelativelyminorrole.Toward2050,thesituationforthesecommoditiesisnotexpectedtochangesignificantly.

Incontrast,asignificantportionofChina'sbeef,sheepandgoatmeat,oilseedsanddairyproductconsumptionisprojectedtobemetbyimports.Forthesecommodities,mostoftheimportgrowthisprojectedtooccurbetween2009and2030becauseofhighpopulationgrowthoverthisperiod.

Chinaisprojectedtoremainanimporterofbeefin2050,withtherealvalueofbeefimportsprojectedtoincreasetoUS$8.3billion(in2009USdollars)(Figure16).Whilethisprojectedincreasemaybelarge,inthefouryearsto2013,annualaverageimportgrowthwas132percentinvalueterms.Underthisprojectedgrowth,theimportshareoftotalChinesebeefconsumptionwouldbeabout22percentin2050,comparedwithjust7percentin2009.

0 50 100 150 200 250 300

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Oilseeds

Cereals

Vegetables

2050

2009

4%

29%

1%

171%

70%

30%

Billion(2009 US$)

198%

308%


22

Figure 16 Imports of selected agricultural commodities, China


Chinaisprojectedtoremainanimporterofdairyproductsin2050withtherealvalueofimportsprojectedtoincrease165percenttoUS$2.1billionin2050(in2009USdollars).Onthisbasis,theimportshareoftotalChinesedairyconsumptionwillincreasefromaround3percentin2009to8percentin2050.

TherealvalueofChina’ssheepandgoatmeatimportsisprojectedtoincreasesignificantlybetween2009and2050toUS$2.0billion(in2009USdollars),albeitfromalowbase.TheimportshareoftotalChinesesheepandgoatmeatconsumptionwillincreasefromaround2percentin2009to26percentin2050.Inquantityterms,China'ssheepandgoatmeatimportsareprojectedtorisefrom50000tonnestoabout1.3milliontonnes.

Chinaimportsandexportsawiderangeofvegetables.Givenrisingdomesticfooddemand,therealvalueofChina’svegetableimportsisprojectedtofallby44percentbetween2009and2050toUS$183.0million(in2009USdollars).Forfruit,Chinaisprojectedtoswitchfrombeinganexportertoanimporterby2050.DomesticproductionisprojectedtomeetmostofChina'sfruitdemand,withimportsprojectedtoaccountfor2percentoftotalfruitconsumptionin2050,downfrom4percentin2009.TherealvalueofChina'sfruitimportsin2050isprojectedtobearoundUS$7.2billion(in2009USdollars).

Chinaisprojectedtobeanetimporterofwheatby2050.Wheatimportsareprojectedtoincrease299percenttoUS$951.4million(in2009USdollars).WhiledomesticproductionisprojectedtomeetmostofChina'swheatdemand,importswillaccountforabout1.2percentofChina'stotalwheatconsumptionin2050,doublethatof2009.

AlthoughChinaisprojectedtoremainanimporterofmaizeovertheprojectionperiod,therealvalueofChina’smaizeimportsisprojectedtodeclineby14percentbetween2009and2050toUS$588.5million(in2009USdollars).TheimportshareoftotalChinesemaizeconsumptionwillfallfrom2.7percentin2009to2.2percentin2050,whichisequivalenttoa7percentfallinthequantityofmaizeimportsto2.8milliontonnes.

0 2 4 6 8 10

Sheep and goat meat

Sugar

Dairy

Beef

Starches

Cereals

Vegetables

Fruit

2050

2009

198%

‐44%

50%

985%

165%

1844%

Billion(2009 US$)

‐7%

101%


23

Chinaisprojectedtoremainanimporterofricein2050,withtherealvalueofimportsprojectedtoincreaseby43percenttoUS$431.9million(in2009USdollars).Thiswouldincreasetheimportshareoftotalconsumptionslightly,from2percentto3percent,overtheprojectionperiod.Inquantityterms,riceimportsareprojectedtoincrease59percentto1.7milliontonnesby2050.


24

6 Impacts of the removal of domestic support

InthereferencescenarioitwasassumedthatChina'smarketsupportremainsunchangedovertheprojectionperiod.However,China'sagriculturalandfoodsectorsaredevelopingquickly,becomingnotonlymoremodernbutalsomorereliantoninternationaltrade.Overthenextfortyyearsitislikelythatthedegreeofmarketsupportreceivedbyagriculturalproducers,aswellasthegovernmenttransfersbenefittingconsumers,willbereducedasincomegrowthcontinues.Exactlywhatareasofsupportmightbechangedandwhothosechangeswouldaffectremainsuncertainatthisstage.

Intheagrifoodmodeltherearetwoformsofagriculturalsupportorprotection:producersubsidyequivalents(PSEs),whichactasasubsidyontheproductionofeachcommodity,andconsumersubsidyequivalents(CSEs),whichactasasubsidyontheconsumptionofeachcommodity.Subsidiesservetolowerthecostsfacedbyproducersorconsumers.

Becauseitisimpossibletoknowwhichformsofsupportwillchangeinthefuture,andtowhichdegree,noassumptionsaremadeinthatregardforthisanalysis.Rather,inthisscenario,allformsofproducerandconsumersupportareremovedgraduallyandevenlyfrom2030onwards.Whilenotrealistic,thisheavilystylisedscenarioprovidesanindicationofpossiblefoodproduction,consumptionandtraderesponsesinChina.Theseresponsescould,byconstruction,befarmoresignificantthanwouldbethecaseundermorerealisticandtargetedscenarios.MorerefinedanalysisoneachofthesupportpoliciesandtheirimpactonthedomesticmarketinChinaisanareaforfutureresearch.

ResultsWhendomesticsupportisremovedby2050,productionandconsumptionareprojectedtoincreasebutlessthaninthereferencescenario.Themoresubduedincreaseistheresultofconsumptionandproductionnolongerbeingsubsidised.Asaresult,productionandconsumptionarerespondingmoretomarketsignals.Thereisupwardpressureonbothproductioncostsfacedbyproducersandfoodpricesfacedbyconsumers(assumingotherfactorsremainunchanged).Notably,bothproductionandconsumptiondocontinuetoincreasesignificantlyovertheprojectionperiodbecauseoftheexpectedincreaseindemandarisingfromthelargerpopulationandhigherhouseholdincomes.

Withtheremovalofdomesticsupport,therealvalueofChina’sagrifoodproduction(in2009USdollars)between2009and2050isprojectedtoincrease75percent,aresultthatislowerthanthereferencescenarioprojectionof109percent(Figure17).Atthesametime,agrifoodconsumptionisprojectedtobe67percenthigherthanin2009,aresultthatis37percentagepointslowerthanthereferencescenario(Figure18).


25

Figure 17 Removal of domestic support scenario – total agrifood production in 2050, China


Figure 18 Removal of domestic support scenario – total agrifood consumption in 2050, China


Asinthereferencescenario,theprojectedriseintherealvalueofChina'sagrifoodproductionisdrivenbythehigherrealproductionvaluesoffruit,vegetablesandmeat(in2009USdollars).

Intheabsenceofmarketsupport,therealvalueofChina’sagrifoodimportsincreases150percentbetween2009and2050.Thisislowerthantheprojectedincreaseunderthereferencescenarioof246percent(Figure19).Thelowerlevelofagrifoodimportsunderthisscenarioreflectsreducedagrifooddemand,particularlyforcommoditiesbenefittingfromconsumersubsidiesinthereferencescenario,suchaswheatandoilseeds.Importsofthesecommoditiesdeclinethemostrelativetothereferencescenario.Incontrast,thecommoditieswhoseimportsarehigherthaninthereferencescenarioincludebeef,sheepandgoatmeat,dairyandvegetables(Figure20).Significantopportunitiesforexportersofthesecommoditieswouldthereforeariseassupportislowered.

0 500 1000 1500 2000

Reference scenario

Removal of domestic support

Billion(2009 US$)

0 500 1000 1500 2000

Reference scenario


Billion(2009 US$)


26

Figure 19 Removal of domestic support scenario – total agrifood imports in 2050, China


Figure 20 Removal of domestic support – imports of selected agricultural commodities in 2050, China


0 20 40 60 80 100 120

Reference scenario


Billion(2009 US$)

0 2 4 6 8 10

Sheep and goat

Sugar

Dairy

Beef

Starches

Cereals

Vegetables

Fruit

Reference scenario

Removal of domestic support scenario

Billion(2009 US$)


27

7 Conclusion Undertheassumptionsestablishedinthereferencescenario,therealvalueoffoodconsumptioninChinaisprojectedtomorethandoublebetween2009and2050.Mostofthisincreasewilloriginatefromurbanhighincomehouseholdsgiventheirrapidshifttomorewesternstyledietsanddemandforhighvaluecommoditiessuchasbeef,dairyproductsandsheepandgoatmeat.

Thehighrateofurbanisation,combinedwithslowingpopulationgrowth,willresultintheruralpopulationdecliningbetween2009and2050.Thiswillresultinslowertotalfoodconsumptiongrowththantheurbanpopulations.GiventheprojectedincreaseddemandformeatbyeachincomestrataofChina'spopulation,thesizeofthedomesticlivestocksectorisexpectedtoincreasesignificantlyto2050.Thefeedrequirementswillthereforealsoincrease.Theprojectedriseindomesticgrainproductionisexpectedtobeinadequatetomeettheresultingriseinfeeddemand,causingimportstorise.

Whileimportsofmanyagrifoodcommoditiesareexpectedtoincreaseto2050,China'sownagriculturalproductionisalsoprojectedtoriseinresponsetotheincreaseindemandforfood.Thiswillrequireongoinginvestmentandinnovation.Notonlymustproductivityincrease,butmoremodernapproachestocontendwiththechallengesofadeterioratingresourcebasewillneedtobeadopted.

Whentheassumptionsforthereferencescenariorelatingtoproducerandconsumersupportareremovedgraduallystartingin2030,therealvalueoftotalagrifoodimportsinChinacontinuestoincreasebutbylessthaninthereferencescenario.Thisoccursbecause,assupportisremoved,thecostofproductionrises,totalagrifoodproductionfallsandpricesrise.Consumersdemandlessofthosecommoditieswhichoriginallybenefittedmostfromsubsidies,suchaswheatandoilseeds,andhenceimportsarelower.Incontrast,importsofcommoditiesfromindustriesthatwereoriginallylesssupported,suchasbeef,sheepandgoatmeat,dairyproductsandvegetables,risemorethaninthereferencescenario.Thisscenariohighlightstheeffectpolicycanhaveonagriculturalprices,andthemarketresponsetotheremovalofdistortions.

Thesignificantriseinfoodconsumptionbyhighincome,urbanhouseholdswill,toalargeextent,bemetbysupermarketsandhypermarketsthatareabletomeetthespecificdemandsofthatmarket.SupermarketsandhypermarketshaveanincreasingretailmarketshareinurbanareasinChina.Between2003and2010foodsalesbymodernretailchainsgrewby24percentayear(ABARES2013).Becausemorethanhalfofthetop50globalfoodretailersareactiveinChina,thereisclosecoordinationalongvaluechainsasthesupermarketsdeveloprelationshipswiththeirsuppliers,bothinChinaandabroad.ExportersoffreshfoodtoAsiacouldbenefitfromenteringintorelationshipsdirectlywiththesesupermarketchainsinordertocapturethehighvaluesegmentofthemarket.


28

Appendix A: Sensitivity analysis Inordertoimproveunderstandingoftherelationshipsbetweentheassumptionsusedinthesimulationsandthemodelprojections,sensitivityanalysisaroundthepopulationandincomegrowthassumptionswasapplied.

PopulationassumptionsThereferencescenariooftheagrifoodmodelusedthemediumvariantoftheUnitedNationspopulationprojections(2013a)toderivethereportedprojectionsto2050.SensitivityanalysisaroundthepopulationassumptioninvolvesusingboththeUN'shighvariant(fasterpopulationgrowth)andlowvariant(slowerpopulationgrowth)populationprojectionsintheagrifoodmodelandcomparingrelevantmodelresultswiththosefromthereferencecase.

Thelevelofagrifoodconsumptionandimportsin2050areprojectedtobearound24percentand125percenthigher,respectively,underthehighpopulationcaseandaround27percentand47percentlower,respectively,underthelowpopulationcasethaninthereferencescenario(FigureandFigure).

Figure A21 Population sensitivity – total agrifood consumption in 2050, China


0 500 1000 1500 2000 2500

Low variant

High variant

Reference scenario (Medium variant)

Billion(2009 US$)


29

Figure A22 Population sensitivity – total agrifood imports in 2050, China


IncomeassumptionsSensitivityanalysisaroundtheincomeassumptionsisconductedbyincreasinganddecreasingtheannualgrowthrateofincomeinthereferencescenarioforallhouseholdsby0.5percentagepointsfrom2009onward,whileholdingallothervariablesconstant.Resultsfromtheagrifoodmodelundereachofthesescenariosarethencomparedwiththereferencescenario.

Whenannualincomegrowthis0.5percentagepointshigherthaninthereferencescenario,therealvalueoftotalagrifoodconsumptionin2050(in2009USdollars)isprojectedtobearound41percenthigherthanthereferencescenario.Incontrast,itisaround18percentlowerin2050whenannualincomegrowthis0.5percentagepointsslowerthaninthereferencescenario(Figure).

Figure A23 Income growth sensitivity – total agrifood consumption in 2050, China


0 50 100 150 200 250 300

Low variant

High variant

Reference scenario (Medium variant)

Billion(2009 US$)

0 500 1000 1500 2000 2500 3000

Low income growth

High income growth

Reference scenario

Billion(2009 US$)


30

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