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Meat demand and China's grain dilemma

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Meat demand and China's grain dilemma
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Powell, Harold G
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vii, 61 leaves : ; 29 cm

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Food supply -- China ( lcsh )
Meat industry and trade -- China ( lcsh )
Grain as feed -- China ( lcsh )
Food supply ( fast )
Grain as feed ( fast )
Meat industry and trade ( fast )
China ( fast )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

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Bibliography:
Includes bibliographical references (leaves 58-61).
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Submitted in partial fulfillment of the requirements for the degree, Master of Arts, Political Science.
General Note:
Department of Political Science
Statement of Responsibility:
by Harold G. Powell.

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Full Text
MEAT DEMAND AND CHINA'S GRAIN DILEMMA
by
Harold G. Powell
B.A., California State University Sacramento, 1990
A thesis submitted to the
Faculty of the Graduate School of the
University of Colorado at Denver
in partial fulfillment
of the requirements for the degree of
Master of Arts
Political Science
1994


1993 by Harold G. Powell
All rights reserved.


This thesis for the Master of Arts
degree by
Harold G. Powell
has been approved for the
Department of
Political Science
by
Steve Thomas


Powell, Harold G. (M.A., Political Science)
Meat Demand and China's Grain Dilemma
Thesis Directed by Professor Steve Thomas
ABSTRACT
This thesis will show how a major increase in the demand for meat in
China and the resulting increase in the demand for feed grain is causing Chinese
grain production to fall behind demand. The thesis begins with a review of
literature that examines the history of grain production, the current productivity
gap, and the problem's likely cause, covering issues such as acreage, infrastructure,
population, and meat demand. The second chapter looks at primary data from the
World Bank, FAO, USDA, and China that indicates a grain gap with the cause
linked to meat demand. The chapter also looks at how Chinese culture and China's
socialist history have led to the meat demand and feed grain problem. The third
chapter gives scenarios for solving the grain gap, with the recommended
approaches being to gradually raise meat prices, to impose higher meat quality
controls, and to raise grain imports. The final chapter reviews grain production
history, the grain gap and its meat demand cause, and the possible solutions to the
problem.
This abstract accurately represents the contents of the candidate's thesis. 1
recommend its publication.
Signed
Steve Thomas
IV


ACKNOWLEDGEMENTS
I would like to thank the following people who have assisted me in the preparation
of this thesis: Steve Thomas, my advisor, guided me effectively through this
process. Jana Everett taught me the correct research methodology. Chen Ji gave
information on grain trading and served with short notice on my committee. Tony
Spinetta, farmer and proofreader, was my emotional supporter in this process. Joel
Edelstein gave information on Eastern Europe. Bruce Stone gave information on
grain sources and scholars. Nicholas Lardy gave information on scholarly works
on grain and meat production in China. William Wei provided information on meat
and Chinese culture, and Colin Carter provided information on grain trading.
v


CONTENTS
Chapter Page
1. CHANGES IN GRAIN PRODUCTION 1
Introduction 1
History of Chinese Grain Production 3
Recent Grain Policy 5
Scholars' Views on Grain Gap and its Cause 12
Research Methodology of the Scholarly Studies 19
2. PRIMARY DATA EVALUATION 24
World Bank, FAO, and USDA Models 24
Chinese State Statistical Data on Meat 29
Evaluation of Primary Data 32
The Primary Cause of Increased Meat Demand 37
Socialist History as a Factor in Meat Demand 37
Chinese Culture as a Factor in Meat Demand 42
3. RECOMMENDATIONS ON SOLVING THE GRAIN GAP 45
Method of Imports, Price Rises, and Quality Controls 52
4. CONCLUSION 54
Work Cited 58
vi


TABLES
Table Page
Table 1. Meat Production 6
Table 2. Feed Grain Percentage Used in Meat Production 6
Table 3. Grain Production 1^
Table 4. Projected Feed Grain Demand 27
Table 5. USDA Grain Production Projection 27
Table 6. USDA Livestock Figures 28
Table 7. FAO Production and Consumption Figures 30
Table 8. Chinese Statistics for Livestock Production 30
Table 9. Feed Percentage of Total Grain Crop 31
Table 10. Soviet Meat Production 39
Table 11. Soviet Meat Demand in State Purchases 40
Table 12. Polish Meat Production 41
Table 13. Polish Meat Consumption Per Capita 41
vii


CHAPTER 1
CHANGES IN GRAIN PRODUCTION
Introduction
There is a major problem developing in the Chinese grain sector that results
from massive increases in demand for feed grains in the meat industry. The
practical reason demand is so high is because it takes about three pounds of grain
to produce one pound of poultry, four pounds for one pound of pork, and five
pounds for one pound of beef (USDA, 1992, p.39). The political reason for the
problem is the major desire on the part of the Chinese population for meat due to
previous scarcity and cultural factors that make meat a high status item in China.
The Chinese demand for meat and, thus, feed grain is so extreme that it will be the
main factor in causing demand to be ahead of production by the year 2000. This
thesis will show that increasing feed grain demand will be the main factor causing
a grain gap by the year 2000.
The thesis will begin with a review of literature showing trends in
population, production, and consumption in the grain sector. Then, the thesis will
review the scholarly literature that denotes a grain gap, and the likely cause, or
causes, each scholar has for the problem. The second chapter will show projection
model data from the World Bank, the Food and Agriculture Organization of the
United Nations, and the United States Department of Agriculture that indicates a
1


grain gap, with the cause primarily associated with meat demand. The meat
demand data will be compared to Chinese sources that show a similar trend. The
second chapter will also explain why meat demand and not other factors is the
primary cause for the current grain gap. The chapter will note the causes for the
extreme meat demand associated with China's history as a socialist state and the
celebration of meat in Chinese culture. The third chapter gives recommendations
on how to solve these problems with meat demand and how to close the grain gap.
The fourth and final chapter will give a concluding wrap-up of the study. In this
chapter, the arguments for a grain gap based on the need for feed grain and other
factors enumerated by the scholars will be evaluated. Key terms that will be used
for the section and the rest of the study are as follows: Demand means the number
of people needing grain products and their relative desire for the product.
Production is the total amount of grain produced in China. A grain cycle is a ten
year period of production, which in this paper will generally refer to the cycle that
lasts from 1990 to the year 2000.
The study will begin, however, with a look at China's long-term policies in
grain production, their linkages to demand growth, and the policies' relative
success. This section will include an in-depth analysis of recent policy in grain
production and population control, as scholars believe these policies have set the
stage for the current productivity gap.
2


History of Chinese Grain Production
From the establishment of the People's Republic of China in 1949 until the
late nineteen-fifties, China pursued a grain policy that attempted to raise grain
production by eliminating exploitive elements in traditional agriculture, such as the
landlords, and the rationalization of production by organizing farmers into joint
work teams with access to all local resources. With these policies, the Chinese
government was able to dramatically raise production and bring stability to the
grain system. At the same time, however, China began to have a population boom.
Population grew tremendously, as the end of the civil war and landlord
exploitation stabilized peasant communities. Tian (1981, p.35) notes population
rose annually at 2.4% from 1954 to 1957.
Population gains consumed a significant portion of increased grain
productivity, lessening its positive impact. There was a fairly strong jump in grain
production in the early fifties, and then grain production stabilized. But by the late
fifties, grain policy was leading to stagnation in production. So, after briefly
attempting, at great human cost, to nationalize production through communes in the
Great Leap forward and to integrate this policy with increased industrial
development, China embarked on a new strategy to raise production through large
scale projects to improve the productivity of the land factor of production. These
projects included dams, irrigation systems, new seed and fertilizer technology, and
land reclamation.
3


These policies represented the general thrust of Chinese agrarian policy
from the early sixties to the late seventies. Significant policy variations occurred,
such as a brief introduction of labor incentives in the early sixties, which did
dramatically raise production in the brief period of use, and a further attempt to
use the commune system by Mao in the late sixties. But, neither of these policies
lasted more than a few years and neither dented the dominant thrust of grain
policy, which was the improvement of land productivity. This improvement
ingrain productivity again resulted in a population boom. Tian notes (1981, p.3)
that this boom was higher than the one in the early fifties, rising at 2.6% yearly
from the early sixties to the late seventies, and resulting in a net gain in
population. At the same time, another interesting trend began to develop as grain
started to be siphoned off for feed grain into a rapidly expanding meat sector. Meat
production doubled in size from 1957 to 1979 (see Table 1). The population gains,
and to a much lesser extent the rise in meat production, again consumed much of
the productivity increases in grain production, weakening the positive impact of
this rise in production. In the late seventies, grain production again began to
stagnate, as productivity through land improvement began to show limitations.
This again prompted a shift in grain policy away from emphasizing enhanced
productivity of land to an emphasis on the improvement of the factors of labor and
private investment capital in production. The new approach would come to
include a return to family farms under the Personal Responsibility System, a labor
4


incentive, the creation of markets to stimulate labor and private capital, and
changes in grain prices, again to stimulate labor and private capital. Noting that
past productivity gains had been siphoned off by rises in population, the
government also instituted the one-child policy to try to limit food demand. It was
hoped the policy would also limit strained housing, education, and acreage
resources. Little constructive action was taken to limit the growth of meat
production and the rise of feed grain use, both of which continue to grow at a
significant rate, drawing increasing amounts of grain for feed (see Table 2).
Recent Grain Policy
The scholars use data on recent policies in population and production to
note a demand-to-productivity gap in grain in China, and also to identify a cause,
or causes, for the problem. This section now examines these policies in detail
including changes in farm level, pricing, and marketing, as well as discussing
China's one child birth policy. In terms of agricultural policy, China's new
approach began with a change in emphasis from land to the labor and private
capital investment factors in production. This shift in emphasis began with the
change to family farms. The process began, notes Lin (1990, p.7), in 1978 in
Fenxi county and Chuxing prefecture in Anhui province. After stagnating socialist
grain production communes were broken up into family farms in these areas, there
was a massive increase in grain production, with output noticeably
5


Table 1 Meat Production
Year Production
1957 3,980
1965 5,510
1975 7,970
1979 8,160
Source: Nicolas R. Lardy, Agriculture in China's Economic Development (1983),
p.155.
Table 2 Feed Grain Percentage Used in Meat Production
Year Percentage
1970 12
1980 15
1985 22
1988 27
Source: World Bank, Options for Reform in the Grain Sector (1991), p.103.
6


larger than local communes. The gains were so impressive that local officials took
note. By 1981, similar experiments were being tried in every Chinese province.
By 1984, the government had adopted the family farm as the official unit of
production under the Personal Responsibility System, which allowed production to
be on the basis of contracts between individual farms and the state. The land lease
system gave farmers the right to select what to grow on their fields, how to grow
it, and when to grow it. By 198S, family farming was nearly the universal system
of production. During the same agricultural period (1978-79), the Chinese also
began to stimulate labor productivity by allowing the price of agricultural
commodities to rise, notes Sicular (1988, p.468). In 1978, quota prices for grain
rose 22%. Even higher prices were given for above quota deliveries to the state.
The Chinese pronounced the new system a success and, in conjunction with family
farming, saw new prices as leading to a rise in labor productivity.
The Chinese now attempted to improve the efficiency of private investment
by continuing to move to market pricing. The government hoped that by bringing
more openness in price transactions, farmers would feel more secure to invest in
production. Thus, they changed the price structure (Sicular 1989). This time they
proposed to allow prices to be set by the market and to gradually move out of state
price control by 1984. Kung (1992) notes this resulted in an unforeseen
contradiction between improving the efficiency of labor and of investment. Price
7


deregulation led to a drop in prices after a bumper harvest the next year,
diminishing the peasant's labor inducement to produce and causing a fall in grain
production. The Chinese responded by reinstituting price controls and temporarily
abandoned attempts to improve the efficiency of grain investment through market
pricing. However, the leadership never abandoned their desire to go to market
pricing and are returning to it in conjunction with the next major area covered,
market reform.
The Chinese began to try to improve the efficiency of investment by
eliminating mandatory state control over the distribution of the entire grain crop.
Private markets were encouraged for grain and other crops by 1979. Watson
(1988, p.24) notes that the response of local leaders to the policy was dramatic.
By 1981, local grain markets were operating in 2S0 locations in 25 different
provinces. Watson further notes that peasants also began the illegal activity of
long distance grain trading. Peasants would bicycle their grain crops to major
cities to obtain higher market prices. Kung (1992) notes in the mid-eighties that
private markets continued to expand. Long-distance trading did not lead to grain
short-ages, or increased inequality in food access, so the government decided to
eliminate the law that banned all long-distance trading. The Chinese now felt that
investment efficiency would improve if peasants were allowed to sell directly to
industrial grain userssuch as bread and dumpling producers, who now had a
8


more stable supply than they had under state purchases. Urban markets quickly
developed and rose to be 13% of the total grain market by 1985 (Watson 1988,
P-16).
Yang (1991) notes that the government now is instituting new policies that
attempt to sustain the current high level of labor productivity, while continuing to
try to improve investment incentives through the use of grain futures markets.
Futures markets continue the process of improving the efficiency of investment
because they guarantee fanners a specific price for their product at market. This
encourages them to invest more in production to sell more at the stable price.
Futures markets, notes Yang (1991), also help industrial consumers because they
create bulk purchases. Rather than rely directly on sporadic supplies of grain from
peasants, asking a variety of prices, the industrial users can now buy large
quantities at a single price from futures market middlemen. This allows industrial
users to budget efficiently and only use the basic grain product needed. The
middlemen assure a single price by strictly adhering to the market price when
buying from peasants.
Futures markets resolve the contradiction between labor support and
investment capital efficiency in pricing. Futures markets accomplish this task by
allowing products to move freely in a market systemgiving the peasants
confidence to invest more because there is a product market for as much as they
9


can produce, while at the same time giving some protection for labor on all yearly
crops by providing floor and ceiling price at the market that trigger an immediate
shut-down of the market when they are crossed. The average shut-down price for
daily trading in the United States is plus or minus ten cents, calculated on the basis
of average intervals of Chicago market crop shutdowns. The strong emphasis on
labor and capital in production has led to the abandonment of the improvement
campaign in land productivity, as noted earlier. It was thought that peasants would
respond to the stimulus for investment capital, mentioned above, and invest in their
own farm and local infrastructure. This goal for investment spending was not met
and the quality of land declined when the government decreased spending on
infrastructure. Peasants used their profits and the relatively open market to invest
in more profitable areassuch as meat production, vegetable production, and local
industries. Kung (1992) notes that in spite of this failure of the peasant
inducement policy, the government continued to lower its spending on
infrastructure, causing a noticeable decline in quality of infrastructure in terms of
dams, irrigation, other land features of production.
The Chinese would have liked to respond to the problem of decline in
infrastructure with more state spending, but they were forced not to do so by a
hold-over area from the Maoist grain system that continued into the eighties, large
urban grain subsidies. Fewsmith (1988, p.81) points out that state infrastructure
10


spending declined from ten percent to five percent from the 1981-85 to the
1985-90 five year plans, while urban subsidies increased from 3,631 million Yuan
to 26,495 million Yuan by 1987. Subsides left little state money available for
infrastructure spending.
Kung (1992) believes that the government is finally working to cut
subsidies to free up state money for infrastructure at the local level. Some
municipalities, such as Jiantin in Inner Mongolia, are reducing the amount of grain
the state purchases at subsidized prices. Other areas, such as Yulin city in
Guangxi province, are reducing the amount of subsidized grain and allowing prices
to rise to more accurately reflect demand costs. Kung (1992) notes, however, that
it is still too early to tell if this will become national policy, and it may be
premature to eliminate subsidies as a problem in grain production.
Another hold-over problem from the Maoist period for grain production is
rising population. To help reduce the problem, China instituted the one child
policy nationally in 1978. Kallgren (1984) notes that the one child policy is based
on programs that were successful in the early seventieswhich included an
emphasis on late marriages, more spacing between births, fewer children, the
building of numerous birth control clinics,and a large expansion in the production
of birth control devices.
These alone, however, would not result in the one percent annual level of
11


population growth that the Chinese government felt would be needed to keep
China's food demand close to production. Thus, the government made the further
requirement that families would be limited to one child. The government believed
that several rewards and penalties would insure adherence to the program.
Incentives included tax benefits for observing the policy, better health care for the
single child, low cost, highly available birth control, and allowance for a new
offspring to replace one lost to accident or disease. Penalties for not obeying the
one child policy included the withholding of urban residency status, food ration
coupons, and even citizenship for children bom above quota. The policy has been
largely, but not completely, successful in holding down population. Population
grows currently at the 1.2% figure in China (World Bank 1991, p. 63).
Scholars' Views on Grain Gap and Its Cause
This section will examine the reasons why certain researchers feel that
current grain and population policy in China will lead to a grain shortfall for
Chinese agriculture in the current production cycle and what the problem's causes
might be. The relationship between grain production and demand has been
addressed in a number of recent studies. All see demand as being higher than
production, but there is no clear consensus as to the primary cause for the problem.
Ash (1992) notes that based on current Chinese policy, demand will not
12


keep pace with production. He believes that this is the result of limited incentives
for grain fanners relative to other agricultural producers. Farmers will attempt to
shift production to meat and vegetable crops, especially meat, to get the higher
profits available for these crops. This situation may in part be due to changes in
farm practice, since meat and vegetable crops are more profitably farmed on small
plots of land than grain. Hence, there is not enough financial incentive for grain
farming and production will be shifted out of this area, placing grain demand
ahead of production.
Ash is accurate when he notes that meat production will have an impact on
grain production. Arguments that China has a natural resistance to meat
production have been proven inaccurate. The argument that grain is the center of
the Chinese diet and will remain so is inaccurate. Chinese consumers appear
quite willing to make meat the center of the meal, if they can get enough of it. In
the past, the Chinese have associated large consumption of meat with the practices
of "inferior" barbarian tribes at China's periphery. They no longer hold this view
to any large extent. Nor do they seem to associate meat eating with body odor, as
they have in the past (Wei 1993).
Where I believe the Ash (1992) article is inaccurate is in the way meat
production will affect grain demand. Meat demand will not force too much
acreage out of grain production. When grain demand has risen, as in 1985,
13


Chinese farmers have actually put more acreage into grain production. The
problem with meat demand is the large consumption requirements it makes on feed
grain.
Y.Y. Keuh (1984, p.p.1254, 1261-1262) also sees demand growth exceeding
grain production. He notes three causes: crop shifting out of grain production,
increased meat demand, and rising population. He sees population for the year
2000 at 1.286 billion, 86 million above official targets. He thinks these numbers
indicate an annual birth rate of 1.5%, making population a large factor in the
current grain gap. He gives no additional data on crop shifting or meat demand.
However, he notes that the combination of these three factors will result in a grain
demand shortfall of about 30.64 million tons.
Excessive shifts in crops, as noted above, is unlikely based on China's
recent history. Keuh's population numbers are worthy of additional examination.
His 1.5% expected population figure is much larger than the commonly accepted
1.2% figure. He does rely exclusively on a small, but respected group of Chinese
scientists for the data. This group may not have enough access to primary data
sources to be accurate, and their number is so much larger than most sources that
it can probably be discounted. The most accurate cause the author mentions, but
does not discuss in detail, is again the extreme rise in demand for feed grain.
Fewsmith (1988, pp.81-83) also has demand higher than production. He
14


gives three problem causes: crop shifting, declining acreage for grain, and
declining infrastructure. He believes that a lack of labor incentives will cause
peasants to shift acreage out of grain, which will worsen the problem of declining
acreage from land (15 million mu from 1981 to 1985) taken out of production for
housing and industrial production. He also notes that infrastructure spending by
the government has declined by 50% in recent years and believes that this will
lead to unrepaired dikes, canals, dams, and storage facilities, weakening production
growth.
Fewsmith is correct when he believes that meat production will have an
impact on grain demand in the current cycle, but, as mentioned above, not in the
shifting of too much acreage out of grain production, but as an excessive consumer
of feed grain. Declining acreage generally is not likely not to be a significant
factor in the demand problem of the current grain cycle due to increased
productivity and, as will be noted in chapter two, larger available acreage than
previously thought. Declining infrastructure is a cause worthy of consideration.
Weakening dikes, and other items, have to reduce production somewhat. However,
China has been able to achieve substantial gains in recent production in spite of
these problems, and the author gives no effective reason why this cannot continue
in the short run of the current production cycle (see Table 3). Furthermore, China
has been building new infrastructure with foreign loans, which should compensate,
15


at least partially, for declines in domestic infrastructure spending. Infrastructure,
like population, is a small factor in the current demand problem, not as significant
as feed grain demand.
Colin Carter and Fu-Ning Zhong (1991, p.82) also see demand as exceeding
production. The authors note that grain production will be 20% below demand
needs. The authors cite two causes for the problem. They believe that the
government has set prices too low to maintain adequate production, and that high
subsidies to urban consumers are creating so much waste as to drastically drive up
demand.
These two factors are unlikely to be of significance in the current grain
cycle. Policies, mentioned by Kung (1992), are underway at the local level to cut
subsidies and increase prices for grain to market demand levels. It is likely that
these approaches will become national policy by 1995, limiting the impact of
subsidies and low prices on production. Neither appears to be as strong a case for
the problem as the rise in feed grain demand caused by the dramatic rise in meat
production.
The World Bank (1991, pp. 163-165) also views China's grain demand as
exceeding the country's grain production by the year 2000. It believes that
population will rise by 1.2% and production, under completely favorable
conditions, will rise by 2%. It, however, feels that the desire for grain due to
16


previous scarcity, and other factors, added to population growth will push demand
close to production. It also believes that weather catastrophes will occur that will
place production under the 2% figure and result in a grain gap of 65 million tons
by the year 2000.
The argument that weather has not been accounted for as a significant
factor in production is worthy of exploration, and is why the World Bank study is
discussed in the section, as well as in the upcoming section on primary data
sources. While it is possible that grain production in individual years will decline
due to weather problems, it is also possible that there will be large, surplus
production years. Grain losses can also be compensated for through the use of
reserve supplies. Both factors are likely to occur in the current grain cycle,
balancing out declines from poor weather. Thus, weather is only of limited
significance as a factor in the current grain shortfall.
Shan (1991, p.7) also sees grain demand as outdistancing production. He
notes, based on current Chinese data, that population will be 1.270 billion by the
year 2000, and this amount on its own will cause demand to be 20 million tons
more than production. The author goes on to note that non-population factors
such as rising income, meat oriented consumption habits, declining infrastructure,
declining acreage, and urbanization will push the gap between production and
demand even wider. He, however, blames poor enforcement of the one child
17


Table 3 Grain Production
Year Output (MT)
1978 304.77
1979 332.12
1980 320.56
1981 325.02
1982 354.50
1983 387.28
1984 407.31
1985 379.11
1986 391.51
1987 402.98
1988 394.08
1989 407.55
Source: Chinese Statistical Yearbook (1990), p.349 .
18


policy as the primary cause for the gap.
The author's belief that population is the primary cause for the current grain
gap is probably inaccurate. As noted, most sources see population as only .2%
above target set by the government. It is certainly a small factor, but not the
primary demand factor. As to his other factors for the demand gap, some factors
have relevance, others do not. Rising income is not a factor, as will be noted in
the FAO data in chapter two, because it appears to lead to less consumption. The
decline in consumption in grain occurs because consumers can now purchase other
food products more desirable than grain. Declining infrastructure is a factor
causing some declines in production, but is not the primary factor. Infrastructure is
sustaining current productivity gains. Declining acreage is not a problem because
there is more grain acreage available than previously thought. And, urbanization,
again, is not a factor because it leads to less consumption, as will be noted in the
FAO data in chapter two. This, again, leaves the increase in meat demand pushing
up feed grain requirements as the primary cause for the grain gap.
Research Methodology of the Scholarly Studies
The methodology for all of these studies is positivist. All studies view the
relationship between food production and demand as a dynamic that can be
quantifiably measured. The studies differ, however, in the type of data used, the
19


quality of the data, and the ability of the authors to use the data to prove their
main points. In terms of sources, there is also variety. All reports use either
USDA statistics, Chinese statistics, international statistics, or a combination of two,
or more, of the above.
The Ash (1992, p.447) study's use of data is weak. His data does not
efficiently cover the demand vs production dynamic.The author gives major data
on production, such as noting that production rose annually at 4.2% in the eighties,
but gives no data on consumption. The author simply makes the blanket statement
that demand is higher than current production. Thus, there is little way for the
reader to confirm that the author's views of a production gap are accurate. He
does better in his use of sources. He integrates western scholarship, such as Bruce
Stone's 1988 article, "Developments in Agricultural Technology," with Chinese
statistical sources, such as Chinese State Statistical Bureau data on production for
1991. By using different sources with data that supports his position, he creates a
sense of accuracy for his work.
The World Bank (1991, pp.163-165) has some good data, such as on
population level, 1.2% per year, and on production, 2% per year. However, they
provide no data on their weather argument for a productivity gap, or on any other
factors in demand outside of population. It is, thus, difficult to confirm if there is
a grain gap strictly by observing their data. They also do not use any outside
20


sources to confirm their conclusions.
Y.Y. Keuh (1984, p.p. 1253, 1259) has good data on production, noting a
2.5% yearly increase, and some data on population, noting a 1.5% yearly increase.
However, the author again does not explain other demand variables, and his 1.5%
population data is too high. Furthermore, Keuh only relies on Chinese sources for
his data, such as the State Statistical Bureau for productivity numbers, and a select
group of Chinese scientists for population data. This leaves his study conclusions
open to doubt.
The Fewsmith (1988, pp.78-79) study is weak both in the use of data and in
his sources. The author has extensive data on food production. He notes that the
annual grain harvest grew by one-third between 1978 and 1984 from 305 to 407
million tons. However, other than implicitly noting that population demand had
exceeded recent production by 2.1 tons in 1985, he doesn't give data on the
production side of the equation. In sources he, again, only relies on official
Chinese statistical data, meaning his conclusions may have been skewed by data
manipulated for the PRC's benefit.
Carter and Zhong's (1991, pp.792-793) study is stronger in method. The
study is strong on grain production statistics, noting that grain production rose 10%
in 1979 and more in later years. However, the demand data is again missing.
They give no data on demand and merely state that it will be higher than grain
21


output. The study, though, is very strong in the use of sources. It has United
States sources for data, such as the USDA's statistical research service. It also has
Chinese sources, such as the State Statistical Bureau. And, it compares these
sources with data from Western scholarship, such as Yi-Fu Lin's 1987 paper,
Household Farm, Cooperative Farm, and Efficiency, Evidence from Rural
Decollectivization in China. Thus, the study data appears strong in areas that the
writers choose to provide it.
Fang Shan's (1991, pp.1,3,7) work has solid population numbers, noting a
1,273 population figure for the year 2000. He gives substantial analysis of the rise
including information on the high number of productive age couples (ages from
20-35). He has extensive data on grain production. He notes that in 1990, for
example, grain production rose to 435 million tons, an increase of 6% over the
previous year. The study doesn't, however, include data numbers on non-population
demand factors, such as urbanization. The study also does not have much variety
in his sources. The author again relies exclusively on Chinese sources for data.
The research methodology of all the works shows some trends. The authors
on whole effectively analyze production. They, however, have serious problems
supporting their positions on a grain gap and the potential cause, such as an
increase meat demand, with effective demand data. With a few exceptions, most
studies also have very limited sources to use to calculate their data,and this may
22


lead to misleading conclusions. This study will attempt to avoid these problems by
discussing in the next chapter how the primary data sources show a grain gap by
the year 2000 with the primary cause linked to meat demand.
Thus, chapter two will use data models from the USDA, FAO, World Bank
and State Statistical Bureau to show a grain gap with the cause linked to meat
demand. It will also explain how China's history as a socialist state and Chinese
culture are causing an increase in meat demand, and why other factors are less
relevant to the grain problem. Chapter three will offer recommendations for
solving the grain problem with the preferred approach being to combine new
quality controls, imports, and gradual price rises. Chapter four will review the
historical pattern in grain production, the author's arguments for a grain gap, the
primary data models demonstration of the meat demand cause for the grain gap,
the cultural and historical causes for the problem, and the solution involving
imports, quality controls, and gradual price rises.
23


CHAPTER 2
PRIMARY DATA EVALUATION
Since the authors base their gap conclusions on variables, such as
population and grain production, a useful way to examine the validity of their
conclusions is to look at variables and conclusions in projection data models from
the World Bank, United States Department of Agriculture (USDA),and the Food
and Agriculture Organization of the United Nations(FAO), comparing them when
needed to Chinese sources, and see if these models project a grain gap, if their
study points to a cause for the problem, how that cause developed, and its impact
on Chinese agriculture. My analysis indicates that there is a grain gap caused by
the extreme rise in meat demand and the resulting demand on feed grains.
World Bank. FAQ, and USDA Models
The Mat-1 model (World Bank 1991, pp. 162-167) is one data source. The
model uses the following variables: population growth, demand and supply shifts,
income growth, price elasticity,and productivity levels from 1986 to 1995. The
model contains the following assumptions: per capita income will rise by 42%,
population will grow by 11% over the model period, grain prices will remain at
1986 levels, urban growth will cause urban demand to be 35% of total food
24


demand, and food production will rise to 1.9% to 2% a year.
The World Bank does not view population as a significant factor in grain
demand. Their population figures indicate an average gain of 1.2% a year, which
is well below the 2% figure for productivity growth. However, the World Bank
does foresee a potential productivity gap. The World Bank expects that supply
will have to expand by 65 million tons in order to keep with demand until 1995.
The World Bank projects with the Mat-1 model that the Chinese could
achieve this goal only under optimum weather conditions. They feel that these
conditions will not occur, and China will, thus, fall below this target. The data
provided, however, does not show this problem. The startling problem that the
data does indicate is the enormous rise in feed grain demand for livestock (see
Table 4). The World Bank projects a 55% rise in feed grain demand for the period
in contrast to only an ll%rise in grain for human consumption. This data
indicates that the factor leading to the imbalance between grain demand and
production is the result of increased meat demand driving up feed grain needs.
The USDA (1988) also notes a grain gap. The USDA utilizes the following
variables: price level, level of investment, level of infrastructure, level of
education of farm managers,and level of available acreage. Their model contains
the following assumptions about the variables: prices will rise due to the increased
use of market price determination, but this change will occur slowly. Investment
25


in agriculture will increase, with spending predominantly in infrastructure. The new
infrastructure spending will result in increasing production of fertilizers, better seed
varieties, better transportation systems, and improved water control systems. The
USDA, like the World Bank, does not view population as a significant factor in
grain demand, and it is not even utilized as a variable in their model. But, like the
World Bank, the USDA does foresee a grain gap. The USDA believes that in its
model grain production will be at S00 million tons annually by the year 2000 (see
Table S). This will not meet consumption needs, and China will have to import the
difference. The USDA noted the gap will be dealt with through increased imports
in feed grains. However, since they provide no data tables on this demand it is
impossible to verify this based on their data. But the USDA (1992) does show a
major meat production increase in a later study (see Table 6). Thus, increasing
meat production and the resulting increased demand for feed grain is causing the
increased overall demand for grain and the current productivity gap.
Finally, the FAO (1991) also projects a grain gapwhich as in the USDA
study will occur by the year 2000. The FAO model uses the following variables:
population, price level, income growth, and level of urbanization. The FAO makes
the following assumptions about these variables: productivity will rise by 1.3 %
annually, the level of urbanization will increase, and this will cause a .05%
reduction in rice demand and a 1.2% increase in wheat demand. Prices are
26


Table 4 Projected Feed Grain Demand
Year Demand (MT)
1985/87 56.8
1995 82.6
Source: World Bank (1991), Options for Reform in the Grain Sector, p.170.
Table 5 USD A Grain Production Projection
Year Production(MT)
1990 445
2000 507
Source: USDA Agriculture. Trade (1988), p.31
27


Table 6 USD A Livestock Figures
Year Meat Production(MT)
1987 19,860
1988 21,936
1989 23,262
1990 25,135
1991 27,238
Source: USD A Agriculture. Trade (1992). p.73.
28


assumed to remain at 1986 levels. Again, this study shows demand ahead of
production. Based on examination of its variables, the FAO projects a grain deficit
of 62 million tons by the year 2000 (see Table 7). Again, the FAO study does not
offer a specific reason for the shortfall. However, data in their study shows that
wheat production, which is predominantly used in the feed industry, will rise by a
whopping 90% by the year 2000. This is again evidence that the grain gap will
be caused by the demand for feed grains. Thus, all studies provide evidence that
the feed grain problem is causing the overall grain gap.
Chinese State Statistical Data on Meat
A further confirmation of the meat induced grain gap hypothesis can be
seen in the Chinese sources, which also show meat demand to be placing pressure
on the grain sector. The Chinese statistical yearbook (1990) shows large increases
in the amount of meat produced (see Table 8). This greatly increases the amount
of feed grain required. Feed grain will be 29% of total grain production by the
year 2000 in the most conservative estimate (see Table 9). This is too high a level
for China to maintain along with other demand factors, and there will be a grain
gap. The next section eliminates non-meat causes and gives explanations for rapid
rise in meat demand currently underway.
29


Table 7 FAO Production and Consumption Figures: Rice & Wheat
Year Production(MT) Consumption(MT)
1984/86 176.6 183.7
2000 225.2 284.3
Source: FAO (1991), p.62.
Table 8 Chinese Statistics for Livestock Production
Year Production(MT)
1985 17.61
1986 19.17
1987 19.86
1988 21.94
1989 23.26
Source: China Statistical Abstract (19901. p.29
30


Source: China Statistical Abstract (1990). p.29
Table 9 Food Percentage of Total Grain Crop
Year Output(MT) Feed Percentage (MT)
1986 391.51 101.98
1987 402.04 106.25
1988 394.08 115.92
1989 405 117.92
1990 412 120.73
1995 450 139.99
2000 500 164.51
Source: Tuan (1991),"China's Livestock Sector" in Agricultural Development.
p.135.
31


Evaluation of Primary Data
The projection models indicate that there will be a grain gap in China by
the year 2000. The projection models, and the Chinese data, indicate that the
likely cause is increased demand on feed grain due to rising meat consumption.
There are several reasons why meat demand and not population growth, weather
instability, poor infrastructure, rising incomes, urbanization, excessive subsidies,
declining acreage, nor crop shifting is the primary cause for the current gain gap.
Excessive meat demand has its roots in Chinese culture and in China's history as a
socialist country.
Population is not a significant factor because it rising at 1.2%, only .2%
above target. Yes, this rise will lead to some additional demand, but by and large
the government has effectively enforced the one child policy. Certainly, if the
government should chose to more strongly enforce the positive and negative
penalties of the one child policy, bringing population closer to the 1% target, it
would lessen pressure on grain production. It may simply be too costly for the
government to even more tightly enforce the birth policy. Yet, it may be necessary
in future production cycles to more strongly enforce the one child policy in order
to keep production in line with grain demand. For the time being, population is
only a small factor in the current grain gap.
Declining acreage is even less of a factor in the current demand situation.
32


The most likely explanation for this is that production has been underreported.
The USDA now believes that this has been occurring in China. The USDA
believes that peasants have concealed land to avoid paying taxes. They believe
this has resulted in at least 44% more land in production in 1984 than reported by
the State Statistical Bureau (USDA,1993B, p.99). The information is also
significant because it shows more land is concealed in the traditional poor harvest
areas of the north and southwest. These sites are the very areas that are benefitting
from increased harvests due to the introduction of dams, irrigation, and other
projects, financed with foreign loans. Increases in the poor areas will result in a
rise in acreage identified by the government, as peasants become able to handle a
larger tax burden. Peasants will still want to hide land, but the government will
have more revenue incentive to catch such cheating. Even if more acreage is not
reported, the study still indicates that China has substantially more grain acreage
than has been reported.
Poor infrastructure, like population, is a small factor, but not the primary
one in the current production gap. It will be less of a problem than meat
production for the following two reasons: first, foreign lenders are providing
money for many projects. An example is the Pi Shi Hang-Lake Chohu Irrigation
Flood Diversion System, now being built in Anhui Province. The new project will
cost US$ 263.5 million, with 35% or US$ 92 million to be provided by the World
33


Bank. The project is expected to benefit 8.2 million people by controlling
serious local floods, improving 320,000 he of land with new irrigation, by
constructing 120 new bridges, and by renovating 560 existing reservoirs (From
Disaster Area to Bread Basket, p.83).
The second reason for eliminating infrastructure as the primary cause for
the grain gap is that in the short run it is probably strong enough to continue
productivity gains. It has shouldered recent gains of 2% per year and should
continue to do so in the short run of the current production cycle. Later, however,
it may become a more serious problem. Weakened infrastructure facilities may
begin to fail, disrupting production. The costs of fixing infrastructure and
developing new projects will be also be substantially higher, if the government
waits until well into the next century to fix these problems. Sometime in the next
century, problems with infrastructure will become readily apparent in grain
production. It may behoove farmers and the government to address these problems
now, perhaps with the additional infrastructure spending incentives for farmers that
were previously mentioned. However, the reduction of grain subsidies, which will
later be discussed in detail, should allow the government to spend more on
infrastructure improvements. And, as other opportunities dry up in rural areas,
peasants should begin spending on local infrastructure to raise production, even
without additional incentives.
34


Weather instability also does not appear to be a serious threat in the current
production cycle. This is the case because of the hereto unknown, massive
amounts of grain China has in storage. The amount of grain stored in China has
always appeared low. Carter and Zhong (1991, p.807) have a figure of 74 million
tons. However, the USDA now (USDA,1993A, p.l) believes that China has 491
million tons of grain in storage, a little a over a current year's worth of production
of 420 million tons. This amount of storage means that China should have more
than enough supply to offset a weather induced catastrophe in production, if the
new figures are accurate. The fact that such weather catastrophes seldom occur on
a national scale, also tends to put even less pressure on the grain production
system. It puts less pressure on the system because it is unlikely that all national
reserves would be depleted in a given emergency.
The reason that the USDA gives for the new adjusted in figures is that in
the past China has viewed the amount of grain reserves as a national security issue
and has not allowed the actual size of reserves to leak to the west. China now
feels confident enough in sovereignty to allow the true extent of its reserves to be
known. The USDA also notes that a major upgrading of storage facilities is now
occurring, which should increase the duration of crops in storage and allow for
even more stock available in an emergency situation in the current production
cycle.
35


Subsidies also appear to be less of a factor in the current production cycle.
The approaches for reducing subsidies at the local level have been noted by Kung
(1992). These policies must be continuing and on their way to being adjusted into
some sort of national policy on reduction. Evidently, current rises in prosperity for
urban workers and peasants, who often benefit from using illegally traded urban
food coupons, will be enough to insure their tacit acceptance of the reduction
policy. Peasants and workers may see benefits in the government spending less on
subsidies and more on infrastructure, or other programs. The decline in subsides
might also be, in part, attributed to a decline in urban interest in grain products.
Urbanization also does not appear to be significant factor in production.
Urban dwellers seem to have more interest in increasing other areas of their diet,
like meat, rather than demanding ever higher levels of grain production. This fact
tends to somewhat worsen the feed grain problem, but not by a substantial amount
in the current cycle. For the some reason, rising incomes is not a major factor in
grain demand because people are more likely to use the extra money to by other
food or industrial products. Finally, in terms of crop shifting, the Chinese peasants
will usually shift part of production back to grain, if it is profitable and needed.
There is also substantially more cropland available for production, as is shown in
the USD A report. Thus, losses in acreage to other crops shouldn't be a major
factor in the current grain gap.
36


The Primary Cause of Increased Meat Demand
This leaves as the primary cause for the grain gap increased meat demand.
As has been shown, meat demand has risen at remarkable rate, requiring ever
larger amounts of feed grain. There are two primary reasons for this increased
demand for meat that are associated with China's experience as a centralized
socialist state and with Chinese culture.
Socialist History as a Factor in Meat Demand
The first and most significant reason for such strong meat demand is likely
China's experience with a socialist command economy. One of the key goals of
the socialist command economy was cheap, subsidized food products. This system
led to compulsory purchase prices for meat that were so low that they did not
cover production costs, so meat producers did not have money to raise production
and could not produce effectively. Wegren (1992, p.5) notes this was the case for
producers in the Soviet Union. Khrushchev was the first of many premiers to try
to alleviate shortages in meat by raising prices, which he did on average of 25%.
The result of this price rise was worker strikes and unrest, and this approach was
temporarily abandoned. Sevrin (1992) notes that until its collapse in 1992, there
was no effective Soviet policy for dealing with increased consumer demand for
meat. The poor performance of the Soviet livestock sector can be seen in Tables
37


10 and 11. The new Russian government has attempted to solve the meat demand
problem by again allowing prices to rise sharply to meet demand. This rise
drastically cut the amount of meat consumers can purchase and has, again, led to
much consumer discontent.
Poland had similar problems handling meat demand undercentralized
socialism. Prices were never allowed to be high enough to make meat production
profitable. Instead of allowing consumers to become angry, however, the Geric
regime, in the early seventies, chose to use foreign credits to import meat (Brown
1988). This was only a short-term solution and the system reverted to scarcity,
with the added problem of contributing to foreign debt. The changes in the Polish
meat situation can be seen in Tables 12 and 13. Poland recently has taken the
drastic step, like the Russians, of allowing a sudden rise in meat prices, which has
contributed to consumer dissatisfaction with the current government.
The Chinese experience with centralized socialism and meat demand differs
somewhat from the people's experience in the Soviet Union and Eastern Europe.
The Chinese meat system was in such a bad state previously that the Chinese were
able to make large improvements with central planning, in spite of dysfunctional
pricing. Chinese consumers at the time were less militant about having access to
meat in the diet than their European counterparts and were satisfied with the
38


Table 10 Soviet Meat Production
Year Production(MT)
1940 4.7
1960 8.7
1970 12.3
1980 15.1
1985 17.1
1986 18.0
Source: B.P. Pockney (1991), Soviet Statistics Since 1950. p.187.
39


Table 11 Soviet Meat Demand in State Meat Purchases
Year Purchase(MT)
1950 2.3
1960 8.0
1970 12.8
1980 15.9
1985 18.4
1988 22.8
Source: B.P. Pockney (1991), Soviet Statistics, p.235.
40


Table 12 Polish Meat Production
Year Production(THT)
1960 1756
1970 2187
1976 2904
Source: Concise Statistical Yearbook of Poland (1977), p.45.
Table 13 Polish Meat Consumption Per Capita
Year Consumption(KG)
1960 42.5
1970 53.0
1976 70.0
Source: Concise Statistical Yearbook of Poland (1977k p.73.
41


improved access to grain. These historic conditions began to change in the late
nineteen-seventies. China was no longer able to sustain large increases in centrally
directed meat production, and the effects of dysfunctional pricing began to
negatively impact the meat industry. Chinese consumers also began to be
accustomed to more meat in their diets.
The government's response to the meat problem was to make it more
profitable for farmers to shift to meat production, through the relaxation of selling
restrictions, and other policy changes, leading to a dramatic rise in meat
production. This policy leaves China in its current difficult situation. While being
nowhere near close to satisfy pent-up meat demand resulting from years of
centralized socialism, and with having an increasingly active group of meat
oriented consumers, China must either curtail meat production, or find another
means of keeping meat production from causing such excessive demand on feed
grains.
Chinese Culture as a Factor in Meat Demand
The second reason China is facing a meat demand problem is associated
with Chinese culture. Chinese culture has always associated the eating of meat
with success. This was not a problem when meat was a very limited commodity
as consumers had little expectation of having much of the product. However, now
42


that access to meat has become widespread, the cultural affinity for the product has
led to the intensification of the already high demand for meat product that was
already being created by state socialism. Meat is significant to Chinese culture in
two areas: The first important cultural aspect of meat is the status associated with
families in mainland China who can put meat on the table on a regular basis.
Meat's significance for family life can first be noted in the Chinese character for
family. The character has as its root signs a pig with a roof over it, demonstrating
a successful family as one that can provide meat. This meat appeal can also be
seen in a number of consumer expressions. Hsu and Hsu (1977, p.303) note a
favorite northern expression for luck can be translated as follows: "Yin couldn't
have been any luckier today, unless he had secured pork and wheat rolls for
dinner." Meat is so significant that at weddings wooden fish and meat replicas
were often put out as symbolic meat when the host family could not afford the real
thing.
The second important cultural aspect of meat is that it is a symbolic device
in cultural interaction. The provision, or gift, of meat confers status on the host
and respect to the guest. In traditional China, the Mandarins would take their
friends on meat eating binges to show their social status (Spence,1977). This
practice continued with PRC officials, who used their position to acquire a meat
oriented lifestyle. It is not surprising that the new successful peasants would also
43


want to use meat in the same manner.
Thus, the current strong meat demand is the result of China's past history,
especially central socialism, and Chinese culture. This meat demand has led to the
rise in feed grain requirements that have unbalanced the relationship between grain
demand and production. In the next chapter, recommendations will be given to
lessen the meat induced feed grain problem and close the grain gap in the current
cycle of production.
44


CHAPTER 3
RECOMMENDATIONS ON SOLVING THE GRAIN GAP
There are several approaches that could be taken to alleviate the rise in
meat production and solve the feed grain problem. Any solution would require
one, or more, of the following: limiting sale and production of meat, limiting
access to feed grain, limiting consumer access to meat, limiting meat markets,
increasing health regulations on meat, or increasing the purchase of feed grains on
the international market. Each approach has potential benefits and political costs
associated with its implementation.
The first approach would be to limit producers. The easiest method to limit
producers would be to place quotas on the amount of meat sold. Fanners would,
thus, only be able to sell a set amount at the market. This would limit the number
of animals requiring feed grain, since the Chinese farmers could produce only a
limited number of animals for sale. Another approach would be to put a cap on
the amount of grain that could be used as fodder. The number of animals again
would be limited because the farmer would only have limited feed available for his
livestock. Thus, meat production and feed grain demand are again stabilized.
The government could also limit the amount of land on which livestock
could be housed. This policy would mean each farmer would only have so much
45


space in which to place his livestock. Space restrictions would put a cap on the
number of livestock and limit feed grain demand. Finally, the government could
restrict to a certain target the number of animals that could be raised on all farms.
This policy would, thus, limit the amount of animals requiring feed grain.
All of these producer restrictions inevitably result in the same problem.
The problem with utilizing these production restrictions is that they are high
profile, government intrusive procedures that tend to anger both producers and
consumers. Although these programs have some benefit in that they can be
monitored by the government, they tend to have a high political price. Producers
would resent the highly intrusive control of the meat industry and might view it as
an abandonment of the Dengist laissez-faire philosophy in agriculture. This is a
very dangerous group to offend because they currently represent a large segment of
the population. Meat oriented consumers would also resent this blatant attempt to
restrict their access to meat. While not as numerous as peasant producers, urban
consumers are strong because they are likely to express their displeasure violently.
The threat of a Tiananmen style conflict over meat might deter some, but food is
such a volatile urban issue that consumers might opt to riot anyway.
Government controls also bring with them the further problem of driving
sales underground. Fanners will avoid reporting actual acreage, and animals being
used, to obtain even higher black market sales. These sales may increase
46


production, exacerbating the feed grain problem and reducing government
supervision of the meat industry.
The next approach that could be taken to limit meat consumption and feed
grain demand also has high political costs for the government. This approach
would be to limit consumers' access to meat. The first method of reducing
consumer demand would be simply to allow meat prices to rise in the meat
markets suddenly to reflect actual demand. This approach has shown to have a
high political cost in Poland and the Soviet Union, where it has led either to
political disorder, or a loss of support for the government. The second approach
would be to limit the amount of meat each family can purchaseissuing ration
cards, or other devices, to monitor transactions.
The benefits of a consumer restriction approach are that it attracts less
resistance from producers, who can often make more money with less production
due to the value and scarcity of the product. However, these benefits are probably
offset by angry political resistance in urban and, perhaps, also in rural areas where
grain and vegetable producers must also pay higher prices for meat products. As
noted, the sudden price rise approach has led to political disorder in other socialist
countries with similar histories. The food rationing form of consumer restriction is
also politically unwise because it appears to be a return to government control of
agriculture and an abandonment of Dengist free market reforms.
47


The third approach that might be tried to solve the feed grain gap totally
ignores meat demand altogether. This approach attempts to close the feed grain
gap by supplying additional demand from grain reserves. This approach has two
benefits: Demand can be supplied through domestic sources, and producers and
consumers won't be offended by new government meat restrictions. The higher
level of grain reserves, mentioned in chapter two, would appear to make this
approach feasible for the government. The approach does, however, have a political
drawback. The drawback is that the government would have less reserves on hand
to deal with any large weather catastrophe. This may be a politically dangerous
approach to take. The people tend to be even more angry when government policy
cannot deal with famine, than they are when they can't purchase agricultural
commodities to which they feel entitled. Traditional Chinese sources say that the
government should have an even larger reserve of three years of production, rather
than the just the one now in stock. It, thus, is unlikely that the government would
willingly want to take the political risk of reducing grain reserves in order to close
the feed grain induced production gap.
A fourth approach that could be used to solve the grain gap would be to
place restrictions on the marketing of meat products. Two methods could be used
to accomplish this goal: The first method would be limits on actual physical
markets. The number of meat markets could be limited and interprovincal trade in
48


meat circumscribed. This would limit producers' sales to local provincial markets
and keep them from adding animals to make sales in other areas. The second
method would be to establish a strong national monitoring system for meat quality,
like the USDA in the United States. Meat producers could be forced to have their
product meet difficult quality standards before it could be sold, and farms could
be required to have a high level of cleanliness and efficiency.
The USDA requires numerous quality checks for United States meat
production. All meat slaughter and processing plants must have their floorplan,
water supply, waste disposal systems, and lighting approved. All facilities must be
easy to clean and kept clean at all times. Any equipment problem affecting
sanitation, such as lubrication grease leaking into the food processing machinery, is
grounds for immediate shut-down of the plant. In terms of the meat itself,
carcasses are graded and inspected for quality. Any non-approved drugged animal
carcasses, diseased carcasses, or unusually poor carcasses can be removed from the
market (USDA, FSIS Facts 33, 1987, Pamphlet, "People," n.d.).
Similarly, cut or processed meat deemed unhealthy can be removed from
the market. Plants can be fined, or shut down, if the product does not meet
specific expectations. For example, if there is less meat in the product than is
labeled, or if there has been an unannounced substitution of one meat for another
in the product, the product can be taken off the market. There are also many local
49


laws in the United States that require cleanliness on individual farms (USDA
Pamphlet, "People," n.d.).
The first method of limiting physical markets again appears to be a
movement away from Dengist policies in agriculture and is unlikely to be used.
The method would also likely lead to regional shortages of meat, as provinces with
a comparative advantage for meat production are not allowed to sell to areas that
do not have such favorable conditions for meat production. Quality control
restrictions offer much more promise. Although they will attract some resistance
because they will temporarily restrict the flow of meat, the government should be
able to counter this argument with the position that meat will be healthier for
consumers in long run. Meat health standards are in place in most highly
developed nations, so the government could also put the case that it is a needed
part of economic development in agriculture.
The government might also take the opportunity, while expressing concern
about meat quality, to open up a new campaign to encourage peasants to spend
their money in areas besides meatperhaps, encouraging purchase of industrial
products, like generators. They might also want to encourage spending in service
industries, such as hair care establishments.
The final approach that could be tried to reduce the grain gap again ignores
the meat sector entirely. China could simply import enough grain to compensate
50


for the gap. The disadvantages of importing grain for feed production is that
China will have less of its cherished national independence in agricultural
production and will have to use some of its valued foreign exchange for grain
importing. This situation may leave China somewhat influenced by international
grain markets, leaving open the possibility of foreign manipulation of the
agricultural sector. It will also reduce the amount of foreign exchange China has
to purchase industrial and high tech items.
However, China's economic growth is such that internationalization of the
agricultural sector would be a benefit rather than a weakness. China has
experienced a strong 10% GNP economic growth per year and has a high balance
of trade surplus with major grain producing nations, such as the United States.
The size of China's grain industry also makes her able to influence world prices
enough to counter any foreign attempt to influence world grain prices to China's
detriment. These factors should encourage grain producing nations to sell to China
and should limit sovereignty concerns in grain importing. As far as grain imports
consuming foreign exchange earnings, grain is so cheap internationally that China
could purchase sizeable amounts, with only a small portion of foreign exchange
earnings consumed. Nations, such as the United States, would also appreciate the
limiting of trade surplus by increased spending for agricultural products. Thus,
importing may be a favorable approach to take in solving the grain gap problem.
51


Method of Imports. Price Rises, and Quality Controls
Based on the knowledge of the history of these approaches, this thesis
recommends solving the grain gap with aa gradual raising of meat prices, new
quality controls on meat production, a government campaign to encourage
spending in areas of the economy, other than meat, and the importing of feed
grains. In long run, allowing prices to be commensurate with demand is the only
way to keep meat production from going out of control. This is the practice that
has prevented excess demand fluctuations for meat in western countries.
However, a sudden rise in meat prices has shown to be politically
destabilizing in formerly central socialist states. Thus, this thesis recommends that
prices be allowed to rise gradually over a long period of time. Consumers and
producers can then adjust to the new prices. However, since gradual price rises
will not be enough to close the current grain gap, this thesis recommends that the
government impose quality controls on producers, so that there will be limits on
meat produced now, with the argument that it will lead to better meat in the long
run. It also recommends that the government encourage people to spend in areas
other than meat production, in the short run, with a political campaign to have
people spend money on new industrial products, rather than on meat. Finally,
whatever small deficit is left between grain production and demand, should be
closed through feed grain importing.
52


However, it is unlikely that China will follow this approach. It is more
likely that they will use the sudden price rise approach that has shown itself to be
a politically destabilizing method for harnessing meat demand. They will likely
attempt the sudden price rise approach because it is the only approach they have
seen already in operation. It would be better if China used other methods, such as
importing, and allowed prices to rise gradually to control meat demand and the
current feed grain induced grain gap.
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CHAPTER 4
CONCLUSION
The first chapter examined the history of grain policy with an emphasis on
recent changes in production that scholars believe have set the stage for a grain
gap. It noted that China experienced productivity gains by rationalizing production
through the removal of landlords and through land improvements. The chapter
also showed how these productivity gains led to problems with increased meat
production and large population rises. The chapter noted the shift in emphasis to
labor and private capital investment to encourage additional production. The
chapter then showed arguments in the scholarly literature supporting a grain gap,
with a variety of problem causes including declining acreage, population rises,
weakening infrastructure, urbanization, rising income, the shifting of crops and
increased meat demand. Of these reasons, meat demand appeared to be the
strongest.
The second chapter looked at primary sources from the World Bank, FAO,
and USDA, along with some Chinese data, in order to determine if there actually
would be a grain gap in the current production cycle and what its likely cause
might be. The studies all showed a grain gap for the current production cycle.
Furthermore, the studies seemed to indicate rising feed grain demand was the most
54


likely cause, rising at least 50%, or more, during the current production cycle.
The second chapter also attempted to explain why feed grain, demand and
not other factors, is the cause for the current grain gap. Population, at an average
of 1.2% per year, was considered a small factor, but not large enough of a factor to
create the grain gap. Weakening infrastructure was also considered a small
contributor to the problem, but not large enough of a factor to slow down
production enough to be the primary cause of the current grain gap. Urbanization
and income growth were eliminated as factors in the current grain gap because
they tend to reduce grain consumption. Crop shifting was dismissed because
farmers tend to place land back into production to meet grain demand. Subsidies
were eliminated as a major cause because they appear to be in the process of being
reduced. And, weather instability was eliminated because China has the reserves
to deal with the any problem in that area.
The chapter went on to explain why meat demand is the cause of the
current grain gap. The problem of China's history as a central socialist country
and the pent-up demand for meat that this history appears to cause were noted.
The Chinese culture's celebration of meat intensified this high demand, as the
chapter also noted. The third chapter gave options for solving the meat induced
feed grain gap. Limitations on producers including quotas on amount of meat sold,
a cap on feed grain used as fodder, limits on amount of acreage used to house
55


livestock, and quotas on the number of animals raised were discussed. This
approach was dismissed an ineffective because it angers both consumers and
producers, appears to be a return to unfavored central socialist control of
agriculture, and is difficult to politically justify. Limits on consumers were also
discussed including issuing ration coupons for meat, or allowing prices to rise
suddenly to be equal to demand. This approach was also dismissed because coupon
rationing, again, appears to a retreat to central state socialism, and sudden price
rises for meat are a contributing factor in political instability.
The third approach in solving the grain gap discussed was to compensate
for shortfalls by providing grain for feed from national reserves. This approach
was dismissed as being too likely to weaken China's ability to deal with famines
from weather problems to be tried. The fourth approach of limiting markets was
given some chance of success. Simply limiting physical markets was dismissed as
a return to central socialist control of the meat sector. Quality control measures
were given, however, a possibility to help with the current grain situation because
they slow meat production and can be politically justified for consumer health and
as a sign of economic modernization. The fifth approach, grain importing, was
also considered a helpful approach because China now has the economic muscle to
import small amounts of grain without it negatively impacting the national
economy. Based on evaluation of these five approaches, the thesis proposed a
56


gradual rise in meat prices, coupled with imposition of quality controls, and minor
grain importing to solve the current grain gap.
China needs to deal with the feed grain problem now in order to prevent
running even higher deficits due to the meat demand problem in the future. China
should also be considering future programs in infrastructure improvements and in
population control to keep these problems from becoming more major factors in
future production. If these goals are accomplished, China should have a strong
grain sector in agriculture until well into the next century. This improvement
should contribute to China eventually becoming an economic superpower.
57


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