CHINA: AGRICULTURE IN 1983 AND PROSPECTS FOR 1984

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00310R000100160001-8
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 17
• Document Creation Date: December 22, 2016
• Document Release Date: January 19, 2011
• Sequence Number: 1
• Publication Date: June 1, 1984
• Content Type: REPORT

An Igoe Amunwad
EA 84-10121
Juse 1984
copy 2 81
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China:
Agriculture in 1983
and Prospects for 1984
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Intelligence
China:
Agriculture in 1983
and Prospects for 1984
An Intelligence Assessment
This aper was prepared byl
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Office of East Asian Analysis. Comments and
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queries are welcome and may be directed to the
Chief, China Division, OEA,
25X1
Confidential
EA 84-10121
June 1984
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China:
Agriculture in 1983
and Prospects for 1984
Key Judgments China's agriculture in 1983 continued the five-year trend of rising output,
Information available spurred by exceptionally good weather, increased inputs, and the continued
as of 14 June 1984 expansion of personal economic incentives. The total value of agricultural
was used in this report.
output rose almost 10 percent last year to a record $158 billion. Grain pro-
duction rose almost as rapidly, reaching a record 387 million tons. Cotton
production continued its double-digit growth to 4.6 million tons, leading to
the end of cotton rationing and a preliminary move into the raw cotton ex-
port market. Beijing also cut back hemp and oil-bearing crops in order to
reduce large existing stocks.
Beijing's determination to continue peasant economic incentives was
underscored early this year with the issuance of Central Document No. 1,
which:
? Extends peasant land contracts from the current three years to at least 15
years in an effort to encourage peasants to increase investment in their
land.
? Permits peasants to subcontract their land to skilled farmers. Efficiency
will be improved by allowing specialized production.
? Encourages individuals or cooperatives to pool funds and form large rural
enterprises.
? Allows peasants to market their agricultural goods after state quotas
have been satisfied.
? Provides for the formation of small market towns to employ peasants who
have subcontracted their land.
? Exhorts cadre members to undertake more training and accept personal
responsibility for their work.
US grain sales to China were halved last year to 3.8 million tons, mainly
because of a dispute over textile import quotas. China's total grain imports
fell only 2.3 million tons, however, as Canadian and Argentine sales
expanded. This year, purchases from each of the major exporting countries
should approach pre-1983 levels. China will probably not, however, take
delivery by yearend of all of the 8.2 million tons of US grain required to
fulfill the Long-Term Grain Agreement. China's unusual purchasing
tactics this year, moreover, make it difficult to determine their current
level of grain purchases. The Chinese will probably want to negotiate a new
grain agreement with the United States to replace the current pact, which
expires at yearend, but improved domestic food supply and declining world
prices will prompt Chinese buyers to drive a hard bargain.
At this early date, prospects for China's 1984 winter grain harvest appear
good.
iii Confidential
EA 84-101 J.1
June 1984
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Key Judgments
Nongrain Enterprises
New Policies for Peasants
5
Old Objections From Cadre
6
Prospects for 1984 Crops
10
New Cotton Procurement Policy
10
Trade in 1984
10
1.
Claimed 1983 Grain Production Compared With 1979-82 Average
3
2.
China: Imports of Grain, by Source, 1976-83
1.
China: Agricultural Output, 1983
2.
China: Agricultural Inputs, 1983
4.
China: Selected Agricultural Production, 1981-83
5.
China: Fishery and Livestock Production, 1982 and 1983
6
6.
China: Imports of US Agricultural Commodities, 1978-83
6
7.
China: Long-Term Grain Agreements
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China:
Agriculture in 1983
and Prospects for 1984
Gains in 1983
Agriculture posted a second consecutive year of dra-
matic growth in 1983. Grain production, the key
indicator of the agricultural economy, jumped over 9
percent to a record 387.3 million tons, according to
figures released in April by the State Statistical
Bureau (SSB). Other sectors had even more impres-
sive gains, aided by an increasing number of peasants
engaged in rural industry and by the implementation
of the responsibility system' in forestry production
(see table 1). The total value of agricultural produc-
tion grew by 9.5 percent, more than double the goal of
4 percent for the year.
Living standards for Chinese peasants continued to
improve, although they remain well below the world
average. Per capita income rose 15 percent to an
average of $157 last year. The gap with urban
residents continued to narrow as urban incomes rose
only 6 percent to an average of $266. Living expenses
in rural areas rose 13 percent to $126 leaving an
average of $31 per person for savings or investment.
Per capita income figures are beginning to have less
significance, however, as peasant incomes diverge
under the responsibility system. The Chinese press
has carried numerous stories of exceptional peasant
families that, having reaped large profits from spe-
cialized production last year, have yearly incomes in
excess of $5,000. Some have purchased trucks or cars,
and one even bought an ultralight airplane
Production increased last year because of several
factors, including the further relaxation of rural poli-
cies under the responsibility system. The production
and use of inputs also rose (see table 2). Demand for
these inputs continued to exceed supply, with the
exception of conventional tractors. Peasants in most
areas have preferred to purchase their own hand, or
garden type, tractors since the advent of the responsi-
bility system. Over 40 percent of the tractors in use
Table 1
China: Agricultural Output, 1983
Value Pe
(billion Fr
rcent Growth
om 1982
1983 US $)
Total
Animal husbandry
24.5 3
.9
Rural industry
25.5 19
.6
Forestry
6.4 10
.2
last year were privately owned. The exceptionally
good weather last year also contributed. Only isolated
areas in central and southern China suffered damage
from early summer floods, which were overplayed in
the Chinese and Western press.
Grain Crops
The SSB's annual communique reports total grain
production for 1983 at 387.3 million tons, rising 9.2
percent or roughly 34 million tons, the largest in-
crease in PRC history.' Since the adoption of the
responsibility system in late 1978, the Chinese have
increased their total grain production by 83 million
tons-more than the entire annual grain production of
Canada and Australia combined. And despite a 2.6-
million-ton decline in net grain imports last year, per
capita grain availability rose 26 kilograms to a record
391 kilograms.'
' Last year's communique reported 1982 production at 353.4
million tons, implying an increase in 1983 of 9.6 rather than 9.2
percent. The Chinese evidently have readjusted 1982 production up
to 354.5 million tons.
' Based on China's published population figures
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Table 2
China: Agricultural Inputs, 1983
Amount Percent Change From Previous Year
1983
Chemical fertilizer a
(million metric tons)
13.79
22.6
Nitrogen
(million metric tons)
11.09
15.5
Phosphate
(million metric tons)
2.66
75.9
Potash
(metric tons)
29,000
-23.8
Chemical insecticide
(metric tons)
331,000
0.8
Conventional tractors
(units)
37,000
10.5
Hand tractors
(units)
498,000
-1.9
Conventional tractors
(units)
841,000
19.7
Hand tractors
(million units)
2.75
21.7
Rural electricity
(billion kilowatt-hours)
43.5
11.7
Irrigation pumps
(million horsepower)
78.5
8.6
Chemical fertilizer a
(million metric tons)
Production gains last year were well distributed geo-
graphically (see figure 1). Wheat production posted
the largest increase, benefiting from a larger sown
area and good weather (see table 3). Henan's impres-
sive showing reflects the fact that it is China's
premier wheat producer. The output of miscellaneous
grains, primarily corn, made the second-largest gain.
Jilin and Liaoning grow predominantly corn. Jilin's
harvest last year rose a remarkable 48 percent from
record 1982 levels. Reporting for the northeast prov-
inces has noted that 1983 was the first year these
provinces had fully implemented the responsibility
system; less mention was made of the nearly ideal
The only province suffering any real problems last
year was Xizang. The grain harvest there dropped 20
percent, the second straight decline because of
drought. The region's economy, based primarily on
livestock production, was further damaged last year
by livestock disease, insects, and a shortage of inputs.
Problems supplying the remote province were com-
pounded by limited ground transportation, leading the
State Council to order 100 tons of livestock fodder
airlifted to the province.
weather there
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Figure 1
Claimed 1983 Grain Production Compared With 1979-82 Average
Loko
BaWhash
Percent decrease
? 0 to 25
Percent increase
] Less than 10
] 10 to 20
Province-level boundary
Grain production cla irrv for 1983 in
G~nghai Shanghai, and Zh etiang are
used nn CIA estimates
Jiangxi
Guizhou
PPINES
t)
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Table 3 Million metric tons
China: Grain Production, 1979-83
Total grain
332.1
320.6
325.0
353.4
387.3
Rice
143.8
139.9
144.0
161.2
168.9
Wheat
62.7
55.2
59.6
68.4
81.4
Potatoes a
28.5
28.7
26.0
26.7
29.2
Soybeans
7.5
7.9
9.3
9.0
9.8
Miscellaneous
89.7
88.9
86.1
88.1
98.0
a For comparability, tubers are converted to grain equivalent by the
weight ratio of 5 to 1.
Transport problems for the rest of the country cen-
tered on how to purchase, move, and store the im-
mense increase in grain production. Grain sales to the
state jumped 35 percent to 97 million tons, filling all
grain warehouses and forcing authorities in some
areas to pay peasants to store the grain earmarked for
state procurement. In some areas local authorities
simply stopped purchasing above-quota grain, a move
strictly prohibited by Beijing because of its dampen-
ing effect on peasant enthusiasm. The large purchases
turned out to be a mixed blessing for the leadership,
however, as Finance Minister Wang Bingqian attrib-
uted most of last year's above- Ian deficit e
agricultural purchases.
Nongrain Enterprises
Cotton production rose sharply in 1983 because of
excellent yields in the North China Plain (see table 4).
The continued large increase in cotton production-
coupled with an increase in synthetic fiber production,
reduced domestic demand for cotton fabric, and
tighter restrictions by textile-importing countries-
has led to a growing stockpile of raw cotton. Cotton,
rationing was abolished in December, after 30 years.
China also has begun exporting some raw cotton.
Initial interest was low, however, because the size of
Chinese bales did not meet international standards
and buyers were unfamiliar with the quality of Chi-
nese cotton. Subsequent offerings are expected, and
buyers may be more interested once the quality is
known. And Chinese officials have stated they plan to
"New Cotton Procurement Policy").
increase bale size to international standards. Whether
China will remain a cotton exporter, and thus a
competitor with the United States, will depend on the
impact of new procurement policies (see section,
The reductions in oil-bearing crops and hemp were
planned to reduce large existing stocks. Poor procure-
ment policies were blamed for tea production leveling
off. Sugarcane output declined largely because of
poor weather but was partially offset by sugar beet
production, which had good weather and an expansion
The number of live hogs at yearend declined slightly,
probably reflecting a continued decline in the number
of hogs owned by collectives and peasants moving into
other, more profitable sideline enterprises (see table
5). Efficiency of the livestock industry improved, as
evidenced by the increase in meat supplies. Mixed
livestock feed production rose 17 percent last year to 7
million tons. Many individual producers increased
their production of freshwater fish last year to take
advantage of a 13.4-percent rise in prices. Overall,
however, purchase prices for agricultural commodities
increased only 4.4 percent in 1983.
1983 Trade
The dispute over textile quotas highlighted Sino-US
agricultural trade in 1983. Early in the year China
announced an embargo on US soybeans, cotton, syn-
thetic fibers and that it was reducing the purchase of
other US agricultural commodities because of US
textile import quotas. The ban on soybeans and cotton
was largely symbolic; bumper Chinese harvests were
already reducing the need for imports. US cotton
shipments totaled only $2 million for the year, declin-
ing for the third straight year (see table 6).
The ban had its greatest impact on sales of US wheat,
for which China had been the largest market. China's
retaliation was facilitated by its own consecutive
record harvests and by large supplies and attractive
prices in other exporting countries. This allowed
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Table 4
China: Selected Agricultural Production, 1981-83
Gross value (billion 1970 yuan)
172.0
190.9
209.0
3.2
5.7
11.0
9.5
Grain (million metric tons) b
325.0
353.4
387.3
2.2
1.4
8.7
9.2 c
Cotton (million metric tons)
3.0
3.6
4.6
2.2
9.6
21.3
28.9
Oil-bearing crops (million metric
tons)
10.2
11.8
Sugar beets (million metric tons)
6.4
6.7
9.2
6.4
0.9
5.5
36.8
Jute, ambary hemp
(million metric tons)
1.3
1.1
1.0
5.8
14.8
-15.9
-3.9
Aquatic products (million metric
tons)
4.6
5.2
Hogs (million head, yearend)
293.7
300.8
Sheep and goats
(million head, yearend)
187.7
181.8
Large animals (million head,
yearend)
97.6
101.1
a Based on unrounded numbers.
b Includes potatoes, converted on a grain equivalent basis of 5 to 1.
c Chinese claim; inconsistent with 1982 production claims, which
may have since been revised.
Beijing to make up much of the shortfall by increas-
ing purchases from Canada and Argentina (see figure
2). The Chinese had in fact been cutting back on
purchases of the relatively expensive US wheat since
late in 1982, several months before the embargo was
declared.
The embargo was lifted in early September, but
purchases did not resume in time to meet the 6-
million-ton minimum of grain called for in the Long-
Term Grain Agreement. Last year was the third year
of the four-year pact, and the first time Chinese
purchases had fallen below the minimum.
New Policies for Peasants
Late last year Beijing initiated a series of directives,
conferences, and press campaigns calling for a further
relaxation of rural policies. Several factors probably
combined to cause the leadership to press for the new
rural policies. Bumper harvests, the fifth in a row
since economic reforms were initiated, encouraged the
leadership to give an even freer rein to the sector of
the economy that has been the most responsive to and
supportive of its economic reforms. Other nationwide
campaigns, notably party rectification and the crack-
down on crime, also created the proper atmosphere for
requiring more personal economic responsibility, par-
ticularly from rural cadre. Moreover, the success of
some rural reforms required other changes. For exam-
ple, the increased volume of agricultural production
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Table 5
China: Fishery and Livestock Production,
1982 and 1983 e
Amount
Percent Change
From Previous Year
1982
1983
1982
1983
Total aquatic products
(thousand metric tons)
5,155
5,460
11.9
5.9
Freshwater
1,559
1,840
13.6
18.0
3,596
3,618
11.2
0.6
Total livestock products
(thousand metric tons)
13,508
14,021
7.1
3.8
Pork
12,718
13,161
7.0
3.5
Beef
266
315
6.9
18.6
Mutton
545
10.1
4.0
Total livestock
(thousand head,
yearend)
583,700
568,990
0.8
-2.5
300,780
298,540
2.4
-0.7
181,790
166,950
-3.2
-8.2
has required the liberalization of commercial and
transport policies. The state's existing storage, trans-
port, and commercial systems simply cannot handle
all of the goods.
Most of the new policies are embodied in Central
Document or Zhongfa No. 1 for 1984. For the last
three years, the party has devoted its first important
directive to a liberalization of rural and agricultural
policies. This year, local commentaries have cited
Central Document No. 1 as a guideline for all sectors
of the economy (see inset, page 8).
Although the document was not published until June,
Beijing made extraordinary efforts to publicize its
main points. In January and February, Peoples Daily
carried articles or commentaries promoting the poli-
cies almost daily. Every province has called meetings
to study the document, and it is clear the new
guidelines are being disseminated to the lowest level.
A broadcast from Hainan Island, for example, indi-
cated that the contents of the document had been
Table 6 Million US $
China: Imports of US Agricultural Commodities,
1978-83
Total
577
995
2,320
2,124
1,742
796
Wheat
250
214
1,039
1,269
1,047
378
Corn
112
269
225
62
189
158
Soybeans
15
107
155
130
63
0
Soybean oil
26
36
56
17
0
0
Cotton
157
357
701
464
178
2
Timber and pulp
4
4
110
168
237
252
13
8
34
14
28
6
publicized by local meetings,-blackboard and wall
newspapers, posters, radiobroadcasts and, in some
localities, have been rewritten into folk songs and
short operas for touring performances.
Old Objections From Cadre
Cadre resistance to agricultural reform, though di-
minishing, has still not ceased. US Consulate officials
traveling in Guangxi Province early this year found
cadre who were firmly opposed to the new reforms
and would not acknowledge that the new policies
would be implemented in their areas. This typifies the
belief of many cadre, especially at middle and grass-
roots levels, that the reforms are not truly socialist
and eventually will be discarded. Other cadre have
more personal reasons for disliking the reform poli-
cies. Many stand to lose their influence over peasants
and some, even their jobs. The crackdown on econom-
ic crime and the party rectification campaign have
both led to numerous transfers, demotions, and dis-
missals of corrupt or politically unsupportive rural
leaders. There are even some preliminary indications
that rural economic cadre will be held accountable if
their localities do not show a substantial increase in
peasant income within two or three years.
These actions by Beijing will probably polarize cadre
response to the new policies. Exposed or fearful cadre
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Figure 2
China: Imports of Grain, by Source, 1976-83
Legend
0 United States
Canada
Australia
M Argentina
France
1971-75
annual average
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Central Document No. 1 for 1984-Summary of
Major Points
1. Past policies are lauded as improving agricul-
ture, and readers are encouraged to continue fol-
lowing the state's leadership.
Deng Xiaoping and Hu Yaobang have consistently
cited success in agricultural reform as their most
important achievement, and they are using it to push
reform in other sectors.
2. Tasks for 1984 are to raise productivity, im-
prove marketing and distribution of products, and
produce more goods for market by improving the
responsibility system.
He Kang, Minister of Agriculture, subsequently stat-
ed that expansion of the responsibility system in 1984
will focus on commune- and brigade-run enterprises,
rural technologies, farm tools, animal husbandry in
the grazing areas, and the fishing sector.
3. Peasant land contracts with the state are to be
lengthened to at least 15 years. Longer contracts
will be signed for projects such as fruit and timber
production. Peasants who want to quit farming
and engage in other enterprises are encouraged to
subcontract their land to skilled farmers.
Contracts longer than the current three years were
deemed necessary, we believe, to bolster peasant
confidence that the current policies will continue.
Peasants have been reluctant to invest their own labor
and funds in land they may soon have to return to the
state. Lengthening the contracts may be particularly
important now, as some areas are redistributing their
land to make plots larger and more economical. Such
redistribution, according to the document, should be
done only if the majority of peasants wish, and
peasants should be reasonably compensated for any
improvements they have made to their land. Only
contracted land, and not the smaller private plots, is
eligible for subcontracting. The peasants are free to
negotiate the transfer, but it must be approved by the
collective. Subcontracting is designed to encourage
peasant families to improve their production by spe-
cializing in one enterprise, which many have already
done. Early this year 25 million peasant families, or
13 percent of the nation's total, were involved in full-
time specialized production or trade.
Peasants and collectives are also encouraged to pool
their money and become shareholders in rural enter-
prises, particularly those, such as mining, for the
exploitation of natural resources.
Regulations allowing the hiring of up to two assistants
or five apprentices are to be continued. The new
regulations also state that enterprises which hired
more workers than permitted but which show some
degree of meeting the criterion of a cooperative
enterprise should not be considered capitalist.
4. All state organizations are to vigorously support
agriculture. Supply and marketing cooperatives
and regional economic cooperative organizations
are to expand and become rural multipurpose
service centers.
The Agricultural Bank and credit cooperatives are to
provide better financial services. Chinese media re-
porting indicates that a dramatic increase in funds has
been made available in the countryside, particularly
for households involved in specialized production.
Such figures are unreliable, however, because there is
no nationwide definition of a specialized, key, or
priority household. And even local areas have had
trouble designating the specialized households that
are eligible for special loans and bonuses.
5. Procurement and transportation have not kept
pace with the development of production.
Although the economy will remain planned, a call is
made to decrease the volume and number of commod-
ities procured by quotas, and the state will ease its
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control of some prices. This will improve distribution
while lowering state procurement costs. Obviously,
private enterprise and a market economy are expected
to fill in the gap. Subsequent regulations indicate that
peasants are free, once state quotas are filled, to
market goods across administrative borders. To trans-
port the goods, peasants are permitted, either individ-
ually or jointly, to form their own transportation
services. They may own or lease motor vehicles,
vessels, or tractors.
6. Local governments are to maintain public funds
sufficient to cover their public-business expenses.
Government organs are not to charge excessive fees
for services performed in the countryside.
Peasants are to cut down on nonproductive expenses
and reduce the number of cadre, although the salary
for the remaining cadre should be reasonable. Gov-
ernment departments cannot require additional levies
to finance services outside annual local budgets. Such
fees were reportedly used last year to punish success-
ful rural entrepreneurs.
7. Peasant families that leave farming by subcon-
tracting their land are to engage in small indus-
tries or service trades in rural areas.
Beijing planners have said elsewhere they believe 30
to 40 percent of the rural labor force is surplus. By the
year 2000, only 30 percent of the rural labor force is
to remain in crop cultivation; 20 percent in forestry,
livestock, and fishery production; 10 percent working
in cities, factories, and mines; and 40 percent in local
industry and services. Central Document No. 1 indi-
cates that initial development will be focused on the
fodder, food, building materials, and small energy
industries. These industries are to develop in rural
market towns, keeping peasants from migrating to
major urban centers. Before yearend each province is
to select small towns to develop as trial market towns.
8. Forestry, animal husbandry, and fishery poli-
cies are to be relaxed to encourage production.
Grass and trees belong to the person sowing them and
are inheritable and transferable at a discount rate.
The responsibility system should be used for both
livestock and grassland management.
State farms are to continue implementing the respon-
sibility system by contracting to households, or to
mechanical farming teams in areas that are heavily
mechanized. The farms may also sign contracts with
nearby peasant families for products or services.
9. A nationwide cadre training program is to be
established this year at the county level.
Cadre and technicians will receive training on a
rotating basis in the next three to five years in politics,
science and technology, and management. Rural
cadre-low in education and scientific or manage-
ment skills-have often delayed implementation of
rural policies. Training courses will be designed to
promote more responsive and efficient local leader-
ship.
10. While supporting the new policies, the party
must work harder to educate peasants ideological-
ly and politically.
The easing of economic restrictions must be distin-
guished from unchanging ideological principles and
standards for economic crime. Cadre who misuse the
relaxed restrictions for personal profit are to be dealt
with severely. The short shift given to ideology is an
attempt, in our judgment, to avoid arousing confusion
and debate in rural areas. The ideological justification
for current rural policies is still highly contentious.
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will probably be more willing to toe the line. Those
with political connections or sympathetic superiors are
likely to drag their feet even more. In either event,
cadre ideologically opposed to the reforms are now
more at odds with Beijing and with the peasants,
particularly those families in specialized production
earning much more than the cadre themselves. F_
Prospects for 1984 Crops
Production this year will benefit from the implemen-
tation of the new agricultural policies and a continued
rise in agricultural inputs. If the weather cooperates,
China will reap its sixth consecutive bumper harvest.
The 1984 winter wheat crop, which accounts for 85
percent of the total wheat crop, was sown in good
conditions last fall. The area continued to expand
slightly and the harvest could approach last year's
record crop. The growing season has been dry in some
parts of the North China Plain, but as of late May we
see no major problems.
Spring wheat in the northeast, which accounts for the
remainder of the wheat crop, had adequate moisture
for planting this spring. The early rice crop is pro-
gressing well in the Changjiang Valley, where wet
weather has delayed the planting of intermediate rice,
cotton, and coarse grains.
It is still too early to determine any changes in sown
area for fall-harvested crops. Projecting the planted
area is further complicated this year by changes in the
procurement policies for cotton.
New Cotton Procurement Policy
For this year's crop, cotton will switch from the quota-
procurement system to what is called the proportional
method. Much like the quota system, this method sets
in advance a base price and an increased price. But
the proportional method simply divides total cotton
production between the two categories according to a
fixed formula. There are no negotiated sales. In the
northern cotton area (north of the Chang Jiang), 20
percent of the cotton will be procured at the base price
and 80 percent at the increased price. In the southern
area, 60 percent will be sold at the base price and 40
percent at the increased price.`
This method was used effectively last year to control
rapeseed production. In 1982 more rapeseed was
produced than the state could purchase and store. For
1983 the state set procurement levels, paying for 40
percent at the base price and 60 percent of production
at an increased price. No state purchases of above-
quota product were made. Consequently, peasants
saw less profit in growing rapeseed and shifted more
land and attention to winter wheat, which is grown at
the same time. This contributed to the 24-percent
decline in rapeseed and 19-percent increase in winter
wheat production last year.
Peasant response to the change in cotton procurement
is difficult to predict. The changes appear designed to
slow the growth in cotton production and further shift
production from the southern areas to the north.
Peasants in each area will be evaluating the weather
at planting time and the profitability of growing
cotton under the new guidelines. They will consider
the abolition of both the 5-percent price subsidy for
cotton produced in the north and the grain and
fertilizer bonuses for cotton sales. State officials have
emphasized that, unlike rapeseed, above-quota pur-
chases of cotton will still be made.
Trade in 1984
Sino-US grain trade will rebound from last year's low
level, but total shipments may not reach 8.2 million
tons, the level required to fulfill the 6-million-ton
annual minimum called for in the bilateral Long-
Term Grain Agreement (LTA), plus the 2.2-million-
ton shortfall from the 1983 quota. Although the
Chinese have periodically pledged to purchase the full
amount, there was little market activity during the
first four months of 1984. Purchases of US grain
through April totaled only 3.2 million tons of wheat.
Of this amount, less than half had been delivered,
' Because producton levels from previous years are used to establish
the proportion procured at the base price, this formula is not as
disadvantageous to the southern provinces as the ratios imply.
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averaging 350,000 tons per month. Shipments must
proceed at two and a half times this pace for the rest
of the year to fulfill the LTA, which only counts grain
that has left US ports by yearend
Chinese grain traders have shown more interest in
early May, however. President Reagan's trip to China
in April and the lower price of this year's US wheat
crop have probably encouraged purchases. US grain
traders now believe the Chinese are prepared to take
delivery of the entire 8.2 million tons in 1984.
We believe that it is optimistic to expect the Chinese
will take delivery of the full amount by yearend. It is
particularly difficult this year to assess Chinese inten-
tions, or even their current level of purchases, because
of Beijing's deceptive purchasing tactics.
contracts for 4 to 4.5
million tons of US grain have been made orally, but
not in writing. Also, the Chinese have stated privately
since late last year that they have purchased roughly
1.5 million tons of US grain that has not been entered
in US export statistics; US firms report substantial
grain sales to China via Japanese firms, which do not
have to register the sale or destination until delivery.
Japanese trading houses could also offer the advan-
tages of lower interest rates and other nongrain
concessions. Beijing's motivation for the secretive
activity with US firms could be to purchase as much
of the 8.2 million tons as possible before the market
becomes convinced that China will purchase the full
amount and prices rise. Even those grain traders who
are convinced the LTA will be fulfilled must negotiate
at a disadvantage because of their lack of information
on Chinese purchases. Chinese traders are very astute
in playing the US grain market. Their cancellation
and subsequent repurchase of US grain in late May
and early June, for example, netted China several
million dollars from changes in market prices. F_~
Nonmarket factors again could play a part in deter-
mining this year's sales. Beijing continues to politicize
grain trade by linking purchases to other bilateral
irritants, such as the lack of a maritime agreement. If
bumper harvests continue to fill all of China's grain
storage, the ability to store the imported grain could
limit China to purchasing, but not actually taking
delivery of the entire amount before yearend. Grain
imports from Canada and Argentina will decline this
Table 7
China: Long-Term
Grain Agreements
Annual
Amount a
Duration
Argentina
1.0-1.5
January 1981-December 1984
Australia
1.5-2.5
January 1982-December 1984
Canada
3.5-4.2
August 1982-July 1985
France
0.5-0.7
September 1980-May 1983
United States
6.0-8.0
January 1981-December 1984
year to pre-1983 levels. Australia's sales should re-
bound following the drought-inhibited sales of last
year.
The Chinese have stated their desire to renegotiate
the US-Chinese LTA which expires this December.
China's domestic food supply situation has changed
dramatically since most of its LTAs were signed four
years ago (see table 7). That, coupled with a buyer's
market for grain worldwide, places less pressure on
Beijing to sign LTAs, as evidenced by the failure to
renegotiate the agreement with France that expired in
May 1983. But Chinese planners expect grain imports
to remain strong in the near future, even with good
domestic harvests, and LTAs would guarantee sup-
plies. Thus, Beijing will probably try to renegotiate
agreements with its largest suppliers, for both political
and economic reasons, although it may press for more
flexibility. For example, China may want to commit
itself to lower minimum annual purchases or to
averaging yearly minimums over the life of the agree-
ment.
Timber sales should rise again this year, marking the
only other bright spot for US commodity trade. The
Chinese could reenter the US soybean market to
replace sales of their own higher value beans to Japan,
but any purchases should be small with little or no
impact on the market.
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