The economic costs of food self-sufficiency in China

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  • World Development Vol. 17, No. 2, pp. 237-2.53,1989. 0305-750X/89 $3.00 + 0.00 Printed in Great Britain. 0 1989 Pergamon Press plc

    The Economic Costs of Food Self-Sufficiency in

    China

    YONGZHENG YANG Australian National University, Canberra

    and

    RODNEY TYERS* The University of Adelaide, South Australia

    Summary. - Despite the surge in agricultural output since the late 1970s a comparison of Chinas resource endowments with those of its trading partners suggests that, with continued rapid income growth, food imports will again expand unless relative domestic prices are raised. Quantitative analysis of price policies which would achieve self-sufficiency in the 1990s indicates net economic costs ranging between 2-3% of GNP annually. These results are, however, particularly sensitive to the relatively undocumented changes taking place in the dependence of Chinas rapidly growing livestock sector on feed grains.

    1. INTRODUCTION

    Since the rural economic reform of late 1978, agricultural production in China has grown rap- idly, at a rate well above that before the reform. Rural income has risen, and living standards have improved. With this rapid growth in rural output, grain imports declined considerably in the mid- 1980s making total food self-sufficiency a seem- ingly attainable goal for China. But the removal of production controls and the increases in prices which accompanied the reform were one-off changes which led to a burst of production growth which may prove unsustainable. As overall income continues to expand in China, it is likely that demand will again overtake supply, especially in the markets for the more income- elastic livestock products and animal feeds. The attainment, and maintenance, of total food self- sufficiency could therefore require further sub- stantial changes in agricultural policy.

    What are the economic costs and benefits of food self-sufficiency? Alternatively, how much would China have to import, and what would be the composition of imports, in an economically efficient approach to production and trade? Should China follow other East Asian developing economies such as South Korea and Taiwan and begin to protect its farmers at this relatively early stage in its development? Does Chinas large

    share in global food output imply significant net economic gains from agricultural protection?

    These are among the trade policy issues exam- ined in this paper. Particular emphasis is placed on the economic costs of food self-sufficiency. An established model of world markets for grains, livestock products and sugar is used to analyze three policy scenarios. These are, first, a reference scenario in which it is assumed that trade policy distortions are held constant into the next decade; second, a scenario in which new policy changes are made sufficient for the attain- ment of self-sufficiency in grains, livestock prod- ucts and sugar through 1995; and third, the adoption by China of a policy similar to that of South Korea and Taiwan, wherein near self- sufficiency is maintained in some products, while livestock feeds are imported relatively free of distortion.

    The agricultural reform and the subsequent changes of policy in other sectors of the Chinese economy have initiated a process of expansion and structural change, the pace of which cannot

    *The authors are grateful for useful comments and suggestions from Kym Anderson and Helen Hughes. The research for this paper was funded by the National Centre for Development Studies of the Australian National University through a grant from the Austra- lian International Development Assistance Bureau.

    237

  • 238 WORLD DEVELOPMENT

    be accurately predicted using available models and economic data. While the reference scenario represents our best judgment as to the course of events in the next decade, our primary purpose is not to forecast economic events, but rather to illustrate the great sensitivity of Chinas net food trade position, and indeed the state of world food markets, to the level of protection of Chinas farmers, the pace of technological change in Chinas agricultural sector, and the dependence of Chinas livestock sector on grain for animal feed.

    Section 2 of this paper examines the deter- minants of comparative advantage in food pro- duction and their implications for Chinese self-sufficiency in the long run. Section 3 presents the model upon which the subsequent analysis is based, while Section 4 provides results from the analysis of alternative protection policies using the model. Section 5 examines the sensitivity of results to the pace of technical change and dependence on grains for animal feed and, finally, Section 6 summarizes the main findings.

    2. FOOD SELF-SUFFICIENCY AND TRENDS IN COMPARATIVE

    ADVANTAGE

    According to an extended Heckscher-Ohlin Samuelson model of international trade, a countrys comparative advantage is determined by its domestic resource endowment ratios rela- tive to those of the rest of the world. Poor countries with little capital relative to land and labor tend to export primary products in ex- change for manufactures. As capital (broadly defined to include human skills and technology) is accumulated or flows in from abroad, labor tends to be attracted to the urban sector and the share of agriculture in total output and employ- ment declines as manufacturing and service activities expand. If international prices remain unchanged, the countrys pattern of export specialization gradually shifts from agricultural and other primary products to manufactures.

    This transformation is likely to begin at a lower level of capital per worker the lower the countrys land endowment per worker. Con- versely, countries well endowed with agricultural land tend to retain the predominance of agricul- tural commodities in their exports for longer, and to a greater extent, than densely populated countries. The latter possibility is greater the more the country generates labor-saving tech- nologies capable of raising labor productivity faster in rural than in other production.

    To see this, it is necessary to examine first the

    resource endowment ratios of China as compared with the rest of the world. Crude proxies for these ratios are provided in Table 1 for China and some important trading partners. Gross national product (GNP) per capita is assumed to provide an index of the stock of broadly defined capital per worker, while land endowment per worker is assumed to be indicated by the area of land used for agricultural pursuits, again expressed on a per capita basis.

    China has relatively little pasture per capita, relative to the rest of the world, and especially relative to Australasia and the Americas. The Chinese endowments of land for short-cycle and tree crops are also small by world standards. This suggests a comparative disadvantage in crop and extensive livestock production. China would therefore be less competitive in these forms of food production than other countries with greater land endowments and similar levels of capital per worker.

    The land endowments of the neighboring East and some Southeast Asian economies are rela- tively small compared with those of China, however. Thus, while the share of food and raw materials in Chinas exports can be expected to decline in the long run, very resource-poor NICs may shore up the demand for these products from China and slow the process of specialization in manufacturing.

    Leaving aside the possibility that differential technical change will affect Chinas comparative advantage in food production relative to the rest of the world, the theory also suggests that the level and rate of change of agricultural compara- tive disadvantage is positively related to the current endowment of and rate of change in capital per worker, relative to the rest of the world. The final columns of Table 1 show that total economic output per capita in East and Southeast Asia, including China, has been grow- ing more rapidly by world standards. Insofar as this is an index of change in capital per worker, the contribution of the agricultural sector of these economies, along with their comparative advantage in food production, would be expected to decline more rapidly than the rest of the world.

    In China, land scarcity is exacerbated by water shortages, particularly in the northern and north- western provinces. Natural resource endowments vary considerably, between and within provinces, leading to considerable differences in production costs. Much room still remains to capture the economic benefits associated with greater re- gional specialization in accord with this pattern. This can be achieved not only through the removal of controls but also from the ongoing

  • FOOD SELF-SUFFICIENCY IN CHINA 239

    Table 1. Land resource endowments and GNP per capita, 1980

    Land availability, 1980 GNP per capita

    Pasture Short-cycle Tree 1980 Real growth crops crops 1960-80

    (hectares per 1000 people) (US$) (% per year)

    East Asia Japan South Korea Taiwan

    ASEAN

    5 37 5 9,890 7.1 0 55 4 1,520 7.0 0 52 0 2,250 n.a.

    Indonesia Malaysia Philippines Singapore Thailand

    81 97 2 74

    21 146

    36 430 4.0 243 1,620 4.3 59 690 2.8 3 4,430 7.5

    37 670 4.7 0 7

    1 350

    Other Australia Canada European Community-9 New Zealand United States Soviet Union

    China

    World

    31,166 998

    3,051 1,852

    178

    12 9,820 3 10,130

    18 n.a. 6 7,090 8 11,360

    18 4,550

    300

    2.7 3.3 n.a. 1.8 2.3 4.0

    5.0

    3.5

    158 4,290 132 1.043 829 1,408 855

    286 97

    702 306 21 n.a.

    Source: World Bank (1982) and FAO (1983)

    process of removing bottlenecks due to poor transportation, and investing in more education, research and extension. Nevertheless, in the long run, sustained growth in agriculture would re- quire considerable investment. Should the pri- orities in government policy in the next decade restrain public investment in agriculture, the retention of self-sufficiency in the long run will depend upon progressively raising producer prices.

    The experience of agriculture since the rural reform has borne this out. Although the agricul- tural boom in the last few years is the result of a general liberalization and decentralization of agriculture and the economy as a whole, in- creases in relative agricultural prices and the removal of quantity controls have played an important role. It has been well argued that a large part of output growth in the last seven years can be explained by the increase in relative agricultural prices and the effect that has had on encouraging greater use of yield improving inputs (An, 1985 and Lardy, 1985).

    Thus, in the long run, China is unlikely to maintain the growth momentum of the last few years unless considerable agricultural investment is undertaken, and/or agricultural prices continue

    to rise. Limited natural resources and rising real wages would tend to lead to more rapidly growing food production costs than is the case in the relatively resource-rich countries of the Americas and Australasia. The tendency toward food deficits will be strengthened by the dietary changes and expanded food demand which will accompany continued rapid income growth. Hence, domestic food prices would tend to increase if demand were to be met solely from domestic production.

    The concern of the Chinese government with food self-sufficiency stems from the ideology that dependence on imports of essential commodities, such as food, is politically undesirable (Zhang, 1985). As Vice-Premier Tian Jiyun (1986, p. 2) put it: It is unimaginable for the one billion population of our country to solve the food problem by relying on grain imports. Another Vice-Premier, Yao Yilin (1986, p. 2), stated the self-sufficiency policy more explicitly:

    In order to maintain food self-sufficiency of our country through the end of this century, grain production needs to be increased to a higher level - from the present output of 400 million tons to about 500 million tons by the end of this century, or an annual increase of more than 5 million tons-so

  • 240 WORLD DEVELOPMENT

    that per capita grain availability can be maintained at the present level of 400 kilograms or slightly higher.

    In the remaining sections of the paper, the policies which would be necessary to achieve and sustain food self-sufficiency are examined quanti- tatively.

    3. A MODEL FOR SIMULATING CHINESE AND INTERNATIONAL FOOD MARKETS

    To analyze the issues introduced above, the established grain, livestock products and sugar (GLS) model developed by Tyers (1984 and 1985), and extended by Tyers and Anderson (1986 and forthcoming), is applied.4 The GLS model simulates the international markets for seven commodity groups: rice, wheat, coarse grains, sugar, meats of ruminants (cattle and sheep), meats of nonruminants (pigs and poultry) and dairy products. The world is disaggregated into 30 countries or country groups, each of which has econometrically based behavioral equations for production, consumption and stocks. In this paper we use a medium-run static equilibrium version of the model, in which consumption and production behavior in each country is assumed to be characterized by con- stant elasticities of demand and supply. Target levels of closing stocks are set for each com- modity at a fixed proportion of trend consump- tion in importing countries and of trend produc- tion in exporting countries.

    In this version, short-run dynamics, such as the dependence of stocks on expected prices, are omitted. However, the determinants of under- lying market trends, such as population and income growth and technological change, are included, and these drive the model between three successive equilibria for 1987, 1990 and 1995. The structure of the model is further detailed in the appendix to this paper.

    The welfare impacts of policy changes are evaluated in four components: the benefits to consumers are the expected Hicksian equivalent variations in income; the benefits to producers are the expected change in producer surplus; government revenue benefits are the expected net budgetary effects of producer, consumer and trade taxes and subsidies; and the storage benefits are the expected increase in profit from stockholding, after physical and opportunity costs of stocks are deducted.

    The parameters in the equations of the model are based on econometric analysis by Tyers and Anderson for the period 196(b83. In the case of China, major changes of policy away from direct

    quantity controls make some estimates from time-series data nonrepresentative of China in the 1980s. Hence, estimates are occasionally based on data for other Asian countries in comparable periods of development, and some are judgmental. The principal parameters in the model and the exogenous income and population growth assumptions upon which our analysis is based are listed in the appendix.h

    Among the parameters underlying our analy- sis, of particular importance are the levels at which output would be expected to increase if all relative prices faced by producers were to remain unchanged. These are the components of total output growth due to cost reducing technological and managerial change. Production growth rates in China have fluctuated in the past. In general, the rates we have chosen, as listed in Table 2, are lower than those achieved since the reform. Post- reform growth rates are judged to be unsustain- able in the long run without further increases in relative prices facing producers (Lardy, 1985). The output of coarse grains and wheat is ex- pected to grow more rapidly than that of rice, due to a greater potential for technical improve- ments in production of these crops, especially coarse grains. The price-constant growth rates of livestock products are assumed to be higher than those of grains because these products are the objects of priority investments by the state (World Bank, 1985b).

    Another set of parameters of particular im- portance indicates the degree to which the livestock sector depends on feed grains. In the past, most livestock output has depended to some extent on the use of waste products as animal feeds. It is inconceivable, however, that the governments targets for meat and dairy output for the turn of the century could be achieved without feeding more grain to animals. The feed grain use assumptions upon which our analysis is based are detailed in Table 3. Since the policies required to maintain self-sufficiency aie particularly sensitive to feed grain use, our reference assumptions are accompanied by high and low feed use scenarios, the importance of which are examined in Section 5.

    4. ALTERNATIVE PROTECTION POLICIES AND THEIR EFFECTS

    Industrial countries tend to assist farmers, while developing countries tax their agriculture (Schultz, 1978; World Bank, 1982; Anderson and Hayami et al, 1986). Most European industrial countries have been protecting their agriculture for some time. The exceptions are those which

  • FOOD SELF-SUFFICIENCY IN CHINA 241

    Table 2. Produckon growth performance, past and projected

    Historical Government Constant price projection* target

    195471t 1972-78 1979-84 1980-2000 1983-87 1988-90 1991-95

    Rice 2.6 2.7 4.2 1.8 2.6 1.6 1.0 Wheat 2.5 7.1 8.2 2.6 4.0 3.0 2.0 Coarse grains 3.7 7.3 2.0 2.8 3.0 3.0 3.0 Sugar 1.0 5.2 12.2 5.1 8.0 6.0 5.0 Dairy products 0.9 3.1 11.4 16.4 11.0 9.0 7.0 Ruminant meat 5.5 6.4 8.9 14.2 6.5 5.5 5.0 Nonruminant meat n.a. 10.2 8.0 3.7 7.0 5.0 5.0

    Source: Historical growth rates are from State Statistical Bureau (1984) and based on data supplied by the International Economic Databank of the Australian National University (ANU) based on publications of the US Department of Agriculture and the FAO. Values for 1984 are drawn from Renmin Ribao (Peoples Daily), March 10, 1985 and March 1, 1986. The government target rates are from World Bank (1985b). *Price-constant projections assume production incentives (relative input and output prices) remain constant., Production growth rates projected by the GLS model, discussed in the text, differ from these due to changes in endogenous producer prices. tFor sugar, dairy products, ruminant meat and nonruminant meat the base year is 1961.

    Table 3. Food demand parameters

    Dairy products*

    Ruminant meat

    Nonruminant meat

    Share of total output feed grain based (%) 198@83t 1995: Reference projectionS

    Low grain use High grain use

    For grain fed livestock: assumed grain use per unit of output

    0 0 29 34 26 50 24 16 40 44 36 60

    0.40 6.0 5.0

    *Dairy products are measured in equivalents of fluid milk. tThe base period shares are derived from estimates of total feed grain consumption from US Department of Agriculture data tapes. Total feed grain consumption is disaggregated into the three livestock categories by assuming that ratios of feed to output are equal to those shown in the last line of the table. *For dairy products and ruminant meat, we assume that half the additional output due to growth between 198@83 and 1995 is feed grain based. In the case of nonruminant meat, we assume two-thirds of the additional output will be feed grain based. The growth of the share of livestock output which is feed grain based is assumed to be linear between 198c83 and 1995.

    have significant comparative advantage in agri- culture due to their abundant natural resources, such as Australia, Canada, New Zealand and the United States (Anderson, Hayami and Honma, 1986).

    In some East Asian economies, where indus- trialization has proceeded very rapidly, notably in Japan, South Korea and Taiwan, there is a clear upward trend in agricultural protection

    levels. Some of the characteristics of agricultural protection in East Asia are worth noting. First, agricultural protection growth increased more rapidly in East Asia than in Europe in the period from the mid-1950s to the 1980s. By 1980, the levels of agricultural protection in East Asia exceeded those of most European industrial countries. Second, although agriculture as a whole tends to be highly protected in East Asia,

  • 242 WORLD DEVELOPMENT

    coarse grains (as livestock feed) have been relatively unprotected. Consumer prices are typi- cally less distorted than producer prices, in order to raise the effective protection of livestock producers while subsidizing domestic feed grain producers. Finally, while Japans agricultural protection started at a comparable level of development to Europes, South Korea and Taiwan adopted a high protection policy at an early stage of economic development, from the late 1960s (Anderson, Hayami and Honma, 1986).

    The East Asian economies food trade policies suggest one possible path Chinese policy might take. Considering Chinas rapid economic growth since the late 1970s which seems com- parable to the economic takeoff after World War II in Japan and in the early 1960s in South Korea and Taiwan, it seems plausible that similar political forces will result in increasing agricul- tural protection in China in the future. Perhaps the question is not whether this will happen, but rather when and to what extent. For reasons discussed in Section 2, this process should not be as fast as in Japan, South Korea or Taiwan, however (Yang, 1986). In what follows, we examine three possible scenarios - two polar cases of protection policy between which the third and most likely path of Chinas food policy is likely to fall.

    In the reference scenario, the policy regimes of China and all other countries in the model are assumed to remain unchanged since the early 1980s. In the other scenarios, Chinas nominal protection coefficients are changed so as to achieve (i) perfect self-sufficiency in all seven food commodities achieved through proportional increases in both consumer and producer food prices (the self-sufficiency scenario); (ii) self- sufficiency in all commodities except animal feeds (coarse grains) with consumer price distor- tions unchanged from the reference scenario and producers being protected at a relatively higher rate - comparable to those of South Korea and Taiwan (the staple food self-sufficiency scen- ario). For each scenario we present projected implications for the year 199.5. While these results do have some significance as our best conditional forecasts, this is not our primary aim. Instead, they provide a basis for a comparison of the likely results of alternative protection policies.

    (a) The reference scenario

    The main results of this scenario for 1995 are shown in Table 4. There is a general decline in

    Chinas food self-sufficiency. For grains as a group, the self-sufficiency rate is nine percentage points lower in 1995 than in 198&83, despite an increase in rice self-sufficiency. Meat self- sufficiency is also lower. The net foreign ex- change cost of trade in GLS products was about 2% of Chinas GDP at the official exchange rate in 198&83, but this is projected to expand to about 3% by 1995. Should export earnings expand more rapidly than national income in China, as they have in other East Asian econo- mies, this expansion in the net cost of food imports would be unlikely to put pressure on the balance of payments, although it may be politi- cally unpalatable to have such increases in dependence on foreign food producers.

    National income is projected to grow at 6.3% annually - a rate which is high though conserva- tive relative to the rates attained early in the 1980s. Such rapid income growth must expand the demand for the more income-elastic foods, especially wheat (for making convenience foods, such as bread and noodles) and protein foods, such as livestock products. Consequently, large food deficits are projected for wheat, coarse grains (livestock feed) and sugar. Self- sufficiency rates for these products therefore decline. If the parameters used in the model are representative of behavior in the next decade, unless protection rates are increased or unfore- seen technology advances are achieved, domestic food supplies will not continue to keep pace with Chinas rapidly growing demand.

    (b) Total self-sufficiency through protection

    The distortions required (in terms of producer- to-border price ratios and consumer-to-border price ratios) to achieve food self-sufficiency for all the seven categories of commodities by 1995 are listed in Table 5. A number of points should be noted from this experiment. First, the self- sufficiency protection rates in 1995 are generally much higher than the 198&83 levels.* They are especially high for wheat, coarse grains, sugar and dairy products. Second, the cross effects of protection policy are significant. China is at present a net exporter of rice and meat. Should the protection for wheat, coarse grains, sugar and dairy products be raised to achieve self- sufficiency in these commodities, then rice and meats would no longer be exported. In fact, rice producers would also have to be protected in order to avoid imports, and meat producers would have to be taxed to a lesser extent. This arises because resources would be shifted from rice and meats to other types of production, in

  • FOOD SELF-SUFFICIENCY IN CHINA 243

    Table 4. Trade implications of staric policy

    Rice Coarse Dairy Ruminant Nonruminant

    Wheat grains Sugar products meat meat

    Net imports* (million tons) 198&83 1995

    Self-sufficiency rate (%) 198&83 1995

    Imports as percentage of world trade* 1980-83 1995

    -0.8 15.0 0.4 1.6 0.4 -0.5 -0.0 -6.3 22.7 37.8 5.7 11.1 0.1 0.7

    101 84 99 81 96 108 100 105 82 77 67 96 97 98

    -8 16 1 7 2 -2 -3 -28 15 20 14 2 1 12

    Source: Figures for 1980-83 are from the International Economic Databank of ANU, and those for 1995 are from GLS model simulations. *Negative signs stand for exports.

    response to the distorted relative prices associ- ated with higher protection for wheat, coarse grains, sugar and dairy products.

    Third, in the self-sufficiency scenario, we have assumed that the prices facing producers and consumers would be distorted equally. Should the government choose to differentiate between prices for producers and consumers, as is the case currently (grain producer prices are higher than consumer prices), then food demand would be greater. The self-sufficiency protection rates for producers would be higher than those shown in Table 5.

    The welfare effects of self-sufficiency are detailed in Table 6. There would be a large decrease in consumer welfare and a similar large increase in producer surplus - an annual trans- fer of income from consumers to producers amounting to almost one-seventh of projected GNP!9 Consumers lose more than producers gain, due to deadweight losses and the removal of government funded consumer subsidies. The net change in economic welfare, compared with the reference scenario, is the reduction in total economic surlpus, or the sum of the changes in consumer welfare, producer surplus and govern-

    Table 5. Distortions required for self-sufficiency by I995*

    Rice Coarse Dairy Ruminant Nonruminant

    Wheat grains Sugar products meat meat

    Actualt 1980-83 PP/BP 0.85 1.45 1.15 1.15 2.35 0.70 0.65

    CP/BP 0.80 1.30 1.10 1.60 2.35 0.70 0.65

    Self-sufficiency 1995 PPIBP 1.16 4.67 3.50 2.15 3.44 1.00 0.71

    CP/BP 1.16 4.67 3.50 2.15 3.44 1.00 0.71

    Staple food self-sufficiency 1995 PPIBP 0.90 3.64 2.19 2.11 3.39 0.91 0.58

    CP/BP 0.90 3.64 1.37 2.11 3.39 0.91 0.58

    Source: For the actual figures in 198@83, see Tyers and Anderson (1986). *PP is producer price, BP border price, and CP consumer price. tSince the yuan is overvalued, the nominal protection coefficients for 1980-83 are based on comparisons of prices (excluding efficient marketing margins) at an adjusted exchange rate. This adjustment is roughly one- third of the gap between the official and prevailing black market rates in that period (Anderson and Tyers, 1987). The comparisons, however, do not take into account the deregulation of nonstaple food and industrial goods markets in 1985, which tended to raise the prices for these products relative to those of farm products.

  • 244 WORLD DEVELOPMENT

    Table 6. Welfare effects of alternative policies, 1995

    (1985 US$ billion) Total Staple food

    self-sufficiency self-sufficiency

    Annual change* in the welfare of: Consumers

    Producers Taxpayers Net welfare effect?

    Net foreign exchange requirement for GLS trade

    -103 (-17) -41 (-7) 86 (14) 52 (9) 3 (0) -24 (-4)

    -14 (-2) -12 (-2)

    -15 (-3) -2 (0)

    Source: GLS model simulations. *All changes are in comparison with the reference scenario. Figures in parentheses are percentages of projected GNP. tThe change in net welfare from GLS markets is the sum of the changes in consumer welfare (equivalent variation in income), producer surplus and government revenue, deducting any increase in net storage costs.

    ment revenue (adjusting for changes in storage costs). This amounts to an annual loss over 2% of projected GNP.

    The cumulative cost of the self-sufficiency policy in the next decade would be of the order of ten times the annual net costs indicated in Table 6. Furthermore, the dynamic effects of this cost would be large, as the income lost could other- wise have been invested in the nations economic development. Even more importantly, protec- tion for self-sufficiency tends to suppress incen- tives to improve productivity and to capture the benefits of regional specialization, leading to an inefficient farm sector in the long run (Anderson, Hayami et al., 1986).

    The changes in economic welfare come as a consequence of changed production, consump- tion, trade and relative prices. The changes in prices are detailed in Table 7. As a result of

    higher protection, 1995 production of all grains, sugar and dairy products increases by between about 2% and 35%, compared to the reference case, while output of dairy products and meats declines. The decline in livestock output is due in part to declining relative livestock product prices (domestic grain prices increase more), draining agricultural resources out of livestock produc- tion, and in part to the increase in production costs due to the higher cost of feed grains. Not surprisingly, overall grain consumption declines, despite a shift toward greater rice consumption, as does the consumption of all livestock products.

    By virtue of Chinas large share of world trade in many food commodities (see the last line of Table 4), the adoption of a highly protectionist self-sufficiency policy would increase global food production of wheat, coarse grains, sugar and nonruminant meat, reduce Chinas excess de-

    Table 7. Effects of alternative policies on domestic and international prices, 1995

    Percent changes from reference projection: Self-sufficiency Staple self-sufficiency

    World Domestic price World Domestic price price Consumer Producer price Consumer Producer

    Rice 3 52 43 4 20 13 Wheat -12 133 109 -9 87 68 Coarse grains -10 134 120 -3 -2 51 Sugar -10 6 48 -10 5 46 Dairy products -2 2 2 -1 2 2 Ruminant meat -2 10 10 -1 2 2 Nonruminant meat -2 23 22 -1 1 1

    Source: GLS model simulations.

  • FOOD SELF-SUFFICIENCY IN CHINA 245

    mand and drive down international prices for all commodities except rice. From Chinas view- point, however, the declines in world prices imply reduction in the marginal costs of import- ing these commodities. This suggests that, because of its relatively large size in the inter- national food market, Chinas manipulation of its food protection policy shifts the terms of trade in its own favor. For example, experiments using the GLS model show that a rice export tax of 17% would be roughly optimal, giving rise to an increase of about US$S billion in over- all Chinese economic welfare in 1995.i0 This suggests that, if the parameters assumed in the model are realistic, the current export tax on rice (about 15%) is close to the optimal rate.

    (c) Staple food self-sufficiency

    In the staple food self-sufficiency scenario, policies are adopted which ensure self-sufficiency in all but the coarse grain market: consumers of coarse grains are assumed to be protected at the present level, while the coarse grain producer price is assumed to rise to a level about 120% above the border price by 1995.

    Because of the large distortions in relative prices required for this qualified form of self- sufficiency, economic welfare would be sharply reduced relative to the reference scenario (Table 6). Aggregate economic welfare would be re- duced by as much as US$12 billion in 1995, compared to the reference case, or 2% of GNP. At the same time, however, the economic losses in this scenario are somewhat smaller than those associated with total self-sufficiency. As with total self-sufficiency, a substantial income trans- fer would take place from consumers to pro- ducers (Table 6). Taxpayers would be worse off due to the substantial deficiency payment which would need to be made to producers of coarse grains.

    Were the staple food self-sufficiency policy to be adopted, Chinas protection would not be dissimilar to current levels in other East Asian economies. The rates required are lower for all the commodities than under the total self- sufficiency scenario (Table 8). While China would have larger distortions than South Korea and Taiwan for wheat, sugar and dairy products, its rates of protection of rice and meats would be lower than those of Japan, South Korea and Taiwan.

    The impacts of self-sufficiency policy on food consumption, particularly in the case of staple food self-sufficiency, are only minor, as indicated in Table 9. Food grain consumption is slightly

    smaller in aggregate - considerably less wheat consumption is largely offset by increased direct consumption of rice and coarse grains. Changes in the relative prices of sugar and livestock products are comparatively small and do not result in large declines in consumption. Table 9 also compares consumption levels in China with those in South Korea and Taiwan. By 1995, Chinas broad consumption pattern would approach that of Korea, except that feed grain consumption would remain substantially less. This highlights our generous assumptions regard- ing the capacity of the Chinese livestock sector to continue to use nongrain feeds. This issue is examined in Section 5.

    (d) The liberalization alternative

    If China were to liberalize its trade, instead of increasing its protection, a large economic gain would be obtainable. For example, 50% liberal- ization of present trade distortions would bring a US$14 billion annual economic gain by 1995, compared to the self-sufficiency scenario, equiva- lent to more than 2% of GNP. Food intake would increase (by 12 kilocalories per capita per day), and foreign exchange requirements for food trade in 1995 would be less by US$3 billion per year, again in comparison with the reference case. In addition, there would be virtually no income transfers from consumers to producers - each would gain by about US$2 billion. Although liberalization implies that self-sufficiency in some commodities would decline (mainly wheat, coarse grains, sugar and dairy products), the large efficiency gains (which come partly in the form of a reduced burden on taxpayers) could be ploughed back into expanded growth, with con- sequent benefits to the entire economy. Despite greater exports of rice and meats, politically unpalatable dependence on imports of other grains, sugar and dairy products would, of course, increase.

    5. THE IMPORTANCE OF TECHNICAL CHANGE

    (a) Self-sufficiency through technical change

    An alternative to increased protection is to realize food self-sufficiency through investments in cost reducing technical change. This policy alternative will also incur economic costs as the resources invested would have a substantial opportunity cost. The GLS model does not, however, provide the dynamic general equilib-

  • 246 WORLD DEVELOPMENT

    Table 8. Nominal agricultural protection coefficients in Japan, South Korea, Taiwan and China, 1980-83, 1995

    Rice Wheat Coarse Dairy Ruminant Nonruminant grains Sugar products meat meat

    Protection in 1980-83* Japan 3.35 (2.90) 3.90 (1.25) 4.30 (1.25) 3.00 (2.60) 2.90 2.80 1.50 South Korea 2.50 (2.40) 2.45 (1.30) 2.30 (1.45) 1.00 (2.90) 2.95 3.75 2.50 Taiwan 2.65 2.10 (1.00) 2.10 (1.00) 1.00 2.80 2.50 1.15 China 0.85 (0.80) 1.45 (1.30) 1.15 (1.10) 1.15 (1.60) 2.35 0.70 0.65

    Protection required for self-sufficiency in China in 1995T

    Total 1.16 4.67 3.50 2.15 3.44 1.00 0.71

    Staple food 0.90 3.64 2.19 (1.37) 2.11 3.39 0.91 0.58

    Source: The ANU International Economic Databank and the GLS model simulations. *Figures in parentheses are consumer price to border price ratios. tconsumer price to border price ratios are same as producer price to border price ratios wherever they are not listed.

    Table 9. Per capita food consumption under alternative scenarios (kilogramslyear)

    South Korea Taiwan China Staple

    Reference Self-sufficiency self-sufficiency

    Food grain 1980-83 1995

    Feed grain 1980-83 1995

    Sugar 198&83 1995

    Dairy products 198C-83 199s

    Meats 198&83 1995

    270 162 261 284 167 290 275 285

    63 164 22 107 276 73 62 74

    10 29 7 17 45 15 13 14

    15 4 8 27 6 22 22 22

    14 43 16 37 63 29 24 29

    Source: Figures for 1980-83 are from the International Economic Databank of ANIJ, and values for 1995 are from GLS model simulations.

    rium framework from which such costs might be measured. Instead, the experiment in this section illustrates the potential role of such investment by deriving the production growth rates required for self-sufficiency without any changes in price policy. The results are listed in Table 10.

    The price-constant growth rate of rice produc- tion required for self-sufficiency is 1.3% per year, which is much slower than the government

    target and the rate achieved between 1962 and 1984. But slower technical change in the Chinese rice sector would drive world prices up. With the partial transmission of this world price change to Chinese farmers, the growth rate actually realized would be nearly 2% per year - a level at which the current export surplus would be just eroded by 1995.

    The price-constant growth rate of wheat for

  • FOOD SELF-SUFFICIENCY IN CHINA 247

    self-sufficiency is considerably higher than the government target, but comparable to the rate achieved in 1962-84. With such rapid implied technical change, the world wheat price would decline, and the production growth rate actually realized would be just 2% per year. As a result, in order to realize wheat self-sufficiency by technology changes alone, China would need to achieve very rapid technological progress to offset the economic disincentives induced by reduced Chinese excess demand in world markets.

    The question here is whether the technical growth momentum of the past can be main- tained. In the last three decades, wheat produc- tion has been given priority in agricultural development plans. Irrigation, fertilizer applica- tion and the development of new seed varieties have proceeded very rapidly. The prospects for further wheat production growth will continue to depend primarily on developments in these areas. Judging from international experience and the recent slowdown in wheat production in China, it appears unlikely that the historical technical growth rate will be maintained. Insula- tion from the international market, and hence increased protection, is likely to be needed to realize the required growth rate.

    The coarse grain growth requirement would seem to be even more difficult to meet. While the 3.8% actual growth per year is not substantially higher than the historical trend, where produc- tion incentives held constant, an annual 5.3% technical growth rate would be needed. This would require a substantial effort to introduce better varieties, more fertilizer and irrigation, and improved farming practices. The alternative means of increasing coarse grain production is to increase the sown area for this crop, but this would result in substitution away from other crops, such as rice and wheat. More investment in feed grain production technology would need to be combined with the development of feed grain substitutes.12

    Recent increases in sugar production have largely been due to the expansion of planting areas through substitution for other crops such as rice, wheat and corn. The continued expansion of sown area would seem unlikely without increases in the relative sugar price. If sugar self- sufficiency is to be retained, then a higher domestic sugar price must follow unless produc- tion grows by at least 7% per year over the next decade.

    The Chinese government has ambitious targets for the livestock sector. Planned target growth rates for dairy products and ruminant meat are set at a level much higher than the rates achieved

    in the past (Table lo), for three principal reasons. First, the government believes that these two sectors have been underdeveloped compared to the nonruminant meat sector; second, it is trying to improve dietary quality through diversification into livestock product consumption; and third, it seeks to increase the intensity of use of grassland in southern China. In any case, the targets set for dairy products and ruminant meat seem too optimistic. Apart from the very high actual production growth rate required, the growth of the livestock sector hinges heavily on the growth which can be achieved in the feed grain sector. If the necessary expansion of domestic feed grain supplies cannot be maintained, but feed grain imports are permit- ted, the range of livestock growth rates required for self-sufficiency seems achievable.

    (b) Sensitivity to grain use as livestock feed

    The degree to which the livestock sector is dependent upon feed grains clearly emerges as an important factor in assessing Chinas food policy alternatives. Table 11 summarizes the effects of different levels of feed grain dependence on food self-sufficiency and trade. If current policies are retained, a 10% decrease in the proportion of livestock which is grain fed would reduce grain imports by more than 16 million tons. By contrast, a 10% increase in that proportion would necessitate an extra 16 million tons of grain imports. Variation in these levels of grain use also affect international food markets. In the high grain use case, Chinas net grain imports as a share of world trade would be almost double that corresponding to the low grain use case.

    The extent to which grain is used as livestock feed also affects our measurement of the cost of self-sufficiency. Table 12 shows that, if the proportion of dairy products and meats which is grain based is expanded by an additional 10 percentage points in the next decade, com- pared to the reference case, food self-sufficiency would cost China nearly 4% of GNP. On the other hand, if the proportion of livestock which is grain fed expands to a level lower by 10 percentage points, whether because of more efficient use of feed or because fewer animals are fed with grain, the cost of food self- sufficiency would be less than 2% of GNP. The difference that these two different grain use levels make would be nearly US$13 billion.

    The effects of self-sufficiency on world prices, corresponding with the first column of Table 7, would range between 814% for coarse grains, ll-14% for wheat, and 2-3% for meats. These

  • 248 WORLD DEVELOPMENT

    Table 10. Price-constant growth rates necessary for self-sufficiency by 1995 (percent per year)

    Average Average Average growth Rate Government constant price reference rate required for

    achieved target projection projection self-sufficiency* 1962-84 198&2000 1983-95 1980-95 1983-95

    Rice 2.9 1.8 1.8 1.7 1.3 (1.9) Wheat 4.7 2.6 3.4 2.9 4.8 (1.8) Coarse grains 3.4 2.8 3.0 3.1 5.3 (3.8) Sugar 5.3 5.1 6.3 4.4 9.9 (6.9) Dairy products 8.2 16.4 9.0 9.0 9.4 (8.9) Ruminant meat 6.6 14.2 5.7 6.3 6.1 (6.1) Nonruminant meat 9.1 3.7 5.8 5.9 5.8 (4.4)

    Source: Figures for rates achieved are from the International Economic Databank of ANU, and government targets are drawn from World Bank (1985b). *Figures outside parentheses are the price-constant growth rates which would be required for self- sufficiency in 1995; those inside parentheses are the rates that would have to be actually realized for self-sufficiency under the changing prices in the world food market.

    Table 11. Trade implications of static policy with lower or higher dependence on feed grains, 1995

    Feed grain dependence Low Reference High

    Net imports of grain (million tons) 38.0

    Grain self-sufficiency rate (%) 91.0

    Net grain imports as percentage of 10.7 world trade

    Net foreign exchange cost of 11.5 GLS trade (US$ billion)

    54.3 70.4

    87.0 84.0

    15.0 19.0

    15.4 19.6

    Source: GLS model simulations.

    Table 12. Effects offeed grain dependence on the cost of self-sufficiency, 1995

    (1985 US$ billion) Feed grain dependence

    Low High

    Annual change* in the welfare of: Consumers -83 (-14) - 138 (-23) Producers 72 (12) 113 (19) Taxpayers 1 (0) 3 (0) Net welfare effectt -10 (-2) -23 (-4)

    Net foreign exchange requirement -12 (-2) -20 (-3) for GLS trade

    Source: GLS model simulations. *This table presents results corresponding with those in Table 6. The same total self-sufficiency experiment is carried out, but this time both the reference and self-sufficiency scenarios are derived using the low (high) feed grain dependence parameters of Table 3, to derive the results listed in the left (right) column of the table. tSee footnotes to Table 6.

  • FOOD SELF-SUFFICIENCY IN CHINA 249

    results imply an elasticity of sensitivity of about five. Consequently, the errors in our predictions of the economic impacts of self-sufficiency which are due to imperfect information on grain feeding would be proportionally four times larger than the percentage errors in the feed grain depen- dence ratios of Table 3. This strongly suggests that trends in the composition of animal feeds in China be monitored closely to improve the accuracy of policy analysis.

    6. CONCLUSION

    Despite the rapid growth in agricultural output in the last few years, Chinas relatively small per capita endowments of arable land and water suggest that its comparative advantage in food production will decline as the overall economy expands. This, combined with rapid overall economic growth and the changes in food con- sumption patterns which accompany it, is likely to lead to a decline in food self-sufficiency and an expansion in the net requirement of foreign exchange for food trade if the current food price policies are retained. The satisfaction of political commitments to food self-sufficiency is therefore likely to necessitate increased protection of farmers or extraordinary investments in food production technology. Should the former occur, the static economic cost could be more than 2% of GNP annually.

    Income distribution issues also arise. Increased agricultural protection would benefit food pro- ducers at the expense of consumers. Fur- thermore, because of the highly distorted price structure, some groups of farmers would benefit more than others. Producers of wheat, coarse grains, sugar and dairy products would benefit the most, while other producers, especially rice producers, would benefit the least. If some food products are increasingly protected, protection for other products could become necessary. This is not only because of resistance to changes in income distribution, but also because, if some products are protected while others are not, resources would shift toward those which are protected and the output of the others would decline. The output of rice could decline so much that protection would be required to ensure self- sufficiency in all food commodity markets.

    The historical experience of other East Asian economies suggests a possible alternative direc- tion for Chinese policy. In Japan, South Korea and Taiwan, rice, wheat, and livestock products are highly protected to achieve high self- sufficiency rates, while intermediate inputs such as coarse grains (as livestock feed) are traded

    relatively freely. In addition, while consumers of coarse grains are allowed to face prices close to international levels, producers of coarse grains are subsidized. This type of protection policy is politically attractive, but if implemented in China, where the grain sector is large compared to the economy as a whole, it would impose high economic costs, both in terms of economic welfare and food intake. Because the gains from relatively free trade in coarse grains outweigh the losses associated with increased disparity in relative domestic prices, these costs would be smaller than those associated with overall self- sufficiency through protection. They would nevertheless amount to almost 2% of projected GNP annually, or US$ll per capita by 1995. To minimize the effects of the price disparities on the allocation of resources, especially land, large subsidies would need to be paid to coarse grain farmers in the form of deficiency payments. This approach would impose a greater burden on taxpayers than it has in the other northeast Asian economies, in which the wheat and coarse grain producers have never contributed as much to national income and employment as do those of China.

    Neither an overall self-sufficiency policy nor an East Asian-type policy seem consistent with Chinas current industrialization program. Because of the large size of its agricultural sector, it is very costly for China to assist all farmers, or even some of them, such as grain growers. If agriculture were highly protected and food prices in urban areas were increased, wages would have to be raised as well. This would have a contrac- tionary effect on the industrial sector and exports, since current Chinese industrial de- velopment and foreign trade depend on an abundant supply of relatively cheap labor.

    The dilemma likely to face Chinas policy makers is the choice between overall self- sufficiency, which would result in large economic costs, and a more liberal agricultural trade policy, which would substantially increase Chinas economic welfare but is likely to lead to a significant increase in politically unpalatable dependence on foreign food exporters. An op- tion not addressed in this paper is that of reducing growth in disposable income, through higher taxation. This is also politically unpalat- able, however, and it could, at best, only solve the problem temporarily (Yang, 1986). The central issue is how to address the political challenge of structural change inevitable in a rapidly growing economy. One option discussed in this paper is to reduce the rate at which the agricultural sector declines through a combina- tion of agricultural protection and investment in

  • 250 WORLD DEVELOPMENT

    farm technical change. This option would be protection in China is increased. Overall econ- costly not only for China but also, since it would omit growth would then be retarded not only by cause world food prices to decline, for trading high domestic food prices and the consequent partners in North America and Australasia. misallocation of domestic resources, but also by

    Chinas recent large-scale re-entry into the the greater resistance from the importers of community of trading nations and its new com- Chinese manufactured goods. The soundest mitment to obtain active membership in the approach to agricultural trade policy would be to GATT suggest that economic interdependence move toward an efficient agricultural sector in with Western countries is becoming less politi- accordance with Chinas comparative advantage. tally costly. The food exporting countries pro- The economic costs of high protection can vide particularly important markets for Chinas thereby be avoided and the way made easier to manufactured exports. These countries will be further growth with structural adjustment in the more readily tempted to increase protectionist future. barriers against Chinas exports if agricultural

    NOTES

    1. A more complete discussion of the theory of comparative advantage and economic change with application to China can be found in Anderson (1983) and Anderson and Tyers (1985). These draw exten- sively on the Krueger (1977) model of dynamic com- parative advantage.

    2. Although it is crude, this assumption is consistent with the widely applied Harrod-Domar growth frame- work, which has the ratio of output to reproducible capital constant. A review of evidence in this assump- tion is given bv Kuznets (1971). Note that Section 2 is

    I I \ ,

    introductory and that these assumptions are not essen- tial to the model upon which the remainder of the paper is based.

    3. This and the following quotations are translated from Chinese by Yongzheng Yang.

    4. For a more detailed description of the current version of the GLS model than that given here, see Tyers and Anderson (1986 and forthcoming).

    5. Intervention in food markets by the Chinese government results in a substantial taxpayer burden. In calculating the welfare implications of policy changes, we assume that raising revenue elsewhere in the economy results in a net social cost (Browning, 1976; Findlay and Jones, 1982). In the absence of good estimates, we have assumed conservatively that this social cost is 30% of the revenue raised in China.

    6. These assumptions are compatible with govern- ment targets and the corresponding features of some other Asian economies when they were at similar levels of development to China today. See the World Bank (1985a, 1985b) for the recent performance and projec- tions of Chinas economy.

    7. Note that the growth rates projected by the World Bank (1985b) and the US Department of Agriculture (1986) are more pessimistic than those we have adopted. Had we used their rates, the estimated distortions necessary to achieve self-sufficiency and their economic consequences would have been substan- tially larger than those presented in Section 4.

    8. It should be noted that the distortions required for self-sufficiency in 1995 and their effects on GLS markets (to be discussed later) are not sensitive to the estimated levels of protection in 198&83. These values only affect estimates of the welfare impacts of the liberalization of current policies described later in section (d). For the details of estimation of the protection coefficients, see Anderson and Tyers (1987).

    9. This transfer occurs not only because of the absolute increase in both consumer and producer prices, but also because of the relative increase of consumer prices to producer prices, as the former were lower than the latter in 198@1983 (Table 5).

    10. The monetary amounts discussed in this paper are all expressed in constant 1985 US dollars.

    11. This is chosen as roughly the level of protection of coarse grain producers in South Korea and Taiwan, as shown in Table 8.

    12. One approach to the relief of coarse grain demand pressure is to increase the production of coarse grain substitutes for feed usage, particularly potatoes and cassava, which can be grown on marginal land.

    REFERENCES

    An, Xiji, Lun woguo nongchanpin jiage tizhi gaige yu Jingji Wed (Problems of Agricultural Economics), jiage zhengce tiaozheng (On the reform of price No. 10 (1985), p. 23. system and adjustments in price policies). Nongye Anderson, K., Economic growth, comparative

  • FOOD SELF-SUFFICIENCY IN CHINA 251

    advantage and agricultural trade of Pacific Rim countries, Review of Marketing and Agricultural Economics, Vol. 51, No. 3 (1983), pp. 231-248.

    Anderson, K., and Y. Hayami et al., The Political Economy of Agricultural Protection: East Asia in lnternational Perspective (Sydney: Allen and Unwin, 1986).

    Anderson, K., Yukjiro Hayami, and Masayoshi Honma, Growth of agricultural protection, in Kym Anderson and Yujiro Hayami et al. (Eds.), The Political Economy of Agricultural Protection: East Asia in International Perspective (Sydney: Allen and Unwin, 1986).

    Anderson, K., and R. Tyers, Chinas economic growth, structural transformation and food trade, The Australian Journal of Chinese Affairs, Vol. 14 (1985), pp. 65-83.

    Anderson, K., and R. Tyers, Economic growth and market liberalization in China: Implications for agricultural trade, The Developing Economies, Vol. 25, No. 2 (1987), pp. 124-510.

    Browning, E. K., The marginal cost of public funds, Journal of Political Economy, No. 84 (1976), pp. 283-298.

    Findlay, C. C., and R. L. Jones, The marginal cost of Australian income taxation, The Economic Record, Vol. 8, No. 58 (1982), pp. 253-262.

    Food and Aericulture Organization (FAO) Production Yearbook-1983 (Rom& FAO, 1983).

    Krueger, A. O., Growth, distortions and patterns of trade among many countries, Princeton Studies in International Finance, No. 40 (1977).

    Kuznets, S., Economic Growth of Nations: Total Output and Production Structure (Cambridge, MA: Harvard University Press, 1971).

    Lardy, N. R., Agricultural reform in China, A background paper prepared for the World Banks World Development Report 1986 (Seattle, WA: University of Washington, October 1985).

    Schultz, T. W. (Ed.), Distortions of Agricultural Incentives (Bloomington, IN: Indiana University Press, 1978).

    State Statistical Bureau, Zhongguo Tongji Nianjian 1984 (Chinese Statistical Yearbook I984) (Beijing: Zhongguo tongji chubanshe, 1984).

    Tian Jiyun, Fazhan gaige chengguo, fanrong shang- ping jingji (Enlarge the positive results of the reform, develop the commodity economy), Renmin Ribao (Peoples Daily), (January 16, 1986), p. 2.

    Tyers, R., Agricultural protection and market insula- tion: Analysis of international impacts by stochastic simulation, Pacific Economic Paper No. 111 (Canberra, Australia: Australia-Japan Research Centre, 1984).

    Tyers, R., Agricultural protection and market insula- tion: Model structure and results for the European Community, Journal of Policy Modeling, Vol. 7, No. 2 (1985) pp. 219-251.

    Tyers, R., and K. Anderson, Distortions in world food markets: A quantitative assessment, A back- ground paper prepared for the World Banks World Development Report 1986 (Canberra, Australia: National Centre for Development Studies, The Australian National University, January, 1986).

    Tyers, R., and K. Anderson, Distortions in World Food Trade (Cambridge: Cambridge University Press, forthcoming).

    US Department of Agriculture, China situation and outlook report (Washington, DC: Economic Research Service, 1986).

    World Bank, World Development Report 1982 (New York: Oxford University Press, 1982).

    World Bank, China, Long-Term Development Issues and Options, A World Bank Country Economic Report (Baltimore, MD: The Johns Hopkins Univer- sity Press, 1985a).

    World Bank, China, Agriculture to the Year 2000 (Washington, DC: The World Bank, 1985b).

    Yang, Yongzheng, Chinas Agricultural Trade Policy in the 1980s: The Economic Costs of Food Self- Sufficiency. Masters thesis (Canberra, Australia: The Australian National University, 1986).

    Yao Yilin, Liangshi wenti bixu zhuajin (A close attention must be paid to the food problem), Renmin Ribao (Peoples Daily) (October 16, 1986) p. 2.

    Zhang, Tong, Pouxi shijie liangshi xingshi, tantao woguo liangshi fazhan fangzhen (Analyzing world food markets, exploring Chinas food development strategy), in Research Centre for Rural Develop- ment, the State Council and Economic Research Institute, and the Chinese Academy of Agricultural Sciences (Eds.), Zhongguo Nongcun Farhan Zhan- lue Wenti (The Strategic Development Problems in Rural China) (Beijing: Zhongguo Nongye Keji Chubanshe [China Agricultural Science and Tech- nology Publishing House], 1985).

    APPENDIX. THE GLS MODEL

    Model structure than the seven GLS aggregates are excluded, however, as are those for nontradeable goods and services.

    The model used is a simplified static equilibrium Currency exchange rates therefore enter as exogenous version of the complete GLS model. It is a global variables. While these omissions do limit the power of partial equilibrium model of the markets for grains the model to measure the wider economic impacts of (rice, wheat and coarse grains), livestock products food policies, the relative transparency of this partial (ruminant meats, nonruminant meats and dairy prod- equilibrium framework is a major asset. The simple ucts) and sugar. The innovative feature of the model is behavioral assumptions made are generally non- its capacity to capture both the protection and market controversial and robust estimates of most of the key insulation components of commodity trade policies. parameters are available in the food policy literature. The markets for tradeable goods and services other From the base period, 1980-82, the model calculates

  • 252 WORLD DEVELOPMENT

    three medium-run global market equilibria: for 1987, 1990 and 1995. These are derived by first projecting shifters in the supply, demand and storage equations and then solving for the prices which would clear all of the commodity markets in those years. The shifters are: (i) that part of production growth which would con- tinue were all relative prices to remain constant; (ii) the income effects on consumption of exogenously pro- jected growth in national incomes; and (iii) the level of working stocks required to service production in exporting countries and consumption in importing countries.

    Structurally, the model is a set of expressions for quantities consumed, produced and stored, each of which is a function of known past prices and endoge- nous current prices. The objective is to derive a set of world prices at which all domestic and international markets will clear within an acceptable tolerance - global excess demand should be acceptably near zero. This is achieved using iterative Walrasian adjustment. The model is described mathematically in Tyers and Anderson (1986 and forthcoming).

    Essential parameters of the GLS model

    The GLS model includes 30 countries and country

    groups. In this appendix, only the parameters assumed in the model for China are presented. A more complete set of these parameters are listed in Tyers and Anderson (1986 and forthcoming).

    Table Al. Exogenous projections of Chinas GNP and population* 1995

    GNP Population GNP per capita (US$ billion)? (million) (US dollar)

    1982 274 991 276 (6&) (1.2)

    1995 1,155 ($4X

    Source: The International Economic Databank of ANU and State Statistical Bureau (1984) for 1982. Figures for 1995 are extrapolated using the assumed growth rates. *Figures in the parentheses are the assumed average growth rates from 1982 to 1995. 11985 constant US dollars.

    Table A2. Income elasticity of demand

    Coarse Dairy Ruminant Nonruminant Rice Wheat grains Sugar products meat meat

    1983-g7 0.10 0.35 0.10 1.40 2.00 1.00 0.90 1988-90 0.05 0.30 0.10 1.20 1.50 1.00 0.90 1991-95 0.00 0.25 0.10 1.00 1.00 1.00 0.90

    Table A3. Elasticity of demand with respect to price, 1983-95

    Coarse Dairy Ruminant Nonruminant Rice Wheat grains Sugar products meat meat

    Rice -0.20 0.13 0.05 - - r

    - Wheat 0.14 -0.30 0.06 - - - Coarse grains. 0.10 0.10 -0.30 0.00 0.01 0.02 - Sugar - - - -1.50 - - - Dairy products - - - - -2.00 - - Ruminant meat - - - - - -1.50 0.40 Nonruminant meat - - - - - 0.04 -1sKl

  • FOOD SELF-SUFFICIENCY IN CHINA

    Table A4. Medium-run elasticity of supply with respect to price, 1983-95

    Coarse Dairy Ruminant Nonruminant Rice Wheat grains Sugar products meat meat

    Rice 0.12 -0.01 -0.01 -0.01 - - - Wheat -0.02 0.10 -0.02 - - - - Coarse grains -0.02 -0.02 0.16 - - - - Sugar -0.12 - - 0.88 - - - Dairy products - - - - 0.80 -0.08 Ruminant meat - - - - 0.10 0.80 -Go Nonruminant meat - - -0.36 - - - 0.60

    253

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