May 20, 2004

China's Turbulent Wheat Industry

According to a USDA report, wheat production in China reached record levels in 1997, then fell by more than 30 million metric tons by 2003.

USDA projects China's wheat production will likely remain at or below 90 mmt for the foreseeable future.

The USDA report attributes the decline in wheat production to a variety of factors:

China has seen reductions in area sown. This can be attributed to policies that discourage production of low-quality wheat, which is relatively high yielding. Thus yields have not risen and have even declined. Farmers in China seem to be moving productive land from wheat to high-value horticultural crops. Water shortages and other environmental setbacks in major wheat-producing areas may also by playing a role in the decline in sown area.

Other crops are more profitable. Farmers are also moving out of wheat and into other crops because wheat has been the least profitable of all major crops produced in China over the last several years, according to the USDA report. For example, high cotton prices have induced many farmers to move into spring-sown cotton instead of double-cropping wheat and cotton and using a short-season variety of cotton.

Policy changes, market development and increasing commercialization in rural areas also drove down wheat production in China. Many provinces have recently abandoned the grain quota delivery policy and accept taxes and cash fees instead. Without this obligation, some have moved into commercial crops rather than wheat.

Source: USDA