Domestic grain prices have generally remained weak, raising concerns about food security.

Since the beginning of this year, domestic grain prices have generally remained subdued, while grain imports have risen and price differentials among various varieties have widened, drawing renewed public attention to the grain market. Recently, Han Jingbo, Director of the Price and Cost Investigation Center of the National Development and Reform Commission, stated in an exclusive interview that grain prices have been broadly weak this year, with market prices trading at low levels, primarily due to sluggish downstream demand for flour, rice, deep-processing products, and oilseed crushing.

She also noted that, since the beginning of this year, the grain import landscape has exhibited mixed trends, with some items increasing and others declining. Moderate imports are primarily intended to supplement and adjust varieties and structures, without imposing significant pressure on the domestic market. Overall, China’s grain supply and demand remain balanced, and the situation is generally stable and under control.

Regarding the longstanding situation in China where domestic grain prices have remained higher than international market prices—a phenomenon known as price inversion—Han Jingbo stated that this has undermined the international competitiveness of China’s grain sector, and that such challenges should be viewed objectively and addressed proactively. At present, China’s agricultural production is experiencing a “dual non‑agriculturalization” trend—both non‑agricultural and non‑grain—driven by the relatively low comparative returns from grain cultivation.

Han Jingbo pointed out that in recent years, driven by persistently rising costs, farmers’ incomes from grain production have been eroded, leading to diminished enthusiasm among some farmers and posing a potential threat to national food security. Raising farmers’ incomes and boosting their motivation to grow grain are essential components of safeguarding national food security.

Moderate imports will not undermine the domestic market.

Q: Customs data show that, from January to April this year, imports of corn, rice, and sorghum all declined sharply year on year, while imports of soybeans and barley increased. During the same period, cumulative wheat imports totaled approximately 5.98 million tonnes, up 80.6% from the same period last year—already reaching 60% of last year’s full-year wheat import volume (9.96 million tonnes). This year, domestic wheat prices have been steadily falling, in stark contrast to the steady rise in wheat import volumes. Why, then, are large quantities of wheat still being imported even as domestic prices decline?

Han Jingbo From a macro perspective, both the supply and demand sides of China’s grain market are expected to expand in 2023. On the supply side, overall growth will remain steady, while on the demand side, growth will continue at a moderate pace. Maintaining an appropriate level of grain imports can effectively supplement domestic supplies.

Since the beginning of this year, the grain import landscape has exhibited mixed trends, with some categories rising and others falling. The primary reason is that different grain varieties have shown varying market performances.

By variety: First, the price gap between domestic and international wheat has widened. As of May 23, the front-month CBOT wheat contract closed at 623 cents per bushel—equivalent to RMB 1,609.9 per ton—down more than 17% from early February. Meanwhile, in major domestic producing regions, wheat prices stood at RMB 2,714.5 per ton. At the same time, the price spread between wheat and corn has continued to widen, leading to a marked increase in wheat’s use as a feed substitute and boosting imports of high‑quality and feed‑grade wheat since the beginning of the year.

Second, influenced by bearish market expectations, many countries have been purchasing rice to replenish their stockpiles, driving a sharp rise in international rice prices. Meanwhile, domestic rice supplies remain ample, consumption remains broadly stable, and processing enterprises continue to operate at low capacity utilization. Coupled with gradually rising temperatures, the cost of holding rice inventories has increased, leading to a substantial decline in rice imports—down 39.7% year on year.

Third, corn is a grain commodity with strong industrial‑use characteristics, and domestic demand is primarily driven by essential consumption. Since the beginning of this year, capacity expansion in the domestic deep-processing sector has slowed, overall industry profits have declined, and aggregate corn demand has been broadly subdued. Coupled with diminishing price competitiveness and increasing substitution effects, import growth has decelerated markedly, falling 8.4% year on year.

Fourth, driven by a bumper soybean harvest in Brazil, international soybean prices declined across the board. Coupled with gradually falling shipping costs, the import cost of soybeans fell significantly. With domestic market expectations for crushing remaining favorable, imports of soybeans increased slightly, up 6.8% year on year.

Overall, China’s food situation remains secure and under control. As public demand for the quality of food consumption continues to rise, moderate imports are primarily intended to diversify and balance supply varieties and structures, without significantly disrupting the domestic market.

Low returns for farmers growing grain pose a challenge to food security.

Question: Because the comparative returns from grain production are relatively low, we have seen the “two non‑agricultural” trends—namely, the conversion of farmland to non‑agricultural uses and the shift away from grain cultivation. To ensure food security, it is essential to do everything possible to safeguard farmers’ incomes from grain farming. In the context of the new round of initiatives to boost grain production capacity by 100 billion jin, how can we simultaneously increase grain output and protect the incomes of grain‑producing farmers?

Han Jingbo In recent years, rising costs have squeezed farmers’ incomes from grain production, leading to a decline in their enthusiasm for grain cultivation and posing challenges to national food security.

In summary, there are four main factors contributing to the decline in farmers’ grain‑production incomes.

First, the cost of grain production continues to rise, while grain prices have increased only modestly, leading to diminishing marginal returns. The application rates of fertilizers and pesticides have already reached their upper limits, making it unsustainable to further boost yields by increasing inputs; as a result, farmers’ incomes from grain cultivation are declining.

Second, the expansion of large-scale operations has reached a bottleneck. In China, small and medium-sized farmers still constitute the majority; economies of scale have yet to be realized, and there is a lack of an integrated production–supply–storage–sales system, resulting in low productivity and poor economic returns.

Third, there remains a significant gap between China’s agricultural science and technology innovation capacity and level and the requirements of agricultural modernization; production efficiency for certain crop varieties is relatively low, and substantial gaps persist in areas such as the development of superior seed varieties, as well as the research and development of advanced, suitable production equipment and technologies.

Fourth, there is a “reverse linkage between grain production and fiscal revenue”: major grain-producing counties are often economically weak and fiscally strapped, and the extension of the grain industry chain and value-added upgrading remain significant shortcomings, thereby limiting the potential for post-harvest value enhancement.

The central government has explicitly stated the need to safeguard farmers’ incomes from grain production. In addition to maintaining agricultural subsidy policies, it is essential to enhance the precision of these subsidies and optimize the subsidy mechanism so that those who actually grow grain receive adequate support. In light of new developments and requirements in agricultural production, subsidies for the purchase of advanced agricultural machinery should also be appropriately increased. At the same time, ensuring farmers’ earnings from grain cultivation requires a systematic approach, with comprehensive measures coordinated and aligned to achieve synergistic effects. First, we must continuously improve the foundational conditions for grain production—by upholding the strategy of “storing grain in the land,” accelerating the construction of high-standard farmland, effectively managing funding, and prioritizing both construction quality and long-term maintenance. Second, we should implement the strategy of “storing grain in technology” by strengthening agricultural scientific research and innovation, and by promoting breakthroughs in areas such as improved seeds, modern agricultural machinery, efficient farming techniques, and loss‑reduction technologies, thereby providing robust technological support for grain production. Third, we must continue to encourage and advance moderately scaled operations, supporting the development of cooperatives and contract farming, and speeding up the growth of socialized services for grain production, so that economies of scale can help reduce costs and boost efficiency. Moreover, it is important to refine the grain industry chain, focusing on the “grain‑to‑food” value‑adding link, and encouraging localities to establish end‑to‑end grain industries that span from planting to consumption, thus increasing incomes while generating added value.

Proactively address the domestic–international grain price inversion.

Question: Over the past two decades, China’s import prices for grain have generally been lower than domestic production prices, leading to a pronounced price inversion between domestic and international markets. Although this gap has narrowed somewhat over the past five years, it remains significant. This persistent price inversion has severely undermined domestic grain production. How should we interpret this phenomenon, and what measures can be taken to reverse the grain price inversion and enhance the international competitiveness of domestically produced grain?

Han Jingbo China has consistently upheld a new vision of food security—“basic self-sufficiency in grain and absolute food security”—while maintaining a fundamental balance between supply and demand and overall stability in domestic grain prices. Since the beginning of this year, domestic grain prices have remained generally weak. According to monitoring by Shandong Zhuochuang Information and Shanghai Steel联, in May 2023, the average price of wheat in major producing regions stood at RMB 2,728 per ton, down 6% year on year; corn averaged RMB 2,596.6 per ton, a 1.3% decline from the same period last year; medium- and late-season indica rice averaged RMB 2,757.6 per ton, up 2.1% year on year; japonica rice averaged RMB 2,711 per ton, down 0.95% year on year; and soybeans averaged RMB 4,957.5 per ton, a 14.5% drop compared with the previous year. The primary reason behind these trends is subdued downstream demand across flour, rice, deep-processing, and oil‑extraction sectors, resulting in persistently low market prices.

Looking at a longer time frame, China’s grain prices have indeed remained persistently higher than international market levels, resulting in a price inversion. Although there has been some improvement over the past five years, the gap remains substantial.

There are three main reasons for the price inversion between domestic and international grain markets. First, on the global market, since the outbreak of the 2008 financial crisis—particularly from 2011 until just before the COVID‑19 pandemic—the world economy has experienced a sluggish recovery, giving rise to renewed deflationary pressures. Coupled with a sharp drop in shipping costs driven by falling energy prices, international grain prices have declined substantially. Second, China’s grain supply and demand remain broadly in tight balance, and policy measures have sought to keep domestic grain prices at reasonable levels, safeguarding farmers’ interests and ensuring that domestic grain prices remain firm while trending upward. Third, domestic grain production costs have been rising year after year. According to the National Agricultural Product Cost‑Benefit Survey conducted by the National Development and Reform Commission, from 2012 to the present, total grain production costs in China have increased cumulatively by 32.3%, at an average annual rate of 2.8%. In particular, land‑related costs have surged, climbing by 80.9% over the same period, with an average annual growth rate of 6%, thereby providing crucial support for maintaining firm domestic grain prices. Moreover, since the onset of the COVID‑19 pandemic, rapid increases in agricultural input prices have further contributed to the price divergence between domestic and international markets.

There is no doubt that the price inversion between domestic and international grain markets has weakened China’s international competitiveness in the grain sector; this issue must be viewed objectively and addressed proactively. First, this window of opportunity can be leveraged to advance supply-side structural reform in the grain industry, encouraging Chinese grain enterprises to expand overseas and participate in global grain trade, diversify import sources, and develop end-to-end value-chain operations in key producing regions, thereby steadily enhancing their influence and voice in the international grain market. Second, it can serve as a catalyst for reducing domestic grain production costs. For example, by unblocking bottlenecks in the production, supply, and pricing of critical agricultural inputs such as fertilizers and pesticides, procurement costs can be lowered; meanwhile, promoting appropriate scale of operations and encouraging long-term land‑lease contracts can reduce land‑transfer expenses, thus cutting the cost of cultivating grain on leased land.

“Domestic soybeans go into grain warehouses, while imported soybeans go to the market”?

Q: In 2022, China’s soybean production reached a historic high. However, domestic demand for soybeans remained notably weak, leading to a supply‑demand imbalance and causing soybean prices to open high and then trend lower. Against this backdrop, the authorities have set a target to expand soybean and oilseed cultivation by more than 10 million mu in 2023. How should we interpret the decision to increase soybean acreage under the circumstances of a domestic soybean supply‑demand imbalance and falling soybean prices?

Han Jingbo Soybeans have always been a top priority in ensuring national food security. Taking 2022 as an example, global soybean production totaled 349 million tons (excluding China), while China imported 91.08 million tons, accounting for 26.1% of the world’s total output. Moreover, China’s dependence on soybean imports exceeds 83%, with imports overwhelmingly concentrated in Brazil, the United States, and Argentina. This year, relevant state authorities have set a target to expand soybean cultivation by 10 million mu, aiming to reduce reliance on soybean imports—a crucial step toward safeguarding national food and oilseed security.

Q: Since the beginning of this year, domestic soybeans have once again found themselves in a situation where “domestic soybeans enter grain storage facilities, while imported soybeans flood the market.” From an industry perspective, this is both an anomaly and detrimental to the sector’s healthy development. How should we interpret this phenomenon, and what measures can be taken to address it?

Han Jingbo: The phenomenon of “domestic soybeans entering grain depots while imported soybeans flow into the market” arises because China’s soybean market is sharply divided into two distinct segments—imported and domestic. Imported soybeans are primarily used for oil extraction, whereas domestic soybeans are mainly processed for food products. Last year, domestic soybean production increased; however, due to a lower oil content—1 to 2 percentage points below that of imported soybeans—the profitability of oil extraction remained low. As a result, the oil‑extraction‑oriented market showed little appetite for domestic soybeans, opting instead to purchase more imported soybeans, which led to a substantial buildup of the increased domestic supply in storage facilities.

Accordingly, China must accelerate the implementation of its Grain Seed Industry Revitalization Plan, develop high‑quality, high‑oil soybean varieties, further enhance both the yield per unit area and oil content of domestically produced soybeans, and increase their market penetration, thereby effectively safeguarding national oilseed security.

Pay close attention to both short-term and long-term factors that affect food security.

Question: At present, what short-term and long-term factors are affecting China’s food security?

Han Jingbo The Party Central Committee attaches great importance to food security, has fully implemented the system of joint accountability for both the Party and the government, and ensured that all departments remain focused on their respective duties and responsibilities, thereby forging concerted efforts. As a result, the institutional and foundational conditions for safeguarding China’s food security are relatively strong. However, in the face of numerous uncertainties at both the international and domestic levels, we must bear in mind that food security is a matter of paramount national importance, uphold a bottom-line mindset without letup, and, even as the overall situation continues to improve, pay close attention to existing risk factors.

In the long term, it is essential to closely monitor the impact of global economic growth trends, extreme weather events, and energy price volatility on the global food market—particularly the vulnerabilities of international food supply chains amid a complex and volatile geopolitical environment—and to develop robust scenario‑based assessments and contingency plans. At the same time, attention should be paid to the subtle yet significant effects of demographic shifts in both total population size and structure on food consumption, while ensuring the effective implementation of medium- and long-term food security strategies.

In the short term, first, attention should be paid to the difficulties and bottlenecks in infrastructure development for grain production—such as issues related to funding and efficiency in high-standard farmland construction, concerns about construction quality and maintenance, and challenges in advancing comprehensive reforms of agricultural water pricing. In the near term, it is essential to monitor the situation in Henan, a major wheat-producing region, where heavy rainfall has led to a sharp increase in post-harvest losses—including mold, sprouting, and lodging—and a marked decline in farmers’ incomes. Timely assessments of the situation are needed, along with the swift activation of agricultural insurance claims assessment and settlement procedures. At the same time, strict measures must be taken to prevent substandard wheat from entering the food market.

Second, strengthen technical guidance and services related to the technical standards and field management protocols for expanding soybean cultivation, ensuring that the quality and yield of the expanded soybean acreage meet the intended targets.

Third, we will closely monitor the development trend of wheat substitution for feed use, and prevent excessive feed consumption from jeopardizing food security.

Fourth, amid tight domestic corn supply and demand and efforts to expand soybean cultivation, the challenges of ensuring stable corn production are mounting, upward pressure on market prices in the later period remains significant, and the deep-processing sector continues to suffer losses. In this context, it is essential to take a holistic approach to balancing supply and demand, ensure stable market supply and prices, and guide the industry toward sustainable development.

Source: China Business News