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Optimizing food supply chain to ensure food security

Author  :  YANG GANGQIANG and WANG HAISEN     Source  :    Chinese Social Sciences Today     2021-09-01

Since the 18th CPC National Congress in 2012, the CPC Central Committee with Comrade Xi Jinping at its core has paid great attention to national food security. The central leadership introduced a food security policy of “ensuring basic self-sufficiency of grain and absolute security of staple food.” The Chinese government has established a national strategy on food security featuring self-sufficiency based on domestic grain production, guaranteed food production capacity, moderate imports, and technological support. By establishing, practicing, and conducting institutional innovation on its national food security theory, China has embarked on a path of food security with Chinese characteristics. 

Aiming at enhancing the country’s safety curtain and state economic security, China’s 14th Five-Year Plan (2021–25) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 has also included overall grain production capability as a leading indicator for social and economic development by stating explicitly that China will carry out strategies for safeguarding food security. Ensuring food security is a precondition for China to ensure both development and security and for ushering in a new stage in building a Peaceful China.

Structural pattern of supply and demand

In recent years, China’s overall grain production capability has improved steadily. China’s total grain output was 669.49 million tons (1.339 trillion jin) in 2020, which means China’s grain yield has remained above 650 million tons (1.3 trillion jin) for six consecutive years: a bumper harvest for 17 years in a row. The per capita supply of grain in China reached 470 kilograms last year, above the 400 kg international standard for food security.

The supply and demand pattern for rice, wheat, corn, and soybeans displays distinctive structural features. China is basically self-sufficient in wheat and rice, with sufficient reserve stock of the two. China mainly imports grain to add variety and balance to its grain mix. However, the gap of supply and demand for corn and soybeans is growing larger. Since 2017, China’s average degree of self-sufficiency in corn was 95%. The gap reached 22 million tons in 2020, when imported corn made up 5.78% of domestic corn consumption.

China’s self-sufficiency rate in soybeans stood roughly at a mere 15%, with the supply and demand gap increasing from 86.033 million tons in 2018 to 99.9 million tons in 2020. As the demand for fodder grain and industrial grain goes up, China’s reliance on the international soybean market is also on the rise.

In 2020, China imported over 140 million tons of grain, including over 100 million tons of soybeans. Corn and soybeans make up 78.27% of China’s total grain imports, with a 135.7% and 13.3% year-on-year increase respectively, making the two a main risk for China’s food security. Under normal terms of trade, 30% to 40% of China’s soybean imports and 15% of its corn imports are from the US, and around another 60% of imported soybeans are from Brazil. The high concentration of countries of origin for China’s grain imports has increased the country’s risk of being “tied down.”

What’s more, China’s grain imports rely heavily on sea transportation and global thoroughfares including the Malacca Strait, Panama Canal, and Suez Canal. This means China’s grain imports are at risk of being “seized by the throat.” As China’s domestic consumption structure is under transformation and upgrading, its foreign-trade dependence in corn and soybeans will go up further, calling for a more stabilized grain supply chain.

Meanwhile, the total global volume of the grain trade is limited, and a gap remains between countries in terms of their grain supply capacity. Data from the United States Department of Agriculture reveal that the total storage stock of the worlds’ corn has been decreasing in the past four years, from 341 million tons during 2017/18 to 285 million tons during 2020/21. The stock-to-use ratio for corn went down from 31.22% to 25.12%. The global soybean stock also plummeted in the past two years, from 114 million tons between 2018/19 to 84 million between 2020/21, and the stock-to-use ratio dropped from 33.02% to 22.55%.

Although global food commodity prices are set to remain high, global food trade will be buoyant in the year ahead, according to Food Outlook released by the Food and Agricultural Organization of the United Nations in June, 2021. In the short term, rising food prices will entail a climbing cost of import. In the long run, due to the pandemic, speculation with international capital, and global excess liquidity, corn and soybean prices may keep rising, further exacerbating inflation expectations. All of these elements will greatly affect the stability and security of the international food chain, and in turn, make it harder for China to control and sustain its own food supply.

International supply chain

Under the new development paradigm, we need to build a food security guarantee system at a very high level characterized by quality, efficiency, and sustainability, giving full play to China’s advantages in comprehensive food production and developing a safe and controllable supply system that covers the entire domestic food industry chain. At the same time, we should actively promote international exchanges and cooperation in the food sector, import a certain amount of food to guarantee the food supply, optimize the allocation of global food resources and, in particular, ensure the stability and security of the international food supply chain.

We need to optimize food supply chains and diversify food sources. Agricultural resources in different countries and regions should be fully leveraged. The government should customize policies for different types of food, and explore different food production areas so as to deploy the sources of imported food in a gradient manner and expand the international food supply chain. First, we should deepen cooperation with traditional food sources such as South America, Australia, Eastern Europe, and Southeast Asia to enhance the stability of the international food supply chain. Second, we should encourage large-scale food companies to increase foreign investment and step up cooperation with countries like Kazakhstan, Russia, Ukraine, Romania, and other countries, especially cooperation with countries along the Belt and Road, to fully leverage the potential for grain imports. Third, we should strengthen cooperation on agricultural production and technologies with the Black Sea region and emerging market countries in Asia, improve the production and supply capacity of grains and soybeans, and accelerate the establishment of stable and diversified food supply corridors through the strategic development of global food sources.

We need to improve the food supply chain system and shift from the product-oriented mindset to the reinvention of food supply chains. First, we should develop the global grain industry chain, cultivate large-scale multinational grain enterprises in China, and explore transnational operations in terms of grain production, storage, and processing. The grain supply network should be expanded through trade cooperation, industrial investment, and other forms.

Second, we should improve the ability to manage the grain supply system. Existing multinational state-owned food enterprises should be encouraged to participate in the international grain futures market in order to improve our ability to hedge risks with risk management tools. Meanwhile, we should make a greater effort to explore the international agricultural market and enhance our ability to control the prices and grain supply systems in overseas grain markets with the focus placed on cost control.

Third, we should strengthen the international food supply system. We need to monitor the supply, demand, and trade in the international food market and employ a wide variety of tools to adjust trade varieties, volume patterns such as tariffs, quotas, and technical measures. In doing so, we can comprehensively control risks in the food supply chain, and enhance our ability to deal with international food supply crises.

We need to innovate with the food supply chain model, shifting from the single-player model to multi-chain synergy. To start with, we should accelerate the development of international food transport channels. When tapping into and upgrading the existing shipping capacity, we should further develop international logistics channels through the China-Europe Railway Express and other means, and encourage cross-border transport enterprises to establish cooperative alliances, so as to build a convenient, efficient, stable, and sustainable international grain transportation system.

We should also diversify logistics functions. We should build sound grain logistics systems in major grain-exporting countries and cooperate with those countries in building port hubs, sea and land passages, and other transportation infrastructure to facilitate grain procurement, storage, transportation and distribution, and form stable grain logistics corridors. Next, we should accelerate the establishment of an international logistics information management system. We need to promote the application of digital technologies and artificial intelligence in collecting grain logistics information. In order to strengthen risk prevention and enhance the efficiency of grain transportation it will also be necessary to closely monitor international grain trade and logistics.

We need to step up food security governance and seek win-win cooperation and shared global governance. Specifically, public services related to comprehensive food production should make greater efforts to go global. We should invest more in other developing countries in terms of agricultural production capital, technology and equipment to improve their agricultural infrastructure, and enhance their capacity of food production and supply.

We should also actively participate in world food security governance. We need to uphold the global multilateral trading system, strengthen South-South food trade and economic cooperation, promote cooperation with international organizations or institutions such as the FAO, UNDP, and WFP, and create a new platform for international food cooperation to promote sustainable global agricultural development. We also need to improve the foreign agricultural assistance system, promote the rational allocation of agricultural resource elements, and enhance China’s voice and influence in global food security governance.

 

Yang Gangqiang and Wang Haisen are from the Regional and Urban-Rural Development Research Institute at Wuhan University.

 

 

 

 

Editor: Yu Hui

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