OVER the past five years, as farm wages soared, sugar-cane growers in southern China looked across the border to Vietnam for help. They hired Vietnamese workers—nearly a quarter cheaper than Chinese ones—to tend their fields, especially during the winter harvest. The immigrants were illegal but local authorities looked the other way. Some 50,000 Vietnamese streamed annually into Chongzuo, China’s “sugar capital” in Guangxi province, where cane stalks sprout from red fields nestled among the karst hills. But given recent political tensions with Vietnam, China has started to turn the migrants away. For sugar-cane growers, the effect is akin to Mexican workers suddenly disappearing from Californian fruit farms.

Even without this blow, Chongzuo’s farmers should have been in deep financial trouble because of competition from cheap imports. But they were just about making ends meet, thanks to efforts by the central government to prop up the country’s sugar industry. It has slowed approvals of imported sugar and bought the more expensive local product for bulging state reserves. To encourage loss-making farmers to go on planting sugar cane, officials in Beijing are considering a system of direct subsidies. Chongzuo will not be allowed to die. While blocking Vietnamese labour, the local government has started offering “sweet loans”. Increasingly common recourse to such tactics is symptomatic of a widespread malaise in China’s production of agricultural commodities, not just of sugar. Costs are rising, crop yields are stagnating and the government is providing ever more support to keep its farms afloat.
Since a largely man-made famine that started in the late 1950s, in which tens of millions died, China has defied the odds by feeding its people almost entirely on its own. It has provided for two-fifths of the world’s population with just a tenth of its arable land. Now, as middle-class appetites grow, China is past the point of being able to rely on its own farms. In 2011 it became the world’s largest importer of agricultural products, powered by its demand for soybeans, a feedstock for pigs.
But China’s openness to soy contrasts with the barricades it erects around what it deems to be key foods. Since the earliest days of its rule, the Communist Party has striven for self-sufficiency in grains and extensive self-reliance in commodities from sugar to pork. The second draft of a proposed new law on national security, which was published on May 6th, specifies the state’s responsibility for guaranteeing “grain security”, a term that Chinese officials often associate with self-sufficiency. Enabling China to grow enough to feed itself was a strategic goal for Mao (notwithstanding the famine he caused). For much of his rule, the Soviet Union and America were enemies; he had little faith in global markets. Some Chinese officials think in much the same way today.

Maintaining self-reliance is expensive. China spent $165 billion on support for farmers in 2012, twice as much as five years earlier and a third more than the European Union, according to the OECD, a rich-world think-tank. It also creates inefficiency. State-set minimum purchase prices for rice, wheat and corn are well above global levels (see next article). This helps to boost production, but it also deters farmers from diversifying into cash crops that would make better use of land resources. The state’s intervention results in thirsty crops such as wheat and corn being widely grown on land where water is scarce. Chemicals used to boost their production pollute water supplies. Yield growth has slowed since the 1990s and output plateaued in recent years, but costs continue to rise—not least of labour, as the young migrate to cities.

In years when China’s farms produce a surplus of staple crops, the state buys the excess for its reserves. Many other countries do the same, building up reserves to stabilise food prices and as insurance in case of drought or blight. But China’s reserves are believed to be unnecessarily big (exact figures are a state secret). Its corn stockpile, for example, is estimated to cover seven months of consumption; a level of three months is normally seen as safe.

The government’s grain chief, Ren Xiaozheng, has called the huge reserves “a cheerful burden”, a view undermined by a state television report in April revealing corruption in the system. Officials in the north-east had bought low-quality grain at discounted prices, reporting that they had paid the higher state-set price for good grain. They pocketed the difference, stuffing the inferior product into the reserves. Such fiddling is thought to be common.

Even in the production of sugar, a commodity that is less important to China’s food strategy than rice or wheat, dysfunction caused by the state’s interference is abundantly apparent. Officials call for 85% of annual consumption to be met through domestic production. But Chinese sugar-cane farms are inefficient, producing less than half the yield of those in Brazil, the world’s biggest producer. Domestically grown sugar costs more than twice as much as international sugar. After factoring in shipping costs and import tariffs of up to 50%, it is still cheaper to buy from abroad—hence the government’s foot-dragging on import approvals, to prevent the local market from being flooded.

Some officials appear to understand the need to make self-sufficiency goals more flexible. Li Keqiang, the prime minister, last year said China’s goal was “absolute security” in edible grains. Some saw ambiguity in his wording: public debate ensued about whether buying more on global markets, rather than growing more at home, could provide that security. But the party prides itself on its rural origins. It does not want to stoke unrest in the countryside. So it continues to block imports when it feels domestic producers are threatened. As Chongzuo’s farmers can attest, the government is still only too willing to keep farmers working on otherwise unprofitable fields.
May 16th 2015, The Economist