Voluntary Report - public distribution

**Date:** 6/18/2007

**GAIN Report Number:** CH7031

CH7031

**China, Peoples Republic of**

**Grain and Feed**

**Corn Production Estimates**

**2007**

**Approved by:**

![](media/image1.wmf)Maurice House

U.S. Embassy

**Prepared by:**

Kevin Latner and Steve Leu

**Report Highlights:**

As farmers discount the marginal cost of labor and land, the key factor
in determining production are out-of-pocket expenses, or material inputs
and services. These are an estimated \$63/MT providing approximately
\$65/MT to the farmer based on a farm gate price of \$135/MT. With an
average farm size of 0.25 Ha, and a yield of 5.12 MT/Ha, the average on
farm income from corn is \$175/yr or almost \$83/yr after out-of-pocket
expenses.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Beijing \[CH1\]

\[CH\]

**Summary**

As reported in the Grain and Feed Annual the principal limit to expanded
corn production is land limitations and constraints on the use of
technology (no biotech corn corps have been approved for planting). The
cost of producing corn, including imputed labor and land costs is
esimtated at \$140/MT. However, this overstates the imputed costs of
labor and land and suggests that corn producers in CY2005 had an
averaged net loss of \$4.71/MT.

As farmers discount the marginal cost of labor and land, the key factor
in determining production are out-of-pocket expenses, or material inputs
and services. These are an estimated \$63/MT providing approximately
\$65/MT to the farmer based on a farm gate price of \$135/MT. While farm
size varies widely, Post estimates the average farm size of 0.25 Ha.
With yield of 5.12 MT/Ha, the average on farm income from corn is
\$175/yr or almost \$83/yr after out-of-pocket expenses.

Corn producers relied on direct payments and subsidies of \$7.54 to
offset losses. Average costs for corn production in 2005 were \$62.28/MT
for material input and service, \$52.29/MT for labor, and \$24.22/MT for
land. Corn's land and labor costs made up larger percentages of total
costs than those for grain. The ratios of individual costs by MT for
corn were 45% for material input and service, 38% for labor, and 17% for
land. See table 1.

# Price and Production Costs OK While Yield and Direct Payment Data Questionable

China's NDRC (National Development and Reform Commission) reported in
November 2006 national survey results for corn production in 2005. The
results included national averages of corn yield, direct payments for
corn production, and corn prices and production costs, 6.33 MT/Ha,
\$2.40/MT, \$137/MT, and \$113/MT, respectively. While anything to do
with statistics in China is questionable, Post has opted to accept
NDRC's reported cost and price data. As detailed below, Post estimates
that average corn yield was lower and average direct payments were
higher than reported by NDRC.

Post estimates yield is 5.12 MT/Ha and subsidies, including direct
payments, were \$7.54/MT. These work through to increase estimated
production costs to \$140, including imputed labor and land costs. As
discussed below, the marginal costs of both are opportunity costs,
making out-of-pocket marginal costs closer to \$63/MT.

The reported average corn yield per hectare in 2005 was 6.339 MT/Ha.
Post analysis concludes that actual yield was significantly lower than
was reported due to the exclusion of 29% of less productive areas and
the overcompensation in adjustments for unreported acreage (black
lands). Post estimates that actual 2005 yield was 5.12 MT/Ha based on
revised production estimates of 135 MMT over a planted area of 26.358
million Ha (see table 1 in GAIN report CH7015). Further, Post estimates
corn yield for CY2007 to be 5.26 MT/Ha, well below the reported 2005
yield.

The survey included 60,000 rural households in 1,553 counties,
accounting for 70.59% of the approximately 2,200 counties in China.
Areas not surveyed by the NDRC are considered to have much lower yields.

# 

# Productive Corn Areas Dominate Overall Output

Post estimates the average national yield for corn is 5.12 MT/Ha, based
on previous Post analysis of average national corn production output and
acreage. The NDRC\'s average national yield for corn was 6.339 MT/Ha for
the 13 provinces.

Major grain producers for corn, wheat, and rice are concentrated in 13
provinces, totaling nearly 80% of China's output of commercial grains.
As an example, the crop survey indicated that corn farmers in Jilin
province, an exclusive corn-producing area and one of the provinces
surveyed, had an average corn yield of 6.49 MT/Ha. The remainder is
produced in more marginal areas and is less productive, thus bringing
down the average national yield.

**Direct Payments: Higher than Reported but Not Enough to Offset
Losses**

Post estimates direct payments for corn producers averaged \$2.98/MT in
2005 - 24% higher than the reported average. Based on this figure,
direct payments alone do not offset corn losses. Corn producers must
rely on further domestic support to recoup costs.

The NDRC reported that the average direct payment to grain producers was
\$2.40/MT in 2005 and \$3.00/MT in 2004 (GAIN CH7015). Unlike yields,
whose averages come from 13 provinces where yields are high, support
numbers are collected nationwide and vary considerably by region. For
example, based on survey data, corn farmers in Jilin province received
an average direct payment of \$9.00/MT in 2005 - well above the reported
average.

Average direct support payments for commercial grains is difficult to
determine because the program for corn is relatively new, there are
differences in the implementation metric (e.g. production value,
quantity) used at the provincial level, and where metrics like yield are
used, the lack of reliable data on these numbers complicate matters.
Indirect support, including seeds support, transportation subsidies, and
long-term investments such as agricultural machinery, further complicate
analysis.

# Seed Subsidy Comes in Two Forms

Implementation varies by commodity and province but generally falls into
two categories: direct payments or discounted seeds. As a direct
payment, it is an income support mechanism where the farmer is provided
an average \$4.46/MT to purchase seed. What the farmer actually does
with the payment is not monitored.

Alternatively, the subsidy is provided for farmers to purchase high
quality seed at commodity prices. The subsidy is approximately \$3.67/MT
and may take the form of a payment to the seed company to provide a
specific type of seed at commodity prices or a reimbursement to the
farmer for seed purchased.

# Transportation Subsidy and Export Support Add to Domestic Support

Northern corn producers have succeeded in gaining export support (GAIN
CH7018) and transportation subsidies. Grains transported by rail are
exempt from a RMB 0.033 per ton per kilometer \"construction fee\"
charged to other products transported domestically.

# 

# NDRC: Income from Corn Comparable to Soybeans -- Short of Wheat and Rice

Using NDRC's 2005 data, corn had a higher return than soybean. Before
average subsidies are factored in, corn provided a higher net profit
than soybeans by \$12.19/MT. This spread is attributable to soybean's
low yield, limited crop rotation, and the disparate impact of hand
planting and hand picking on soybeans. See table 3.

Also using officially reported data, corn is less profitable per MT than
rice and wheat. Corn does not compete with rice and wheat for land and,
thus, however. Previous reports had aggregated costs and net profits
into a single grain category (GAIN CH7015). When segregated out, corn
had a lower relative farm gate price (by \$34.43/MT) and a lower net
profit (by \$15.79/MT). See table 2.

# Land and Labor Costs are Entangled with Larger Policy Issues

China's corn production is concentrated in the northeast region and has
higher imputed labor and land costs. In addition to being difficult to
determine, it is out of pocket expenses (not imputed land and labor
costs that principally guide on farm production decisions. In the case
of labor, the opportunity costs for labor in the countryside is *de
minimus*, requiring laborers to migrate to the city for meaningful
income. While demand for migrant labor is in high demand in urban areas,
Chinese government policies limit mobility. Informal estimates are there
are 100 million migrant workers and those that do migrate receive higher
incomes.

In the case of land, the state holds property to all land, so
determining land costs is also made difficult. There are three basic
types of land rights: land held by the state and farmed as collectives,
land given to farmers based on family size; and land provided to farmers
(also based on one's status in the town or village) but for a fee.
Generally, the community must approve land transfers, so there is
limited land transferability.

**Table 1. Average Prices, Costs, and Domestic Support for Corn, 2005**

![](media/image2.wmf)

**Table 2. Comparison of Officially Reported Data: Corn vs. Grain,
2005**

![](media/image3.wmf)

**Table 3. Comparison of Officially Reported Data: Corn vs. Soybean,
2005**

![](media/image4.wmf)