Required Report - Public distribution

**Date:** 10/28/2008

**GAIN Report Number:** CH8093

CH8093

**China, Peoples Republic of**

**Agricultural Situation**

**Agricultural Inputs Report**

**2008**

**Approved by:**

![](media/image1.wmf)William W. Westman

Minister Counselor for Agricultural Affairs

**Prepared by:**

Jorge Sánchez, Josh O\'Rear, Renée Vassilos, Tian Li

**Report Highlights:**

Although China is moving towards a market-based economy, the remnants of
the planned economy continue to plague the agricultural sector. Returns
to farmers are limited by price caps and export controls on major grain
crops. Meanwhile, restrictive land policies hinder production
efficiencies, further hindering farm returns. In recent years, rising
prices of agricultural inputs, such as fuel, seeds, and fertilizers have
added new pressure on farm profitability. While government subsidies and
other support programs have partly offset rising farm input costs, these
efforts have not significantly improved farm viability. Small farm size,
low productivity, and slow introduction of high yielding seed varieties
are major constraints. Emerging challenges include ensuring sufficient
water supplies for agriculture in the future, as competing urban and
industrial demand for water continues to spiral upward.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Beijing \[CH1\]

\[CH\]

[Executive Table of Contents](#__RefHeading___Toc44206933)

[Executive Summary 3](#executive-summary)

[A- Land Management 3](#a--land-management)

[B-Water as an Agricultural Input 5](#b-water-as-an-agricultural-input)

[C- Seeds 7](#c--seeds)

[D- Fertilizer 7](#d--fertilizer)

[I. Current Market Situation 7](#i.-current-market-situation)

[II. Future 11](#ii.-future)

[E- Pesticides 12](#e--pesticides)

[I. Current Market Situation 12](#i.-current-market-situation-1)

[II. Future 17](#ii.-future-1)

[F- Conclusions 18](#f--conclusions)

[Bibliography 18](#bibliography)[E](#__RefHeading___Toc44206933)

#  Executive Summary

Although China is moving towards a market based economy, the remnants of
the planned economy plague the agricultural sector. Even with remarkable
economic growth and industrialization, many aspects of this sector
remain unchanged such as land tenure and water management practices.
Seeds are developed and produced mostly by state-owned and funded
research facilities. The distribution of seeds is coordinated by local
officials with most grains seeds sold at affordable prices. Grain
farmers face a wide escalation of prices for agricultural inputs, rising
fuels costs, price caps, and export control policies and combined serve
counter to farmer profitability (See GAIN 8011, 8012, 8025).

The agriculture sector in China is also a default employer of the
nation's 800 million peasants and the unemployed. China relies heavily
on farmers' ability to produce at affordable prices in order to secure
that there is an adequate food supply. Only 40 years ago (between 1958
and 1961), the country witnessed widespread famine with an excess of 36
million deaths. Reliving this memory is something China's current
leading generation will avoid at all costs. The leadership understands
that the famine was largely the effect of planning errors such as
institutional and policy modifications which accompanied the Great Leap
Forward. Ensuring consumers have enough to eat is top priority, leaving
who will produce the food and under what conditions second, which is why
farmer's are exposed to a number of risks including natural disasters,
poor harvests, low prices and high input costs, to name a few.

Recently, the central government debated the justification for support
programs in general and specifically how these supports, although
extremely costly, do not necessarily provide a remedy the needs. Many
experts add that breakdowns are symptomatic of the endemic structural
breakdown of China's agricultural production model. National debates
surrounding support programs focus on who will receive end support:
direct cash payments to farmers, middle consumers (food processers), or
cede to imports for the sake of maintaining what the GOC considers
reaching an acceptable national grain supply capacity.

# A- Land Management 

Production begins with land, and China possesses less than 10 percent of
the world's arable land with 21 percent of the world's population.
Although several reforms have been introduced in the last decades,
western--style mechanized production is extremely limited. The amount of
cultivated land available is shrinking annually with competition from
industry and urban areas and also, the continual degradation of the land
due to multi-cropping, surplus irrigation, and the overuse of
fertilizers and pesticide (Lin and Ho, 2003).

The fundamental input for agricultural production, land, is becoming
increasingly valuable with a growing population, expansion of urban
areas, and increasing demand for higher-value agricultural commodities
(specifically meat, fruits, and vegetables). However, the land market,
particularly in the country-side, is still heavily government influenced
and not transparent thus, land is not valued correctly on the market and
is often not used for the most economically efficient purposes. The
rural land tenure system established in the early 1980s remains in
place. Farmers have partial rights to their land for a 30-year period.

These short terms and the lack of full rights to the land (the
collective or local government maintains partial rights to the land)
prohibits farmers from using land as equity for attaining banks loans
and from renting land (in order to receive maximum economic gain)
(Lohmar, 2006). The pending challenge facing the government is the
competition for land resources between industry/urban expansion and
agricultural production and the often competing policies of food
security and economic growth. There are concerns with granting farmers
full land rights as the land many rural Chinese own is there one piece
of security (there is no social welfare system in China). If full rights
were granted and the majority of farmers sold their land, they would
lose their one asset. Another concern with granting full land rights is
the potential flood of migrants from rural to urban areas; large cities
are already strained under the pressure migrants put on their health
care and education systems.

China has made considerable advances since 1979 when land was slowly
removed from state and collective ownership, implemented during Mao's
social revolution starting in 1949. A land market has developed and
there are laws in place to protect land for agricultural use mainly to
support national food security policies (Ding, 2003). A brief history of
China's land management follows.

Before 1949, a system of private land ownership was in place. From the
start of Mao Zedong's social revolution in late 1949, land was
redistributed in order to close the gap between the wealthy and poor. By
1958, all land was either state (urban areas) or collectively (farm
land) owned. During this period, land was allocated free of charge,
transactions were banned. Land was not considered a commodity, could not
yield a market value, and was not efficiently allocated (Ding, 2003).

The "open door" policy implemented by Deng Xiaoping in 1979 and the fast
in-flow of foreign direct investment that quickly followed created an
urgent need for land reform policies. Foreign businesses needed to
secure land rights in order to develop and thus, government created
special economic zones with a land-use rights system. However, it was
not until 1986 when the Bureau of Land Administration was established
that the rest of China began reforming its land policy (Ding, 2003).

In a move towards developing China's land market, a Land Administration
Law was passed in 1986 which legalized private organizations and
individuals to access state-owned land. This law was supported in 1991
by "the Provisional Regulation on the Granting and Transferring of Land
Rights over State-Owned Land in Cities and Towns" released by the State
Council. As established by the regulation, land users were now allowed
to let, transfer, rent, and mortgage land-use rights (Ding, 2003).

The rapidly developing land market brought new concerns to China's
land-use rights system, the urbanization of highly productive farmland
which hampered the food security policy. This concern was first
addressed in 1994 by the State Council through the passing of the "Basic
Farmland Protection Regulations," which prohibited the conversion of
farmland to non-agricultural uses. It also mandated counties and
townships to designate farmland protection districts. In 1998, the Land
Management Law (written in 1988) was revised in an effort to better
protect environmental and agricultural lands. The major development of
this law was the 'no net loss of cultivated land' mandate. This requires
developers to reclaim farmland in the equivalent amount to what was lost
in development or pay the full cost of farmland exploitation (Ding,
2003). While this mandate is a positive initiative to protect farmland,
it does not ensure that the land reclaimed as farmland is of the same
quality; reclaimed land is often of lower quality and not as productive.

The government faces serious challenges on how to regulate land use
between the competing users: developers and farmers. Another challenge
faced by regulators is corruption which occurs, in large part, because
land is undervalued under the current land-use rights system. The latest
incarnation of China's land policy took place in the mid-October of
2008, when the GOC granted farmers' the ability to transfer land
ownership, albeit with many restrictions, and create a model similar to
urban areas where leasing of land is a 70 year term instead of the
traditional 30 years for agriculture.

# B-Water as an Agricultural Input

China has the fifth largest water supply in the world, but also the
world's largest population thus, the per capita water supply is among
the lowest in the world. The limited water supply is further stressed by
its uneven distribution (see Figure 1). Water resources are mainly
located in the south; which has 80 percent of the country's total water
supply but only 36 percent of the total farmland (Ministry of
Agriculture). Northern China has the majority of cultivated land and
agricultural production on this arable land is increasingly relying on
irrigation as the number of cash crops in demand increases and yields
are continually expected to rise. This increased demand for irrigation
strains the limited water available. Also adding to the strain is the
competition from urban and industrial water users.

Similar to the demands on land, the demand for clean water is increasing
from all users while available supply is decreasing. Additionally, much
of the existing water supply is polluted, particularly in those areas
with heavy industrialization. The government faces a challenge in not
only regulating usage but also in maintaining supply which meets the
quality requirements of all users.

> **Figure 1: Map of China's Surface Water Resources**
>
> ![](media/image2.jpeg){width="4.180555555555555in"
> height="3.511111111111111in"}
>
> Source: International Institute for Applied Systems Analysis, 1999

In the past, agriculture received priority for water resources, due to
the government's food security policy, and the sector still receives the
majority of the water supply (see Figure 2). However, the rapidly
growing urban population and the expanding industrial sector, aided by
an economic growth policy instituted by the government, have changed the
dynamics of water usage. Urban and industrial consumers are rapidly
increasing their water demands and the government is slowly increasing
the supply allotted to these two sectors.

> **Figure 2:**
>
> ![](media/image3.wmf){width="4.5125in" height="3.436111111111111in"}

Water resources played a pivotal role in the incredible increase in
agricultural production, economic growth, and rapid development that
occurred in China over the last 20 years. The speed in which this growth
took place and the lack of government oversight led to the abuse of
water resources and the current crisis facing China today: the
overexploitation and pollution of water resources.

Groundwater exploitation is the greatest concern as aquifers are being
depleted at a faster rate than they can be replenished naturally.
Farmers typically dig their own wells and while they must pay for
pumping costs (which increase as water levels drop and wells must be dug
deeper), they do not pay any additional fees for the actual water used.
The lack of a government monitoring system has resulted in groundwater
being severely exploited. Surface water is easier to monitor as it
typically reaches consumers via an established irrigation district
however, regulations and fees are not well established thus, there exist
few incentives for farmers and other users to monitor or reduce the
quantities used.

The pollution of China's water resources is also a critical issue.
Untreated industrial and municipal water are the main sources of
pollutants which severely affect China's major rivers and, in some
areas, ground water supplies. Agricultural inputs, such as fertilizers
and pesticides, along with human and animal waste also contribute to
polluted water. The government has begun taking pollution seriously with
a recent pledge to allocate \$200 billion annually towards the
environment. An important element in the government's new efforts must
be the enforcement of existing laws against industrial polluters.

Growth in water demand, lack of a sufficient monitoring structure, and a
stagnant water supply, all contribute to the overexploitation of water
resources. The government is working towards improving water-use
efficiency and also, addressing pollution issues. Yet, they face a
significant challenge as the food security policy and economic growth
initiative are at odds with water conservation and quality protection.
Please refer to GAIN report CH8049 *Water Situation in the North China
Plain* for more detailed information.

## 

# 

# C- Seeds 

Maintaining a stable supply of high quality seeds for major grain crops
is a stated priority for China's relevant government agencies. Though
seed and grain price ratios are lower in China than in developed
countries due to lower quality varieties which reduces germination
rates, seed production was not exempt from inflationary pressure.
However, the industry reportedly adjusted quickly. In major grain
production regions, farmers have moved past using traded seeds to local
hybrids that rely less on agricultural inputs such as water and
fertilizer. According to government sources, in 2008 China's seed
production for all major crops met domestic demand, but certain corn
high yielding hybrid varieties in the Northeast were in higher demand
and experienced record-high prices. Additional demand came from a
recently implemented grains subsidy which encouraged corn and soybean
production, however by the mid-year many farmers in Northeast China had
already opted for rice instead of corn and soy. According to local
government sources and seed researchers, there were two major reasons
for this development. First, low grain prices and high fertilizer costs
were a major disincentive to increasing or maintaining corn and soybean
production. Secondly, higher costs for hybrid corn and soy varieties
priced out a segment of farmers.

# D- Fertilizer

## 

## I. Current Market Situation

**1. Supply**

The largest issue facing the production of fertilizer in China is the
lack of affordable inputs. The universal rises in input costs have
suppressed Chinese companies' ability to produce fertilizers at a
reasonable price. There are a number of reasons attributed to this
global trend. The main influencers include increasing competition for
scarce fertilizer inputs by developing countries and the world-wide rise
of oil prices. Analysts remain uncertain whether the recent drop in
crude oil prices (under \$70/barrell) will relief some of this pressure.
In order to suppress further increases in prices in the short term, the
government of China (GOC) has implemented a series of price control
policies and requires fertilizer producers to report any changes in
their selling price for urea, phosphate, and compound fertilizers.

The surge in fertilizer price has sent shockwaves throughout the
industry, forcing many smaller to middle size producers to shut down, or
be acquired by larger companies. This consolidation is supported by the
central government, as an incentive, hoping that larger companies will
bring stability and consistency to an inefficient and sporadic market
that has traditionally depended on strong government support.

Fertilizer manufacturing in China is small scale, scattered, and
currently not centralized. Numerous small scale producers, whose product
is sub-standard and poorly understood by farmers, have proliferated
across the country side and sell their product for a fraction of the
cost of large domestic and foreigner brands. Major producers within
China have begun to absorb these "back-yard" producers as the industry
loses affordability, and created education programs with the assistance
of China's Ministry of Agriculture (MOA).

Major production centers in China for fertilizers are located in Hunan,
Guizhou, Sichuan, Hubei, Qinghai, and Shandong provinces. The ability to
produce goods for the common farmer, in a world of sky-rocketing prices,
is an obstacle to China's fertilizer market. Price control policies keep
the price of fertilizers lower than the world price: stifling investment
and profitability and discouraging new market entrants. Although
fertilizer producers receive no direct subsidy, they do enjoy sizeable
discounts on energy inputs (such as electricity), transportation,
production inputs (such as natural gas and oil), and other necessities.
A 100 to 135 percent export duty was levied from April 30 until the
beginning of September 2008, after which the GOC extended the duty until
the end of December. Even with these measures, there is still a
collective discontent among farmers because their real income is
decreasing, amidst record high grains prices worldwide. China's farmers
can not capitalize on high grains prices as long as price supports and
export controls for grains remain in place.

In the last two years, China has suffered a number of recent natural
disasters that include flooding, snow storms, and earthquakes. Some
producers report that while distribution networks have been disrupted,
there has been no additional impact on the fertilizer industry as a
whole. However flooding and heavy rains, which hit South China this
year, will require farmers to apply additional amounts of fertilizer to
the land.

**2. Consumption**

The erratic nature of China's fertilizer industry makes observation of
distribution networks difficult. Major producers are located in the
urban east and use differing methods to market their products to
consumers. Most of the large companies manage their own facilities in
production regions and sell directly to farmers using their own staff,
while smaller producers often opt to use middlemen to facilitate
reaching out to remote or rural communities. In most rural areas,
deliveries of fertilizer may be sold directly from the back of a truck
with little formality.

The vast majority of fertilizer produced in China is destined for
domestic use, and much of it is destined for the northern part of the
country, for use in grains and oilseeds production. The GOC keeps a
massive storage of grains, known as a State Reserve, and places the
maintenance of this stock as a top national food security priority. This
practice indirectly stimulates the market by adding to the already huge
demand for fertilizer usage. The GOC's goal of self sufficiency in grain
production has exacerbated the inflation of fertilizer prices as farmers
try to increase yield on shrinking acreage and mismanaged or improperly
rotated land that require larger amounts of nitrogen inputs.

Demands by the rising middle class in urban areas of China and
environmental policies have created a growing niche for organic
fertilizers. Growers wishing to produce a high value crop for the
domestic or export market have begun to sprout in different parts of the
country. These growers are still a small minority, though, as the price
of high value and organic fertilizers are well above that of most
farmers' budgets.

a.  **Imports\
    **

China must supplement its domestic raw materials for fertilizer
production with lower cost imports to meet its massive demand.
Potassium-based fertilizer imports alone rose from 15 billion lbs in
2006 to almost 20 billion lbs in 2007. This is placing fertilizer
producers in a bind as they must maintain their price, due to strict
price control policies, as their necessary production inputs become
increasingly expensive. China's domestic cost of consumption is
artificially low, a direct result of government subsidies, making many
Chinese producers reluctant to enter into production agreements or
invest in the building of new plants in foreign countries, where the
cost of production is much higher.

**Table 1**

**b. Exports**

In the beginning of 2008, the GOC enacted a duty on fertilizer exports
to maintain stable prices during the main growing season. A duty, of 100
to 135 percent, was originally implemented place from April 30 through
September 30, 2008, but the GOC has extended the duty until the end of
December and increased the tax to 150 percent. The tax was also extended
to cover certain animal and plant based fertilizers, with the exception
of guano. The duty covers most fertilizers, but does not include
organics or high value fertilizers. Producers indicated that they did
not see much change in their business models after the duty was
implemented: most of their product was already geared towards domestic
use for this season. Some speculate that, in the future, the government
will implement a seasonal phase mechanism, by which the government will
dictate different export duties depending on the quarter of the year.
Some analysts believe that certain fertilizers, such as urea, might be
singled out, if prices continue to grow, and be placed under tariffs
exceeding the 150 percent already in place.

**Figure 3**

![](media/image4.wmf){width="6.801388888888889in"
height="4.652777777777778in"}

(Source: China Customs; Composed of HS Codes: 3101, 3102, 3103, 3104,
and 3105)

**Figure 4**

![](media/image5.wmf){width="6.497916666666667in"
height="4.445138888888889in"}

(Source: China Customs; Composed of HS Codes: 3101, 3102, 3103, 3104,
and 3105)

## II. Future

**1. Expansion and Environmental Protection**

Growth in China's fertilizer production will be restrained by low
domestic prices (compared to international prices) and environmental
policies that discourage output and halt new construction of production
facilities. There still is a possibility for large amount of growth,
through the reduction of production costs, as the largely inefficient
sector becomes increasingly consolidated and economies of scale begin to
take affect. While companies may wish to expand their operations,
industry sources indicate that to do so at this point may not be
profitable. Not all companies are producing at peak capacity, and
government subsidy policies restrict Chinese producers from investing in
foreign businesses.

There is a real potential for growth in the organics and high value
sector, as the GOC has taken a keen interest in this area. Currently,
there is no specific subsidy to promote organic or high value fertilizer
production, but subsidies are given to farmers that prove their plots of
land are grown organically. The market is very much consumer driven and
technology is helping companies to create higher quality,
environmentally friendly fertilizers. Producers are beginning to invest
in controlled release and fertilizer/pesticide mixes in an effort to
help offer the highest quality to the farmer. Organic and high value
fertilizer producers are optimistic that the central government will
begin to pay greater attention to them in the future.

2.  **Counterfeit and Misused Products**

A thorn in the side of the fertilizer industry in China for some time
has been the use of counterfeit or low quality fertilizers.
Unfortunately this trend has increased with the recent rise of
fertilizer prices, unleashing a crackdown by government officials and
industry members. There have also been claims of less-expensive Chinese
fertilizers being smuggled out of China to be sold in neighboring
countries.

The industry, with the help of the MOA's extension service, has taken a
stance to promote education about fertilizers in rural communities.
Experts and industry staff are being sent into the field to teach
farmers the proper use and dosage of fertilizers in an effort to improve
the profitability of the farmer and protect the environment.

# E- Pesticides

## 

## I. Current Market Situation

1.  **Supply**

In 2007, China's pesticide production was estimated at 1.7 million
metric tons (MMT), a 24- percent increase over 2006. China took over the
United States in 2007 as the largest pesticide producing-country
(National Bureau of Statistics of China (NBS)). Within China, Jiangsu,
Zhejiang, and Shandong provinces produced the largest amount of
pesticides.

Of the three major pesticide groups: insecticides, fungicides, and
herbicides, herbicides experienced the largest growth rate. In 2007,
herbicide production was 0.5 MMT, a 32-percent increase over 2006. Table
1 shows the 9 major types of herbicides and the 16 different varieties
produced in China. Insecticide production was estimated at 0.6 MMT and
fungicide production was estimated at 0.6 MMT.

According to an announcement issued by the Ministry of Agriculture (MOA)
on January 1, 2007, production of 5 types of insecticides is now
illegal: methamidophos, parathion, parathion-methyl, monocrotophos, and
phosphamidon. The move is associated with the greater attention paid by
the MOA on food safety and environmental issues. Out of China's total
pesticide output, high-value bio-pesticides accounted for about 9
percent of the total, much higher than other producing countries
(excluding pesticides produced using transgenic techniques).

In 2008, China suffered several major natural disasters that included:
snow storms, earthquakes, and heavy rainfall. In early June, nine
provinces (Zhejiang, Anhui, Jiangxi, Hubei, Hunan, Guangdong, Guangxi,
Guizhou, and Yunnan) in southern China suffered serious damage to crops
due to heavy rainstorms and water logging. Vegetable and other
horticulture crops were hit especially hard. After continuous rainfall
and water immersion coupled with high temperatures and humidity, disease
and pest outbreaks are increasing in the regions and will add greater
pressure for disease and pest control.

The impact of the winter storms on crops was significantly higher in
2007/2008 because of the devastating record snowfall that covered almost
all the provinces in southern China (Hunan, Hubei, Jiangsu, Zhejiang,
Anhui, Jiangxi, Henan, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan,
Shanxi, Gansu, Qinghai, and Xinjiang). Some agricultural experts
suggested that even though frost injury caused serious damage to crops,
the loss to diseases and insects would be less, due to colder
temperatures.

**Table 2**:

+-----------------------------------+-----------------------------------+
| **Herbicide Form of application** | **Herbicide variety**             |
+-----------------------------------+-----------------------------------+
| 可湿性粉剂                        | 苯氧羧酸类                        |
|                                   |                                   |
| Wettable powder                   | Phenoxy carboxylic acid           |
|                                   |                                   |
| 颗粒剂                            | 苯甲酸类                          |
|                                   |                                   |
| Granules                          | Benzoic acid                      |
|                                   |                                   |
| 水剂                              | 芳氧苯氧基丙酸类                  |
|                                   |                                   |
| Water agent                       | Aromatic-phenoxy-propionicacids   |
|                                   |                                   |
| 可溶性粉剂                        | 环己烯酮类                        |
|                                   |                                   |
| Soluble powder                    | Cyclohexyl-ketene                 |
|                                   |                                   |
| 乳油                              | 酰胺类                            |
|                                   |                                   |
| Emulsifiable concentrate          | Amides                            |
|                                   |                                   |
| 悬浮剂                            | 取代脲类                          |
|                                   |                                   |
| Suspension concentrate            | Disubstituted urea                |
|                                   |                                   |
| 浓乳剂                            | 磺酰脲类                          |
|                                   |                                   |
| Concentrate emulsion              | Sulfonylurea                      |
|                                   |                                   |
| 熏蒸剂                            | 咪唑啉酮类                        |
|                                   |                                   |
| Fumigant                          | Imidazolinone                     |
|                                   |                                   |
| 片剂                              | 三氮苯类（三嗪类）                |
|                                   |                                   |
| Tablets                           | Triple-N-Benzene                  |
|                                   |                                   |
|                                   | 氨基甲酸酯类                      |
|                                   |                                   |
|                                   | Carbamate                         |
|                                   |                                   |
|                                   | 硫代氨基甲酸酯类                  |
|                                   |                                   |
|                                   | Thiocarbamate                     |
|                                   |                                   |
|                                   | 二苯醚类                          |
|                                   |                                   |
|                                   | Diphenyl Ether                    |
|                                   |                                   |
|                                   | N-苯基肽亚胺类                    |
|                                   |                                   |
|                                   | N-phenyl peptide imine            |
|                                   |                                   |
|                                   | 二硝基苯胺类                      |
|                                   |                                   |
|                                   | Dinitroaniline                    |
|                                   |                                   |
|                                   | 有机磷类                          |
|                                   |                                   |
|                                   | Organophosphorus                  |
|                                   |                                   |
|                                   | 联吡啶类                          |
|                                   |                                   |
|                                   | Bipyridyliums                     |
|                                   |                                   |
|                                   | 其他                              |
|                                   |                                   |
|                                   | Others                            |
+-----------------------------------+-----------------------------------+

(Source: China Weed Network)

**2.** **Consumption**

China is a major pesticide consumer and domestic pesticides are mainly
consumed in southern China, especially in Guangdong, Fujian, Jiangsu,
Zhejiang, Jiangxi, Hunan, Hubei, and Shandong provinces. Due to abundant
rainfall, summer typhoons, and long planting season, there is a greater
occurrence of insect and disease outbreaks in south China. In the north
and west of China, pesticide production is on a relatively small scale
and scattered with consumption estimated at 10 percent of the national
average.

Insecticides are used more than herbicides and fungicides in southern
China, especially in Jiangsu, Zhejiang, and Hunan provinces where
large-scale rice planting areas need four to five applications of
insecticides and only one application of herbicides before planting. The
provinces in northern China, Heilongjiang, Inner Mongolia, and Xinjiang,
require large amounts of herbicides, due to their large-scale crops
operations, but require fewer insecticides because of their more
temperate climates.

![](media/image6.png){width="4.939763779527559in"
height="4.082677165354331in"}

Increasing bio-pesticide use is a central government priority. Research
is focused on developing high efficiency and low residue pesticides.
However, despite government bio-pesticide support, farmers are reluctant
to change. Most farmers continue to favor conventional chemical
pesticides due to their lower price, easy application, and effective
use. Bio-pesticide consumption was only 1 percent of total pesticide
consumption in 2007 and was mainly consumed in large cities and organic
agriculture parks, or exported to international markets.

a.  **Imports**

In 2007, China imported 0.3 MMT of pesticides, a 28-percent increase
over 2006 (Figure 2), with a value of \$1.5 billion (Table 2).
Nitrile-Function Compounds, and Heterocyclic Compounds With Nitrogen
Hetero-Atom were the largest volume pesticides imported largest
pesticides, at 83,132 tons and 78,837 tons, respectively. Japan and
South Korea were the largest volume exporters to China. In 2007, the
trade volume from Japan reached \$133 billion and from Korea \$104
billion. As a result of low domestic research capacity and large demand,
many companies import high grade insecticides. A large percentage of the
imports are reprocessed, sometimes blended with domestically-produced
pesticides or watered down, before they reach the end consumer.

**Figure 6:**

![](media/image7.wmf){width="6.334027777777778in"
height="4.738194444444445in"}

b.  **Exports**

In China, there are more than 2,000 pesticide producers and over 600
different varieties. In this report, 20 pesticides described in Table 3,
were selected as a representative group for export data (insecticides,
fungicides, and herbicides). Pesticide exports have increased
significantly since 2006. Chemical pesticide exports are estimated at
1.2 MMT. In 2007, for the first time, China's herbicide exports exceeded
0.2 MMT, due to strong global demand for herbicides and small-scale
domestic consumption. Some of the herbicides produced in China, such as
glyphosate (HS 29310000 41), are mainly produced for export.

**Table 3**:

  ------------- ---------------------------------------------------------
  HS            Description

   29310000     Other Organo-Inorganic Compounds

   29339900     Heterocyclic Compounds With Nitrogen Hetero-Atom(S

   38089319     Herbicides, Not Put Up For Retail Sale,Nes

   29349990     Other Heterocyclic Compounds, Nes

   29329990     Other Heterocyclic Compounds With Oxygen Hetero-Ato

   29333990     Compounds With An Unfused Pyridine Ring In The Str

   29309090     Other Organo-Sulphur Compounds, Nes

   29242990     Cyclic Amides & Derivatives; Salts Thereof, Nes

   29336990     Struct

   29322900     Lactones, Nes

   29269090     Nitrile-Function Compounds, Nes

   29189900     Carboxylic Acids With Othr Oxygen Function, Etc, T

   38089290     Fungicides, Not Put Up For Retail Sale,Nes

   38089311     Herbicides, Put Up For Retail Sale,Nes

   29162090     Cyclanic, Cyclenic / Cycloterpenic Monocarboxylic

   29302000     Thiocarbamates & Dithiocarbamates

   38089210     Fungicides, Put Up For Retail Sale,Nes

   38085090     Chapt

   29201100     Parathion (Iso) & Methyl-Parathion(Iso)

   38085010     Goods Specified In Subheading Note 1 To This Chapt
  ------------- ---------------------------------------------------------

**Figure 7**

![](media/image8.wmf){width="6.497916666666667in"
height="4.439583333333333in"}

In 2007, the United States, India, and Argentina were the three largest
importing countries. The United Stated was the top buyer, valued at
\$799 million, a 74-percent increase over 2006. India and Argentina
imports totaled \$495 and \$382 million respectively. In 2007, China's
pesticides exports to the world totaled \$5.8 billion.

**Table 4**

  ------------ ------------- ----------- ----------- ----------- ----------- ----------- -------
  **Top                                                                                  
  Importers of                                                                           
  Chinese                                                                                
  Pesticides                                                                             
  in Millions                                                                            
  \$**                                                                                   

  **Rank**     **Country -** **Jan-Dec   **Jan-Dec   **Jan-Dec   **Jan-Dec   **Jan-Dec   
                             2003**      2004**      2005**      2006**      2007**      

  0            \--World\--   1,057       1,356       1,838       3,024       5,800       

  1            United States 140         213         275         459         799         

  2            India         82          132         213         346         495         

  3            Argentina     21          33          31          134         382         

  4            Japan         68          97          158         190         270         

  5            Germany       62          70          101         156         239         

  6            Israel        21          29          37          102         219         

  7            Thailand      10          14          20          39          209         

  8            Brazil        31          52          71          99          168         

  9            S. Korea      45          67          79          106         161         

  10           Spain         106         59          86          92          151         

  Source:                                                                                
  China                                                                                  
  Customs                                                                                
  ------------ ------------- ----------- ----------- ----------- ----------- ----------- -------

## II. Future

In 1997, the State Council of China released the "Pesticide Management
Regulation, PRC", and in 1999, MOA released the "Implementation Measures
to the Pesticide Management Regulation, PRC." These two edicts are the
main guiding polices for the pesticide industry.

In China, even small-scale producers have the opportunity to compete
with large-scale, high quality producers. These farmers represent small
and diverse groups of consumers. Smaller, poorer farmers will typically
purchase low-priced, low-quality pesticides where as mid-to-large-size
farmers will purchase from large, well-known producers in bulk. Smaller
farmers are vulnerable to poor quality pesticides because they posses
limited knowledge about the industry and are largely unaware of
substandard goods including, counterfeit or low quality products. The
MOA and the industry recently acknowledged that the pesticide market was
dysfunctional and inefficient. They recognized the lack of enforcement
of national quality standards which would maintain the numerous and
scattered producers. MOA issued "The Pesticide Label and Guide
Management Measures" in December 2007 and began implementation in
January 2008. The measures were set in response to fake pesticide
production that seriously affected the entire industry along with
farmers' profit margins. MOA ceased authorizing trade names for product
brands as of January 2008; all pesticides are forbidden from using a
brand name in lieu of the common or scientific name.

The pesticide industry is diverse and the majority of production occurs
on a small-scale basis. Limited research capability and thin profit
margins intensify competition. Non-consolidated factories may soon be
forced out of the open market, while some domestic companies are
receiving government support as an incentive to merge. In Weifang,
Shandong province, and Rudong, Jiangsu province, two large-scale
agrochemical industry parks were constructed by the Crop Protection
Industry Association in cooperation with the local government to push
the pesticides industry to integrate and become more efficient
producers. The recent average 10 percent price increase for pesticides
is also stimulating government involvement as any type of input price
increase will have an immediate, negative impact on farmers' incomes.

# F- Conclusions 

A major concern in China's agricultural sector is ensuring that price
increases to inputs appreciate proportionally with domestic grains
prices. The impact of pricing agricultural outputs at low levels while
allowing the price of agricultural inputs to rise at market rates
creates asymmetrical disincentives that will maintain subsidized
production and will preclude a stable growth in yearly production. Not
only are farmers shifting crops from year to year based on subsidy
amounts but they are also hedging risk by double and triple cropping
instead of consolidating production to maximize total use of land and
the economic returns from scaled production. Grain support policies are
having long term implications to China's national food security and
rural economy. Since mid-2007, mostly due to shortages in the world
fertilizer market and higher oil prices, agricultural input prices
surged at a faster pace than grains prices. During this period, grains
prices were being moderately contained through central government
controls. With a mounting producer price index (PPI) appreciating at a
precipitous pace, the GOC scrambled to offer protection to the supply
side of China's agriculture: the rural sector.

Farm subsidy programs are designed to influence planting intentions.
However, some farmers planting decisions are not necessarily made based
on determining which crop will yield the highest return but on what they
can afford to produce after the subsidy and how useful the crop is the
farmer's survival. For example, generally speaking, corn farmers in
northeast China will not be shifting away from corn production because
households rely on the corn stalk and other agricultural waste as a
feedstock for heating their homes during the winter. However, the
agricultural production pipeline has demonstrated its might in absorbing
inflationary pressures originating from rising fuels costs that impact
transportation, processing, and overall marketing; the added burden of
rising input costs is also a debilitating factor. During the spring
planting season compound fertilizer (N, P and K) prices appreciated by
up to 70 percent for most products nationwide and although oil prices
have recently dropped entering into the final quarter of 2008, there is
no indication from the market that fertilizer prices will decline in the
near future. However, given a recent 10-percent increase to the grain
floor price, there are still strong incentives in place to sustain
annually double digit increases in grain production. This should explain
why despite this sharp increase in price, most grains farmers did not
reduce the use of fertilizers/ha.

# Bibliography

Ding, Chengri. 2003. *Land Policy Reform in China: Assessment and
Prospects.* [Land Use Policy]{.underline}. Volume 20 p. 109-120.

Lin, George C.S. and Ho, Samuel, P.S. 2003. *China's Land Resources and
Land-Use Change: Insights from the 1996 Land Survey*. [Land Use
Policy]{.underline}. Volume 20 p. 87-107.

Lohmar, Bryan. 2006. Feeling for Stones but Not Crossing the River:
China's Rural Land Tenure after Twenty Years of Reform. [Chinese
Economy]{.underline}. Volume 39, Number 4 p. 85-102.