Industry Trend Analysis - Weak Agricultural Production Outlook In 2017 - AUG 2017
BMI View: China ' s agricultural production growth will be weak in 2017 as farmers are reluctant to scale up production amidst ongoing policy change and uncertainty aroun d future support to grain output. In spite of this, food price inflation will remain in check in the coming quarters as local agricultural prices will be low in the country.
Agricultural production growth in China will be weak in 2017. Grain farmers are reluctant to scale up production amidst ongoing policy change and uncertainty around future support to grain output. The Minimum Support Prices (MSP) mechanism was dropped for corn during the 2016/17 season, which is weighting on production. On the contrary, authorities will maintain their support to other grains and soybean in order to diversify output and to remain self-sufficient in rice and wheat, two strategic staples. However, MSP has been stagnant over recent years (see chart below). Meanwhile, livestock production, especially in the case of pork, poultry and milk, is also lacklustre due to stricter environmental regulations pushing backyard farmers to exit the market, an import ban on grandparent stocks imposed in 2015 (poultry) and by low prices (milk).
The agriculture sector is becoming less profitable as costs are rising, while the government is dragging its feet in raising purchase prices for various grains. Additionally, rural labour will continue to decline due to urbanisation, which will also weigh on production.
|Declining Profits For Grain Farmers|
|China - LHC: Minimum Purchasing Prices Set By Government (CNY/tonne), RHC: National Average Profit/Ha|
|Authorities discontinued the minimum support price mechanism for corn for the 2016/17 season. Source: NDRC, USDA, BMI, Wind|