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Food reserves also have regulatory functions
The issue of food reserves has been a topic of intense debate since 1995. When grain production declined, prices surged sharply, disrupting the normal functioning of the national economy. Premier Zhu Rongji then introduced a low-protection policy for grain, aiming to open up surplus from farmers. Despite the central government allocating over 100 billion yuan, many state-owned grain enterprises received subsidies but failed to acquire the surplus from farmers.
In 1998, grain production rebounded to 490 million tons, yet no one benefited from it. This led to a drop in farmers' enthusiasm for grain production, and output fell for years. By 2003, China’s grain production had dropped to 430 million tons, creating a significant food gap. In 2004, food prices began to rise rapidly again.
After Premier Wen Jiabao took office, he initiated reforms by restructuring state-owned grain enterprises and separating national and local grain depots. In 2004, a new round of grain reforms was launched, establishing a central and local grading reserve system. At last year's "Two Sessions," Yuan Longping raised concerns about empty grain depots. It was later confirmed that these were not national depots but local ones, which did not handle national reserves. This was a result of the reform process. National depots are supported by the central government, while some local depots operate as enterprises. When grain is not selling well or when companies don’t rent the depots, they may remain empty—this is a normal occurrence and does not indicate a lack of national stockpiles.
Additionally, the government implemented a low purchase price in major grain-producing areas, acquiring most of the grain held by farmers. Thus, the main source of grain remained under state control. This reform has been largely successful so far.
During emergencies such as famines or wars, it is crucial to ensure that national grain stocks can be "adjusted and used." Historically, there have been cases where local grain reserves were not tapped during crises. Now, strategic reserves are all stored in national depots, and the prime minister has direct authority to transfer them, ensuring flexibility in emergency situations. To guarantee this, food stocks must not only be accurately accounted for but also maintain quality. They serve both as emergency reserves and as tools for market regulation. To protect farmers’ motivation, the government must regulate market prices, with national grain stocks playing a key role in this process.
Therefore, more food is not always better. Excess supply can lead to a sharp drop in prices. I believe the best indicator of food inventory levels is market prices and trading behavior, which are objective and observable. The scale of grain stocks should be kept at a reasonable level, avoiding excessive inventory, which can waste resources and distort market signals. Some scholars blame government regulation for price fluctuations, which is not entirely unreasonable. China needs more confidence and courage in managing its grain policies.
For example, last year, despite international shortages and soaring global food prices, China had sufficient domestic supplies but hesitated to export, missing an opportunity. When there is too much food, the government must act wisely.
This year, we cannot simply call for increased grain production; instead, we should focus on stabilizing grain output. Globally, including in China, grain production has risen significantly, leading to lower prices. The Chinese government has intervened to keep domestic prices higher than international levels, placing pressure on the government. Some regions prefer to import food, causing high inventories in the northeast. Resolving this requires a coordinated approach and state-level regulation.
Although food security is now a national responsibility, local governments in some sales areas have not been motivated to store grain. For instance, in Beijing, when inventories are low, they only last for two weeks, and even when high, they only cover a month—far below the national requirement of three to six months.
China has seen five consecutive years of increased grain production, with large yield gains. In such circumstances, the main sales areas should increase their grain stocks. Otherwise, surplus in the production areas could lead to farmers selling grain at low prices. In some northeastern areas, farmers are struggling to sell their crops, sometimes waiting a week. This undermines their motivation to grow grain. When there is more grain, it is essential to encourage storage in sales areas, raise prices appropriately, and avoid the cycle of “panic when short, panic when abundant.â€
In reality, China’s food consumption and storage mainly rely on farmers. Rural areas have high self-sufficiency rates, and farmers tend to store grain. However, in some regions, due to limited storage technology and poor facilities, food loss is a serious problem. The government has long recognized this and is working to provide better technology and subsidies to help farmers improve their storage conditions. Encouraging scientific grain storage among farmers is vital for enhancing China’s food security.
Warehouse inspections are a routine task in the food system, but this year’s efforts have been particularly strong. The background is unique: the global economic crisis is spreading, and its impact remains uncertain. Under these circumstances, the central government assumes the worst-case scenario. As long as the country has enough food, people will feel secure. We must not only ensure short-term food safety but also maintain farmers’ long-term motivation to grow grain.
Moreover, as a member of the FAO, China is expected to disclose its grain stock data. Currently, this information is classified and not publicly available. While part of the reason is the difficulty in obtaining accurate data due to the vast scale of grain inspections, it is understandable that the government remains cautious. However, in the long run, transparency about grain stocks is necessary. Only through effective warehouse inspections can the accuracy of this information be ensured.