The author Ye Xingqing is a senior researcher with the Department of Rural Areas under the State Council Research Office

Consecutive farm trade deficits over the past three years has been the biggest change in the country's agricultural sector after China's entry into the World Trade Organization (WTO). The imbalance reached $4.64 billion in 2004 when the country first experienced such a deficit. The figures were trimmed downed to $1.14 billion and $670 million in 2005 and 2006.

How did this happen? Do such farm trade deficits have a big impact on the domestic farm goods market?

The emergence of a trade deficit is a natural result of China opening its agricultural sector to the outside world. China is now one of the countries with the lowest tariffs on agricultural imports. So far, the average tariff on farm products has been 15.3 percent, which is far lower than the world average of 62 percent. Also, with the rapid development of the textile, oil-fat and rubber industries, the demand for relevant agricultural raw material imports has grown substantially.

Meanwhile, China's export of agricultural products, especially labor-intensive ones, continued to increase. But exports have been running into more difficulties. Last year, Japan implemented the positive list system; the European Union implemented the new food safety law and increased the scope of, and standards in, the inspection of noxious substances. Exports of agricultural products such as vegetables, fruits and aquatic products, in which China has an advantage, have been falling. These changes have led to the appearance of a trade deficit in farm trade.

There are worries in some quarters about this trade deficit. There are apprehensions that imports of staple agricultural products, especially cotton and soybeans, may affect the development of domestic production. Two aspects of this issue need to be considered before any conclusion can be reached: whether domestic production is decreasing and whether the potential for domestic production is being restricted.

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