Yu Baoping & Chen Jianpeng

I. Basic Features of Grain-Production Cost

This report is based on the analysis of the data from A Compilation of Cost-benefit Data on Nationwide Farm Produce 2007, which will not be annotated unless otherwise provided.

Analysis of the changes related to the cost of three major grain categories (paddy, wheat and corn) shows that during 1978~2006 China's grain production model was being gradually transformed and the basic features of China's grain-production cost were becoming more and more similar to those of Japan, South Korea and China's Taiwan Province. During the course of transformation, changes related to China's grain-production cost are mainly reflected in three aspects. One, the traditional essential factors of production such as manpower, animal power and farm manure, which used to make up the majority of the costs for materials and services, were being relatively less and less used and the proportion occupied by those production factors was gradually dwindling. Two, more and more modernized essential factors of production related to oil, including chemical fertilizer, farm chemical, agricultural film and farm diesel, were being used and were gradually taking the place of the traditional production factors to hold a dominant position. And three, the grain-production cost and prices were gradually becoming higher than the world average.

Firstly, the number of employed laborers was evidently reducing, from 33.30 per mu in 1978 to 8.68 per mu in 2006, down about 74%. Given the fact that the labor price unitarily calculated nationwide increased from 0.80 yuan/day to 16.90 yuan/day, the proportion of labor cost in production cost reduced from 47.57% to 40.33%. At the same time, the proportion of cost for animal power in production cost reduced from 5.23% in 1978 to 2.19% in 2006 and that of cost for farm manure in production cost decreased from 12.00% in 1978 to 2.00% in 2006. The proportion of labor cost and costs for animal power and farm manure in production cost totaled 44.52%, whereas such a proportion in 1978 hit as high as 64.80%. As labor force is needed for the use of animal power and farm manure, the rapid increase of labor cost, as it were, has facilitated the accelerated transformation of China's grain production model in the course of modernization, industrialization and urbanization.

Secondly, after the transformation of the grain production model, grain production was becoming more and more oil-dependent, namely, it was being transformed into an "oil-dependent agriculture". The transformation of China's grain production into an "oil-dependent agriculture" was based on cheap oil and natural gas. In this respect, chemical fertilizer, farm chemical, agricultural film and farm diesel became relatively cheap essential factors of production to take the place of such production factors as manpower and animal power that were becoming increasingly expensive during the course of modernization. Obviously, when the world oil supply gets stabilized and the oil prices do not vary much, those oil-related factors in grain cost will not vary considerably. Nonetheless, once the oil prices change dramatically, the oil-related factors in China's grain cost will inevitably change by a big margin. Of course, this change will be slightly lagging behind.

Thirdly, compared with China, as the labor cost was rising faster in Japan, South Korea and China's Taiwan Province, their grain production became more "oil-dependent". Nevertheless, the land size of Japan, South Korea and China's Taiwan Province was much smaller than that of European countries and the United States, therefore, their grain-production cost and prices were unshakably higher than the world average. During the transformation, although China's grain-production cost and prices had become once higher than the world average after 1994, they had not remained much stable. In the four consecutive years from 1995~1998, China's grain yield surpassed 450 million tons. In particular, after the grain yield hit an all-time high of 512.3 million tons in 1998, China's grain-production cost and prices were gradually falling under the world average level.

However, as the area of China's arable land accounts only for 8% or so of the world total and the Chinese population makes up nearly 20% of the world total, the ever-growing scarcity of land in China will inevitably give rise to high cost. China's total grain cost increased from 58.23 yuan per mu in 1978 to 444.90 yuan per mu in 2006, up 6.64 times. During the same period, the land cost increased from 2.23 yuan per mu to 68.25 yuan per mu, up 29.61 times. As the operating scale is hard to expand due to a large population with limited land, plus the ever-increasing labor prices, the essential factors of production for the modernization will no longer be cheap. As a result, to ensure grain safety and maintain high grain self-sufficiency, China's grain-production cost and prices are much likely to become eventually higher than the world average level, like Japan, South Korea and China's Taiwan Province.

Since the essential factors of production with chemical fertilizer as the key factor for modernization have become an important integral part of China's grain-production cost, it is necessary to make a further analysis of those factors.

During 8 years from 1998~2006, the proportion of costs for materials and services per mu in China's grain-production cost increased from 195.62 yuan to 224.75 yuan, only up 14.89%. Nevertheless, cost for chemical fertilizer increased from 64.43 yuan to 86.81 yuan, up 34.74%, cost for farm chemical increased from 8.25 yuan to 16.15 yuan, up 95.76%, cost for mechanized farm work increased from 20.38 yuan to 46.73 yuan, up 129.29%, and cost for irrigation and drainage increased from 12.84 yuan to 16.79 yuan, up 30.76%. The total costs for chemical fertilizer, farm chemical, mechanized farm work and irrigation and drainage made up 44.20% of the production cost in 2006 as compared to the only 16.14% in 1978.

Table 1　Costs for Materials and Services Related to China's Grain-production Cost

(Unit: yuan/mu)

Year	1998	1999	2000	2001	2002	2003	2004	2005	2006
Production Cost	331.63	321.15	309.22	308.04	319.37	324.30	341.38	363.00	376.65
MS Costs	195.62	192.72	182.87	179.39	189.32	186.64	200.12	211.63	224.75
Cost for Chemical Fertilizer	64.43	62.75	57.37	54.76	57.27	57.93	71.44	84.31	86.81
Cost for Farm Chemical	8.25	8.69	8.12	8.31	8.70	9.22	11.55	14.38	16.15
MFW Cost	20.38	21.22	22.85	22.79	23.78	24.09	31.58	37.73	46.73
Cost for Irrigation and Drainage	12.84	14.98	15.67	15.50	14.77	14.72	15.01	15.27	16.79

Note: Costs for materials and services is abbreviated to "MS Costs" and mechanized farm work to "MFW Cost".

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