Enabling China’s Agri-Food Sector

Our main purpose is to discuss how prospects for China’s agri-food sector critically depend on the efficiency, commercial orientation, and responsiveness of China’s transportation system and intermediaries in the agri-food value chain. To provide context, we first examine the role that demographics play as a driver of growth and change in China’s agri-food sector and the economy at large. Two main findings stand out: (i) China’s population will become increasingly urban over the next 50 years; (ii) China’s economic “demographic dividend” will expire in the late 2020s. These two demographic drivers motivate the discussion that follows. An increasingly urban population means that China’s society and economy must continue to evolve from one based on subsistence and local conditions to one that is market based and responsive. But a market economy also requires a wellfunctioning, efficient and responsive transportation and handling network. China’s transportation infrastructure has been improving steadily. Improvements in its road and vehicular infrastructure have been some of the most important catalysts of growth and competition. Its internal waterways, although improving, remain significantly underutilized. China’s railways have made noteworthy improvements in their passenger service but arguably been the least responsive mode to commercial incentives for freight transport. China has not been able to fully exploit its comparative advantage in high value, labour intensive perishable agri-food products due to its underdeveloped transportation and handling facilities and services for perishable goods. We discuss prospects and possibilities for dealing with these limitations. The fact that China’s “demographic dividend” will expire in the late 2020s means that reforms will have to be undertaken sooner rather than later if China is to reach its goal of being a middle-income developed country by 2050. A review of China’s agri-food value chain suggests that primary agriculture and retail sector are competitive and responsive to incentives. This is attributable at least in part to the large number of market participants and limited jurisdictional curbs on competition among participants. But value chain intermediaries appear to be less responsive and efficient. Farmers and retailers have been handicapped by jurisdictional fiefdoms of intermediaries, perverse incentives in the value chain, and transportation bottlenecks. These act like a tax on producers, retailers and consumers alike, reducing what producers receive and increasing consumer prices, while also lowering choice. Analysis indicates that, consistent with experience elsewhere, industries and enterprises that are coddled as a result of being designated as of strategic importance are less efficient and responsive than those that are not afforded such protection. If China is to realize its full potential and meet its objectives for both the economy and the agri-food sector, commercial intermediaries in the value chain must be weaned of public support and become more efficient and responsive to market signals. Overall, efforts to promote pluralism and choice for producers and consumers and encourage competition across geographic and institutional jurisdictions will foster growth and improve the welfare of China’s citizens, particularly so for those in interior provinces.