Understanding Chinese farmers' grain storage

Abstract

China is the largest grain producer and consumer in the world. Since introducing its open-door policy in the 1980's, China has become an increasingly important grain importing country. However, China's wheat imports have varied considerably from year to year. One key issue affecting China's grain imports is its large on-farm grain reserves. This thesis is intended to examine factors significant for China's on-farm grain stocks and shed some additional light on its potential impacts on China's domestic grain markets and grain import activities. The key finding is that Chinese farmers' grain supply is primarily from self-production. The Chinese government decrees that farmers be not eligible to purchase grain from government food agencies that control 70 to 80 percent of the total marketed surplus of grain in China. This policy plus the underdeveloped domestic grain and credit markets leads Chinese farmers to store a considerable amount of grain for consumption. The food- and income-security concern of Chinese farmers is found to be another important factor in Chinese farmers' grain storage decisions. The highly variable weather, a still developing infrastructure, and frequent changes in government grain policies all increase the risk faced by Chinese farmers, thus increase their food- and income-security concerns. This thesis finds that the increasing number of farm family members working off-farm can help reduce the quantity of on-farm grain storage because of the potential remittance from more stable off-farm earnings to the farm home. It is also found that farmers tend to store less as income increases due to changes in absolute risk-aversions of farmers. The last important finding of thesis is that Chinese farmers' grain storage is somewhat price-elastic, in contrast with suggestions by some Chinese economists that China's on-farm grain storage is primarily for food-security concerns and therefore generally price-inelastic. It is also found that additions to farm household grain storage is directly elastic with respect to household grain output.