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China’s Big Grain Reserves Come with Equally Big Problems

Despite reporting increases in grain production for 11 consecutive years, China continues to stockpile enormous grain reserves.

Between November 25, 2014 and March 31, 2015, the Chinese government purchased 76.1 million tons of corn from the country’s farmers to hold in national granaries – 13 million tons more than what was purchased during the same time period the year before. And although Beijing has never released any official information on the size of its grain reserves, Orient Agribusiness Consultant Ltd., forecasts that by the end of 2015, China’s total grain reserves will top 300 million tons.

In 2013/14, the nation’s stockpile of corn reached 106 million tons – 60% of a year’s consumption, and 75.8 million tons more than the 17% safety reserve suggested by the UN. In addition, in 2014 China’s cotton reserves accounted for 60% of total global reserves at 11.3 million tons, and the nation’s sugar stockpile hit 7.96 million tons – a 3 million ton increase over 2011 levels.

Han Jun, deputy director of the general office of the Communist Party's Leading Group on Financial and Economic Affairs, recently boasted that China "has built up the world's largest stock" of grain as inventories of rice and wheat also continue to swell, and in March Ren Xiaozheng, director of State Administration of Grain said the enormous reserves were "a cheerful burden."

Some experts feel however, that China’s methods are unsustainable, and that the country is paying too high a price for this unyielding push for grain reserves through exhausted land, market distortion, and higher prices. The cost of production and labor have increased significantly in the country over the past decade squeezing the profit margin of farmers that are driven by highly distorted domestic, subsidized crop prices to push for an increase in output year after year. The result is that China’s land is becoming polluted and exhausted, while its agricultural complex is losing its global competitiveness.

Think tanks and advisory groups in the country are urging for the rapid adoption of policy changes to increase sustainability, such as allowing 133 billion square meters of farmland to go fallow to allow it time to recover, or the creation of policies that would push farmers to switch to the production of higher-value fruit and vegetable crops instead of grains. Others, such as Cheng Guoqiang, a researcher with the Development Research Center believe that the true solution lies in free trade – being fully engaged in setting global market guidelines, diversifying the country’s imports, and the overseas expansion of China’s businesses.

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