An analysis and comparison of wheat production competitiveness between China and the USA.

Author:Xiaoping, Hu
Position:Notes and Communications - Wheat production cost

Before China joined the World Trade Organization, there was a prevailing viewpoint for a long time in both China and the United States that U.S. wheat was more competitive in price than that of China. As a result, U.S. farmers held a high expectation of selling their wheat in Chinese markets after China joined the WTO, and the Chinese government also worried about the serious challenge Chinese peasants would face from the U.S. wheat. Surprisingly, the Chinese wheat market has not suffered from the striking of wheat from the USA or other countries since China joined the WTO. To explain this phenomenon, we have conducted a thorough investigation and analysis. This article compares wheat production competitiveness between China and the USA through analyzing wheat production costs and domestic market prices in both China and the USA.

Comparison of Wheat Production Costs between China and USA

According to the commitment of China with regard to its joining the WTO, the customs wheat quota was 8.468 million tons in 2002 and increased to 9.052 million tons in 2003 and 9.636 million tons in 2004. These figures once gave U.S. farmers high hopes for opening the wheat market in China. Nevertheless, things are going contrary to their wishes, as the import of wheat in China in 2002 was only 604.57 thousand tons and the export was 687.62 thousand tons, leaving a net export of 83.05 thousand tons. The immediate cause of this fact is that the wheat price in international markets rose while the price in Chinese domestic markets has fallen since 1997. However, the essential reason why it is difficult for U.S. wheat to enter Chinese markets is that U.S. wheat has no advantage in production costs compared with wheat production costs in China.

Before China joined the WTO, most Chinese economists thought that the wheat production costs of China were higher than those of the USA, and thus the Chinese government worried about the serious challenge of competition from U.S. wheat if China joined the WTO. Typical of those who had this viewpoint were Huang Jikun and Ma Hengyan (2000). According to their calculation, per kilogram Chinese wheat costs were 1.2 times as high as those of the USA. However, according to our calculation, the average wheat production costs in China had been a little lower than those in the USA (table 1).

During 1994-2001, the average cost including tax in China was $3.42/bushel and the highest record emerged in 1998-$3.91/bushel. In addition to costs including tax, there were some noncost expenses incurred as the administrative expenses of rural basic governments shared by the peasants in their geographical area. Although the administrative expenses should not be regarded as a part of the direct production costs, they are attached to land so as to form actual expenses of the peasants. If we add them to total costs, the average cost during the eight-year period was $3.71/bushel, and in 1998, the cost was $4.39/bushel, the highest of all.

Now let's compare the costs of China in 1998, the year in which wheat costs in China were the highest, with those of the USA during the corresponding year. The wheat cost categories of China in 1998 are shown in table 2.

According to statistical bulletin 974-5 of the USDA (United States Department of Agriculture) issued in July 2002, the wheat cost categories, calculated by U.S. agricultural economist Mir B. All, are shown in table 3.

From the comparison between tables 2 and 3, we can see that the Chinese wheat cost including tax was $3.91/bushel in 1998 and the total cost for the USA was $3.97/ bushel during the corresponding year. If adding the noncost expenses, the wheat cost in China was $4.40, about 10 percent higher than that in the USA. The main reason that the wheat costs in China went up so high was that the noncost expenses went up by 272...

To continue reading