Although the complaints of contamination and poor quality were technically correct, the dispute provided a convenient opportunity to delay deliveries at a time of congestion in northern Chinese ports. Peking had accepted contaminated wheat since the fall of 1972, and did not make a serious issue of the problem until port congestion developed in October 1973. The Chinese refused offers of cancellation and also rebuffed offers of consultation until after the port congestion had subsided. Peking shifted gears in May and June 1974. Vessels were made available to load U.S. corn. An agreement was worked out with traders to resume shipments of U.S. wheat. The Chinese agreed to take 300,000 tons of Argentine corn and 600,000 tons of U.S. soybeans as a substitute for 1.2 million tons of U.S. corn. Finally, new contracts were signed for United States, French, and Canadian 18 wheat, mostly for delivery in 1974. These contracts raised China's total grain purchases for delivery in 1974 to about 9.5 million tons. If shipped as scheduled, deliveries of grain to China-about 1 million tons each month-would probably have strained the capacity of Chinese ports, again giving rise to the specter of lines of ships waiting to discharge grain.

In the fall of 1974, Peking canceled all contracts for U.S. soybeans and requested that a major part of the grain booked for delivery in the last quarter of 1974 be postponed until 1975. Apparently these moves were intended to avoid a repetition of the port congestion that occurred in the winter of 1973-74 and to alleviate Peking's mounting foreign exchange difficulties. The postponements reduced 1974 grain imports to about 7 million tons, about 2.5 million tons less than contracted for.

The Chinese made more trade adjustments in early 1975. Most significant was the cancellation of contracts for almost 1 million tons of U.S. wheat, the total commitment of U.S. grain to China. The cancellation reduced China's imports of grain for 1975 to about 4.4 million tons. Peking was influenced by the following developments:

The world price for wheat at the time of the cancellation had fallen below the contract price, and world prices were expected to fall even more;

China's foreign exchange position was unusually tight;

The 1974 autumn harvest ultimately turned out better than expected at the time the grain was purchased.

Purchases of cotton and soybeans followed a similar pattern. Beginning in the fall and winter of 1972 contracts for these two commodities skyrocketed only to be followed in late 1974 and early 1975 by postponements, delays, and cancellations. The 1972 harvest of cotton and soybeans was poor, forcing Peking to increase cotton imports and begin the importation of soybeans and soybean oil. As in the case of grain, the Chinese turned to the United States because supplies were not available from other sources. All of the soybean oil was delivered. The Chinese contracted for about 1.5 million tons of U.S. soybeans for delivery in 1973 and 1974. About 40 percent of this was canceled in the fall of 1974. In early 1975, Peking also canceled contracts for 245,000 bales of cotton or about one-half of the U.S. cotton scheduled for delivery in 1975 and arranged for postponement of the remainder.

18 The contract with Canada was for 1 million tons of wheat over and above the 2 million tons purchased within the framework of the multiyear contract.

Cancellation of the cotton contracts was dictated by an improvement in domestic cotton output; the weakening international markets for Chinese exports of cotton textiles; and a growing tightness in PRC foreign exchange.

Sugar is the only other major agricultural commodity imported in quantity. Until 1972, virtually all of China's imports came from Cuba in barter for rice. Subsequently, the PRC has purchased substantial quantities of sugar from Australia and Brazil because of poor Cuban crops and cooling relations between the two countries. Net imports are expected to remain at about 500,000 tons annually through 1976 and possibly beyond. Multiple-year contracts have been concluded with Brazil and Australia and similar agreements are expected with Guyana and Jamaica.

B. Exports

In the 1950's China's agricultural exports were dominated by foodstuffs, of which soybeans and rice were usually the most important. The collapse of the Great Leap Forward in 1960 caused a sharp drop in food exports. Exports moved up in the mid-1960's as the economy recovered, only to suffer another setback during the Cultural Revolution.

Soybeans have declined as an export, primarily because more and more acreage has been shifted to higher-yielding grains. As a result, soybean exports began a secular decline, falling from 565,000 tons in 1967 to only 310,000 tons in 1973. Exports in 1973 were largely offset by the import of almost 200,000 tons of U.S. soybeans. In 1974, the PRC imported an additional 600,000 tons of U.Š. soybeans, thus becoming a net importer for the first time.

The reversal of China's position from a net exporter to a net importer of soybeans was only temporary. In 1972 the soybean crop in Northeast China China's major producer of beans for export-was hard hit by flooding and waterlogging before harvesting could be completed. Damage was so extensive that Peking was unable to fulfill its 1972 commitment to Japan and other countries, and was even forced to import large quantities of beans. With normal growing conditions, the PRC will produce enough beans for domestic consumption and will also have some for export. Exports, however, will be likely to remain around 500,000 tons per year at most for several years to come. Rice exports slumped in the mid-1960's, but unlike soybeans, bottomed out in 1969 and then began to gain ground. Exports reached 988,000 tons in 1970, declined to 965,000 tons and 815,000 tons in 1971 and 1972 respectively, then boomed to a record 2 million tons in 1973. Exports in the latter year probably represent the high water mark for some years to come. The demand for rice in the international rice trade in 1973 exceeded the stocks in major exporting countries, causing the price of rice to skyrocket. The Chinese apparently took advantage of these atypical conditions by making unusually large quantities of rice available.

Much of the abnormally large exports in 1973 probably came from stocks. The 1973 late harvest of rice was poor in some areas, causing the PRC to withdraw from the international rice market in the winter of 1973-74 even though prices were high and buyers were available. China did not reenter the market until after the results of the 1974

early rice harvest were known, and even then sales were only made to selected customers.

China's rice exports will probably level off at about 1 million tons annually. However, exports of rice have normally been less than half of 1 percent and 1 percent of grain and rice production, respectively. Even in the peak year of 1973, exports constituted only about eighttenths of 1 percent of total grain and slightly less than 2 percent of total rice output. Thus, if the price were right-economically or politically-China could again make sizable exports available even in years when the domestic rice harvest is not especially good.

Peking has maintained that rice is exported to pay for imports of grain. However, income from rice sales has usually remained far below the cost of grain imports, even in years of unusually high international rice prices. Furthermore, the limited price data that are available suggest that much of China's rice exports is of poor quality_by international standards and hence fetches a relatively low price. For example, the PRC could have earned about $145 million from the sale of 815,000 tons of rice in 1972 if (a) all sales were commercial and (b) the sales price per ton were equivalent to that paid for premium rice in world trade ($178 per ton, f.o.b. Bangkok as of Sept. 4, 1972). By comparison, the cost of importing wheat alone in 1972 totaled about $300 million ($66.70 per ton, f.o.b. Vancouver)-more than double the most China could hope to earn from the export of rice under the most favorable of circumstances. The spread narrowed in 1973. International prices varied widely, but Chinese rice exports probably fetched an average price of about $400 per ton. If all sales were commercial, exports of 2 million tons of rice could have produced an income of about $800 million. Wheat imports cost the Chinese about $760 million 19 and corn imports about $150 million 20 for a total outlay of about $910 million.

VII. A LOOK AHEAD

Before 1972, PRC programs for agricultural development hinged primarily on one-time improvements in traditional agricultural practices or were subject to sharply diminishing returns. These improvements did not build a foundation for sustained growth. Current programs to develop high-yielding varieties of seed, to construct modern fertilizer plants, and to expand effective water control, offer the possibility of sustained growth if the mix of modern inputs is combined in an optimumly proportioned package.

Peking has announced that agricultural development will continue to be emphasized during the upcoming Fifth Five-Year Plan, 197680. Thus, agriculture should continue to receive its fair share of investment and modern inputs.

Completion of the 13 giant chemical fertilizer plants and a doubling of the supply of nitrogen fertilizer will give agriculture a major shot in the arm by the end of this decade. The fertilizer will probably outstrip China's capability to provide the package of modern complementary inputs to close the technological gap by 1980. The surprisingly low productivity response of the inputs supplied to agriculture over

10 Imports of 6.1 million tons at an average price of $125 per ton. 20 Imports of 1.6 million tons at an average price of $95 per ton.

the past decade is indicative of not only the comparatively low quality of the inputs but also the very slowly changing level of agricultural technology. Thus, initially at least, marginal returns from chemical fertilizer will probably be low. Returns could increase rapidly if more parts of the input package are made available, but the increase will probably occur after 1980. Even so, grain output by 1980 could be about 300 million tons, or roughly 18 percent above the level of 1974. The new fertilizer plants are scheduled to be fully operable in 1978 although this goal may be optimistic. Until production from these plants becomes available, Chinese agricultural development will more or less be a holding action. Meanwhile, China's population and hence domestic requirements for food and fiber will also increase. Thus, at this stage there is no guarantee that current programs to modernize agriculture will enable the PRC to attain self-sufficiency in both grain and essential nongrain crops by the end of this decade. As a minimum, China will continue to rely on agricultural imports to maintain consumption, especially in years of low normal harvests until the new fertilizer plants are in full operation. It is unlikely the PRC will return to the United States for agricultural commodities unless a string of calamitous harvests are encountered and alternative sources are unable to provide grain. Even then, the Chinese could have difficulty finding a trader willing to provide United States agricultural commodities with quality guarantees above those normally provided in the standard commodity contract.

CONSTRAINTS INFLUENCING CHINA'S AGRICULTURAL

PERFORMANCE

By DWIGHT H. PERKINS 1

1

The problems that Chinese agriculture will have to face over the coming decade differ markedly from those in other less developed countries. There are no obvious and gross inefficiencies in Chinese farming that could be quickly overcome if only the rural population would understand the need to do so or if an effective extension service could be created that could teach them new methods. The Chinese extension service based in the commune system appears to have been functioning well for a decade or more. Where in the early 1960's there was a considerable backlog of new technology waiting on government actions to supply the required inputs, there is no comparable backlog today. And therein lies the problem.

At no time since 1949 have increases in Chinese farm output been achieved with ease, but there is reason to believe that future increases will require even greater effort and an effort of a somewhat different kind from that in the past. Future expansion is not simply a matter of digging more tube wells or pouring on more chemical fertilizer although both will help. New breakthroughs are required in the basic agricultural sciences in China and in the harnessing of the irrigation potential of China's northern rivers. To understand why this is so, one must look back to what has been happening to Chinese agriculture over the past two decades.

FARM OUTPUT AND POPULATION GROWTH

In the 1950's, those responsible for agricultural policy in China attempted to achieve major increases in farm output by what amounted to the massive application of an essentially traditional technology. Tens and hundreds of millions of peasants were mobilized to work on building new irrigation and drainage systems and to improve old ones. Efforts were also made to expand multiple-cropping and to consolidate fragmented plots of land. These actions were in no way halfhearted and they did contribute for a time to modest increases in production. But the potential of these traditional techniques operating alone without complementary modern inputs was quickly exhausted. When the quality of farm management deteriorated during the Great Leap Forward and the weather turned bad in 1959, 1960, and 1961, farm output fell by 20 percent or more (see table 1).

By 1962 the communes had been thoroughly reorganized with the key change being the transfer of the basic accounting unit (the unit responsible for most farm activities) from the 5,000-family commune

1 In writing this paper I am deeply indebted to the members of the Plant Sciences Delegation to the People's Republic of China led by Dr. Sterling Wortman and to the Water Management Delegation led by Dr. Maurice Albertson for sharing their experiences and insights at a meeting at the National Academy of Sciences, Feb. 20-21, 1975.