Beijing nervous over rural economy >Geoff Dyer >Published: July 28 2005 01:25 | Last updated: July 28 2005 01:25 >>

The renminbi's revaluation could hit some parts of the agriculture sector. Since China announced last week that it was revaluing the renminbi, most attention has focused on the impact the stronger currency will have on speculative capital flows. But senior officials in Beijing are likely to be equally concerned about agriculture.

China's top leadership, President Hu Jintao and Prime Minister Wen Jiabao, have made the fate of the country's 800m rural residents one of their top priorities since they took office three years ago. As a result, they will be anxiously monitoring the effect of the shift in currency policy on agriculture, to see if it encourages a flood of imported grains or damages China's fledgling food exporters.

“For the last year, they have been looking very closely into what will happen to farmers if they shift the currency,” says Huang Jikun, director of the Centre of Chinese Agricultural Policy.

According to Michael Pettis, a professor at Beijing University: “They are taking small steps with the currency to make sure there are no surprises in crucial areas such as agriculture.”

The revaluation comes at a time of considerable change in Chinese agriculture. China has been gradually unwinding the doctrine of food self-sufficiency that dominated in the Mao era. There has also been a shift away from land-intensive farming of grains to labour-intensive crops, such as fruit and vegetables which fits both China's shortage of farming land and abundance of workers.

Farmers have also followed shifts in diet and shopping. As incomes have risen over the past two decades, Chinese have shifted from a reliance on rice and noodles towards eating more meat, eggs, bread, fruit and dairy products.

Moreover, China's entry into the World Trade Organisation has exposed the farming sector to more foreign competition, as well as opening new opportunities for exporters. The result has been that, for the first time in 20 years, China became a net importer of food last year.

While farmers have not been completely left out of the boom of the past two decades, urban incomes grew three times faster than in the rural areas last year and substantial pockets of poverty still remain.

Moreover, the forced acquisition of farming land near cities for factories or housing has been a constant point of friction, prompting protests and even riots. The growth in the gap between city and country has led the new leadership in Beijing to pay particular attention to the agriculture sector, announcing a number of measures, including the end of a basic agricultural tax.

A 2 per cent increase in the value of the currency is not expected to have a big impact on the economy, but it could affect some areas of agriculture. “The one place where there might be some impact is in soya beans, which is the most substantial import crop,” says Rich Herzfelder at China Food and Agriculture Services, a consultancy in Shanghai.

A decade ago, China imported almost no soyabeans. In the first half of this year, however, it imported 5.41m tonnes and Chinese demand has been one of the main reasons for the sharp rise in soya prices in the past three years. Even a small appreciation is expected to help Brazilian and Argentine producers and put Chinese soya farmers in the north-east region, whose output is often of lower quality than the imports, under more pressure.

If the currency rose further, the impact could be significant. Sun Dongsheng, a professor at the Chinese Academy of Agricultural Sciences, says that corn, wheat and most other grain crops are still protected by tariffs and quotas.

However, although the overall impact on the agricultural sector would be “mild”, the exporters of lowvalue-added products could suffer. “Aquatic products and vegetables are among the top export goods. Exporters of these products will probably have a tough time ahead,” he says.