【出版时间及名称】：2010年3月中国证券市场投资策略报告
        【作者】：瑞士信贷
        【文件格式】：pdf
        【页数】：28
        【目录或简介】：
Farming economics and its implications
In view of recent reports of a renewed labour shortage in major cities, we review the
development in farming economics and its potential impact on production cost/inflation as
well as the consumer market.
Rising rural income
Rural household income has doubled in the past seven years. It is not only wage income
that has grown rapidly, but farming income (the major component of total income) has also
grown more than 60% during this period, despite rising agricultural input costs. This is
mainly due to product price increases, improving yield and the replacement of agricultural
tax with subsidies by the government. This is particularly true for grain farming. The
government has played a pivotal role in gradually raising grain prices over the years.
In our report, China Consumer Survey – Consumption Jump, 8 January 2010, we had
argued that improving farming economics is a key driver of rising income in the lowincome
group in urban areas. We think that this is an important topic, as it will have a
major impact on urban wages, particularly for the low-income group, as well as the
consumption outlook for China.
Farming economics
We consulted Beijing-based agricultural experts to assess the economics of various
“typical” farming activities in China and their profitability in 2008 and 2009 versus 2002.
We estimate the P&L of nine types of farming activities to confirm these observations: rice
farming in Hunan and Jiangsu, wheat in Henan and Shandong, corn in Jilin, cotton in
Xinjiang, pigs in Sichuan, cows in Inner Mongolia, and fishery in Jiangsu.
A multi-year story?
We believe that raising income generated from various farming activities is part of the
government’s long-term policy. Improving farming economics should discourage rural
labourers from migrating to urban areas, reducing the supply of urban workers. This
problem could become more acute, as China’s ageing population problem sets in over the
next five to 10 years. We see two major implications for the Chinese economy – inflation
and consumption.
We think that higher wages will definitely have an impact in the long run and may not be
confined to China, given the heavy reliance of US consumers on Chinese downstream
consumer products. In the near term, we believe that this will be more of a margin issue
for manufacturers. On the other hand, the service sector is also susceptible, as wage is a
major component in its total costs. In addition, agricultural product price increases could
also influence inflation directly through food price inflation, which indeed was the major
reason for the 2007-08 CPI increase.
Rising rural income and urban wages should have a positive impact on Chinese
consumption, given China’s low overall wage-to-GDP ratio. We believe the key
beneficiaries from this theme are likely to be the players in the mass-consumer market
with a strong distribution network in rural and lower-tiered areas. In our view, the key plays
are Skyworth, Anta, Belle, Tingyi, Geely, China Mobile, Tencent and China Life.
Please also see our report China Consumer Staples (3 March 2010) for more detailed
stock ideas in the consumer staple space.