Company executives and experts say China's agricultural sector will face more pressure in the future, as the sector opens wider to the outside world under the World Trade Organization (WTO) commitments.

"Continuous tariff cuts and the increasing opening up of the country's agricultural sector will squeeze farmers, domestic grain exporters and food processors," said Ma Huibin, deputy general manager at China Grains, Oils and Feedstuffs Co Ltd (GOFCO).

Ma said he believed foreign agricultural products would be more competitive beginning from 2005, as the three-year period that allows a certain degree of protection of the domestic industry will be over.

Beginning from 2005, the average tariff on farm produce will be lowered to 15.3 percent, according to China's WTO pledges.

It will be far below the average 21.2 percent before the entry into the WTO in late 2001, making China a country that boasts one of the lowest agriculture tariffs in the world.

The tariff cuts would be pitfalls for local producers, said the manager. He said his company is considering cutting the production of some agricultural produce that is subject to further tariff reductions.

Meanwhile, the low-tariff quotas of farm produce have also come to a record high, with 9.63 million tons of wheat, 2.66 million tons of rice, 7.2 million tons of corn, 1.95 million tons of sugar, 894,000 tons of cotton and 287,000 tons of wool.

That means there will be more foreign products in the Chinese market in the future, likely to take the jobs of some local farmers.

What worsens the situation is that Chinese farmers, small-scale in business, are less competitive than their counterparts in developed countries who enjoy high subsidies.

The daily subsidy in the Organization for Economic Cooperation and Development (OECD) countries caps 8.3 billion yuan (US$1 billion).

Domestic food processors say they have felt the pinch of the tariff cuts and deregulation of the importation of certain produce.

Among them, producers of edible vegetable oil will be in the front row against vehement foreign competition.

The import tariff within the quota will be reduced to 9 percent from the current 17 percent in 2005, and the quota will be eliminated in 2006, probably leading to a larger inflow of edible foreign oil.

In fact, imports of this product have already surged at a brisk pace during the past few years.

China imported 9.58 million tons of vegetable edible oil in 2003, a year-on-year increase of 68 percent over 2002, exceeding domestic output.

The figure shows no abatement from January to October. Its rapeseed oil imports jumped about 200 percent to stand at 307,800 tons.

In addition, with China's trading sector opening wider to foreign investment, Chinese exporters and manufacturers of farm products will have a harder living, said Ma.

Most of the Chinese exporters and manufacturers are small-scale and lack international sales networks, said a manager of Guangdong-based Junjie Co Ltd, who gave his surname as Zhang.

According to the statistics from the Ministry of Commerce, China exported farm produce valued at 166 billion yuan (US$20 billion) in 2003, ranking sixth in the world.

However, among the existing 14,000 export-oriented farm produce enterprises, only 367 enterprises boast an annual export value exceeding US$10 million.

And over 10,000 enterprises produce an annual export below US$1 million, accounting for over 70 percent of the total.

"We cannot compete with foreign giants, particularly after they get full trading rights," said Zhang.

China's trading sector will be almost fully opened to foreign investors beginning next year, allowing them to set up wholly-owned trading subsidiaries in China.

As for Chinese exports, they still suffer from mounting trade barriers taking all kinds of forms.

Xu Guangtong, a government official from East China's Zhejiang Province, China's third largest trading province, told China Daily that China's farm produce exports suffered more from technical and quarantine barriers.

Upon China's entry into the world trade body, many believe that China's labor-intensive farm exports such as livestock, vegetables and fruit, which are China's strength, would see a big jump, benefiting from reduced tariffs from its major trading partners.

However, technical barriers regarding packaging and hygiene will prevent China's products from swarming into foreign markets.

For example, many European countries argue that the total amount of chloramphenicol among 100,000 tons of honey should below 1 gram. The requirement immediately slashed the price of Chinese honey from over 7,470 yuan (US$900) to 4,980 yuan (US$600) per ton.

On the other side of the coin, however, Liu Xiaohe, a researcher with the Chinese Center for Agriculture Trade Policy Analysis, said the opening-up of the agricultural sector would also be conducive to reforming the sector.

"Foreign competition will force Chinese farmers to increase unit production and help popularize science and technologies," he said.

Dairy producers and flower farmers, who are comparatively competitive, may also benefit from China's increasingly integration into the world trading system.

Liu also suggested tax and fees reform should be carried out to increase local farmers' income to ward off foreign competition.

A complete set of industrial standards and veterinary regulations should be developed to enhance the strength of Chinese produce in the international market.

(China Daily December 15, 2004)