China’s income inequality and implications for food trade

China’s income inequality and China’s income inequality and implications for food tradeimplications for food trade

Qingbin WangCommunity Development and Applied Economics

The University of Vermont

Outline

Introduction Changes in China’s income & inequality Effects of income on food demand Implications for food trade Conclusions

Introduction

-- China: basic statistics

-- China’s economic reform since 1978 -- Rural reform started in 1978 -- Urban reform started in 1983

-- Transition to a market economic system

-- Impacts of the reform -- Economic growth -- Trade

-- Income and living standard -- Problems and concerns

-- Objectives of this study:

China’s basic statistics in comparison with the U.S.

China U.S. Area 9.6 m. sq. km 9.4 Population 1.3 b. 0.29 Pop. growth since 1990 1% per yr. 1% Per capita GNP in 1998 $750 29,000 Per capita PPP in 1998 $3220 29,000 Index of openness (1980-98) 0.06 - 0.22 0.12 - 0.14 Engel coefficient 0.38 - 0.46 0.12 Economic system ? Market History Economic growth Challenge of agriculture Food market Agricultural policy

China’s exports and imports China’s exports and imports ($ bil)($ bil)

0

50

100

150

200

250

300

350

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

Changes in China’s income & inequality

-- Urban per capita income

-- Rural per capita income

-- Urban-rural income gap

-- Income inequality in urban and rural China

China’s average income: urbanChina’s average income: urban

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Year

Real income in 1990 Yuan

Nominal income

China’s average income: ruralChina’s average income: rural

0

500

1000

1500

2000

2500

3000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Year

Real income in 1990 Yuan

Nominal income

China’s urban-rural income gapChina’s urban-rural income gap

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Year

Nominal rural income

Nominal urban income

China’s urban-rural income ratioChina’s urban-rural income ratio

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Year

China’s estimated Gini coefficients

0.14

0.16

0.18

0.2

0.22

0.24

0.26

0.28

0.3

0.32

0.34

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Year

Urban Gini coefficient Rural Gini coefficient

Effects of income on food demand

-- Changes over time: transition from grains to high

value food products (e.g., meats, dairy, fruits, etc.)

-- Evidence from cross-sectional data by income groups

-- A case study: milk and dairy products

Per capita grain consumption

0

50

100

150

200

250

300

1980 1985 1990 1995 2000

Urban

Urban per capita grain consumptionby income groups in 2002

646668707274767880828486

Lowest Low Lowermiddle

Middle Uppermiddle

High Highest

China’s meat production

0

10

20

30

40

50

60

70

Milli

on M

etric

Ton

s

80 82 84 86 88 90 92 94 96 98 00

Pork Beef Mutton Poultry Other meat

China’s milk productionChina’s milk production

01

2

34

5

67

8

910

Milli

on M

etric

Ton

s

80 82 84 86 88 90 92 94 96 98 00

Cow milk Other milk

Urban per capita milk consumptionby income groups in 1998 and 2002

0

5

10

15

20

25

30

Lowest Low Lowermiddle

Middle Uppermiddle

High Highest

Per capita consumption of sour milk and milk powder by income groups in 1998

0

0.2

0.4

0.6

0.8

Lowest Low Lower middle Middle Upper middle High Highest

Income group

Sour milk

Milk pow der

Average number of refrigerators per 100 households in China

0

10

20

30

40

50

60

70

80

90

82 84 86 88 90 92 94 96 98 00

Urban households Rural households

Income distribution and consumptions (Average number of TVs, bicycles and refrigerators per 100 urban households)

0

20

40

60

80

100

120

140

160

180

Lowest Low Lowermiddle

Middle Uppermiddle

High Highest

Implications for food trade

-- China’s food demand and trade behavior are increasingly determined by consumer demand

-- Potentials for U.S. food products in the Chinese market

-- Challenges

U.S. agricultural trade with ChinaU.S. agricultural trade with China

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000Year

Mill

ion

U.S

. Dol

lars

US ag exports to China US ag imports from China

U.S. agricultural exports to China for selected HVPsU.S. agricultural exports to China for selected HVPs

$0

$10,000,000

$20,000,000

$30,000,000

$40,000,000

$50,000,000

$60,000,000

$70,000,000

$80,000,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

U.S

. Dol

lars

Red meat & products Dairy productsOil and fat Poultry & products Vegetables

Number of McDonald’s restaurants in ChinaNumber of McDonald’s restaurants in China

0

100

200

300

400

500

600

1987 1990 1993 1996 1999 2002

Mainland HK Taiwan

Price comparison for pork cuts & variety Price comparison for pork cuts & variety meats in China and the U.S. ($/lb)meats in China and the U.S. ($/lb)

China price U.S. PriceChina price U.S. Price

LoinLoin 1.20 1.20 1.32 1.32

LungLung 0.24 0.24 0.03 0.03

Pork stomachPork stomach 2.16 2.16 0.54 0.54

Pork kidneyPork kidney 1.54 1.54 0.17 0.17

LardLard 0.72 0.72 0.25 0.25

Pork feetPork feet 0.87 0.87 0.20 0.20

Boneless buttBoneless butt 1.20 1.20 0.81 0.81

Nape of neck with boneNape of neck with bone 1.32 1.32 0.10 0.10

Comparison of per capita milk and milk product consumption (kg)

0

50

100

150

200

250

300

China Taiwan S. Korea Japan USA

A survey in Guangzhou in 1996

0% 20% 40% 60% 80% 100%

Canned poultry

Frozen poultry

Processed poultry

Live chichen

Highly prefer Somewhat prefer Don't care Don't like Don't know

0% 20% 40% 60% 80% 100%

They are cheaper

They are worse intaste

They are worse innutrition

They are worse insafety

Agree Disagree Don't know

Conclusions

-- China’s per capita income and income inequality have increased significantly since the reform

-- Food consumptions are closely related to per capita income

-- China’s food market and trade behavior are increasingly determined by consumers

-- There are both potentials and challenges for the U.S. in the Chinese market