Faced with the rapid growth of its economy and an increasing domestic demand, China aims to reinforce its agricultural policies. Recent studies show that China is to become the largest agricultural producer of the decade. For instance in his Cyclope study, Philippe Chalmin explains that China will remain ‘a key market in 2013’, and the recent FAO/OCDE joint report points to the fundamental role of China's agricultural policies in improving the country’s food security.
The orientation of China’s agricultural policies were changed in 2004, and are now focused on the country’s agricultural potential, mainly in order to guarantee food self-sufficiency as the country became the largest importer of agricultural commodities in 2011. A recent report of the ICTSD, of which we include excerpts below, provides an enlightening analysis of China’s agricultural policies1
. Designed as a global aid programme, these policies, which are only just emerging, aim to boost national production potential and improve the standard of living of farmers.
Although efforts still need to be made in order to promote sustainable development, as pointed out by Ni Hongxing, the author of the report, China’s agricultural support policies are proof of the country’s awareness of the importance of agricultural development.
In order to better apprehend global challenges in the 21st century, a clear vision of the reality of local agricultural support policies is essential. Momagri’s SGPA indicator (Global Support for Agricultural Production) shows that subsidies paid by the Chinese government in favour of national agriculture have increased 138% (+606 billion CNY), up from 440.1 billion CNY to 1045.7 billion CNY. These figures attest to the fact that China attaches a strategic importance to its agricultural sector.
momagri Editorial Board
Since 2004 the central government instituted new domestic support polices including price policies, the four main subsidies and environmental protect support. These policies indicated the historical changes in agricultural policy in China. The characteristics of China’s agricultural support policy in the new era are the following.
From the perspective of the design of policy objectives, China’s current agricultural support policy focuses on the protection of food security and the improvement of rural income. Attention given to the goals of agricultural sustainable development is comparatively limited.
A look at the role that domestic support measures play on realizing the policy objectives would reveal that China’s agricultural support policy places a priority on providing guidance for the behaviour of rural households, increasing grain production and farmers’ income. However, very limited attention and policy possibilities are available for achieving sustainable development goals such as environmental protection and natural resource management.
Taking into account China’s current conditions and its agricultural development the current policy measures still focus on the core objectives of “ensuring supply, and promoting income”. The four main subsidies especially are the most widely used and incorporate the largest scope. Considering the background surrounding the introduction of the policies, the goals of the policies and the method of implementation it is obvious that the primary task of China’s agricultural support policy is to stabilize the supply of major agricultural products (which will be difficult to maintain in light of future needs surrounding urbanization and industrialization) and increase farm income which is still very low. It should be admitted that there is much to be done to realize the goals of sustainable development in agriculture.
Although there are policies aimed at improving the environment, such as returning farmland to forest and pasture, they are not comparable to the four major policies in terms of publicity, support level or recognition from the farming community.
Judging from the existing policies, price support is still the core of the current Chinese domestic support. However, support is turning to the direction of the production process, especially direct subsidies to farmers which will become an important means of providing support for agriculture.
Market price support is at the core of the China’s domestic agricultural support policy because it has a clear objective, yields quick returns and is easy to operate. However it could easily cause market distortion. It should be pointed out that the domestic minimum purchasing price has been lower than the market price in some cases which provides more by way of psychological support for the grain famers.
Whenever the market price is too low farmers can still sell their production at the minimum purchasing price stipulated by the government. On the contrary, direct subsidies are not as effective as price support in stabilizing food production but do cause less market distortion. Chinese agricultural support polices are turning in this direction gradually, especially in the four main subsidy policies including direct subsidies. These indicate that the subsidies towards agriculture have been switched from an indirect subsidy process to direct subsidies in the production process to help maintain farmers’ motivation in grain production and ensure basic profits for grain farming. These policies are the pillar policies of the current support system.
The level of total agricultural support has increased distinctly in the past decade; however, agricultural support is very low in per capita terms.
Since 2004 the total of the four main subsidy policies to agriculture has increased significantly from 100 million RMB in 2002 to 14.52 billion RMB in 2004, then to 122.59 billion RMB in 2010. With the increase in the varieties of direct subsidies, the wider range of subsidies and the amount of fiscal spending on agriculture has increased dramatically. The change from the nonexistence of subsidies to the current scale and their substantial growth has caught the attention of the whole world. Apart from the situation in which green box support was partially overestimated, the substantial increase of domestic agricultural support is an undeniable fact and shows great potential for further growth in the future. One of the most essential reasons for this is the general realization that agricultural development is indispensable to China’s economic development and that the improvement of rural household income is of crucial importance. In addition, the industrialization and urbanization progress and the strong domestic market demand have posed great challenges for the domestic food market which requires great attention focused on food production in the future, especially among the three main cereals. Under these circumstances, it is no surprise that the Chinese government has been starting to provide substantial subsidies to agriculture. Although many policies aim to increase farmers’ income and improve their rural livelihood, the level of support is still very low in per capita terms.
If the direct payments on grain production and the general subsidy for agricultural means of production are taken as an example (in most provinces, these two subsidies are given to farmers directly in same channel), under the current level of support the contribution of these two policies to the per capita net income of rural households is still low and does not exceed 5 percent. In addition, because of regional differences, the effects of these two subsidies to farmers are not the same.
Agricultural support policy in China mainly strives to stimulate production directly related to food security and rural livelihoods, and does not have the goal of promoting exports, so as to limit negative impacts on the international market.
Since 2004 China has become a net importer of agricultural products. After the implementation of a series of domestic policies the agricultural trade deficit remains large and has the capacity to grow further. The recent and dramatic change in China’s agricultural trade pattern has largely been driven by massive imports of soybeans and, to a lesser extent, vegetable oils.
Domestic support policies in China target products closely related to the livelihoods of farmers and grain supplies, such as wheat, rice, maize, soybean, cotton and pork. The purpose is to protect the effective supply of agricultural products and increase farmer enthusiasm for growing grain, rather than promote exports. However, products which are subsidized have become imports.
Due to regional differences in the level of agricultural development and policy implementation there are inconsistencies in both the effects and objectives of policies. In this context direct payments for grain production become the most debatable measures.
Most farmers do not know the exact amount of farmland being subsidized or the standard for calculating it so they accept the fact that the subsidy amount has decreased or remains unchanged. In addition, farmers in many areas sublease their land to other farmers but still receive subsidies. This is a common phenomenon.
The above shows that crop production decisions are not associated with the subsidy amount. The role of direct crop subsidies and comprehensive agricultural inputs subsidies has shifted from boosting food production by the mobilization of farmers’ enthusiasm for growing grain to purely income support for farmers. Others hold different opinions however. Yu et al. (2011) finds that these subsidies together with the abolition of China’s agricultural taxes solicited increased grain outputs. Xu et al. (2012) confirm that reductions in China’s agricultural taxes (similar to introducing subsidies) helped raise farm income through increased grain production responses via increased labour inputs, increased planting areas, and/or increased intermediate input uses. After reviewing the overall design and implementation of these subsidies, Yu and Jensen (2010) argue that such subsidies do influence production decisions at the aggregated level. Controversy still exists at home and abroad largely because of the policy implementation differences and lack of coordination when setting goals.
China is aiming for a type of sustainable economic development and an income for its people which would require society to pay more and more attention to agriculture and its sustainable development. Since the beginning of the century China’s agricultural support policy has undergone a complete transformation, especially with regard to the introduction of the four main subsidy policies. However, there are still quite a number of pending problems.
As China’s developing economy will offer more support towards the implementation of policy changes more extensive measures aimed at maintaining sustainable development will be further implemented. More courage and wisdom is needed to design and implement new policies.
1 Read the entire report by following this link http://ictsd.org/downloads/2013/05/agricultural-domestic0asupport-and-sustainable0adevelopment-in-china.pdf