Agricultural policies and support

OECD Review of Agricultural Policies - China

 

Highlights and Policy RecommendationsTable of Contents | Policy Brief : Agricultural Policy Reform in China | How to Order

 

   

China - Agricultural Policy Monitoring and Evaluation 2011 including data on government support to agriculture, in the report Agricultural Policy Monitoring and Evaluation 2011


 

Published: Nov. 2005
ISBN: 9789264012608 

Over the last twenty five years, China has made huge progress in meeting its agricultural policy objectives: agricultural production has risen sharply, rural industries have absorbed a large part of farm labour, poverty has fallen dramatically, and the level and quality of food consumption has improved significantly. In line with the improving economic situation, government priorities have shifted from increasing production, especially of food grains, to rural income support and, most recently, to environmental concerns.

This review examines China’s agricultural policy context and trends while measuring the extent of support provided to its agriculture on the basis of consistent and internationally comparable analysis. It provides an objective assessment of the opportunities, constraints and trade-offs that confront China’s policy makers.


Highlights and Policy Recommendations

During the reform period, which started in 1978, China made huge progress in meeting its objectives: agricultural production rose sharply, rural industries absorbed a large part of farm labour, poverty fell dramatically, and the level and quality of food consumption improved significantly. The commune system was replaced by one where individual families lease land from the collectives, ensuring that almost all rural households have access to land and are, at minimum, food self-sufficient.

Currently, China has about 200 million farm households with an average land allocation of just 0.65 ha. Limited arable land and a large rural labour force mean that, in general, China tends to have a comparative advantage in the production of labour intensive crops, such as fruits and vegetables, and a disadvantage in the production of land intensive crops, such as grains and oilseeds.

One of the most striking features of China’s development in the reform period has been a large and growing income disparity between the rural and urban populations. This is largely due to limited factor mobility, especially of labour and capital. Surplus farm labour and low labour productivity have resulted in low agricultural incomes and hidden unemployment in rural areas. The rural-urban gap in living standards is further accentuated by differences in access to education, health care and other social services.

The level of support to agriculture from policies fluctuated at low levels through the 1990s, rising to 8% in 2003, still well below the OECD average of 30%. Support levels are highest for import-competing commodities such as sugar and milk, but also for exportable maize. Grain markets remain distorted, mostly due to state trading which drives a wedge between domestic and world prices. The Total Support Estimate (TSE) is relatively high at 3.7% of GDP, reflecting though large expenditure on general services, in particular investments in agricultural infrastructure to improve productivity.

In line with the improving economic situation and sectoral performance, government priorities have shifted from increasing production, especially of food grains, to rural income support and recently to environmental concerns. In the medium term, the main challenges for China’s policy makers include closing the large income gap between rural and urban populations; integrating small-scale farmers, who are dominant, into markets; stimulating internal reallocation of resources to create more efficient farm structures; reducing the negative impacts of increasing agricultural production on the environment; improving the competitiveness of agricultural and food products on domestic and international markets; and improving the governance of institutions in designing and implementing agricultural policies.


Table of Contents

Chapter 1 - The Policy Context

As China becomes a key player in global agro-food markets it is essential to understand the framework that has shaped developments in Chinese agriculture since the introduction of reforms in 1978. This chapter focuses on the processes undertaken since 1990 and identifies the constraints, opportunities and challenges to China’s agricultural development. Section 1.1 provides a brief overview of basic information. Section 1.2 assesses those aspects of China’s macroeconomic performance that have had a crucial impact on developments in the agro-food sector, and then examines the importance of the agro-food sector and its contribution to the development of the economy as a whole. Section 1.3 contains a review of structural issues in the agro-food sector, including agricultural production structures, land tenure systems and policies, as well as reforms and responses in agricultural upstream and downstream sectors. Finally, Section 1.4 provides an assessment of agriculture’s performance in terms of output, trade, employment, productivity and incomes followed by a review of food consumption and the agroenvironmental situation.

Chapter 2 - Policy Trends

China has implemented substantial economic policy reforms since 1978. A fundamental element has been reform of the raft of agricultural and agriculture related policies contained in China’s governance framework. While the general direction of reforms has been consistent, there have also been numerous small policy shifts and changes in the detail of policies. In this chapter, trends in agricultural and related policies during the period 1990-2005 are highlighted, followed by an evaluation of the support provided to producers. In Section 2.1, the framework of agricultural policy is provided. This framework is examined with regard to key policy objectives, the national and sub-national institutional arrangements for administering agricultural policy, and the major instruments employed to implement policy. Section 2.2 contains an overview of domestic agriculture-related policies. This section is arranged in seven sub-sections devoted to: price and income support measures; reduction of input costs; agricultural taxation; rural public services infrastructure; consumer measures; environmental measures; and overall budgetary outlays on agro-food policies. Trade policies related to the agro-food sector are examined in Section 2.3. This section contains six sub-sections: overall reforms of the trade system; the objectives of Chinese trade policy in the agro-food sector; agro-food import and export policy measures applied by China; trade relations; trade policy measures applied by partners; and agro-food trade flows. Finally, Section 2.4 quantifies the extent of support provided to agriculture and the burden that this imposes on Chinese consumers and taxpayers.

Chapter 3 - Policy Impacts

This chapter reports analysis on the potential economic impact of reducing China’s agricultural trade protection and domestic support and comparing the effects with those that might accompany widespread reductions in support afforded farmers in OECD countries. Section 3.1 investigates, with the use of an economy-wide general equilibrium model (GTAPEM), the source and size of the sectoral and economy-wide gains to China from multilateral trade liberalisation. The estimated changes in prices and quantities due to liberalisation are then used as inputs to simulate how welfare gains and losses are distributed across various types of rural households in China. The last two sections of the chapter are devoted to an analysis of the potential impact on China’s main agricultural commodity markets of hypothetical reforms to agricultural trade and domestic policy both within China and globally (Section 3.2), and to an investigation of the impact of China’s grain policies on mid-term projections of its grain imports and the implications for grain self-sufficiency (Section 3.3).


 


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