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China has been increasing its support to agriculture. While the share of the most distorting forms of support remains high, an increase in the importance of flat rate payments per unit of land is a positive phenomenon.
The level of support strongly fluctuates as domestic prices for selected commodities remain subject to government interventions such as export restrictions and minimum prices.
- Compared with the 1995-97 average, the level of support to agricultural producers increased, but remained lower than the OECD average. While transfers from taxpayers have steadily been increasing, transfers from consumers have strongly fluctuated, but also along a rising trend.
- The negative market price support in 2008 was largely driven by a sharp increase in world prices that was not fully transmitted to the domestic market, partly due to constraints on grain exports. The taxing effects of relatively low domestic prices on agricultural producers were partly compensated by an increase in budgetary transfers to farmers. In 2009 and 2010, the growing trend of support through prices resumed and was further accentuated by a progressive appreciation of the Chinese yuan.
- The number and scope of programmes providing budgetary support to agriculture has been increasing. To an increasing extent they take the form of direct income support payments. This evolution should help decrease the production distortion associated with agricultural support policies and should enhance farmers’ incomes more effectively.
- A significant part of budgetary transfers is still allocated to lower prices of agricultural inputs, including chemical fertilisers. Such payments not only are distortive but also have negative impacts on the environment. Thus, discontinuation of such subsidies, or at least converting them to payments per unit of land, would be a prerequisite for changing agricultural practices to protect the environment.
- China’s efforts to improve rural infrastructure and to improve access to basic public services such as education, health care, and social security for the rural population should be further enhanced. As China’s population is aging, in particular in rural areas, the new nationwide rural social pension scheme introduced on an experimental basis in 2009 is a step in the right direction.
China: OECD Producer Support Estimates (PSE)
Level and composition by support categories, 1995-2010
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