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close this bookBriefs for Food, Agriculture, and the Environment - 2020 Vision : Brief 1 - 64 (IFPRI)
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View the document2020 BRIEF 1 - AUGUST 1994: ECONOMIC GROWTH AND DEVELOPMENT
View the document2020 BRIEF 2 - AUGUST 1994: WORLD SUPPLY AND DEMAND PROJECTIONS FOR CEREALS, 2020
View the document2020 BRIEF 3 - AUGUST 1994: WORLD PRODUCTION OF CEREALS, 1966-90
View the document2020 BRIEF 4 - AUGUST 1994: SUSTAINABLE FARMING: A POLITICAL GEOGRAPHY
View the document2020 BRIEF 5 - OCTOBER 1994: WORLD POPULATION PROJECTIONS, 2020
View the document2020 BRIEF 6 - OCTOBER 1994: MALNUTRITION AND FOOD INSECURITY PROJECTIONS, 2020
View the document2020 BRIEF 7 - OCTOBER 1994: AGRICULTURAL GROWTH AS A KEY TO POVERTY ALLEVIATION
View the document2020 BRIEF 8 - OCTOBER 1994: CONSERVATION AND ENHANCEMENT OF NATURAL RESOURCES
View the document2020 BRIEF 9 - FEBRUARY 1995: THE ROLE OF AGRICULTURE IN SAVING THE RAIN FOREST
View the document2020 BRIEF 10 - FEBRUARY 1995: A TIME OF PLENTY, A WORLD OF NEED: THE ROLE OF FOOD AID IN 2020
View the document2020 BRIEF 11 - FEBRUARY 1995: MANAGING AGRICULTURAL INTENSIFICATION
View the document2020 BRIEF 12 - FEBRUARY 1995: TRADE LIBERALIZATION AND REGIONAL INTEGRATION: IMPLICATIONS FOR 2020
View the document2020 BRIEF 13 - APRIL 1995: THE POTENTIAL OF TECHNOLOGY TO MEET WORLD FOOD NEEDS IN 2020
View the document2020 BRIEF 14 - APRIL 1995: AN ECOREGIONAL PERSPECTIVE ON MALNUTRITION
View the document2020 BRIEF 15 - APRIL 1995: AGRICULTURAL GROWTH IS THE KEY TO POVERTY ALLEVIATION IN LOW-INCOME DEVELOPING COUNTRIES
View the document2020 BRIEF 16 - APRIL 1995: DECLINING ASSISTANCE TO DEVELOPING-COUNTRY AGRICULTURE: CHANGE OF PARADIGM?
View the document2020 BRIEF 17 - MAY 1995: GENERATING FOOD SECURITY IN THE YEAR 2020: WOMEN AS PRODUCERS, GATEKEEPERS, AND SHOCK ABSORBERS
View the document2020 BRIEF 18 - MAY 1995: BIOPHYSICAL LIMITS TO GLOBAL FOOD PRODUCTION
View the document2020 BRIEF 19 - MAY 1995: CAUSES OF HUNGER
View the document2020 BRIEF 20 - MAY 1995: CHINA AND THE FUTURE GLOBAL FOOD SITUATION
View the document2020 BRIEF 21 - JUNE 1995: DEALING WITH WATER SCARCITY IN THE NEXT CENTURY
View the document2020 BRIEF 22 - JUNE 1995: THE RIGHT TO FOOD: WIDELY ACKNOWLEDGED AND POORLY PROTECTED
View the document2020 BRIEF 23 - JUNE 1995: CEREALS PROSPECTS IN INDIA TO 2020: IMPLICATIONS FOR POLICY
View the document2020 BRIEF 24 - JUNE 1995: REVAMPING AGRICULTURAL R&D
View the document2020 BRIEF 25 - AUGUST 1995: MORE THAN FOOD IS NEEDED TO ACHIEVE GOOD NUTRITION BY 2020
View the document2020 BRIEF 26 - AUGUST 1995: PERSPECTIVES ON EUROPEAN AGRICULTURE IN 2020
View the document2020 BRIEF 27 - AUGUST 1995: NONDEGRADING LAND USE STRATEGIES FOR TROPICAL HILLSIDES
View the document2020 BRIEF 28 - AUGUST 1995: EMPLOYMENT PROGRAMS FOR FOOD SECURITY IN SUB-SAHARAN AFRICA
View the document2020 BRIEF 29 - AUGUST 1995: POVERTY, FOOD SECURITY, AND THE ENVIRONMENT
View the document2020 BRIEF 30 - JANUARY 1996: RISING FOOD PRICES AND FALLING GRAIN STOCKS: SHORT-RUN BLIPS OR NEW TRENDS?
View the document2020 BRIEF 31 - APRIL 1996: MIDDLE EAST WATER CONFLICTS AND DIRECTIONS FOR CONFLICT RESOLUTION
View the document2020 BRIEF 32 - APRIL 1996: THE TRANSITION IN THE CONTRIBUTION OF LIVING AQUATIC RESOURCES TO FOOD SECURITY
View the document2020 BRIEF 33 - JUNE 1996: MANAGING RESOURCES FOR SUSTAINABLE AGRICULTURE IN SOUTH ASIA
View the document2020 BRIEF 34 - JUNE 1996: IMPLEMENTING THE URUGUAY ROUND: INCREASED FOOD PRICE STABILITY BY 2020?
View the document2020 BRIEF 35 - JULY 1996: SOCIOPOLITICAL EFFECTS OF NEW BIOTECHNOLOGIES IN DEVELOPING COUNTRIES
View the document2020 BRIEF 36 - OCTOBER 1996: RUSSIA'S FOOD ECONOMY IN TRANSITION: WHAT DO REFORMS MEAN FOR THE LONG-TERM OUTLOOK?
View the document2020 BRIEF 37 - OCTOBER 1996: UNCOMMON OPPORTUNITIES FOR ACHIEVING SUSTAINABLE FOOD AND NUTRITION SECURITY - An Agenda for Science and Public Policy
View the document2020 BRIEF 38 - OCTOBER 1996: WORLD TRENDS IN FERTILIZER USE AND PROJECTIONS TO 2020
View the document2020 BRIEF 39 - OCTOBER 1996: REDUCING POVERTY AND PROTECTING THE ENVIRONMENT: THE OVERLOOKED POTENTIAL OF LESS-FAVORED LANDS
View the document2020 BRIEF 40 - OCTOBER 1996: POLICIES TO PROMOTE ENVIRONMENTALLY SUSTAINABLE FERTILIZER USE AND SUPPLY TO 2020
View the document2020 BRIEF 41 - DECEMBER 1996: STRUCTURAL CHANGES IN THE DEMAND FOR FOOD IN ASIA
View the document2020 BRIEF 42 - MARCH 1997: AFRICA'S CHANGING AGRICULTURAL DEVELOPMENT STRATEGIES
View the document2020 BRIEF 43 - JUNE 1997: THE POTENTIAL IMPACT OF AIDS ON POPULATION AND ECONOMIC GROWTH RATES
View the document2020 BRIEF 44 - JUNE 1997: LAND DEGRADATION IN THE DEVELOPING WORLD: ISSUES AND POLICY OPTIONS FOR 2020
View the document2020 BRIEF 45 - JUNE 1997: AGRICULTURE, TECHNOLOGICAL CHANGE, AND THE ENVIRONMENT IN LATIN AMERICA: A 2020 PERSPECTIVE
View the document2020 BRIEF 46 - JUNE 1997: AGRICULTURE, TRADE, AND REGIONALISM IN SOUTH ASIA
View the document2020 BRIEF 47 - AUGUST 1997: THE NONFARM SECTOR AND RURAL DEVELOPMENT: REVIEW OF ISSUES AND EVIDENCE
View the document2020 BRIEF 48 - FEBRUARY 1998: CHALLENGES TO THE 2020 VISION FOR LATIN AMERICA: FOOD AND AGRICULTURE SINCE 1970
View the document2020 BRIEF 49 - APRIL 1998: NUTRITION SECURITY IN URBAN AREAS OF LATIN AMERICA
View the document2020 BRIEF 50 - JUNE 1998: FOOD FROM PEACE: BREAKING THE LINKS BETWEEN CONFLICT AND HUNGER
View the document2020 BRIEF 51 - JULY 1998: TECHNOLOGICAL OPPORTUNITIES FOR SUSTAINING WHEAT PRODUCTIVITY GROWTH TOWARD 2020
View the document2020 BRIEF 52 - SEPTEMBER 1998: PEST MANAGEMENT AND FOOD PRODUCTION: LOOKING TO THE FUTURE
View the document2020 BRIEF 53 - OCTOBER 1998: POPULATION GROWTH AND POLICY OPTIONS IN THE DEVELOPING WORLD
View the document2020 BRIEF 54 - OCTOBER 1998: FOSTERING GLOBAL WELL-BEING: A NEW PARADIGM TO REVITALIZE AGRICULTURAL AND RURAL DEVELOPMENT
View the document2020 BRIEF 55 - OCTOBER 1998: THE POTENTIAL OF AGROECOLOGY TO COMBAT HUNGER IN THE DEVELOPING WORLD
View the document2020 RESUMEN No. 56 - OCTUBRE DE 1998: AYUDA A LA AGRICULTURA EN LOS PAÍSES EN DESARROLLO: INVERSIONES EN LA REDUCCIÓN DE LA POBREZA Y NUEVAS OPORTUNIDADES DE EXPORTACIÓN
View the document2020 BRIEF 57 - OCTOBER 1998: ECONOMIC CRISIS IN ASIA: A FUTURE OF DIMINISHING GROWTH AND INCREASING POVERTY?
View the document2020 BRIEF 58 - FEBRUARY 1999: SOIL DEGRADATION: A THREAT TO DEVELOPING-COUNTRY FOOD SECURITY BY 20207
View the document2020 BRIEF 59 - MARCH 1999: AGRICULTURAL GROWTH, POVERTY ALLEVIATION, AND ENVIRONMENTAL SUSTAINABILITY: HAVING IT ALL
View the document2020 BRIEF 60 - MAY 1999: CRITICAL CHOICES FOR CHINA'S AGRICULTURAL POLICY
View the document2020 BRIEF 61 - MAY 1999: LIVESTOCK TO 2020: THE NEXT FOOD REVOLUTION
View the document2020 BRIEF 62 - OCTOBER 1999: NUTRIENT DEPLETION IN THE AGRICULTURAL SOILS OF AFRICA
View the document2020 BRIEF 63 - NOVEMBER 1999: PROSPECTS FOR INDIA'S CEREAL SUPPLY AND DEMAND TO 2020
View the document2020 BRIEF 64 - FEBRUARY 2000: OVERCOMING CHILD MALNUTRITION IN DEVELOPING COUNTRIES: PAST ACHIEVEMENTS AND FUTURE CHOICES
View the document2020 BRIEF 65 - MARCH 2000: COMBINING INTERNAL AND EXTERNAL INPUTS FOR SUSTAINABLE INTENSIFICATION

2020 BRIEF 60 - MAY 1999: CRITICAL CHOICES FOR CHINA'S AGRICULTURAL POLICY

Shenggen Fan and Marc J. Cohen

Shenggen Fan is a senior research fellow and Marc J. Cohen is a special assistant to the director general at the International Food Policy Research Institute.

Economic reforms initiated in 1978 brought rapid economic growth in China. Fundamental changes occurred in the national economic system. While the reforms were focused on agriculture, as expected, the role of the agricultural sector declined, and the manufacturing and service sectors grew much faster than the rest of the economy. Land, labor, and water shifted to nonagricultural uses. And farmers' incentives for agricultural production deteriorated. From 1990 to 1994, grain production stagnated, and in 1995 China had to import 20 million metric tons of grain. This threat to agriculture and food production alarmed the country's top leaders. New policies introduced since 1995 have succeeded in reversing declining food production, but at a huge financial cost to the government. Is this a short-term phenomenon or the beginning of a long-term commitment to protection, following the path of many developed countries? Critical choices lie ahead for China.

REFORM OF AGRICULTURAL POLICY (1978-93)

Before 1979, Chinese agricultural policy sought rural equity and the provision of cheap food, capital, and labor for industrial development. The government tightly controlled production, marketing, and trade, with procurement prices generally held below international prices. Fearing anemic agriculture would retard industry, the government began implementing new policies in 1979. Initially, the government raised agricultural procurement prices and allowed rural markets to reopen for farmers to sell produce from private plots. In 1981, the government began to decentralize agricultural production from the commune system to individual farm households. By 1984, more than 99 percent of production units had adopted the "Household Production Responsibility System." In addition, the government gradually reduced the number of commodities subject to mandatory state procurement.

The second phase of reforms aimed mainly at liberalizing pricing and marketing. On the heels of a bumper crop in 1984, the government replaced mandatory procurement with voluntary contracts between farmers and the government. In 1993, the authorities further liberalized the grain market and abolished the 40-year-old grain rationing system. More than 90 percent of all agricultural produce was sold at market-determined prices, a graphic indication of the transformation of Chinese agriculture from a command and control system to a largely free-market sector.

NEW AGRICULTURAL POLICY (1994-PRESENT)

However, as a result of pressure from high inflation, particularly from rising grain prices and declining production, leading to increased imports, several new policies have been introduced since 1994. The central government boosted procurement prices above world prices, offering farmers incentives to shift production away from cotton and oilseed crops. In 1997, China harvested record grain crops: wheat imports were the smallest since 1961 and rice exports were the largest since 1973. There was another bumper crop in 1998, and stocks remain high. However, paying for these new policies has imposed a substantial financial burden on the government and hindered reforms in other sectors, resulting in a net loss in social welfare.

The "Governor's Grain Bag Responsibility System" was introduced in 1995. This holds provincial governors responsible for balancing grain supply and demand and stabilizing grain prices in their provinces. Nationally, this policy seems to have been a success, since supplies have increased and prices have dropped and stabilized. However, the record varies sharply among the provinces, particularly between richer and poorer provinces. If the policy remains, grain producers in rich coastal provinces could become more highly subsidized by local governments. In poorer surplus regions, producers could continue to be taxed. Such measures have a tendency to promote regional self-sufficiency, causing a net social welfare loss.

Another new policy initiated in 1997 is called "Four Separations and One Perfection." In response to the inefficiency of the state grain bureaus and the financial burden of government grain policy, the authorities separated (1) the bureaus' policy functions from commercial functions, (2) government-owned reserve stocks from commercial business, (3) central government responsibilities from those of local governments, and (4) old from new bank debts. The "perfection" is a process to integrate the government procurement prices with market prices.

In 1998, the central government announced that it would further decentralize grain management responsibility to provincial governments. In fact, however, the central government has reasserted monopoly control over grain procurement. This policy helps keep prices stable, but by restraining competition, it deters improvements in the efficiency of grain marketing.


Production and net imports of grains in China

Source USDA and State Statistical Bureau of China

POLICY OPTIONS FOR THE FUTURE

As China approaches the stage of development in which the government shifts from taxing to subsidizing agricultural production policymakers face a choice among competing options. The first option is to follow the Organisation for Economic Co-operation and Development (OECD) countries and other newly developed economies, that is, protect agriculture either through price supports or direct farm income payments. But agriculture still employs over 45 percent of China's labor, so this would be costly for industry. Moreover, as OECD countries are finding, protecting agriculture is costly in absolute terms as well. And price subsidies may not be compatible with entry into the World Trade Organization (WTO).

The second option is to use trade barriers to insulate China's agricultural production from the international market. In this case, domestic supply would meet domestic demand, and domestic consumers would implicitly subsidize domestic producers. Considering China's rapid economic growth and the declining share of food in consumers' budgets, this option is attractive. But because prices and markets would be distorted, overall economic efficiency would decline. The size of the loss would depend on the difference between international and domestic prices. Adoption of this option might also create a problem for China's entry into the WTO.

The third option is to liberalize agriculture immediately. China would neither tax nor subsidize production, explicitly or implicitly. China would import or export agricultural products based on comparative advantage. Under this scenario, it is likely that China would have to import large amounts of grain, but economic gains would be substantial. China could gain US$4.5 to 7 billion in 2010 by abolishing its policy of 95 percent grain self-sufficiency. The World Bank has estimated that China would gain $5 billion by 2020 if the current 95 percent grain self-sufficiency policy were abolished. However, because China is a large country, two problems could arise if it depends heavily on international grain markets. One relates to supply availability. Australia, Brazil, Canada, and the United States may have the potential to increase production. But how much they can supply is not clear, particularly when many governments are under pressure to reduce support for agriculture. Agriculture is also subject to weather and other climatic conditions. A production shortfall of 20 to 30 percent in a major grain-exporting country would affect international prices substantially, considering the thin international market for many agricultural commodities.

The fourth option is to continue to liberalize gradually, while increasing investment in rural infrastructure, agricultural research and extension, and irrigation. This option would not only conform with WTO requirements but would also improve long-term food security and overall economic efficiency.

Various studies have shown that increased investment in agricultural research, extension, irrigation, and infrastructure is one of the most efficient ways to improve China's food security in the long run. IFPRI projections suggest that if China increases its investment in agricultural research and irrigation by 4.5 percent per year, it will become a net exporter of grains by 2020. With every 1 percent increase in agricultural research and irrigation investment, China could produce an additional 21 million metric tons of grain in 2010 and 36 million metric tons in 2020. Each yuan invested in research and irrigation could yield returns between 3.6 and 4.8 yuan.

However, it is worrisome to observe that China's agricultural investment, particularly its research investment, has fluctuated over time and has stagnated in recent years. After 1978, agricultural investment began to decline, bottoming out in 1987. Although it has recovered since, it was still 32 percent below the 1978 level in 1994. In relative terms, the share of agricultural investment in agricultural GDP began to decline sharply after 1978, from 18 percent to about 5 percent in recent years. Investment in agriculture as a proportion of total investment fell drastically, from 20 percent in 1980 to only 2.4 percent in 1994.

Fluctuating and falling public investments in agriculture will impede long-term sustainable agricultural growth. For example, the decline in public investment in agricultural research and development led to deterioration of the national agricultural research system and a possible slowdown in the rate of release of new agricultural technologies. Also, the decline of investments in maintenance and repair of irrigation and drainage systems, rural roads, and soil improvement schemes has reduced the effectively irrigated area and increased the impact of recurring natural disasters such as floods and drought.

Reversing the decline in agricultural investment would enhance the agricultural sector, rural well-being, food security, and the environment. All this, in turn, would foster China's broader economic development, and assure that the answer to the question, "Who will feed China?" is China.

For more information, see Shenggen Fan and Francis Tuan, "Evolution of Chinese and OECD Agricultural Policy: Long-term Lessons for China," a paper presented at the International Seminar on WTO and China's Agricultural Trade, Beijing, September 21-22, 1998; Shenggen Fan, "Public Investment in Rural China: Historical Trends and Policy Issues," in Agricultural Policies in China (Paris: OECD, 1997).