China Signals Cautious Farm Policy Reforms Will Continue

23 February 2017

China’s flagship farm policy statement has reiterated Beijing’s commitment to pursuing “supply side” reforms to the agricultural sector, while also emphasising the need for farmers to benefit from stability and continuity.

Beijing set out the broad direction of planned reforms in a white paper known as “policy document no. 1,” the annual document issued by the country’s Central Committee and State Council following the start of the Chinese New Year. In a sign of the importance that China accords to farming and rural development, the 2017 edition is now the fourteenth to focus on the topic in consecutive years.

“Pushing forward the supply side reform in the agricultural sector and increasing the sector’s comprehensive benefits and competitiveness has become our major goal when formulating government policies,” said Tang Rengjian, deputy head of the Central Rural Work Leading Group, at a press conference earlier this month.

Tang added that the reform programme would emphasise environmental sustainability in agriculture, as well as seeking to improve farm incomes.

Maize: “the first tough battle”

China will maintain and “improve” its minimum price purchase policy for two staple grains – rice and wheat – according to the new document.

Although Beijing has sought to support farm incomes by buying grains at minimum prices, a combination of low tariffs, falling international commodity prices, and high domestic prices have led to mushrooming public stockpiles.

The policy has raised tensions with some trading partners, who have cited concerns that Chinese policies may artificially suppress international prices and distort global trade. In September, the US brought a case at the WTO against China’s support schemes for rice, wheat, and maize, alleging that these breached Beijing’s commitments at the global trade body. (See Bridges Weekly, 15 September 2016 and 19 January 2017)

At the same time, China has independently taken steps toward reforming existing support policies, announcing changes to maize subsidies in 2016 and to cotton in 2014. These efforts replaced minimum support prices with a system of target prices, which are generally seen as less trade-distorting, and which trigger direct payments to producers if prices fell below these thresholds. (See Bridges Weekly, 4 February 2016 and 23 January 2014)

Tang described the maize market reforms as “the first tough battle” in reforming the supply of farm goods in China.

However, he clarified that the government did not plan to change the minimum purchase price policy on wheat and rice in 2017.

Trade policy measures

As well as spelling out reforms to domestic policies, the new white paper makes clear that Beijing is determined to address problems arising from domestic farm subsidy programmes run by other governments.

Beijing will “fully establish laws and regulations regarding countervailing subsidies, anti-dumping and safeguard measures for agricultural trade; and conduct trade remedy investigations for agricultural products according to law,” says the document, which also states that China will seek to establish a “fair” competitive agricultural import market environment.

The statement “is a strong signal that China will be more active in responding to and also initiating trade remedies,” said Wusheng Yu, associate professor at the Institute of Food and Resource Economics of the University of Copenhagen in Denmark, in comments to Bridges.

Fred Gale, a senior economist with the US Department of Agriculture’s Economic Research Service, similarly told Bridges that the word “fair” may be seen as a loaded term in this context.

“That could be signalling that they think US products in particular are unfairly cheap,” he said.

In the area of agriculture, the US is a net exporter to China. Meanwhile, Washington recently reported to the WTO that its trade-distorting subsidies amounted to US$14 billion in 2014, while Beijing has said it provided ¥123 billion (US$18 billion) in 2010. (See Bridges Weekly, 26 January 2017 and 13 May 2015)

More recent WTO data for both countries are not available, due to delays in reporting farm support to the global trade body. Trade officials have repeatedly urged all WTO members to ensure their farm subsidy notifications are up-to-date, in part to help facilitate talks aimed at reforming global rules on agricultural trade ahead of the organisation’s eleventh ministerial conference this December in Buenos Aires, Argentina. (See Bridges Weekly, 12 May 2016)

China’s new policy document states that the country will “actively participate in the formulation of international trade rules.”

Tackling rural poverty

Beijing has long argued that its fast-growing farm subsidies are essential for tackling widespread rural poverty in the world’s most populous nation – and that it is unreasonable to compare the low levels of per capita support with that provided to far wealthier producers in other world regions.

“The battle against poverty has seen a good start as we were able to lift ten million people out of poverty last year,” said Tang, who added that in rural areas per capita disposable incomes had risen 6.2 percent in real terms – a faster rate than for urban residents.

The new policy document states that the government aims to lift another ten million people out of poverty in 2017 as well.

“With a per capita income of US$8,000, China is currently on the way to transforming from a middle-income country to a high-income one,” said Tang.

Gale told Bridges that Beijing was now seeking to address rapid changes arising from fast-growing populations in urban areas “with first world incomes, and a lot of people in the countryside who are not that well off.”

Greening Chinese agriculture

The new policy document emphasises the importance of supporting innovation, fostering higher-quality farm goods, and diversifying the rural economy – continuing a focus in recent years on the need for China to “modernise” its agricultural sector. (See Bridges Weekly, 26 February 2015)

In part, the new focus appears to reflect a concern about the need to improve China’s agricultural competitiveness, as well as to bring down the fiscal costs associated with the country’s growing farm subsidy schemes.

“In the context of economic downturn and financial difficulties, how to raise funds for the development of agriculture and rural areas is indeed a big headache,” said Tang.

At the same time, the new policy document emphasises the importance of more sustainable agricultural production techniques, mentioning in particular the need for more efficient use of water, as well as conservation projects in wetlands and other sensitive areas.

“We will put our priority on quality instead of quantity,” Tang said.

Yu told Bridges that the government may find environmental programmes easier to implement in the new market context of “over-supply or excessive stock of key agricultural products,” given the reduced pressure to raise farm output levels.

ICTSD reporting.

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