China to Boost Farm Subsidies for Science and Technology

8 February 2012

In its first major policy announcement of the new year, China has revealed plans to boost spending on agricultural science and technology - continuing a trend towards rapidly-growing farm support in recent years.

The document, which was released last week by China's State Council, says that subsidies will be redirected towards the most productive areas, with grain farmers in particular receiving more direct payments.

It also outlines plans for increased spending on genetically-modified crops, in a move which government officials privately acknowledged could be controversial.

However, despite the overall policy focus on science and technology, the broad focus of farm support will continue to reflect trends in recent years, sources said - with farmers receiving improved seeds, breeding stock, and farm machinery at lower prices.

Three ‘nongs'

In a sign of the political importance attached to agriculture in China, this is the ninth year running in which the first policy communication unveiled by the government has been devoted to the ‘three nongs', or three rural issues - agriculture, farmers, and the countryside.

While the announcement - known simply as ‘Policy Document no. 1' - spells out the broad policy orientation for agriculture in the year ahead, it does not include detailed figures on topics such as spending levels for particular types of support.

The document reflects a wider concern with the problem of improving productivity in developing country agriculture, noted Andrzej Kwiecinski, senior agriculture policy analyst at the Organisation for Economic Co-operation and Development (OECD).

"That's the reason why it's attracting more attention than in the past," he said.

Subsidy shift

The government will "increase the intensity" of farm subsidies, the document says, and redirect them towards the more productive regions, large-scale farmers, and co-operatives.

Government sources told Bridges that this would mean rice-producing areas in the south of the country could receive increased support, such as Hunan, Hubei, Guangdong, and Guangxi. Wheat-producing regions in the north and north-east of the country could also benefit.

All of China's farm subsidies are notified as ‘green box' support at the WTO - meaning they ostensibly cause not more than minimal trade distortion (see Bridges Weekly, 19 October 2011). A small amount of trade-distorting payments are also permitted, on the condition that they represent less than 8.5 percent of the value of production - known as ‘de minimis' support at the WTO.

Chinese policy-makers have emphasised that new programmes need to remain within this limit. "The space for WTO de minimis subsidies should be a ceiling" for any new price support programmes, argues Dr. Cheng Guoqiang of the State Council Development Research Centre in a recent article.

Trade distortions?

Currently, China's reported de minimis spending is well below this ceiling. But experts indicated that some other subsidies, such as indirect support to inputs such as fertilisers, might still have trade-distorting effects.

For these payments, "the major beneficiaries are not the farmers but the input suppliers," observed Kwiecinski.

Other analysts noted a correlation between growing green box support and cereal output trends, even though no trade-distorting ‘amber box' support has been notified.

"Given the apparent low levels of subsidies, it would be interesting to find out what factors have contributed to the impressive production increase for cereals" said Josef Schmidhuber, Principal Officer with the UN Food and Agriculture Organisation.

"Lots of people have asked ‘are the payments strictly within the definitions?'" said one Geneva-based trade negotiator. "There's increasing interest in what China's doing in this area."

Environmental protection

According to the No. 1 Document, subsidies will continue to be targeted at environmental goals - such as protecting forests, grasslands, and wetlands, and conserving soil and water resources.

However, Schmidhuber suggested that farm subsidies for fertilisers and energy may also have contributed to environmental problems in China - along with indiscriminate use of inputs by farmers.

"There's too little potassium and phosphate, and too much nitrogen," Schmidhuber observed, noting that efforts to manage water resources and manage greenhouse gas emissions were suffering as a result.

While this year's policy document focuses on agricultural science and technology, last year's one underscored the importance of water conservation and irrigation for farming and rural areas.

A recent article by Shenggen Fan, Director-General of the International Food Policy Research Institute, nonetheless argues that China does not face "a choice between water conservancy and technology." Instead, Fan said, the country "needs both."

Rural - urban divide

Coming at a time when the gap between rural and urban incomes continues to widen, the policy release is being seen as a sign that the government intends to tackle social inequalities - a potential cause of unrest in a country where around half of the population of 1.3 billion still lives in rural areas, and over one-third works in farming.

Yue Liang, a representative of the nation-wide China Farmers' Assocation, told Bridges that the government needs to focus investment on education and training in rural areas.

"Schools in rural areas should teach students how to farm during the compulsory education stage," said Yue, who is based in the province of Hebei. "Without these skills, the younger generation who were born in the 1990s will be lost, as they will be unable to farm, and unwilling to become industrial workers in cities."

The government is "fully aware" of the problems caused by large numbers of labourers leaving rural areas, one official said, who told Bridges that increased spending on extension and advisory services was part of the solution.

Echoing the same sentiment, the OECD's Kwiecinski underscored the importance of investing in knowledge. "Advisory and extension services would be useful in helping farmers to achieve higher yields and lower costs."

GMOs: China ‘should not be left behind'

The government will continue to expand support for genetically-modified organisms, the new policy says, in a move which government sources recognised could be controversial among some.

"So far we only have had GM plants for cotton and horticulture, not for food," one official told Bridges.

However, although the country does not grow genetically-modified soybeans, it does import them in significant amounts. In addition, a new policy introduced last year now allows Chinese farmers to grow genetically modified rice.

"That's also controversial in China," the official said.

However, he added that the country "shouldn't be left behind in technological development."

"Feeding the people"

One government official argued that the government needed to attach importance to domestic agriculture in order to be able to "feed our people."

He noted that the country is "able to keep self-sufficiency in grains at around 95 percent. The rest will be provided by trade."

"China has made huge progress in reducing hunger," acknowledged Schmidhuber.

However, the basket of grains that China sees as critical for self-sufficiency is nonetheless evolving, noted Kwiecinski. Soybeans, which the country now imports in vast quantities, previously appeared on the list - and the same could happen to maize.

What role for trade?

Trade is still important for China, not just in satisfying the demand for grain and other products that the country cannot meet alone, but also in allowing the country to export labour-intensive farm products to the rest of the world.

"That means jobs for Chinese farmers," one government official said.

China's US$34 billion trade deficit for agricultural goods expanded by 47 percent in 2011, according to recently-released figures from the ministry of agriculture. While farm exports increased by US$61 billion, or 23 percent, imports grew by US$95 billion, or 31 percent.

Despite the growth in trade, the government nonetheless continues to see the production of ‘strategic products' - wheat, corn, rice, cotton - as an area where it needs to remain self-sufficient.

"No one else can produce enough to sell to China: that's impossible," the official solemnly observed.

ICTSD reporting; "CPC Central Committee and State Council issue text on accelerating agricultural scientific and technological innovation, continue to enhance supply of agricultural support (中共中央、国务院印发《关于加快推进农业科技创新持续增强农产品供给保障能力的若干意见》(全文))," XINHUA, 1 February 2012;  "How to Boost Agro-Technology," CHINA DAILY, 3 February 2012.

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