China's Farm Policy Hints at New Market Orientation, Maize Reforms
China’s farm policy will be “modernised,” the government has said, with a movement towards more market-oriented policies in areas such as the maize sector. However, farm subsidies aimed at narrowing the growing income gap between urban and rural areas are likely to remain a central feature of the Asian country’s agricultural policy, sources said.
The new approach is spelled out in an annual government white paper named “Policy Document No. 1.” Timed to coincide with the Chinese New Year, it is widely seen as setting out the government’s broad policy orientation on a key priority – and for the last thirteen years has focused on agriculture. (See Bridges Weekly, 8 February 2012, 13 February 2013, 23 January 2014, and 26 February 2015).
Buried deep in the text is a commitment to “push forward the reform of the maize purchasing and storage system, and reflect market supply and demand in corn prices.” While the timing and specifics of the new approach remain unclear, trade sources told Bridges that Beijing was believed to favour making compensation payments to farmers when prices fell short of a target price, instead of purchasing stocks to support prices when these fell below a pre-established floor.
“Government support would not be related to price: it would be decoupled,” one source familiar with the proposed maize policy reforms told Bridges.
China has already introduced a similar reform in the cotton and soybean sector, which experts said had helped reduce distortions on markets for the products concerned. (See Bridges Weekly, 23 January 2014)
In other signs that Beijing is seeking to modernise its farm sector, Reuters reported on Wednesday that the Chinese state-owned company ChemChina had agreed a US$43 billion bid for the Swiss agro-chemical giant Syngenta. News reports said that the purchase was the largest ever foreign purchase by a Chinese firm.
Ballooning farm stockpiles
Intervening directly on markets for key commodities has led government stockpiles to grow rapidly over the past few years, sources said.
A growing gap between domestic and international prices has “led to mounting warehousing costs and costs of market price support and increasing pressure to import more from the world market,” said Wusheng Yu, Associate Professor in the Department of Food and Resource Economics at the University of Copenhagen.
At the same time, the low tariff barriers that Beijing agreed to nearly 15 years ago as part of its onerous WTO accession package have meant that trading firms have favoured cheap foreign imports over domestic production.
“They have a huge problem,” said Andrzej Kwieciński, senior agricultural policy analyst at the Organisation for Economic Cooperation and Development (OECD).
Kwieciński told Bridges that it was still unclear to what extent the new policy would “decouple” farm support from production.
However, a source familiar with the new strategy said that there was no doubt that the government had decided to move towards greater market orientation for some key commodities over the next five years.
“The direction is quite clear,” the source commented to Bridges.
At the same time, the policy document clarifies that wheat and rice will still be purchased at government-set prices, while cotton and soybeans in the Xinjiang region would continue to be procured under the target price system introduced under recent reforms.
Recognising the importance of world markets in supplying farm goods represents a “major change of strategic thinking,” said Yu.
Beijing has historically aimed at near total self-sufficiency for a basket of key food grains such as wheat and rice, with a numerical target for doing so. However, the new document simply states that the government will seek to ensure self-sufficiency in food grains, without specifying a target share for domestic production.
Raising rural incomes
Structural transformation of the economy, along with new social security policies, would be needed to lift millions more people out of poverty, the document says.
However, decoupled payments to support farm incomes is also expected to remain a central aspect of the government’s approach, sources said.
“The support for agriculture should not be weakened,” one source told Bridges.
Chinese farm subsidies have increased rapidly in recent years. Beijing’s most recent agricultural domestic support notification to the WTO indicated that the country had spent around US$18 billion in trade-distorting farm payments in 2010, while another US$78 billion was classified as only minimally trade-distorting under the global trade body’s rules. (See Bridges Weekly, 13 May 2015)
“The three input subsidy programs on grain production, seed varieties, and inputs are to be combined,” said Professor Yu, who told Bridges that the move could signal the government’s intention to dissociate these subsidies from actual production decisions.
“A comprehensive approach”
Other sections of the document also spell out how Beijing plans to make rural areas more competitive, more environmentally sustainable, more economically diversified, and better integrated with urban areas, including through investment in public goods.
It also reaffirms the government’s commitment to tackling the three “nongs” or three rural issues – agriculture, farmers, and the countryside.
“It’s very comprehensive,” said one source who cautioned against focusing on the proposed maize market reforms in isolation.
ICTSD reporting; “China seeks food security with $43 million bid for Syngenta,” REUTERS, 3 February 2016.