Jikun Huang, Huanguang Qiu, and Jun Yang,

Center for Chinese Agricultural Policy, CAS

Scott Rozelle, Stanford University

Overview of China’s Agricultural Development and Policies

Outline of the Presentation• Overall Introduction

• Driving Forces– Institutional Change– Marketization– Investment

• Concerns and Challenges• Policy responses (incorporating new policies in 12th

five-year plan, and 2011 No.1 policy )

• Conclusions

1. Performance of China’s agriculture in last 30 years

Average annual growth rate (%) of agricultural GDP

0

1

2

3

4

5

6

7

8

1979-84 1985-95 1996-00 2001-05 2006-10

Average annual growth rate in agricultural GDP was about 4 times of population growth rates.

Shares of output values within agricultural sector, 1980-2005, (%)

Livestock and fishery have grown even faster…

0

10

20

30

40

50

60

70

80

90

100

1980 1985 1990 1995 2000 2005 2009

Forestry

Fishery

Livestock

Crop

0

0.1

0.2

0.3

0.4

0.5

0.6

Full timeFull time + seasonalFull time + seasonal + part time

Significant transformation of labor from agriculture to non-agriculture has also been

occurring…

Share of non-agri employment of rural labor,1981-2008 (source: based on CCAP’s surveys)

Sources of farmers’ income (%)

0

10

20

30

40

50

60

70

80

90

1978 1980 1985 1990 1995 2000 2005 2008

Agri cul ture Non-agri cul ture

• Institutional reform• Market liberalization

-Domestic marketzation-Integration into international market

• Investment into agricultural sector• Irrigation• Technology• Other

2. Major driving forces

Total Factor Productivity for rice, wheat and maize in China, 1979-95

50

100

150

200

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

Rice

Wheat

Maize

Institutional change (HRS) was major source of TFP growth in 1979-84

Source: Jin et al., 2002, AJAE

Integration in China’s Markets (percent of market pairs that have integrated price series)

1991-92 1997-00 2001-2003

Corn 46 93 100

Soybean 56 95 98

When using statistical tests (on more than 800 pairs of markets), almost all markets move together in an integrated way, up from less than ½ in the early 1990s (when markets were NOT integrated)

Nominal protection rates (%) in China, 1980-2005

-80

-60

-40

-20

0

20

40

60

80

1980-1993 1994-2001 2002-2005

Rice Wheat Soybean Milk Pork Vegetable

… by the 2000s, the prices of most of China’s commodities were nearly equal to the prices of the same commodities on world markets … this means that China is VERY OPEN … these numbers are more close to those in Australia and New Zealand than Japan, Korea or Europe

Investment in AgricultureExpansion of irrigated land in China

0

10

20

30

40

50

60

1950 1960 1970 1980 1990 2000 2010

Million ha Nearly 50% of cultivated land

Agricultural research investment intensity (%)

in China

0

2

4

6

8

10

12

1990 1995 2000 2005

Government fiscal investment in

agricultural research(billion yuan in 2005 price)

Since 2000, the rise in research investment has been higher in China than any other country in the world …

Agricultural biotech research investment

0

200

400

600

800

1000

1200

1400

1600

1800

1986 1988 1990 1992 1994 1996 1998 2000 2002

Plant Agriculture

Huang et al., Science, 29 April 2005: 688-690

(million yuan in 2003 price)

2003: 1.65 billion yuan = US$ 200 million or US$ 950 million in PPP

New GMO program:26 billion yuan (US$3.8 billion) in 2009-2020

Equal or greater than US public support for plant biotech!!

Type of PUBLIC GOODS projects

Around 2/3rds of public goods investments into 5 types of projects

Clinic, 3Drinkingwater, 11

Irrigation,14

Schools,14

Roads, 21Otherpublic

projects,37

Total Factor Productivity for rice, wheat and maize in China, 1979-94

50

100

150

200

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

Rice

Wheat

Maize

After middle 1980s, technologyhas been major factor affectingproductivity growth

3. Concerns and challenges

• Farm income

• Agricultural economy– Demand: Food, feed and fibre

• Population and income• Biofuels (global)

– Supply:• Land• Water• Small farm• Environment

– Trade and price

• Rural economy

Urban income / rural income ratio 1978-2009

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Driving forces of demand for agri/food

• Population growth (++ + )impact has been weakening…

• Urbanization (+ -/+)negative impact for food grain and positive for others

• Income growth (++ -/+)impact has been strong but will be weakening…

• New driving forces: biofuels

Weakening demand for food grainRising demand for meat (feed) and other high value products

Cultivated land (000 ha), 1997-2008

0

20000

40000

60000

80000

100000

120000

140000

1997 2001 2005

Groundwater Levels are Falling, but varies across Northern China

Change in Average Water Level 1995-2004

• Increased: 8%

• No Change: 17%

• Decreased: 75%

Small farming: Challenges for labor productivity, modernizing agriculture and food safety

Average farm size (ha/farm)

0

0. 1

0. 2

0. 3

0. 4

0. 5

0. 6

0. 7

0. 8

1984 1987 1990 1993 1996 1999 2002 2005 2008

Source: NSBC

Opportunity:Rising rental markets for cultivated land

Fertilizer use intensity (kg/ha)

4th highest in the world: Japan Korea Holland China

0

50

100

150

200

250

300

350

1965 1970 1975 1980 1985 1990 1995 2000 2004

China

World

Trade and global food market

• Trade liberalization and Doha Round– Low tariffs– SPS and other non

tariff barriers– Special products for

the strategic commodities

• Instability and unreliable global food market

6.4

17.2

0

5

10

15

20

China's tariff Tariff imposed onChina's products

In 2002

Agricultural export and import (billion US$)1983-2009

0

10

20

30

40

50

60

70

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Export Import

China has shifted from a net food exporter to importer since 2004

4. Policy responses and China’s ag/rural development plans and policies

• Institutional change

• Marketing

• Investment– Technology– Others

Policy responses: enhance land tenure and facilitate rental market

• Rapidly increasing over time

• More than 40% in developed provinces (e.g., Zhejiang)

Land Rented-In

02468

101214161820

1988 1995 2000 2005 2008

Per

cent

Policy responses: Promote development of cooperatives (farmer organizations called: farmers

professional economic cooperatives—FPCs)

Sources: CCAP surveys

0

5

10

15

20

25

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Shares of villages with FPCs

%

Agricultural research investment intensity (%)

in China

0

2

4

6

8

10

12

1991 1993 1995 1997 1999 2001 2003 2005

Government fiscal investment in

agricultural research(billion yuan in 2005 price)

Since 2000, the rise in research investment has been higher in China than most countries in the world …

Tax Reduction Program Completed

• Completely eliminated taxes

• Farmers now pay no taxes or fees

0

2

4

6

8

10

2003 2007

0

8.1%

Percent of Value of Output

Agricultural subsidies (100 million yuan)

0

200

400

600

800

1000

1200

2004 2005 2006 2007 2008

OthersAggregate inputsMachinerySeedGrain

Subsidies and supports have been rising significantly, butmost of them are decoupled (that is, they have little affect on producer decisions / little or no distortions to China’s markets)3.1% of agricultural GDP in 2008

Highlights of 12th five year plan(2011-2015) regarding rural and agricultural development

• Food security and food safety• Increase farmers’ income, reduce urban-rural

income gap• Increase domestic consumption, and reducing

imbalance of international trade• Facilitate rural factor market development (labor,

land and rural financial market)• Increase investment in agriculture and rural

infrastructure, and increase farmers’ capacity to cope with extreme weather

• Reducing rural and agricultural pollution• Increase rural social safety net level

Highlights of 2011 No.1 Central Policy

• Major topic of No.1 central policy “Expediting water conservancy reform and development ”

• Double investment in irrigation system in the next 10 years

• Increase effective irrigated agricultural land area from 58 million ha to 60.7 million ha in the next 5 years

5. Concluding remarks-Success in the past but still a list of concerns

• Demand: – Rising demand for high value products (e.g. meat)

• Supply:– Land– Water– Small farm– Environment

• Trade and global food market– NTBs (e.g., SPS)– Instability of global markets

Concluding remarks: policy responsesNational food security – primary goal of policy

Demand: Biofuels – cautious strategy Supply-side:

• Institutional changes:–Enhance land use rights–Promote cultivated land rental market–Develop farmer cooperatives–Continue to promote labor market

development

• Invest in agriculture–Infrastructure–Technology

Concluding remarks: Trade

• China’s market has been increasingly integrating into global markets.

• While the export of labor-intensive products will rise, the import of land-intensive products will also significantly rise:

• China in 2010 imports 55 million tons of soybean and is expected to import more in the future

• China has turned from an exporter of maize to an importer in 2010, and is expected to be the largest importer of maize in the future

• China will become even more important in both imports and exports in the world markets

Potential impacts and response to the latest winter drought

• Facts: – 42 percent (about 7 million ha) of winter wheat area are

severely affected by the long drought– There were some snows on this February, but still far from

enough.• Potential impacts:

– drop in wheat production? – Impacts on international food price?– Increase food price in China?

• Policy responses:– Allocated RMB12.9 billion to boost grain output and

alleviate drought – 1,000 wells are being drilled, with the involvement of 5,000

technical staffs and 500 drilling machines