proliferation of subsidies in china: helpful or harmful? fred gale
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Proliferation of subsidies in China: Helpful or Harmful? Fred Gale. China’s spending on agricultural support has been rising rapidly. Since 2009, officials have also been raising support prices. Source: ERS analysis of data from China National Development and Reform Commission. - PowerPoint PPT PresentationTRANSCRIPT
Proliferation of subsidies in China: Helpful or Harmful?
Fred Gale
China’s spending on agricultural support has been rising rapidly
2004 2005 2006 2007 2008 2009 2010 2011 20120
5
10
15
20
25
30
35
China expenditures on major agricultural subsidy programs, 2004-12
Billi
on d
olla
rs
General inputsubsidy for grain producers
AgriculturalmachineryImproved seed Direct payment tograin producers
Agricultural insurance
County "awards"
Source: ERS analysis of data from China Ministry of Finance.
Since 2009, officials have also been raising support prices
Source: ERS analysis of data from China National Development and Reform Commission
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140
20
40
60
80
100
120
140
160
China support prices for wheat and rice, 2004-2014
Yuan
per
50
kg
Rice
Wheat
China and U.S. Agriculture: More in common than we might think
1976 Chinese poster: “Reap an abundantHarvest; store grain everywhere.”
191019111913191519171918192019221924192519271929193119320.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
U.S. corn prices, 1910-33
Dolla
rs p
er b
ushe
l
In the 1930s, USDA Secretary Henry Wallace advocated creation of an “ever normal granary”—a buffer stock to stabilize prices.…This idea was borrowed from the Chinese
Stabilizing prices was a big concern for U.S. policymakers in the early 20th century.
Source: USDA, ERS analysis of data from National Agricultural Statistics Service.
1910191819271936194519531962197119801988199720060.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
U.S. corn prices, 1910-2013Do
llars
per
bus
hel
1933AgriculturalAdjustment
Act
However, the United States never found a satisfactory means of achievinglong-term stability in prices without unintended side effects.
Source: USDA, ERS analysis of data from National Agricultural Statistics Service.
2000200120032004200620072009201120120
2
4
6
8
10
12
China-U.S. corn prices--a yawning gapDo
llars
per
bus
hel
China
U.S. Gulf price
Decline in global prices has disrupted a Chinese strategy ofengineering ever-rising prices
Source: USDA, China National Grain and Oils Information Center, China Ministry of Agriculture
1 2 3 4 5 6 7 8 9 10 11 12 13
0
10,000
20,000
30,000
40,000
50,000
60,000
China cotton consumption declined as stockpiling elevated price
Ending Stocks
Domestic Consumption
28% decline inChina cotton use
High Chinese soybean pricesMade imported soybeans more attractive
Chinese authorities announced plans to move away from price supportsfor soybeans and cotton
Source: USDA production, supply and distribution estimates
Chinese cartoon depicts a foreignerFilling the “Chinese market” with “importedSoybeans.” Farmer holds a small bag of “domestic soybeans.”
China’s “target price” experimentChinese policymakers envision a system that alternates between subsidies to farmers and consumers, depending on market prices.
Chinese policymakers envision this: …but will market prices evolve like this?
Subsidies are a sign of weakness, not strength19
95
1996
19
97
1998
19
99
2000
20
01
2002
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03
2004
20
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2006
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07
2008
20
09
2010
20
11
2012
20
13 0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
China's agricultural imports from major supplying countries; Imports rise despite increasing domestic support
From United StatesBrazilSoutheast AsiaAustraliaCanadaNew ZealandArgentina
ChinajoinedWTO
Chinabegansubsidyprograms
Beganraisingprice supports
Raising productivity is the key toimproved returns for farmers and food security
“High standard field” project Using drones to spray wheat fields
However, China’s institutional problems undermine sustained productivity improvements
With vague property rights and weak rural banking systems, fixedasset investment in Chinese agriculture relies heavily on Government campaigns.Investments often are unprofitableand fall into disrepair after the initialcampaign is completed.
Abandoned greenhouse structures from past investment campaigns are common in the Chinese countryside.
Und
er 2
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4
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65 a
nd o
lder
20 o
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21-3
0
31-4
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41-5
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51-6
0
60 o
r old
er
0
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20
25
30
Aging farm population: common during urbanization
Age of farmers
Perc
ent o
f far
mer
s
United States, 1950 China, 2006
China is concerned about its aging population of farmers…very similar to concerns in the United States during the last century
Source: Agricultural censuses, U.S. 1950 and China 2006
Challenges to building a sustained relationship with China in agriculture
• Opacity of Chinese policy-making and implementation
• Conflicts over how agricultural prices are determined
• Technology cannot replace efficient mechanisms for allocating land, capital and human resources
Growth and Evolution in China’s Agricultural Support Policies by Fred GaleEconomic Research Report No. 153, August 2013http://www.ers.usda.gov/publications/err-economic-research-report/err153.aspx
“U.S. Exports Surge as China Supports Agricultural Prices” by Fred GaleAmber Waves (ERS online magazine), October 2013
For more information on China’s agricultural support…