When China introduced direct subsidies to farmers in 2004, the subsidies were generally paid out on the basis of each farm family's land holding. This was partly by design and partly out of practicality. By linking the subsidy to an historical base instead of actual production or sales of grain, the payment is considered "decoupled" and is excluded when the World Trade Organization calculates whether support falls under China's limit on "market-distorting" support. The practicality is that it is impossible to collect and verify actual planting and production by 200 million farmers.
There is some grumbling in China about the weak incentives given by grain subsidies. There is also consternation about the practice of paying subsidies to land "owners" who may not actually grow anything on their land. Farmers who rent land from others don't get any subsidies.
In recent years there has been a trend among some localities to pay out grain subsidies based on the volume of grain sold to a state-owned grain enterprise--a coupled method. The latest locality to adopt this re-coupled method is Nanning City in Guangxi Province. According to the Nanning Evening News, farmers who contract with the local government's grain depots to sell rice get a subsidy of 0.12 yuan for each 500g delivered. The rice is sold at the minimum purchase price of 1.33 yuan/500g, so the farmer receives a total of 1.45 yuan/500g. As of October 21, Nanning authorities had procured 705,000 metric tons of early-season rice and paid out 16 million yuan in subisides. This was 80 percent of the planned total.
Such subsidies for rice sold to local government grain depots are used in many areas of southeastern China. In Hangzhou, the subsidy has been raised this year to 0.3 yuan per 500g for early and mid-season rice. Last year the subsidy was .25 yuan for early rice and .23 yuan for middle season rice. The Hangzhou subsidy is given to "large farms" and cooperatives. Hangzhou also has a subsidy for drying grain of 80 yuan/metric ton (that works out to 0.04 yuan/500g).
While the subsidies described above are only given to farms that deliver grain to local reserves, the city of Ordos in Inner Mongolia has begun giving its general grain subsidy based on grain sales. The subsidy is a less-generous .05 yuan/500g. An article about the Ordos subsidy links the decoupled method to the traditional mode of small-scale farms and describes the subsidy based on grain sales as more appropriate for the new era of modern farming. The Ordos article explains that "new countryside construction" entails moving peasants into residential communities and pooling their land in big farming operations. The article says economic returns to land must be higher to make this model work, and the government needs to investigate subsidy methods that encourage production by commercial scale farms and cooperatives.
A September article in a Chinese journal describes the subsidy based on grain sales as a "so-called" price subsidy that gives farmers stronger production incentives than other methods and allows the government to pay different subsidies for different kinds of grain. However, the writer cautions that this subsidy encourages the restoration of a government monopoly over grain marketing since the subsidy is paid for grain sold to state-owned enterprises. The article calls for subsidies based on actual production of grain, but this would not be practical since it would require collecting and verifying huge amounts of information on subsidy recipients.
The original de-coupled subsidies were designed to spread cash far and wide over a countryside populated by peasant farmers grumbling about taxes, fees, and lagging incomes. Now that the peasants have been streaming out of the countryside for jobs in factories, construction sites and restaurants, officials are looking more closely at ways of changing the mode of farming and subsidy methods.
According to the article cited above, the subsidy based on grain sales is used in eight provinces (Xinjiang, Hebei, Zhejiang, Fujian, Guangxi, Hubei, Guizhou and Sichuan) and 14 provinces link their subsidy to area planted. If this is accurate, then the majority of provinces use coupled methods while China is reporting to the WTO that its subsidies are de-coupled.
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