Chinese authorities are intent on overhauling their bloated farm subsidy program after it spiraled out of control in its first decade. They urgently need to move on to a new generation of subsidies, but they have encountered unexpected problems in trial programs.
Economic Observer reports that agricultural subsidy programs are in the midst of a major reform. Business Reference News reports that the 13th Five-Year Plan (2016-2020) will alter grain subsidies and reform the fiscal system for disbursing the funds.
Economic Observer says there has been a lot of criticism of agricultural subsidies for their cost, ineffectiveness, and complexity. There are 50 major agricultural programs, and according to some estimates their annual cost is over 1 trillion yuan (nearly US$ 160 billion). There have been a number of motions and proposals to reform agricultural subsidies put forward at National Peoples Congress sessions during the last several years. At this year's session, the chairman of Wahaha Group called for a reform that would reduce the financial "albatross" and shift the program from a general entitlement for the rural population to one that benefits real farmers.
Officials have been experimenting with farm subsidy reforms. While the new programs look good on the drawing board, they underestimate the cleverness of farmers, local officials, and businesses to find loopholes.
Economic Observer learned that the experimental "target price" program for cotton met with many unexpected difficulties this year. Besides being extremely complicated and costly to implement, it gave cotton warehouses designated to buy cotton a kind of monopoly which enabled them to depress the price paid for the cotton. This raised the gap between the "market" price and the target, and thus expanded the subsidy payment. There were also reports of collusion between farmers and cotton dealers to maximize the subsidy payments.
One of the big criticisms of "grain" subsidies is that payments go to rural land-holders whether they plant grain or not. Many rent out their land to actual farmers who don't get any subsidies. This year, a new pilot program will lump three grain subsidies into a single payment, and it will take subsidies away from those who don't grow crops and instead give payments to new "appropriate scale" farmers who rent land from dozens of land-holders. However, Economic Observer learned that land-holders in Shanxi and Henan Province are raising the rents they charge to the "appropriate scale" farmer-tenants in order to recover their "lost" subsidies. Thus, the additional subsidies to "appropriate-scale" farmers may be eaten up by the higher rents they have to pay.
The subsidies are also hard to keep track of. With over 50 major agricultural programs, and the costs of each supported by budgets of multiple government departments at the central, provincial, and county levels, the accounting is a tangled mess and money often fails to arrive. A Chinese Academy of Social Sciences scholar revealed to Business Reference News that the initiative to consolidate three grain subsidies into a single payment is closely related to a major fiscal reform to simplify tangled government accounting that has received a lot of criticism for many years. He said that agricultural subsidies have been the biggest fiscal headache.
The National Development and Reform Commission's plan is to implement "target price" subsidies for corn, soybeans, cotton, rapeseed and sugar after successful experimentation, then introduce them for wheat and rice. However, cotton and soybean production both plummeted in the regions where the target price subsidies were trialed during 2014/15. The pilot program for consolidating grain subsidy payments is planned for national implementation in 2016--after just one year as a pilot program. This program could be disastrous if "appropriate scale" farmers have to pay higher rents while crop prices are declining.