Monday, July 4, 2016

New Farm Subsidy Budgeting Guidelines in China

China's farm subsidy overhaul took another step forward last week as the Ministry of Finance announced regulations for distribution of funds for "support and protection" payments, including a new subsidy for support of "appropriate scale farms."

The Ministry of Finance will budget funds for the farm subsidies annually, then issue the money to the Ministry of Agriculture. It will then be passed down to provincial and county governments for distribution to farmers and other recipients. The new regulations set general guidelines for distribution of the funds, but local governments will decide the details of how much the subsidies will be and on what basis the subsidies will be awarded. With each locality determining the size and subsidy method, and with several types of distinct recipients, these subsidies will be even less transparent than China's existing farm subsidies.

As announced previously, the new subsidy will replace three existing subsidies: the direct payment to grain producers, the comprehensive input subsidy, and subsidy for improved seeds. The new subsidy system will have two parts. First, a "land fertility improvement" subsidy will go to small-scale land-holders who still plant grain on the land they contract from their village collective. This subsidy will not be given for farmland used for livestock farms, forestry, nonfarm construction, or land left idle for a long time, nor for poor quality land reclaimed to offset farmland used for construction. Provincial finance and agriculture departments will be responsible for determining which land will no long receive subsidies--the criteria may vary from province to province.

The second part is a new subsidy to support "appropriate-scale" farms that rent in land. There will be several types of recipients of this subsidy. Some of the funds will be used to set up loan guarantee companies run by local governments; some will be used for subsidized interest on farm loans. (Loan subsidies can cover no more than 50% of the interest.) Some funds will be paid to nongovernmental "farmer service organizations" which are not clearly defined, but probably include farm machinery cooperatives and advisory services offered by fertilizer, pesticide and seed companies. The regulations do not encourage giving direct payments to new-type farm operators--"appropriate scale" farmers. It appears that the funds will support loans, custom farming, and advisory services for these farms. The subsidy recipients are required to provide services to farmers, and get reimbursed afterward.

The land fertility subsidy is intended to encourage "conscious upgrades of land fertility," including utilization of crop straw and stalks, guiding farmers to plough crop residue back into the soil, sub-soil tillage, reducing use of fertilizer and pesticide, and increasing use of organic fertilizer. The regulations "encourage adoption of diverse measures and innovative methods," but there are no specifics on how authorities will link these payments to behavior by farmers.

The land fertility subsidy can be paid out to farmers based on four possible bases: the farm family's land allocation in the second round of land distribution; the family's historic land tax base; the registered contracted land area; or the area of land planted in grain.

Villagers who rent out their contracted land to an "appropriate scale" farmer seem to be eligible for the land fertility subsidy. In this instance, it's hard to imagine how a villager who rents out his/her land will ensure that the person cultivating the land will undertake the required land improvements.

Subsidy funds are to be handed over the provincial finance departments within 90 days of budgetary approval by the National Peoples Congress. The province has 30 days after forming its own budget to issue funds to counties or municipalities. It sounds like subsidies are to be issued to recipients by early-to-mid summer, at the earliest.


Godfree Roberts said...

'With each locality determining the size and subsidy method, and with several types of distinct recipients, these subsidies will be even less transparent than China's existing farm subsidies.'

Less convenient, perhaps, but not necessarily less transparent. It just means you'll have to read the provincial press releases on ag subsidies.

dimsums said...

You've obviously never tried to do this. Only a few provinces announce information about how much the subsidies are and how they are distributed. Authorities in Beijing have to send teams out to the provinces to find out how the subsidies are distributed.