Dim Sums: Agricultural Markets in China

The communist party's December 2013 economic work conference set "food security" as the top priority. Officials are gradually dribbling out details on a more market-oriented and flexible approach to food security. An essay by a researcher from the State Council's Development Research Center explains China's new approach to food security. The researcher, Ye Xingqing, explains that a new strategic approach to food security strategy has evolved in response to environmental pressures and resource constraints. Mr. Ye says this adjustment of strategy in response to changing circumstances is consistent with the Deng Xiaoping principle of "seeking truth from facts." Mr. Ye emphasizes that the food security strategy is formulated with a long-term view of maintaining balanced supply and demand of staple foods in China's transition to a new stage of development with a higher degree of urbanization and higher living standards. The new strategy emphasizes th...

In Jiangxi Province, Chinese officials are giving a cash bonus to encourage large-scale farmers who exceed average rice yields. A propaganda article describes a farmer with 1.5 million yuan in cash stacked in neat piles on a table in his courtyard as he counts his year-end bonus. In Poyang County, large-scale farmers who cultivate 6000 to 10,000 mu (1000 to 1650 acres) of rice get a bonus "award" if their yields exceed the average. The payment is 0.5 yuan per jin (about US$0.16/kg) for every jin over the 1,000 jin-per-mu (7500 kg/ha) average yield (from two crops of rice). The per-jin subsidy rises with the yield. If a farmer achieves a yield of 1051 to 1100 jin, the subsidy goes up to 1 yuan/jin. The subsidy is bumped up to 1.5 yuan/jin if the yield is 1100 jin or more. The award is paid out at the end of the year. Farmers are getting awards of 50,000 to 100,000 yuan ($8250-$16,500). The article doesn't explain how authorities verify the yield obtained by the farmer...

China's leadership has adopted a cautious approach toward genetically modified foods. They want to keep one food on the accelerator by pushing more research, while keeping the other foot on the brake by slowing down commercial approvals. Any research results remain bottled up in laboratories as wariness of GMOS among consumers builds. This approach raises the question, "Who will persevere in research on things that may never be used?" China's contentious GMO debate popped up at a January 22 press conference where the top agricultural policy advisor, Chen Xiwen, expounded on various topics in the central communist party leadership's "Number 1 Document" on rural policy released earlier this week. The document contained no direct mention of genetic modification, but the section encouraging innovation in agricultural science and technology included a call to "strengthen molecular breeding" as a foundation for research and biotechnology. Chen e...

China's "Number 1 Document" on rural policy released this week is schizophrenic and filled with contradictions. The leadership vacillates between capitalism and central planning. The document calls for market-guided resource allocation but it reels off ten pages of recommendations for government intervention in almost every aspect of the rural economy.  It calls for establishing stable agricultural-trading relations with other countries but also calls for "plans" and "guidance" for imports, protecting "industry security," and keeping the country's rice bowl firmly in its own hands.  It calls for adventurous reform, "exploration," and "liberated thinking," but it also cautions readers that reform must be incremental and based on Chinese distinctive features. It revives numerous relics from past decades like the supply and marketing cooperatives that were formed to serve communes, the "governor's grain bag...

China's "Number 1 document" promises more subsidies: target prices, revenue insurance, marketing loans, etc. Few people realize the difficulty of implementing and evaluating subsidy programs. Whenever subsidies are made available, people become eager to report subsidized things to the government. Statistics become meaningless and any subsidy program has enormous overhead costs to collect and verify information to catch cheaters and to determine whether programs are working. In 1995, China reported that it had 95 million hectares of cropland, the basis for the oft-cited statistics that China feeds 22 percent of the world's population on 7 percent of its farmland. In December 2013, the Ministry of Land Resources announced that its new and improved survey in 2008 (but not announced until five years later) found that China had 135 million hectares of cropland, 42-percent more than the 1995 total.  Wang Shiyuan, an official of the National Bureau of Statistics, ex...

The Agricultural Development Bank of China (ADBC) is injecting loans into China's countryside to make sure farmers can sell their commodities despite sinking prices. This looks like a financial crisis waiting to happen. In the first week of January ADBC issued a notice to its staff urging them to do a good job on issuing credit for grain and cotton purchases as the new year starts.  Staff were ordered to increase their "political awareness" and sense of responsibility to ensure that farmers get good profits, keep grain and cotton markets stable, make that farmers can sell their grain and cotton and that farmers don't get paid with IOUs.  The ADBC was spun off from the Agricultural Bank of China (ABC) in 1994 to fund government commodity procurement (allowing ABC to focus on commercial lending). ADBC slurps up funds from deposits from commercial banks placed with ADBC and by selling bonds, then lends out the money to state-owned grain and cotton procurement ope...

China's Ministry of Finance has allocated funds for this year's grain subsidies and urged local officials to link subsidies to production of grain. In doing so, they have ended the "decoupled" nature of the grain subsidy. The Ministry of Finance allocated 122.2 billion yuan (US$ 20 billion) for grain subsidies--15.1 billion yuan for the direct payment to grain producers and 107.1 billion yuan for the "general input subsidy."  These totals are unchanged from the last two years. The Ministry urged provincial and local officials to distribute the funds as soon as possible, striving to ensure farmers get the money before spring planting. The Ministry also instructed local officials to explore mechanisms that couple (挂钩) subsidy payments to production by ensuring that farmers who plant more grain get more subsidies. The objective, said the Ministry, is to motivate farmers to plant grain. The direct payment was first implemented in 13 major grain-producing ...