Corn and soybean growers will each get subsidy payments for their 2017/18 crop in China's largest grain-producing province, as officials try to coordinate subsidies for different crops to engineer a shift from corn (China has a surplus) to soybeans (China has a shortage).
A May 9, 2017 announcement by Heilongjiang Province said farmers in the province will get subsidies based on the land area they plant in corn and in soybeans. The announcement promised that the soybean subsidy will be larger than the corn subsidy to encourage farmers to shift acreage from corn to soybeans, but the amount of the subsidies will not be determined until later in the season. Payments will be distributed to farmers by September 15, 2017.
The determination of the subsidies will occur over the next three months through a gigantic bureaucratic process. Statistical, financial, price bureau, and state farm officials at four levels of government will compile land area statistics and determine funding for the subsidies in order to set the payment per unit of land.
From June to August, officials in Heilongjiang's villages and state farms will compile information on farmer ID numbers, land plots, and area planted in each crop. They will publicly post lists of farmers and land area, giving farmers a chance to identify neighbors reporting exaggerated or false numbers. After the land numbers are verified, they are compiled and passed up to the county, prefecture, or state farm bureau. Only farmers who grow the crops can get subsidies. Farmers who rent land must have rental contracts that specify which party is entitled to the subsidy. Farmers cannot get subsidies for crops planted on land not designated for crop production or on illegally reclaimed land. Nor can farmers get subsidies for crops grown on land in the program that pays farmers to convert land to forests or grassland.
The central government will allocate a lump sum for each of the subsidies to Heilongjiang Province. Provincial authorities will then divide the corn and soybean subsidy funds among the counties, prefectures, and state farm bureau. These local officials will then determine the local subsidy by dividing the funds by the amount of corn/soybeans planted in their region. Thus, the amount of the subsidy for each crop will differ across localities within the province.
The dual payments for corn and soybeans in Heilongjiang are the latest development in China's evolving approach to subsidizing farmers. After China joined the WTO in 2001, officials began experimenting with subsidy payments. The national program launched in 2004 featured two subsidies, tax relief, and market-determined prices buttressed by a minimum price floor. One payment was intended to encourage use of improved strains of seeds, but it morphed into a subsidy for local seed companies. Another initiative was to give out small subsidies to grain farmers as a basic entitlement to build goodwill with the rural population. A third measure was to eliminate taxes on farmers collected by local officials. The grain marketing system was mostly privatized and a floor was set under wheat and rice prices.
The small payments proved ineffectual during the grain price spike of 2006-08 and the stimulus-driven inflation of 2009-12. Authorities then turned to jacking up floor prices to encourage farmers to keep planting grain and oilseeds. Raising soybean price floors in Heilongjiang was an immediate disaster because guaranteeing a price for domestic soybeans simply encouraged processing plants to import even more soybeans, leaving the government holding the expensive domestic beans. The soybean price floor lasted only four years and was replaced with a trial target price subsidy payment in 2014. The three-year target price trial was completed in 2016, and this year authorities elected to move to a subsidy payment not directly tied to soybean prices.
It took longer for authorities to realize the corn price floor was a disaster. Guaranteeing a minimum price for corn in Heilongjiang--where supply far exceeds demand--resulted in a massive glut now held by the government's reserve corporation. The corn price floor was finally abandoned in 2016 and replaced with a corn producer subsidy payment.
So this year Heilongjiang has dual subsidy payments for corn and soybeans. Farmers planted their crops based on an assurance that the subsidy for soybeans will be higher than the subsidy for corn. According to the announcement, farmers will also receive "guidance" to plant more soybeans.
Heilongjiang is also one of China's top rice-producing provinces and it also has a glut of this crop. In 2017, the minimum price for japonica rice was cut for the first time to prevent farmers from shifting land into rice--the only crop in Heilongjiang that still has a price floor.
Heilongjiang farmers also receive the "support and protection" payment for grain producers.
The dual subsidy payments for soybeans and corn are described by officials as a market-oriented policy that lets market prices determine supply and demand. Nevertheless, officials are still intent on tweaking subsidies to engineer the composition of farm output.
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