Jikun Huang, Huanguang Qiu, and Jun Yang, Center for Chinese Agricultural Policy, CAS Scott Rozelle, Stanford Univer

1. Overview of China’s Agricultural Development and Policies Jikun Huang, Huanguang Qiu, and Jun Yang, Center for Chinese Agricultural Policy, CAS Scott Rozelle, Stanford University

2. Outline of the Presentation • Overall Introduction • Driving Forces • Institutional Change • Marketization • Investment • Concerns and Challenges • Policy responses (incorporating new policies in 12th five-year plan, and 2011 No.1 policy ) • Conclusions

3. 1. Performance of China’s agriculture in last 30 years

4. Average annual growth rate (%) of agricultural GDP Average annual growth rate in agricultural GDP was about 4 times of population growth rates.

5. Shares of output values within agricultural sector, 1980-2005, (%) Livestock and fishery have grown even faster…

6. Significant transformation of labor from agriculture to non-agriculture has also been occurring…Share of non-agri employment of rural labor,1981-2008 (source: based on CCAP’s surveys)

7. Sources of farmers’ income (%)

8. 2. Major driving forces • Institutional reform • Market liberalization -Domestic marketzation -Integration into international market • Investment into agricultural sector • Irrigation • Technology • Other

9. Total Factor Productivity for rice, wheat and maize in China, 1979-95 Maize Wheat Rice Institutional change (HRS) was major source of TFP growth in 1979-84 Source: Jin et al., 2002, AJAE

10. Integration in China’s Markets (percent of market pairs that have integrated price series) When using statistical tests (on more than 800 pairs of markets), almost all markets move together in an integrated way, up from less than ½ in the early 1990s (when markets were NOT integrated)

11. Nominal protection rates (%) in China, 1980-2005 … by the 2000s, the prices of most of China’s commodities were nearly equal to the prices of the same commodities on world markets … this means that China is VERY OPEN … these numbers are more close to those in Australia and New Zealand than Japan, Korea or Europe

12. Investment in AgricultureExpansion of irrigated land in China Million ha Nearly 50% of cultivated land

13. Government fiscal investment in agricultural research(billion yuan in 2005 price) Agricultural research investment intensity (%) in China Since 2000, the rise in research investment has been higher in China than any other country in the world …

14. Agricultural biotech research investment 2003: 1.65 billion yuan = US$ 200 million or US$ 950 million in PPP (million yuan in 2003 price) New GMO program: 26 billion yuan (US$3.8 billion) in 2009-2020 Equal or greater than US public support for plant biotech!! Huang et al., Science,29 April 2005: 688-690

15. Type of PUBLIC GOODS projects Around 2/3rds of public goods investments into 5 types of projects

16. Total Factor Productivity for rice, wheat and maize in China, 1979-94 Maize Wheat Rice After middle 1980s, technology has been major factor affecting productivity growth

17. 3. Concerns and challenges • Farm income • Agricultural economy • Demand: Food, feed andfibre • Population and income • Biofuels (global) • Supply: • Land • Water • Small farm • Environment • Trade and price • Rural economy

18. Urban income / rural income ratio 1978-2009

19. Driving forces of demand for agri/food • Population growth (++  + ) impact has been weakening… • Urbanization (+  -/+) negative impact for food grain and positive for others • Income growth (++  -/+) impact has been strong but will be weakening… • New driving forces: biofuels Weakening demand for food grainRising demand for meat (feed) and other high value products

20. Cultivated land (000 ha), 1997-2008

21. Groundwater Levels are Falling, but varies across Northern China Change in Average Water Level 1995-2004 • Increased: 8% • No Change: 17% • Decreased: 75%

22. Small farming: Challenges for labor productivity, modernizing agriculture and food safetyAverage farm size (ha/farm) Opportunity:Rising rental markets for cultivated land Source: NSBC

23. Fertilizer use intensity (kg/ha) 4th highest in the world: Japan  Korea  Holland  China

24. Trade and global food market • Trade liberalization and Doha Round • Low tariffs • SPS and other non tariff barriers • Special products for the strategic commodities • Instability and unreliable global food market In 2002

25. Agricultural export and import (billion US$)1983-2009 China has shifted from a net food exporter to importer since 2004

26. 4. Policy responses and China’s ag/rural development plans and policies • Institutional change • Marketing • Investment • Technology • Others

27. Policy responses: enhance land tenure and facilitate rental market • Rapidly increasing over time • More than 40% in developed provinces (e.g., Zhejiang)

28. Policy responses: Promote development of cooperatives (farmer organizations called: farmers professional economic cooperatives—FPCs) % Shares of villages with FPCs Sources: CCAP surveys

29. Government fiscal investment in agricultural research(billion yuan in 2005 price) Agricultural research investment intensity (%) in China Since 2000, the rise in research investment has been higher in China than most countries in the world …

30. Tax Reduction Program Completed Percent of Value of Output • Completely eliminated taxes • Farmers now pay no taxes or fees 8.1% 0

31. Agricultural subsidies (100 million yuan) Subsidies and supports have been rising significantly, but most of them are decoupled (that is, they have little affect on producer decisions / little or no distortions to China’s markets) 3.1% of agricultural GDP in 2008

32. Highlights of 12th five year plan(2011-2015) regarding rural and agricultural development • Food security and food safety • Increase farmers’ income, reduce urban-rural income gap • Increase domestic consumption, and reducing imbalance of international trade • Facilitate rural factor market development (labor, land and rural financial market) • Increase investment in agriculture and rural infrastructure, and increase farmers’ capacity to cope with extreme weather • Reducing rural and agricultural pollution • Increase rural social safety net level

33. Highlights of 2011 No.1 Central Policy • Major topic of No.1 central policy “Expediting water conservancy reform and development ” • Double investment in irrigation system in the next 10 years • Increase effective irrigated agricultural land area from 58 million ha to 60.7 million ha in the next 5 years

34. 5. Concluding remarks-Success in the past but still a list of concerns • Demand: • Rising demand for high value products (e.g. meat) • Supply: • Land • Water • Small farm • Environment • Trade and global food market • NTBs (e.g., SPS) • Instability of global markets

35. Concluding remarks: policy responsesNational food security – primary goal of policy • Demand: Biofuels – cautious strategy • Supply-side: • Institutional changes: • Enhance land use rights • Promote cultivated land rental market • Develop farmer cooperatives • Continue to promote labor market development • Invest in agriculture • Infrastructure • Technology

36. Concluding remarks: Trade • China’s market has been increasingly integrating into global markets. • While the export of labor-intensive products will rise, the import of land-intensive products will also significantly rise: • China in 2010 imports 55 million tons of soybean and is expected to import more in the future • China has turned from an exporter of maize to an importer in 2010, and is expected to be the largest importer of maize in the future • China will become even more important in both imports and exports in the world markets

37. Potential impacts and response to the latest winter drought • Facts: • 42 percent (about 7 million ha) of winter wheat area are severely affected by the long drought • There were some snows on this February, but still far from enough. • Potential impacts: • drop in wheat production? • Impacts on international food price? • Increase food price in China? • Policy responses: • Allocated RMB12.9 billion to boost grain output and alleviate drought • 1,000 wells are being drilled, with the involvement of 5,000 technical staffs and 500 drilling machines