Rural China will gain if Beijing cultivates change in farm support schemes
Wusheng Yu says direct payments and more open farm trade can help China to reduce agricultural support costs and so free up resources for rural development needs
With the government setting high minimum prices for its procurement programmes for key commodities, stockpiles have ballooned, as global prices fell from their peaks six years ago. In 2015, prices in China for soybeans, maize, rice, and wheat were all at least double world market rates.
With domestic support prices high, and restrictive import quotas and high over-quota tariffs limiting competition from cheaper imported goods, farm output for these has continued to expand. In the decade up to 2015, total production of rice, wheat and maize grew by 38 per cent.
China producing more grain than ever
Government stocks for many products now exceed the amount China consumes over several months. The domestic stocks to consumption ratio in 2015 is estimated to have risen to 166 per cent for cotton, 87 per cent for wheat, 51 per cent for maize and 44 per cent for rice.
Recent reforms have sought to reduce the fiscal burden of current policies, disconnect the role of farm subsidies from price formation, and begin improving the market orientation of domestic agriculture. At the same time, the authorities want to safeguard rural livelihoods and food security.
For cotton and maize, the government’s compensatory payments now go directly to producers whenever prices fall below a pre-set target – instead of a minimum price floor backed by government stockpiling. However, the wheat and rice markets are still regulated through the minimum price system.