ISSN: 1449-7433

Australian Centre for International Agricultural Research (ACIAR) Project: ADP/2002/021

Sustainable Land Use Change in the

North West Provinces of China Research Reports

Research Report No. 3

Livelihood Impacts of the Conversion of

Cropland to Forest and Grassland Program By Chen Xie, Jincheng Zhao, Dan Liang,

Jeff Bennett, Lei Zhang, Guangcui Dai and Xuehong Wang June 2005

About the authors Chen Xie is Associate Professor, China National Forestry Economics and Development Research Centre, State Forestry Administration. Jincheng Zhao is Associate Researcher, China National Forestry Economics and Development Research Centre, State Forestry Administration. Dan Liang is Associate Researcher, China National Forestry Economics and Development Research Centre, State Forestry Administration. Jeff Bennett is Professor of Environmental Management, Asia Pacific School of Economics and Government, Australian National University, Australia. Lei Zhang is Professor and Director-General, China National Forestry Economics and Development Research Centre, State Forestry Administration. Guangcui Dai is Professor and Deputy Director-General, China National Forestry Economics and Development Research Centre, State Forestry Administration. Xuehong Wang is PhD student, Asia Pacific School of Economics and Government, Australian National University.

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Acknowledgements

The contributions of many people in the preparation of this research report are

acknowledged. The following people have been involved in various research tasks

including questionnaire design, field surveying, data inputing, checking and analysis,

and translating: Fucai Hao, Sandan Li, Baojun An, Zhu Zhu, Zhanliang Xin, Tian Yang,

Yirong Xiao, Buyun Zhang, Feng Su, Chang’an Wei, Weiming Ma, Gacai Ma, Jinzhang

Wang, Haihua Jiang, Decai Zhang, Yongwei Liang, Ying Yu, Hua Wang, Zhitao Zhang

and Li Jiang.

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Sustainable Land Use Change in the North West Provinces of China Research Reports are published by the Asia Pacific School of Economics and Government at the Australian National University, Canberra, ACT, 0200, Australia. These reports present discussion and preliminary findings of the research project ‘Sustainable Land Use Change in the North West Provinces of China’. This project is a collaborative project between the Australian National University and China National Forestry Economics and Development Research Centre being funded by the Australian Centre for International Agricultural Research (ACIAR). The views and interpretations expressed in these papers are those of the author(s) and should not be attributed to the organisations associated with the project. Because these reports present the results of work in progress, they should not be reproduced in part or in whole without the authorisation of the Australian Research Project Leader, Professor Jeff Bennett and the Chinese Project Leader, Professor Zhang Lei. Any comments on these reports will be gratefully received and should be directed to: Professor Jeff Bennett Asia Pacific School of Economics and Government The Australian National University ACTON ACT 0200 Australia Telephone: +61 2 6125 0154 Facsimile: +61 2 61258448 Email: Jeff.Bennett@anu.edu.au

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Table of Content

1 INTRODUCTION 9

2 LITERATURE REVIEW 10

3 HYPOTHESIS 12

4 METHODOLOGY 13

4.1 Sample Selection 13

4.2 Description of Sampled Counties 14

4.3 Questionnaire Design 16

4.4 Survey Logistics 16

5 RESULTS 17

5.1 Sample Characteristics 17

5.2 Landuse 1 5.2.1 Landuse: Pre-CCFGP 20 5.2.2 Landuse: post-CCFGP 21

5.3 Application of the CCFGP 25

5.4 Impact of the CCFGP 26 5.4.1 Price and output forecasts 26 5.4.2 Revenues 32 5.4.3 Costs 51 5.4.4 Net Profits 61 5.4.5 Difference between Net Profits With and Without the Program 66

6 SENSITIVE ANALYSIS 70

6.1 Impact of the Program Subsidy 71

6.2 Impact of inceased price falls 74

7 CONCLUSION 79

REFERENCE 83

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List of Tables

Table 1 Geographical distribution of sampled households 14

Table 2 Characteristics of the samples 17

Table 3 Differences between samples 15

Table 4 Comparison with county population 18

Table 5 SFA sample characteristics 19

Table 6 Comparison with SFA sample 19

Table 7 Land areas: pre-CCFGP 20

Table 8 Primary crop areas: pre-CCFGP 21

Table 9 Land areas: post-CCFGP 22

Table 10 Primary species planted under the CCFGP 22

Table 11 Primary crop sown area in the four counties post-CCFGP 23

Table 12 Landuse change before and after CCFGP in sampled households 24

Table 13 Application of the CCFGP 25

Table 14 Planting density of main afforestation species 27

Table 15 Output forecasts: Binxian 28

Table 16 Price forecasts: Binxian 28

Table 17 Output forecasts: Ansai 29

Table 18 Price forecasts: Ansai 29

Table 19 Output forecasts: Gonghe 30

Table 20 Price forecasts: Gonghe 30

Table 21 Output forecasts on CCFGP land: Minhe 31

Table 22 Price forecasts on CCFGP land: Minhe 31

Table 23 Average farm household revenue pre- and post-CCFGP (Binxian) 36

Table 24 Average farm household revenue pre- and post-CCFGP (Ansai) 37

Table 25 Average farm household revenue pre- and post-CCFGP (Gonghe) 45

Table 26 Average farm household revenue pre- and post-CCFGP (Minhe) 47

Table 27 Revenue in the four counties pre- and post-CCFGP 48

Table 28 Average cost per farm household pre- and post-CCFGP (Binxian) 49

Table 29 Average cost per farm household pre- and post-CCFGP (Ansai) 51

Table 30 Average cost per farm household pre- and post-CCFGP (Gonghe) 53

Table 31 Average cost per farm household pre- and post-CCFGP (Minhe) 55

Table 32 NPV of net profits difference at different discount rate 66

Table 33 Impact of the subsidy on net profits difference of the sampled household 70

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Table 34 Impact of forest and grass price falls on net profits difference of the sampled

households 73

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List of Figures

Figure 1 Crop revenue per farm household pre- and post-CCFGP (Binxian) 33 Figure 2 Livestock revenue per farm household pre- and post-CCFGP (Binxian) 34 Figure 3 Average forest and grass revenue per household from the CCFGP land on sampled farms (Binxian) 35 Figure 4 Average revenue per farm household pre- and post-CCFGP (Binxian) 36 Figure 5 Crop revenue per farm household pre- and post-CCFGP (Ansai) 37 Figure 6 Livestock revenue per farm household pre- and post-CCFGP (Ansai) 38 Figure 7 Average Forest and grass revenue per household from CCFGP areas on sampled farms (Ansai) 39 Figure 8 Average revenue per farm household pre- and post-CCFGP (Ansai) 38 Figure 9 Crop revenue per farm household pre- and post-CCFGP (Gonghe) 42 Figure 10 Livestock revenue per farm household pre- and post-CCFGP (Gonghe) 43 Figure 11 Average Forest and grass revenue per household from CCFGP areas on sampled farms (Gonghe) 44 Figure 12 Average revenue per farm household pre- and post-CCFGP (Gonghe) 46 Figure 13 Crop revenue per farm household pre- and post-CCFGP (Minhe) 47 Figure 14 Livestock revenue per farm household pre- and post-CCFGP (Minhe) 48 Figure 15 Average forest and grass revenue per household from CCFGP areas on sampled farms (Minhe) 46 Figure 16 Average revenue per farm household pre- and post-CCFGP (Minhe) 51 Figure 17 Forest/ grass costs per farm household (Binxian) 50 Figure 18 Average costs per household pre- and post-CCFGP (Binxian) 54 Figure 19 Forest/grass costs per farm households (Ansai) 55 Figure 20 Average production costs per farm household pre- and post-CCFGP (Ansai) 56 Figure 21 Forest/grass costs per farm household (Gonghe) 58 Figure 22 Average costs per farm household pre- and post-CCFGP (Gonghe) 58 Figure 23 Forest/grass costs per farm households (Minhe) 56 Figure 24 Average costs per farm household pre- and post-CCFGP (Minhe) 60 Figure 25 Total revenue, costs and profits per farm household pre-CCFGP (Binxian) 61 Figure 26 Total revenue, costs and profits per farmer household post-CCFGP (Binxian) 62 Figure 27 Total revenue, costs and profits per farm household pre-CCFGP (Ansai) 63 Figure 28 Total revenue, costs and profits per farm household post-CCFGP (Ansai) 63 Figure 29 Total revenue, costs and profits per farm household pre-CCFGP (Gonghe) 64 Figure 30 Total revenue, costs and profits per farm household post-CCFGP (Gonghe) 65 Figure 31 Total revenue, costs and profits per farm household pre-CCFGP (Minhe) 66 Figure 32 Total revenue, costs and profits per farm household post-CCFGP (Minhe) 66 Figure 33 Net profits difference per farm household (Binxian) 67 Figure 34 Net profits difference per farm household (Ansai) 68 Figure 35 Net profits difference per farm household (Gonghe) 69 Figure 36 Net profit difference per farm household (Minhe) 70 Figure 37 Impact of the subsidy on net profits difference per farm household (Binxian) 71

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Figure 38 Impact of the subsidy on net profits difference per farm household (Ansai) 72 Figure 39 Impact of the subsidy on net profits difference per farm household (Gonghe) 73 Figure 40 Impact of the subsidy on net profits difference per farm household (Minhe) 74 Figure 41 Impact of forest and grass price decline on net profits difference (Binxian) 75 Figure 42 Impact of forest and grass price decline on net profits difference (Ansai) 76 Figure 43 Impact of forest and grass price decline on net profits difference (Gonghe) 77 Figure 44 Impact of forest and grass price decline on net profits difference (Minhe) 78

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Livelihood Impacts of the Conversion of Cropland to Forest

and Grassland Program

1. Introduction

Water and soil erosion pose serious environmental concerns in China. At present, the area affected by water and soil erosion has reached 360 million hectares, or 37.5 per cent of China’s land territory. The area of land classified as desertified has expanded to 174 million hectares, or 18.2 per cent of Chinese land (State Forestry Administration 2003). In order to combat this environmental degradation, the Chinese Government has launched several large-scale ecological programs including the Natural Forest Protection Program, the Conversion of Cropland to Forest and Grassland Program (CCFGP), and the Sand Control Program around Beijing and Tianjin. Among them, the CCFGP is unprecedented in its geographical distribution, the extent of government investment, the level of participation of rural households as well as its impact on rural development. As described in Research Report No. 2 in this series, the CCFGP was initiated on a trial basis in Shannxi, Gansu and Sichuan Provinces in 1999. In 2000, the trial expanded to 174 counties in 13 western provinces. In 2002, it was officially lanched in 1897 counties in 25 provinces. From 1999-2003, the Program involved 13.3 million ha of afforestation, of which 6.4 million ha was formerly cropland and 6. 9 million ha had been barren land. Total investment reached ¥39.5 billion, of which government investment made up 92.9 per cent (State Forestry Administration 2004). The Program has involved 20 million rural households of 100,000 villages in 20,000 townships around China. Despite the Programs’wide application, there is, as yet, little understanding of its long-term impacts on the livelihood of the farmers involved. Such an understanding is important in determining the long-term sustainability of the land use changes that the Program has induced. Given that the payment of subsidies in the form of grain and

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money to farmers under the Program is to cease within the next decade, a livelihood analysis is an important contribution to the development of future policy regarding land use sustainability in the north west provinces of China. The objectives of the research reported here are to investigate the land use changes arising from the CCFGPs’application in Chinese households, to examine the long-term impact on the livelihoods of those households, and to analyse how those changes might affect farmers’long-term land use decisions.

These objectives are pursued through the analysis of results from a survey conducted across 398 household in four counties in northwest China. In the survey, land use and livelihood details were collected for periods before and after the introduction of the CCFGP. This allows a comparison to be drawn and the impacts of the CCFGP to be assessed. This report presents the details of the survey and its results. It is divided into five further sections. In the next section, a brief review of studies that have focused on livelihood aspects of the CCFGP is provided. Following that, a specific hypothesis is formulated for this study. In section four, the method used to test the hypothesis is decribed and the results are presented in section five. Finally, the report concludes with an overall summary of the results and some implications and recommendations for land use policy.

2 Literature review

Several views have emerged concerning the impact of CCFGP on farm household livelihoods. Li (2004) argues that the CCFGP has not only improved the condition of the ecosystem and led to the adjustment of industry structure in the western region of China, but has also caused a direct increase in rural household revenue through the subsidy paid and the transition of surplus rural labour to off-farm jobs. China FEDRC (2003/ 04) also shows that the CCFGP has a positive impact on farmers’ revenues and the structure of rural industry. Wang et al (2003) argue that the CCFGP has many positive effects on the animal and poultry husbandry industries but has negative effects on the crop sector. In addition, they suggest that the revenue structure of rural households participating in the CCFGP has become more diversified. Overall the CCFGP is seen to benefit the structure of the

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agricultural sector, but provides no significant effect on participating households’ total income. Hou et al (2002) also point out that the CCFGP will have positive and negative effects on the economic development of the western provinces of China. They suggest that it will improve the ecological condition, and promote western region economic growth and stability in the long-term. However, they argue that the Program will decrease farmers’ self-sufficiency in food, lower their incomes and cause tax revenue reductions for local government. In contrast, Xu et al (2004) argued that the CCFGP would not threaten food security in China. They estimated the production and price impacts of the implementation of the Program and found that the Program had only a small effect on China’s grain production and almost no effect on prices or food imports. Uchida et al (2004a) examined the effect of CCFGP on the welfare of rural households through a survey of 360 farm households in Sichuan, Shaanxi and Gansu Provinces. They found that although poor households were not disproportionately targeted, they had benefited from the Program. The study also found that the Program had increased the asset holdings of all participating households. However, there is only weak evidence that participating households have begun to shift their labour into the off-farm sectors. Zhang (2004) argues that the CCFGP has an insignificant direct influence on agricultural production and farmers’ incomes, but it expands the space and time for farmers to engage in other economic activities. This will indirectly increase farmers’ incomes. Xu et al (2003) demonstrated that the targeting of the Program was reasonable but that its cost effectiveness was less than satisfactory. They found potential for cost savings. Their conclusion was that the Program neither increased general income nor improved the structure of income sources. Uchida et al (2004b) use information gathered from a household survey of Program participants in Ningxia Autonomous region and Guizhou Province to investigate the sustainability and cost-effectiveness of the Program. Based on an analysis of changes in livestock activities, off-farm employment and non-agricultural activities brought about by the Progam, the authors question the sustainability of the Program. They also suggest that while the Program has made a clear attempt to retire plots that are susceptible to soil erosion, there is room for better targeting.

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The strategy implicit in the CCFGP is to provide farmers with revenue from the planting of forest and grassland. However, some scholars (Xu et al 2003 and Feng 2002) argue that participants will not be able to generate the anticipated revenue because they lack the necessary skills and are farming in areas where the natural conditions are not conducive to this type of land use. In addition, compared to cropping, participants will face increased market and natural environment risk. Xu et al (2003) argued that a transition from labor allocation on-farm to off-farm jobs and a diversification of revenue sources are the key factors to ensure that the converted land is not returned to cropping or does not revert to waste land. They also suggested that creating more off-farm opportunities is the key to structural adjustment in agriculture and land conversion. Similarly, the Chinese Government anticipates that implementing the CCFGP will promote structural adjustment.

3 Hypothesis

The immediate policy concerns for the Chinese government center on the long-term sustainability of the changes in land use that have been trigged by the CCFGP. Given the substantial investment of resources involved in achieving the land use changes, the Chinese authorities want to ensure that, with the cessation of CCFGP payments, farmers will not simply revert to their previous land use practices. A number of factors influence farmers’ decisions regarding their land use practices, however one of the most important is the contribution made by alternative land uses to the net income of the farmer household. It is therefore, the net incomes generated by land uses before and after the CCFGP that form the basis of comparison in this study. Specifically, the hypothesis:

Net farm household income with CCFGP induced land use changes is greater than net farm household income prior to the introduction of the CCFGP

is established for testing.

Net farm household income for the purpose of this study is defined to include the revenues generated from all household activities net of their associated costs. Discretionary household spending is not included in this definition. The comparison

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between net farm household income with and without the CCFGP embodied in the hypothesis allows conclusions to be drawn with regard to the likelihood of farmers reverting to their previous land use practices once the CCFGP payments are withdrawn. However, it does so only if it is assumed that the post-CCFGP-subsidy conditions are equivalent to those existing prior to the introduction of the Program. This assumption will be reviewed in the conclusions section of the report.

4 Methodology

4.1 Sample Selection

A case study approach is used to test the hypothesis. Four sample counties were selected from Qinghai Province and Shaanxi Province. Then, three or four sample villages were selected from each of the four counties. Finally, 20-30 farm households participating in CCFGP were selected from each village at random. Table1 sets out the geographical distribution of the sample. The selection of the case study provinces and counties was based on their capacity to represent the differing biophysical and social conditions existing across the areas in northwest China where the CCFGP has been implemented.

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Table 1 Geographical distribution of sampled households

Province Shaanxi Qinghai

N 200 200 County Binxian Ansai Gonghe Minhe

N 101 99 99 101 Village 1 Didian Villiage,

Didian township Long’an Village, Jianhua Township

Zhongzi village, Shazhuyu Township

Maying Village Maying Township

N 35 37 25 20

Village 2 Poxiang Village, Xiaoxin Township

Fangjiahe Village Yanhewan Township

Xiashe Village, Jiangxigou Township

Jiaren Village Songshu Township

N 34 27 23 23

Village 3 Licun Village Beiji Township

Gaoqiao Village, Songzhuang

Township

Kecai Village, Longyang Township

Baixing Village Songshu Township

N 32 35 26 17

Village 4 Dongwei Village, Daotanghe Township

Lijia Village Longzhi Township

N 25 22

Village 5 Wujia Village Longzhi Township

N 19

4.2 Description of Sampled Counties

Binxian County is located in the west of Shaanxi Province. The county includes 16 townships and 325 villages. The population is 318,000 and the total area of the county is 1183.2 sq km. The county is located in the hilly area of the Northern Shaanxi part of the Loess Plateau. The area of land affected by soil erosion is 1064 sq km, accounting for 90 per cent of the total. The annual sediment inflow from the County to rivers is 304 tons and the average annual erosion rate is 2,875 tons per sq km. Up to 29,000 tons of N, P, and K nutrients can be lost per annum due to soil erosion on the cropland (Binxian Forestry Department 2004).

From 1999 to 2003, about 97,580 mu1 of cropland was converted to forest and 6,010 mu of cropland was converted to grassland in Binxian County. In addition, 69,200 mu of forest and 2,900 mu of grass have been planted on previously uncropped land (Binxian Forestry Department 2004).

1 1 mu is equivalent to 1/15 hectare.

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Ansai County is located in the north of Shaanxi Province. Its total area is 2950 sq km. The county includes 14 townships and 204 villages. The population is 151,200. The county is situated in the hilly area of the Loess Plateau. The region suffers from severe soil erosion, with 2771 sq km, or 94 per cent of the total area being affected. The annual erosion rate is between 4000 and 15,000 tons per sq km. Before CCFGP, the area under crops in the county was about 1.4 million mu, including 1.3 million mu of steeply sloped land (Ansai Forestry Department 2004).

Gonghe County is located in the northeast of Qinghai Province adjacent to Qinghai Lake, which is the largest saltwater lake in China. The total area of the county is 17,300 sq km, including 2611.5 sq km of the Qinghai Lake. The county includes 12 townships and 92 villages. The population is about 74,600. Animal husbandry is the major economic activity of Gonghe County. The grassland area is 1.9 million mu and the cropland area is 358,300 mu. The average annual yield per mu is lower than 200 kg of grass. The degradation of grassland is very severe in Gonghe County. The county has 1,400 sq km of desertified land covering 8.2 per cent of the county area. The area of degraded and desertified grassland is 6.4 million mu, accounting for 38.6 per cent of the available grassland area of 16.6 million mu (Gonghe Forestry Department 2004).

From 2000 to 2003, 206,500 mu of cropland was converted into forest or grassland under the CCFGP in Gonghe County. This included 24,200 mu of trees and 89,800 mu of grass with interplanting trees and grass on 92,500 mu. In addition, 60,700 mu of trees and 194,300 mu of grass have been planted on barren land in the county (Gonghe Forestry Department 2004).

Minhe County is located in the east of Qinhai Province. The total land area of the county is 1,891 sq km. The county includes 23 townships and 318 villages. Altogether 14 ethnic groups live in the county, including Han, Hui, Tu, and Tibetan. The population is about 375,000, and the ethinic minority groups account for 54.9 per cent. The cropland area is 470,000 mu (Minhe Forestry Department 2004). From 2000 to 2003, 191,000 mu of croplands has been converted into forest or grassland in the county. In the same time, 246,000 mu of barren land has been planted with trees or grass under the CCFGP (Minhe Forestry Department 2004).

Villages from each county were selected for the survey on the basis of their geographical locations and socio-economic conditions. Finally, households from each

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village were selected at random.

4.3 Questionnaire Design

The questionnaire designed to elicit information from responding households was structured around three components: an introduction to the survey, the questions, and the codes of cost and revenue items.

In the introduction to the questionnaire, information about the survey’s executing agency, its contact information and the time required to answer the survey were provided. Assurances that answers provided would be treated as confidential and only used for this research were also given.

The questionnaire included 94 questions split into four sections. The first section focused on the basic information pertaining to farm households, including age, education, gender, number of members, ethnic group, time participating in the CCFGP, and species and area of forest and grass planted. The second section involved agricultural production of farm households before the commencement of the CCFGP and in 2003. The questions in this section included sown areas, yields and prices of crops, yields and prices of livestock products, and the production details of other activities. The third section focused on the agricultural inputs of farm households before CCFGP and in 2003. The questions in this section included use of hired labor, pesticide, chemical fertilizer, seeds, agricultural machines, animal power, irrigation water and electricity, forage, livestock, fences and barns, tax and land rent. In addition, this section included questions on the expenditure of farm households on CCFGP related activities and the subsidies received. The final section concentrated on off-farm revenue of farm households and their future expectation.

In addition, the questionnaire included codes for the cost and revenue items. Coding provided convenience for the investigation and setting up of the database results.

4.4 Survey Logistics

Pre-testing of the questionnaire was undertaken in May 2004. Members of the research team visited Binxian and Gonghe counties. In the pre-test, a total of 15 households were interviewed using a draft version of the questionnaire. The pre-test allowed the further

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development of the questionnaire, the construction of a data coding framework and refinement of the sampling and interview protocol.

The final version of the questionnaire2 was delivered to respondents in face-to-face interviews during July 2004. Each interview was conducted by two members of the research team. The Qinghai counties interviews were conducted with an interpreter because many respondent households were of Tibetan ethnicity who speak a substantially different dialect. All interviewers and translators had been involved in the pre-test of the questionnaire and had been trained in interviewing techniques at that time.

5. Results

5.1 Sample Characteristics

At the commencement of each interview, the responding household was asked who was primarily responsible for farm decision-making. It was to this person – defined as the household head – that the subsequent questioning was addressed. Some socio-economic characteristics of the sampled household heads across the four counties are set out in Table 2

Table 2 Characteristics of the samples

County Characteristics

Binxian Ansai Gonghe Minhe

Household head’s Average Age 46.4 43.0 40.9 49.3

Household head’s Gender ( % Male ) 81 61 74 83

Household head’s Ethnicity ( %Han ) 98 100 22 73

Household head’s educational attainment* 6.3 5.2 4.6 4.8

*Based on the coding frame: 1-tertiary; 2-senior high school; 3- technical secondary school; 4-junior high school; 5-primary school; 6-illiterate.

Chi squared tests(2χ )were undertaken to determine if the samples drawn from the four

counties were different from each other in terms of socio-economic characteristics. The results of these tests are displayed in Table 3. It was found that the county samples 2 Copies of the questionnaire are available upon request in both English and Chinese.

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differed significantly in terms of Gender, Ethnicity, and Education, but were equivalent in terms of Age.

Table 3 Differences between samples

Characteristics 2χ df p

Age 4.6 3 0.2 Gender 18.4 3 0.0 Ethnicity 200.5 3 0.0 Household head’s educational attainment 24.7 9 0.0

Comparisons of socio-economic characteristics between the four samples and their corresponding populations are useful in determining the representativeness of the

samples. Table 4 displays the results of 2χ tests of this comparison.

Table 4 Comparison with county population

County Characteristics

Binxian Ansai Gonghe Minhe

2χ P 2χ

p 2χ p 2χ

p

Age 4.0 0.0 4.4 0.0 2.5 0.1 1.0 0.3

Gender 38.1 0.0 21.4 0.0 21.4 0.0 43.1 0.0

Ethnicity 0.5 0.5 0.5 0.5 57.4 0.0 29.0 0.0

Education 0.7 0.9 0.5 0.9 1.8 0.6 0.4 1.0

It was found that the samples are representative of their counties in term of education, but are not representative in terms of gender. The samples from Qinghai province are not representative in terms of ethnicity and the Shaanxi counties are not representative in terms of age. Traditionally, the farm decision maker in the Chinese rural household is mostly male. Hence, it is not surprising that the samples were not representative in terms of gender. The samples in the two counties in Qinghai Province were not representative in terms of ethnicity for the following reasons. First, Minhe County is predominantly Muslim with 54.9 per cent of its population being non-Han. The Muslims normally pray several times each day as their religious practice, so the probability of them being available for interview is lower than other groups in the county. Secondly, in Gonghe County, of the

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four villages selected for the survey, one is located close to the grazing region and another one is within the grazing region. The grazing region is dominated by Tibetan people. The test of sample representation relative to the county population characteristics is only partially useful because not all the counties’ populations have been involved in the CCFGP. Hence a more accurate test of representation is based on the population, in each county, of households involved in the CCFGP. However, there is no complete listing of CCFGP participants. As an alternative, an approximation to that population is provided by a large scale sample of participants used for a State Forestry Administration (SFA) Program Monitoring study (FEDRC 2003/ 04).

In the SFA monitoring study, 696 households participating in the CCFGP were randomly selected across 23 provinces. For comparative purpose, sample characteristics that are common between the current survey and the SFA monitoring study are used. These include household size, cropland per household before CCFGP and total land per household involved in CCFGP.

Table 5 SFA sample characteristics

County Characteristic

SFA sample Binxian Ansai Gonghe Minhe

Cropland per household before CCFGP (mu) 25.6 8.8 26.7 48.7 14.1

Total land per household in CCFGP (mu) 16.0 2.7 22.1 51.1 8.2

Household Size 4.9 4.8 4.7 5.9 5.2

Source: FEDRC (2003/ 04)

Table 6 Comparison with SFA sample

County Characteristics

Binxian Ansai Gonghe Minhe

2χ p 2χ

p 2χ p 2χ

p

Cropland per household before CCFGP (mu)

275.6 0.2 233.2 0.9 530.9 0.0 255.8 0.7

Total land per household in CCFGP (mu)

264.1 0.7 419.4 0.0 626.6 0.0 258.5 0.8

Household Size 5.3 0.1 1.0 0.6 31.0 0.0 6.0 0.1

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It was found that except for Gonghe County, the samples were not significantly different from the SFA sample at the five per cent level. The Gonghe County sample is not representative because its agricultural system, with a grazing dominance, is markedly different from that of the bulk of CCFGP areas.

5.2 Landuse

The area of cropland available to a household is a key factor determining income. It is also an important potential determinant of the scale and impact of the CCFGP.

5.2.1 Landuse: Pre-CCFGP

In the year prior to the introduction of the CCFGP, the 398 sampled households had contracted 11151.8 mu from their village collective and another 782.9 mu from other households. The sampled households also leased out 2156.2 mu of land. Therefore, the area that the sampled households cultivated was 9778.5 mu, or an average per household of 24.5 Mu. The sampled households in Ansai and Gonghe had more than the average area of cultivation, and also had more land to contract in or contract out. In contrast, sampled households in Binxian and Minhe had relatively smaller areas of arable land.

Table 7 Land areas: pre-CCFGP

Unit: mu Binxian Ansai Gonghe Minhe

Total

Contracted collective arable land

879.7

2631.4

6248.9

1391.8 11151.8

Contracted out arable land

0.0

13.9

2142.4

0.0 2156.2

Contracted in arable land 8.1 24.8 715.8 34.3 782.9 Arable land 887.8 2642.3 4822.3 1426.1 9778.5 Average per household 8.8 26.7 49.7 14.1 24.5

The primary crops grown by sampled farmers are oil seed, wheat, millet, soybean, corn and potatoes. In Binxian, wheat (101 sampled households), corn (eight sampled households) and oil seed are grown. Greater crop diversity was observed in Ansai. The main crop species of sampled households are millet (92 households), soybean (74 households) and corn (61 households). In Gonghe, the primary crop species are oil seed,

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wheat and potatoes. As several sampled households live in grazing areas, they plant on average 14.2 mu of barley and and 16.7 mu of oats. Animal husbandry is their main source of household income. In Minhe, the primary crop species of households are wheat (101 housedholds), potato (93 households), peas (54 households) and benne (Sesamum Indicum) (51 households). Table 8 shows the area of the six primary crops in the four counties before the CCFGP, which totalled 7748 mu. Minor crops made up the rest 2030 mu.

Table 8 Primary crop areas: pre-CCFGP

Unit: mu Crop Species Binxian Ansai Gonghe Minhe Total

Oil seed 61.6 0.0 4252.1 46.5 4360.1 Wheat 491.9 14.9 249.5 640.3 1396.5 Millet 0.0 628.7 0.0 0.0 628.7

Soybean 0.0 584.1 0.0 0.0 584.1 Corn 153.5 180.2 0.0 61.6 395.3

Potato 0.0 83.2 39.6 260.6 383.3

5.2.2 Landuse: post-CCFGP

In 2003, the total area of arable land of the 400 rural households was 2871 mu, the average arable land area per household was 7.2 mu post-CCFGP. The total arable area converted to trees and grass was 8342 mu. Of this 4510.6 mu and 3531.3 mu of forest and grass were subsidized under the CCFGP. Some sampled households did not access the Program’s subsidy but were still willing to undertake cropland conversion (300.6 mu). This mostly occurred in Ansai (272.1 mu). As Gonghe is mainly a grazing area, about 3784.3 mu out of the total 4757.8 mu of grassland (80 per cent) being established under the CCFGP in the sampled counties were in Gonghe.

21

Table 9 Land areas: post-CCFGP

Unit: mu Landuse Binxian Ansai Gonghe Minhe Total Arable land area 611.5 462.6 1230.4 566.4 2870.9 Contracted collective arable land 611.5 444.6 1186.4 566.4 2808.9 Contracted out arable land 0.0 0.0 79.8 0.0 79.8 Contracted in arable land 0.0 18.0 123.8 0.0 141.8 Total land in CCFGP 268.2 2186.4 5062.4 825.5 8342.5 With subsidy 240.2 1914.3 5062.4 825.0 8041.9 In which: grass land 0.0 24.0 3507.3 0.0 3531.3 In which: forest land 240.2 1890.3 1555.1 825.0 4510.6 Without subsidy 28 272.1 0 0.5 300.6 Note: The total area of land used by sampled farms post-CCFGP is 11,212 mu (i.e. total arable land area plus total

land in CCFGP) compared to 9778 mu per-CCFGP. The difference in total area is due to the reduction in contracted

out land after the CCFGP is in place.

After CCFGP, the arable land area of surveyed households in Binxian, Ansai, Gonghe and Minhe is 611.5 mu, 462.6 mu, 1230.4 mu and 566.4 mu. These represent falls in arable land areas of 31.1 per cent, 82.5 per cent, 74.5 per cent and 60.3 per cent respecitvely brought about by the conversion of areas to trees and grass under the CCFGP.

Table 10 Primary species planted under the CCFGP

Unit: mu Species Binxian Ansai Gonghe Minhe Total

Siberian peashrub（Caragana arborescens） 0.0 0.0 1443.7 791.5 2235.2

Black locust (Robinia pseudoacacia L.) 3.0 1441.5 0.0 0.0 1444.5

Ansu apricot (Prunus armeniaca L.) 0.0 346.1 79.2 335.2 760.5 Oleaster (Elaeangnus

angustifolia L.) 0.0 0.0 0.0 709.8 709.8 Persimmon

(Diospyros kaki L).) 240.2 0.0 0.0 0.0 240.2 Chinese prickly ash

(Zanthoxylum bungsanum Maxim). 149.1 0.0 0.0 0.0 149.1

Dahurian wildrye (Elymus dahuricus (Turcz.)

Nevski) 0.0 0.0 3784.3 0.0 3784.3 Alfalfa (Medicago sativa L) 92.5 51.0 0.0 825.0 968.5

The primary forest and grass species planted under the CCFGP by the sampled households are Siberian peashrub (Caragana arborescens), Black locust (Robinia

22

pseudoacacia L.), Ansu apricot (Prunus armeniaca L.), Dahurian wildrye (Elymus dahuricus

(Turcz.) Nevski), and Alfalfa (Medicago sativa L).

Table 11 Primary crop sown area in the four counties post-CCFGP

Unit: mu Crop species Binxian Ansai Gonghe Minhe Total

Oil seed 59.5 0.0 1062.1 26.8 1148.4 Wheat 339.1 10.0 186.4 214.4 749.9 Corn 115.3 154.7 0.0 60.0 330.0

Potato 0.0 101.3 38.1 108.0 247.3 Oat 0.0 0.0 224.0 0.0 224.0

Horsebean 0.0 0.0 75.4 10.2 85.6 Millet 0.0 0.0 0.0 0.0 0.0

Soybean 0.0 0.0 0.0 0.0 0.0

The primary crop species post-CCFGP of sampled households in Binxian are oil seed (3.4 per cent of sown area), wheat (31.1 per cent) and corn (24.9 per cent). The primary crop species of sample households in Ansai remain corn, potato and. But compared with pre-CCFGP, the number of households planting and the sown area of millet are reduced by 68.4 per cent and 70.7 per cent respectively. However, the number of households planting corn and the sown area of corn are constant. Oil seed (4252.1 mu), wheat (249.5 mu) and potato (39.6 mu) are still the primary crop species in households sampled in Gonghe. The numbers of Gonghe sampled households planting these crops are 82, 45 and 41. The number of sampled households planting and the sown area of wheat and potato are largely unchanged, but the number of households planting oil seed and its sown area fell by 64.7 per cent and 29.3 per cent. In Minhe the primary crop species post CCFGP remain wheat (214.4 mu), potato (108.0 mu) and corn (60.0 mu). Compared with pre-CCFGP, the sown areas of wheat and potato are down by 57.3 per cent and 25.7 per cent and the sown area of corn rose 5.3 per cent.

23

Table 12 Landuse change before and after CCFGP in sampled households

Unit: mu Binxian Ansai Gonghe Minhe Total

1998 2003 +- % 1998 2003 +- % 1998 2003 +- % 1998 2003 +- % 1998 2003 +- %

Agricultural land 887.8 611.5 -31.1 2642.3 462.6 -82.5 4822.3 1230.4 -74.5 1426.1 566.4 -60.3 9778.5 2871.0 -70.6

Contracted in collective arable land 879.7 611.5 -30.5 2631.4 444.6 -83.1 6248.9 1186.4 -81.0 1391.8 566.4 -59.3 11151.8 2809.0 -74.8

Contracted out arable land 0.0 0.0 0.0 13.9 0.0 -100.0 2142.4 79.8 -96.3 0.0 0.0 0.0 2156.2 79.8 -96.3

Contracted in arable land 8.1 0.0 -100.0 24.8 18.0 -27.3 715.8 123.8 -82.7 34.3 0.0 -100.0 782.9 141.8 -81.9

Total Land in CCFGP 0.0 268.2 N/A 0.0 2186.4 N/A 0.0 5062.4 N/A 0.0 825.5 N/A 0.0 8342.5 N/A

Grass land 0.0 92.5 N/A 0.0 56.0 N/A 0.0 3784.3 N/A 0.0 825.0 N/A 0.0 4757.8 N/A

Forest land 0.0 396.3 N/A 0.0 1926.7 N/A 0.0 1566.3 N/A 0.0 1944.9 N/A 0.0 5834.2 N/A

Note: Most sampled rural households use multiple purpose management by interplanting forest and grass. Therefore, the sum of grassland and

forest areas exceeds the total land area under CCFGP which is 8342.5 mu.

24

In summary, it is shown in Table 12 that land use changed significantly after the introduction of the CCFGP. Before CCFGP, the agricultural land areas of the sampled farms were 887.8mu, 2642.3 mu, 4822.3 mu and 1426.1 mu in Binxian, Ansai, Gonghe and Minhe counties. After CCFGP, the agricultrual land area reduced to 611.5 mu, 462.6 mu, 1230.4 mu and 566.4 mu, down by 31.1 per cent, 82.5 per cent, 74.5 per cent, and 60.3 per cent respectively. Ansai had the largest drop while Binxian has the lowest. In total, agricultural land area of the sampled farms decreased by 70.6 per cent. CCFGP has also affected contracted arable land. Before CCFGP, sampled households in Gonghe contracted out 2142.4 mu arable land. This reduced to 79.8 mu after CCFGP, a drop of 96.3 per cent. Binxian, Ansai and Minhe saw some changes in contracted arable land area, but the changes were not as significant as in Gonghe. The forest and grassland areas of sampled households after CCFGP are 5834.2 mu and 4757.8 mu. Conversion to grassland has mainly occurred in Gonghe and Minhe which are grazing areas. Sampled households in Gonghe had the largest scale of conversion with 79.5 per cent of the total grasslands being established under the Program. Binxian sampled households had the smallest forest area of 396.3 mu planted under the CCFGP, while Ansai and Minhe have much larger forest areas – around 1900 mu – planted as a result of the Program by the sampled households.

5.3 Application of the CCFGP

The farmers responding to the questionnaire began their involvment with the CCFGP at various times after 1999. They were asked questions regarding the subsidy received by participation in the scheme. This included cash, grain as well as seedlings. In Table 13, the grain subsidy is converted into a monetory value using a price of 0.7 yuan/jin. Seedlings are priced at 50 yuan/ mu.

Table 13 Application of the CCFGP

Sample Counties Binxian Ansai Gonghe Minhe

1.Cash subsidy（yuan） 4332.0 32644.0 96169.6 16474.0 2. Seedling（yuan） 12008.5 108670.0 662897.2 41275.0 3. Grain (yuan） 29894.2 223923.0 253119.5 80678.5 4. Year started 1999 1999 2000 2002

25

Binxian and Ansai households first participated in the Program in 1999, followed by Gonghe in 2000 and Minhe in 2002. The amount of subsidy received reflects the degree of involvment of the Program. Gonghe households show the highest involvement followed by Ansai, Minhe and Binxian. The more the land use changed, the more subsidy received.

5.4 Impact of the CCFGP

The impacts of the CCFGP on farmers’ land use practice are outlined in Tables 9 and 12. The impacts on household livelihoods are from changes in total revenues and costs. To test the hypothesis established in Section 2, it is necessary to project those revenues and costs over time given two alternative setting: with and without the CCFGP. In this section, these projections are detailed on the assumption that the ‘without CCFGP’ setting is characterised by the conditions observed in 1999 and the ‘with CCFGP’ setting is represented by the data collected for 2003. Because the 2003 situation is relatively early in the period of adoption for the CCFGP, projection has been necessary for a range of parameters. A time period of 20 years - 1999 to 2018 – is used for these projections. It is worth noting that, at this stage, these revenues and costs are undiscounted.

5.4.1 Price and output forecasts

Forest and grass products price forecast The income from the land affected by the CCFGP is impacted by changes in forest and grass product outputs and prices. Output is, in part, determined by planting density. In the survey, it was found that in order to achieve the national ecological forest standard and so be eligible to receive the subsidy, sampled households generally planted income generating trees at high density. Interviews were conducted with experts at Beijing Forestry University and other research institutions to determine planting densities. These are set out in Table14.

26

Table 14 Planting density of main afforestation species

Tree

species

Persimmon

(Diospyros

kaki L).

Chinese prickly

ash

(Zanthoxylum

bungsanum

Maxim).

Mountain peach

(prunus

davidiana(Carr.)

Franch).

Apple tree

(Maluspumila

)

Ansu apricot

(Prunus

armeniaca

L).

Oleaster

(Elaeangnus

angustifolia

L).

Walnut

(Juglans

ragia)

Poplar/ Willow

(Populus /

Salix)

Planting

density

(No. /Mu)

33 30 40 60 35/ 40/

60*

35 22 110/100**

Note: Because of differing conditions, the choosen planting density is different across the four

counties: * choosen planting density of Minhe/ Ansai/ Gonghe; ** Poplar/Willow(Salix/Populus)

planting density in Gonghe.

As there is no published research on forest and grass output and price forecasts, local experts were asked to provide their forecasts on the basis of historical data. These projections are set out in Tables 15 to 22.

Binxian The primary forest and grass products from Binxian sampled households are Persimmon (Diospyros kaki L), Chinese prickly ash (Zanthoxylum bungsanum Maxim), and Alfalfa (Medicago sativa L). These species account for 50 per cent, 31 per cent and 20 per cent of the sampled conversion area. Persimmon (Diospyros kaki L) and Chinese prickly ash (Zanthoxylum bungsanum Maxim) are traditional economic forest species. Their prices are likely to be impacted because of output changes. Local experts forecast that after 2005 when the outputs from CCFGP crops will be marketed, the price of Chinese prickly ash and Persimmon will decrease compared with the current price, and return 3.5 yuan/jin and 0.2 yuan/jin respectively (Table 16). As there are very few households planting Alfalfa, output from the CCFGP is unlikely to impact local price in the future. It is assumed that the price of 0.14 yuan/jin will be constant over the 20 year period.

27

Table 15 Output forecasts: Binxian

Persimmon

(Diospyros kaki L).

Chinese prickly ash

(Zanthoxylum bungsanum

Maxim).

Alfalfa

(Medicago sativa L)

Year Output

(jin/tree)

Year Output

(jin/tree)

Year Output

(jin/tree)

99-05 0 99-00 0 99, 05, 11, 17 0

06-18 40 01-03 1 00-01, 06-07,

12-13, 18

200

—— —— 04-06 5 02-04, 08-10,

14-16

1200

—— —— 07-18 1.5 —— ——

Table 16 Price forecasts: Binxian

Persimmon

(Diospyros kaki L).

Chinese prickly ash

(Zanthoxylum bungsanum

Maxim).

Alfalfa

(Medicago sativa L)

Year Price

(yuan/jin)

Year Price

(yuan/jin)

Year Price

(yuan/jin)

99-04 0.35 99-00 3.5 99-18 0.14

05-18 0.20 01-04 7 —— ——

—— —— 05-18 3.5 —— ——

Ansai The primary forest and grass products planted under the CCFGP in the sampled households in Ansai are Ansu apricot (Prunus armeniaca L), Walnut (Juglans ragia), Black locust (Robinia pseudoacacia L), Sea-buckthorn (Hippophae rhamnoides L), and Apple tree (Maluspumila). These species account for 17 per cent, 1.2 per cent, 73 per cent, 0.5 per cent and 2.4 per cent of sampled CCFGP land in Ansai. According to local commodity experts, once the outputs of Ansu apricot, Apple and Walnut increase, their prices will decline by 50 per cent, 30 per cent, and 50 per cent compared with the price in 1998. As the planted areas of Black locust and Sea-buckthorn under CCFGP are particularly large relative to the projected demand, the forecast price is predicted to fall by 50 per cent and 20 per cent(Table17 and Table 18).

28

Table 17 Output forecasts: Ansai

Apple

(Maluspumila)

Ansu apricot

(Prunus armeniaca L).

Walnut

(Juglans ragia)

Year Output

(jin/tree)

Year Output

(jin/tree)

Year Output

(jin/tree)

99-02 0 99-01 0 99-02 0

03-05 8 02-07 6 03-12 5

06-17 60 08-18 50 13-18 60

18 30 —— —— —— ——

Table 18 Price forecasts: Ansai

Apple

(Maluspumila)

Ansu apricot

(Prunus

armeniaca L).

Walnut

(Juglans ragia)

Black locust (Robinia pseudoacacia L).

Sea-buckthorn

(Hippophae

rhamnoides L)

Year Price

(yuan

/jin)

Year Price

(yuan

/jin)

Year Price

(yuan/

jin)

Year

Price

(yuan/

tree)

Year Price

(yuan)

99-04 1 99-07 1 99-12 6 99-03 1 99-02 1

05-18 0.4 08-18 0.5 13-18 3 04-13 0.5 03-12 0.8

—— —— —— —— —— —— 14-18 1 13-18 1

Gonghe The primary forest and grass products in the Gonghe sample are Siberian peashrub (Caragana abrorescens) and Dahurian wildrye (Elymus dahuricus (Turcz.) Nevski), and these species account for 27.0 per cent and 70.7 per cent of the sampled CCFGP planted areas. The local experts forecast that when the increase in Siberian peashrub output appears on markets, the local price will fall by 50 per cent. When the output of Dahurian wildrye on CCFGP land increases, the local price is expected to fall by 30 per cent to 40 per cent. As there is a large area of pasture in Gonghe and the grass products market is significant, the Dahurian wildrye price is expected to fall by 30 per cent (Table 19 and Table 20).

29

Table 19 Output forecasts: Gonghe

Siberian peashrub

(Caragana abrorescens)

Dahurian wildrye

(Elymus dahuricus (Turcz.) Nevski)

Year Output (tree/mu) year Output (tree/mu)

99-04 0 99-00, 04-05, 09-10,

14-15

450

05-14 160 01-03, 06-08, 11-13,

16-18

2000

15-18 0 —— ——

Table 20 Price forecasts: Gonghe

Siberian peashrub

(Caragana abrorescens)

Dahurian wildrye

(Elymus dahuricus (Turcz.) Nevski)

Year Price (yuan/tree) year Price (yuan/tree)

99-04, 15-18 0.7 99-00, 04-05, 09-10,

14-15

0.09

05-14 0.35 01-03,06-08, 11-13,

16-18

0.063

Minhe The primary forest and grass products planted under the CCFGP in the sampled farms in Minhe are Siberian peashrub (Caragana arborescens), Ansu apricot (Prunus armeniaca L), Oleaster (Elaeangnus angustifolia L) and Alfalfa (Medicago sativa L). These species account for 29 per cent, 26 per cent, 12 per cent and 30 per cent of sampled CCFGP area. On the basis of historical ouput and price data, local experts forecast that when the new Caragana arborescens plantings begin to yield, its price will fall by 20 per cent. When Ansu apricot and Oleaster outputs come onto the market, their prices are expected to fall by 40 per cent. The area of Alfalfa planting on CCFGP land is small in Minhe and there is a deep market in Qinghai Province for the output. Hence the local experts forecast that the price of Alfalfa will remain constant over the 20 year time period (Table 21 and Table 22).

30

Table 21 Output forecasts on CCFGP land: Minhe

Oleaster

(Elaeangnus

angustifolia L)

Ansu apricot

(Prunus armeniaca L)

Siberian peashrub

(Caragana

arborescens)

Alfalfa

(Medicago sativa L)

Year Output

(jin/tree)

Year Output

(jin/tree)

Year Output

(tree/Mu)

Year Output

(jin/Mu)

99-01 3 99-02 2 99-03 0 99-00 1000

02-14 65 03-16 60 04-13 200 01-05 3000

15-18 50 17-18 45 14-18 0 06-18 800

Table 22 Price forecasts on CCFGP land: Minhe

Oleaster

(Elaeangnus

angustifolia L)

Ansu apricot

(Prunus armeniaca L)

Siberian peashrub

(Caragana

arborescens)

Alfalfa

(Medicago sativa L)

Year Price

(yuan/jin)

Year Price

(yuan/jin)

Year Price

(yuan/tree)

Year Price

(yuan/jin)

99-01 1 99-02 1 99-03 1 99-18 0.12

02-18 0.6 03-18 0.6 04-13 0.8

14-18 1

Crop yield forecasts Soil erosion is expected to be reduced by the CCFGP plantings. The effects of the

CCFGP on soil and water conservation are expected to become significant after the fifth

year of the Program. Huang and Rozelle (1999) argue that crop productivity is

adversely affected by soil erosion. They formulate a model of Chinese food supplies,

demands and trade to take this into account. The elasticity of soil erosion area to food

production is forecast to be -0.032 by the model. Given that after the fifth year of the

CCFGP, the area of soil erosion in the sampled counties will be down by 10 per cent, it

is forecast that production will rise by 2.28 per cent3.

3 Food output forecase formula: 1 1

2 2

l o g l o gE r o s i o n

E r o s i o n

S ZS Z

α⎛ ⎞ ⎛ ⎞

=⎜ ⎟ ⎜ ⎟⎝ ⎠ ⎝ ⎠ . S1, S2 is output per mu before and after CCFGP.

31

5.4.2 Revenues

Projecting the revenue of the land without CCFGP is based on the assumption that the 1999 situation would prevail through the 20 year time period. The “with CCFGP” projection is based on land use changes – and hence a change in product varieties –yield changes and price changes. The predicted outputs, revenues and costs in this section and following sections assume that crop output will increase 2.28 per cent after 2004 as a result of reduced soil erosion after 5 years of plantation establishment. The price of forest/grass products would reduce to various degrees and at different years driven by increased supply according to local experts’ prediction. Hence, the projected revenue of sampled households is sourced from crop production, livestock production, off farm employment and other business. Grain and cash subsidies as well as revenues from forest and grass products are added to the revenues with CCFGP in place. Binxian The major crops of the Binxian farmers surveyed include wheat, corn, and brassica campestris. As shown in Figure 1, the crop revenue of surveyed farm households before CCFGP was ¥1388.1, including ¥893.1 of wheat revenue, ¥372.3 of corn revenue, and ¥115.8 of brassica campestris per annum. Wheat revenue accounted for 64 per cent of total crop revenue. In 2003, after participating in CCFGP the per annum crop revenue of sampled households was ¥1359.4, including ¥814.9 of wheat revenue, ¥387.1 of corn revenue, and ¥154.5 of brassica campestris. Comparing “with CCFGP” to “without CCFGP”, the crop revenue of Binxian decreased by 2.1per cent from 1999 to 2003. The fall in crop revenue in Binxian is smaller relative to the other three counties. Moreover, from 2004 onwards crop revenue in Binxian with CCFGP is projected to be higher than without CCFGP. There are three reasons for this. First, the agricultural area under conversion is relatively small in Binxian. The cropping area of wheat, corn and brassica campestris in the sampled farms was reduced by 192 mu under CCFGP.

1ErosionZ 2

ErosionZ 0.032, is soil erosion area before and after CCFGP. α = − is elasticity coefficient.

32

Secondly, crop output is forecast to increase by 2.28 per cent4 due to reduced soil erosion from 2004 onwards. Thirdly, the price of wheat, corn and brassica campestris increased slightly in 2003 compared to that of 1999.

Figure 1 Crop revenue per farm household pre- and post-CCFGP (Binxian)

1340

1350

1360

1370

1380

1390

1400

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Cro

p re

venu

e (y

uan)

wi t hout CCFGP wi t h CCFGP

Livestock output in Binxian is relatively small and hence associated revenues are low. The main livestock products include pigs, cattle, sheep, special animals, eggs and dairy products. Before CCFGP, average livestock revenue per sampled farm household was ¥241.6 per annum. The revenues of pigs, cattle and sheep accounted for about 50 per cent of total livestock revenue. The revenue from production of special animals5 of four surveyed farm households accounted for 50 per cent of total livestock revenue. After CCFGP, the main livestock types on the sampled arms in Binxian did not change, however, average livestock revenue per farm household was ¥435.6 per annum, an increase of 80.3 per cent (see Figure 2). The increase was caused by special animal breeding, with its revenue increasing from ¥125.7 to ¥289.1 per household.

4 It is worth noting that the increase may not occur in Binxian as the area of conversion is relatively small in the County. 5 Special animals include hill chicken, ostrich, marmot and fox.

33

Figure 2 Livestock revenue per farm household pre- and post-CCFGP (Binxian)

0

100

200

300

400

500

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Rev

enue

(yua

n)

wi t hout CCFGP wi t h CCFGP

Other business revenues of the sampled farm households in Binxian are sourced from apples and hay. Before CCFGP, other business revenue per sampled household was ¥847.5. The apple revenue6, as the main revenue source of farm households was ¥821.8, accounting for 97 per cent of total other business revenue, and 22 per cent of total revenue. After CCFGP in 2003, the other business revenues, which still came from apple and grass, was ¥1070.3 per annum per sampled household. The apple revenue was ¥976.2, accounting for 91.2 per cent of other business. The annual grass revenue was ¥49.1, about ten times as much as the grass revenue in 1998. This reflected the effect of the conversion of cropland into grassland. Before CCFGP, 45 people in the surveyed households in Binxian engaged in off-farm work, and the net off-farm annual revenue per household was ¥1253.5. After CCFGP, 80 people in the surveyed housholds in Binxian engaged in off-farm work and the net annual off-farm revenue was ¥2438.6 per household, and increased by 94.5 per cent, relative to 1998. In 2003, the average revenue of forest products on converted land was ¥147.5 for sampled farmers. When Chinese prickly ash (Zanthoxylum bungsanum Maxim) reaches its peak production period in 2004, the average revenue of forest products increases to 6 Apple is defined as crop in plain area and is defined as forest products in mountainouse and hilly area in China. In the questionnaire, it was classified as other business.

34

¥735.2. Given that experts predict that the price of Chinese prickly ash will fall by 50 per cent in 2005, the average revenue of forest products will decrease to ¥367.6 at that time. In 2006, persimmon (Diospyros kaki L) will enter into its initial period of production and the average revenue of forest products will increase to ¥722.7 per annum. Thereafter, because of the predicted 50 per cent decrease in the price of persimmons, the average revenue of forest products will decrease to ¥465.3 per annum. Thereafter, the revenue will be consistent. The grass revenue will fluctuate every five years along with its initial, peak and declining periods. In the peak period of production, the average annual grass revenue for surveyed farmers is ¥65.3.

Figure 3 Average forest and grass revenue per household from the CCFGP land on sampled farms (Binxian)

0

200

400

600

800

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Reve

nue

(yua

n)

f or est pr oduct s gr ass pr oduct s

Grain and cash subsidies received by sampled farm households in Binxian were ¥338.6 per annum per household since 1999. The subsidy will be in place for eight years. The subsidy accounted for 5.8 per cent of the total revenue. Before CCFGP in 1999, the total revenue per sampled farm household in Binxian was ¥3730.7. Crop, livestock, other business and off-farm revenues accounted for 37.2 per cent, 6.5 per cent, 22.7 per cent, and 33.6 per cent of the total revenue. After CCFGP in 2003, the total revenue per sampled farm household in Binxian was ¥5855.3. Crop, livestock, other business and off-farm revenues accounted for 23.2 per cent, 7.4 per cent, 18.3 per cent, and 41.6 per cent of the total revenue. In addition, subsidies are 5.8 per cent and forest products are 2.5 per cent of the revenue.

35

Comparing after-CCFGP situation to before-CCFGP situation, the total annual revenue of sampled farm households in Binxian increased by 56.9 per cent. By 2018, the increase is 55.8per cent. Whilst the crop revenue decreased by 2.1 per cent, livestock revenue increased by 80.3 per cent, other business revenue increased by 26.3 per cent and off-farm revenue increased by 94.5 per cent. At the same time, the revenue structure changed. The proportions of crop, livestock, other business and off-farm revenues changed by -14, 0.9, - 4.4, and eight per centage points. The proportion of crop revenue declined sharply. In 2003, the proportion of subsidies in farmer household revenue was 5.8 per cent, and the proportions of forest and grass revenues from converted land were 2.5 per cent and 1.1 per cent .

Table 23 Average farm household revenue pre- and post-CCFGP (Binxian)

Revenue in 1998 (¥)

Proportion of revenue in 1998 (%)

Revenue in 2003 (¥)

Proportion of revenue in 2003 (%)

Change in total revenue (%)

Revenue in 2018 (¥)

Crop Livestock Other business Off farm work Land rent Forest products Grass products Subsidy

1388.1 241.6 847.5 1253.5 0 0 0 0

37.2 6.5 22.7 33.6 0 0 0 0

1359.4 435.6 1070.3 2438.6 0 147.5 65.3 338.6

23.2 7.4 18.3 41.6 0 2.5 1.1 5.8

-2.1 80.3 26.3 94.5 N/A N/A N/A N/A

1390.1 435.6 1070.3 2438.6 0 465.3 10.9 0

Total 3730.7 5855.3 56.9 5810.8

Figure 4 Average revenue per farm household pre- and post-CCFGP (Binxian)

01000200030004000500060007000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Yuan

wi t hout CCFGP wi t h CCFGP

36

The change of average revenue of sample farm households in Binxian is shown in Figure 4. From 1999 to 2004, the “with CCFGP” revenue continually increases, reaches the peak of ¥6474.7 when Chinese prickly ash (Zanthoxylum bungsanum Maxim) enters into the high-yield period in 2004. In 2005, the revenue falls relatively, because of the regeneration of grassland. The second peak of the revenue comes in 2006, when persimmons (Diospyros kaki L) enter into the high-yield period. In 2007, the revenue decreases to ¥5811.7, following the end of subsidies. Thereafter, the revenue slightly fluctuates in line with the cycle of grass production. Ansai Before CCFGP, the major crops of the Ansai farmers surveyed included soybean, millet, and corn. The average crop revenue of sampled farm households per annum was ¥1578.4, including ¥631.3 from soybean, ¥368.7 from millet, and ¥287.9 from corn. Soybean revenue accounted for 40 per cent of total crop revenue. After Ansai participated in CCFGP, the major crops changed to corn, potato and other vegetables. The average crop revenue of sampled farmers was ¥830.6 per annum, including ¥397 of corn revenue, ¥187.9 of potato revenue, and ¥152.5 of vegetable. Comparing “with CCFGP” to “without CCFGP”, the crop revenue of Ansai decreased by 47.4 per cent from 1999 to 2004.

Figure 5 Crop revenue per farm household pre- and post-CCFGP (Ansai)

0200400600800

10001200140016001800

1999 2002 2005 2008 2011 2014 2017year

crop

reve

nue

(yua

n)

wi t hout CCFPG wi t h CCFGP

Before CCFGP, the main livestock products were pigs and sheep, with small numbers of donkeys, mules, chickens and eggs. Before CCFGP, the average livestock revenue

37

for the sampled farm households was ¥2232.7 per annum. The revenues of pigs and sheep accounted for about 78.4 per cent of total livestock revenue. After CCFGP, the average livestock revenue for the sampled households was ¥938.4 per annum, a decrease of 58 per cent. Sheep revenue fell but pigs were still the most important livestock, with revenue accounting for 80 per cent of the livestock revenue.

Figure 6 Livestock revenue per farm household pre- and post-CCFGP (Ansai)

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500

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1999 2002 2005 2008 2011 2014 2017Year

Rev

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(yua

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wi t hout CCFGP wi t h CCFGP Other business revenues of the surveyed farm households in Ansai include sales of apples, grass and fish, but these are a small component of total revenue. Before CCFGP, the other business revenue per sampled household was ¥275.1 per annum, with fish and other products’ revenues accounting for 53.2 per cent. After CCFGP, this increased by 133.8 per cent to ¥643.3 per annum. Fish and other products’ revenues accounted for 75.6 per cent of the total of other business revenue. Before CCFGP, 30 people in the Ansai households surveyed were engaged in off-farm work, and the average net off-farm revenue was ¥920.2 per annum. After CCFGP, 41 people from the surveyed households engaged in off-farm work. The average net off-farm revenue for the sampled households was ¥1741.2 per annum, an increase of 89.2 per cent relative to 1998.

The revenue reductions evident with the conversion are offset by revenues from the land converted under the CCFGP. When Ansu apricot (Prunus armeniaca) and Prunus davidiana enter their initial period of production in 2002, the average revenue of forest and grass products on converted land for the sampled households is ¥814.1. When apples, walnuts, Sea-buckthorn (Hippophae rhamnoides L) and Caragana korshinskii

38

enter their initial period of production in 2003, the average revenue of forest products rises to ¥1222.8. When black locust (Robinia pseuduacacia) reaches harvest in 2004, the average revenue of forest products increases to ¥2460.7. When Ansu apricot enters into the peak period of production in 2005, the average revenue of forest products increases to ¥3666.7. The aveage revenue of forest products increases to ¥6137.1 following the peak production period of Ansu apricot in 2008. There will be an intermediate cutting of Platycladus orientalis, and the revenue rises to ¥6359.3. In 2013, although Sea-buckthorn (Hippophae rhamnoides L) and Caragana korshinskii enter their declining period of production, the revenue still increases to ¥6916.2 because of the peak period of walnut production. In 2014, with the ending of the harvesting period of Black locust, the average revenue of forest products decreases to ¥5678.4. There will be an intermediate cutting of poplar trees, and the average revenue will rise to ¥8131.7. When apple trees enter into the declining period, the average revenue of forest products will decrease to ¥5080.2. The grass revenue is a relatively small component of the total revenue of sampled farmers in Ansai. The grass revenue will fluctuate in the initial, peak, and declining period. At the peak of the five year cycle of production, the average annual grass revenue is ¥169.7.

Figure 7 Average Forest and grass revenue per household from CCFGP areas on sampled farms (Ansai)

0

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8000

10000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year

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(yua

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f or est pr oduct s gr ass pr oduct s

The average grain and cash subsidies received by sampled farm households in Ansai were ¥2591.6 per annum. The subsidies are to be continued for eight years.

39

Before CCFGP, the total revenue per sampled farm household in Ansai was ¥5012.1 per annum. Crop, livestock, other business and off-farm revenues and land rent accounted for 31.5 per cent, 44.5 per cent, 5.5 per cent, 18.4 per cent and 0.1 per cent of the total revenue. After CCFGP in 2003, the total revenue per sampled farm household in Ansai was ¥8130.0. Crop, livestock, other business and off-farm revenues accounted for 10.2 per cent, 11.5 per cent, 7.9 per cent, and 21.4 per cent of the total revenue. In addition, subsidies are 31.9 per cent and forest products provide 15 per cent of the revenue. Comparing the before and after CCFGP situation (1998 - 2003), the total revenue per sampled farm household in Ansai increased by 62.2 per cent. By 2018, this increase is 85.7 per cent.

Table 24 Average farm household revenue pre- and post-CCFGP (Ansai)

Revenue in 1998 ( ¥)

Proportion of revenue in 1998 (%)

Revenue in 2003 ( ¥)

Proportion of revenue in 2003 (%)

Change in total revenue (%)

Revenue in 2018 (¥)

Crop Livestock Other business Off farm work Land rent Forest products Grass products Subsidy

1578.4 2232.7 275.1 920.2 5.7 0.0 0.0 N/A

31.5 44.5 5.5 18.4 0.1 0.0 0.0 N/A

830.6 938.4 643.3 1741.2 0.0 1222.8 162.1 2591.6

10.2 11.5 7.9 21.4 0.0 15.0 2.0 31.9

-47.4 -58.0 133.8 89.2 -100.0 N/A N/A N/A

849.6 938.4 643.4 1741.2 0 5080.2 53.8 N/A

Total 5012.1

100.0

8130.0 100.0

62.2 9306.4

The CCFGP has changed land use in sampled farms in Ansai County with high-slope cropland being converted into forestry land. Crop revenues fell. At the same time, labor has transfered from farm work to off-farm work and off-farm revenue has increased. The Ansai County Government has been providing loans to farmers to develop controlled-atmosphere agriculture. Therefore, farm households have also shifted factors of production released by implementing the CCFGP into controlled-atmosphere agriculture. In addition, after the completion of the Transferring Gas from West to East Project (TGWEP) in Ansai County, government and petroleum exploitation companies reached an agreement to use local labor in construction. The TGWEP project increased the demand for labor and influenced the off-farm revenue of households.

40

Figure 8 Average revenue per farm household pre- and post-CCFGP (Ansai)

0

2000

4000

6000

8000

10000

12000

14000

1999 2003 2007 2011 2015Year

Yuan

wi t hout CCFGP wi t h CCFGP

The average revenue of sampled farm households in Ansai is shown in Figure 8. From 1999 to 2006, the “with CCFGP” revenue continually increases. This is mainly due to the contribution of off-farm employment and the increase in other business revenue especially from fish production. The revenue falls in 2007 because of the end of subsidies. Thereafter, Ansu apricot on the converted cropland enters into the peak production and the revenue returns to more than one million yuan per annum. From then on, the revenue will level off at one million yuan. However, in every predicted year, the “with CCFGP” revenue in Ansai is larger than the “without CCFGP” revenue.

Gonghe Before CCFGP, the major crops of Gonghe included wheat, potatoes, oats, and Brassica campestris. The average crop revenue of surveyed farm households was ¥10108.7 per annum, including ¥215.2 of potato revenue, ¥554.5 of oat revenue, ¥696.0 of wheat revenue and ¥8279.8 of Brassica campestris. Brassica campestris revenue accounted for 81.9 per cent of total crop revenue, and was the most important crop. After Gonghe participated in CCFGP, the major crops have not changed. The average crop revenue per sampled farm household in 2003 was ¥6775.5 per annum, including ¥213.1 of potato revenue, ¥614.1 of wheat revenue, ¥2639.4 of Brassica campestris revenue and ¥3124.2 of oat revenue. Comparing “with CCFGP” to “without CCFGP”, the crop revenue of Gonghe decreased by 33 per cent from 1999 to 2003.

41

Figure 9 Crop revenue per farm household pre- and post-CCFGP (Gonghe)

0

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9000

12000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year

Rev

enue

(yua

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wi t hout CCFGP wi t h CCFGP

The survey was implemented in four villages of Gonghe County, including one village in a semi-pastoral area and another in a pastoral area. Hence livestock production features prominently. Before CCFGP, the main livestock products of the surveyed farm households included pigs, cattle and sheep, with small amounts of poultry, eggs and dairy products. Before CCFGP, the average livestock revenue was ¥11021.9 per sampled farm household. The revenues from pigs, cattle and sheep accounted for about 84.2 per cent of total livestock revenue. After CCFGP, the major livestock products had not changed. Average livestock revenue per farm household was ¥13681.8, an increase of 24.1 per cent. The revenues of pigs, cattle and sheep accounted for about 86.7 per cent of total livestock revenue. The cattle and sheep revenue had increased by 27.5 per cent from ¥9268.7 to ¥11818.2.

42

Figure 10 Livestock revenue per farm household pre- and post-CCFGP (Gonghe)

0

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12000

16000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Rev

enue

(yua

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wi t hout CCFGP wi t h CCFGP

Other sources of business revenues of the sampled farm households in Gonghe included production of apple, pear and kernel apricot. It contributes relatively little to the total revenue. In 1998, there were three farm households having other business revenues among the sampled households and the other business revenue per sampled household was ¥3 per annum. After CCFGP, this increased to ¥78.8 per annum and four sampled farm households had other business revenues, including shrimps, timber and kernel apricot. Before CCFGP, 47 people in the Gonghe sample engaged in off-farm work, and the average net off-farm revenue was ¥1053.5 per annum. After CCFGP, 50 people in the Gonghe sample engaged in off-farm work and the average net off-farm revenue was ¥1257.6 per annum, an increase of 19.4 per cent relative to 1998. Revenue declines in crops and livestock were offset by revenues from converted land. When Dahurian wildrye (Elymus dahuricus (Turcz) Nevski) started to be harvested in 1999, the average revenue reached ¥1527.7. After Dahurian wildrye entered its peak production, the average revenue increased to ¥4752.7. The average revenues of grass

43

products fluctuated in line with the five year production cycle. In the peak period of yield, the average annual grass revenue is ¥4752.7. In 2003, Ansu apricot (Prunus armeniaca L), the major forest product on the converted land entered into the initial production period, and the average revenue of forest products increased sharply from ¥1.5 in 2000 to ¥724.4 per annum. Following the initial production period of Caragana korshinskii and Sea-buckthorn (Hippophae rhamnoides L), the average revenue of forest products increases continuously. In 2006, Ansu apricot enters its peak production period, and the average revenue of forest products reaches a peak at ¥2612.2 per annum. Then, with the declining period of Ansu apricot from 2008 to 2013, the average revenue will fall to ¥1123.9 per annum. The poplar trees will enter into the harvesting period in 2014 and the average revenue of forest products will jump to ¥2123.0. After 2014, except for Ansu apricot, other forest products will have no more output. Therefore the average revenue of forest products will stay at ¥432.8 from 2015 onwards, unless they are replanted.

Figure 11 Average Forest and grass revenue per household from CCFGP areas on sampled farms (Gonghe)

0

2000

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6000

1999 2003 2007 2011 2015Year

Reve

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(yua

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f or est pr oduct s gr ass pr oduct s

Figure 11 shows that grass product revenue is a large share of the total revenue of forest and grass products. After CCFGP, Dahurian wildrye pasture covers 86.8 per cent of total converted cropland of the 99 sampled farm households. The grass revenue shows a 5-year cycle. In the initial period of two years, the revenue is relatively small.

44

Following the growing yield in the peak period, the market price will decline. Considering the effect of livestock development on forage demand, local experts predict that the local price of Dahurian wildrye will decrease by 30 per cent. In the peak period, the average grass revenue will be ¥4752.7. Before CCFGP, the total revenue per sampled farm household in Gonghe was ¥23,289.3 per annum. Crop, livestock and off-farm revenues and land rent accounted for 43.4 per cent, 47.3 per cent, 4.5 per cent, and 4.7 per cent of the total revenue. After CCFGP in 2003, the total revenue per sampled farm household in Gonghe was ¥28,105.2. Crop, livestock, forest and grass product, and off-farm revenues accounted for 24.1 per cent, 48.7 per cent, 19.5 per cent, and 4.5 per cent of the total revenue. Subsidy is 2.8 per cent of the revenue. Farmer household business revenue (without the subsidies) was ¥27,319.8. Comparing the after CCFGP situation in 2003 and before CCFGP situation in 1999, the total revenue of sample farm households including the subsidies in Gonghe increased by 20.7 per cent. By 2018, the increase is 16.7 per cent.

Table 25 Average farm household revenue pre- and post-CCFGP (Gonghe)

Revenue

Revenue in 1998 (¥)

Proportion of revenue in 1998 (%)

Revenue in 2003 (¥)

Proportion of revenue in 2003 (%)

Change in total revenue (%)

Revenue in 2018 (¥)

Crop 10108.7 43.4 6775.5 24.1 -33 6930.0

Livestock 11021.9 47.3 13681.8 48.7 24.1 13681.8

Other business 2.5 0.0 78.9 0.3 3026.4 78.9

Off farm work 1053.5 4.5 1257.6 4.5 19.4 1257.6

Land rent 1102.6 4.7 48.8 0.2 -95.6 48.8

Forest products 0.0 0.0 724.4 2.6 N/A 432.8

Grass products 0.0 0.0 4752.7 16.9 N/A 4752.7

Subsidies 0.0 0.0 785.4 2.8 N/A N/A

Total 23289.3 100 28105.2 100 20.7 27182.7

Table 25 indicates that CCFGP has changed land use in sampled farmers in Gonghe County with high-slope cropland being converted into forestry land. Crop revenues fell. At the same time, labor is transferred from agricultural production to off-farm work.

45

The off-farm revenue increased by 19.4 per cent, but the increment of off-farm revenue was small, relative to other revenues. In addition, the off-farm revenue per unit also increased. Compared to the situation before CCFGP, the number of people employed in off-farm work increased by seven. In the questionnaire, farmers were asked if CCFGP had increased the number of members employed in off-farm work. Only 12 households answered that CCFGP had allowed more members of their family to be employed in off-farm work. If it is assumed that CCFGP cannot increase off-farm revenue per capita, CCFGP only caused the off-farm revenue to increase by ¥51.2 instead of ¥204 as shown in Table 25. This proves that under limitations of location, tradition and local economic development, not all labor released from converted cropland can be absorbed into the off-farm workforce. So CCFGP had a limited impact on the off-farm revenue of sampled farmers in Gonghe County. The livestock revenue on sampled farm increased by 24.1 per cent under the CCFGP. This shows a part of the labor released from converted cropland transferred to stock raising.

Figure 12 Average revenue per farm household pre- and post-CCFGP (Gonghe)

0

5000

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15000

20000

25000

30000

35000

1999 2003 2007 2011 2015Year

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wi t hout CCFGP wi t h CCFGP

The change in average revenue of sampled farm households in Gonghe is shown in Figure 12. From 1999 to 2018, the “with CCFGP” revenue changes periodically. The revenue change in 20 years includes four grass cycles. The highest revenue in the first cycle includes all subsidies for conversion to forest and grassland. The subsidies for conversion to grassland end in 2001 and the revenue falls. The second cycle only includes subsidies for conversion to forest, but in that cycle forest and grass products such as Ansu apricot and Dahurian wild rye enter into their peak period of production.

46

So the highest revenue of the second cycle is higher than that of the first cycle. Because of the end of all subsidies, the highest revenues of the third and fourth cycle are about ¥30,000, lower than that of the first and second cycle. However, in every predicted year, the “with CCFGP” revenue in Gonghe is larger than the “without CCFGP” revenue. Minhe Before CCFGP, the major crops of sampled farm households in Minhe included wheat, potato, and corn. The average crop revenue of sampled farm households was ¥2026.6 per annum, including ¥817.8 of wheat revenue, ¥523.8 of potato revenue, and ¥222.8 of corn revenue. Wheat revenue accounted for 40.4 per cent of the average crop revenue. After Minhe participated in CCFGP, the major crops did not change. The average crop revenue of sampled farm households was ¥1158.4 per annum, including ¥482.2 of wheat revenue, ¥234.7 of potato revenue, and ¥217.8 of corn revenue. Comparing “with CCFGP” to “without CCFGP”, the average crop revenue of Minhe decreased by 42.8 per cent from 1999 to 2003.

Figure 13 Crop revenue per farm household pre- and post-CCFGP (Minhe)

0

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1999 2002 2005 2008 2011 2014 2017Year

Rev

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wi t hout CCFGP wi t h CCFGP

Before CCFGP, the main livestock products include pigs, cattle and sheep, with small numbers of donkeys, chickens and eggs. Before CCFGP, the average livestock revenue on surveyed farms was ¥978.9 per annum. The revenues of pigs, cattle and sheep accounted for about 80.7 per cent of total livestock revenue. After CCFGP, the average livestock revenue was ¥1153.1 per annum, an increase of 17.8 per cent. The pig, cattle

47

and sheep revenue accounted for 83.8 per cent of the livestock revenue.

Figure 14 Livestock revenue per farm household pre- and post-CCFGP (Minhe)

900

1000

1100

1200

1999 2002 2005 2008 2011 2014 2017Year

Rev

enue

(yua

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wi t hout CCFGP wi t h CCFGP Other business revenue of the sampled farm households in Minhe is generated from apples. It is a small component of total revenue. Before CCFGP, other business revenue per sampled household was ¥841.5 per annum. After CCFGP, this increased by 6 per cent to ¥891.6 per annum. Before CCFGP, 74 people in the Minhe sample engaged in off-farm work, and the net off-farm revenue was ¥1715.6 per annum. After CCFGP, 85 people in the Minhe sample engaged in off-farm work and the net off-farm revenue was ¥1916.3 per annum, an increase of 11.7 per cent relative to 1998.

Revenue is expected from the forest and grass products on converted land. When Ansu apricot (Prunus armeniaca L) and Oleaster (Elaeagnus angustifolia L) entered into their initial periods of production in 1999, the average household revenue of forest products on the surveyed converted land was ¥302.3 per annum. When Oleaster entered into its peak production in 2002, this rose to ¥3129.8 per annum. When Ansu apricot entered into its peak production in 2003, the revenue of forest products per sampled household increased to ¥4262.6per annum. Then, the average household revenue of forest products on the surveyed farms will increase to ¥4675.8 per annum following the initial production period of Sea-buckthorn (Hippophae rhamnoides L) and Siberian peashrub (Caragana arborescens) in 2004. From 2004 to 2013, the average household revenue of forest products will stablise at ¥4675.8 per annum. In 2014, Sea-buckthorn

48

and Siberian peashrub will enter into their declining period, and the average household revenue will decrease to ¥4262.6 per annum. When Oleaster enters into its declining period in 2015, the average revenue is expected to fall to ¥3555.8 per annum. When Ansu apricot enters into their declining period in 2017, the average household revenue will decrease to ¥3255.9 per annum. There will be an intermediate cutting of elm trees in 2018, and the average household revenue will rise to ¥3731.1 per annum. The grass revenue of sampled households in Minhe County is relatively small. The initial period of grass yield was in 1999 and 2000. The grass revenue was ¥314.8 per annum per household. From 2001 to 2005, the grass revenue is ¥944.4 per annum per household. Since surveyed farmers in Minhe County interplant forest and grass, the grass yield will fall sharply after the crown of trees closes in 2006. The grass revenue per household will decrease and stay at ¥251.8 per annum.

Figure 15 Average forest and grass revenue per household from CCFGP areas on sampled farms (Minhe)

0

1000

2000

3000

4000

5000

1999 2003 2007 2011 2015Year

Reve

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(yua

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f or est pr oduct s gr ass pr oduct s

Grain and cash subsidies received by sampled farm households in Minhe were on average ¥961.9 per annum in 2003. This accounted for 8.5 per cent of total revenue per household in 2003. The subsidy will be maintained for 8 years until year 2006.

Before CCFGP, the average revenue per sampled household in Minhe was ¥5562.7 per annum. Crop, livestock, other business and off-farm revenues respectively accounted for 36.4 per cent, 17.6 per cent, 15.1 per cent, and 30.8 per cent of the total revenue. After CCFGP in 2003, the average revenue per sampled household in Minhe was

49

¥11288.4 per annum. Crop, livestock, other business and off-farm revenues accounted for 10.3 per cent, 10.2 per cent, 7.9 per cent, and 17.0 per cent of the total revenue. Comparing the after CCFGP situation to before CCFGP situation, the total revenue per sampled household including the subsidies in Minhe increased by 102.9 per cent per annum. The average crop revenue decreased by 42.8 per cent; average livestock revenue increased by 17.8 per cent; other business revenue per household increased by 6.0 per cent; and average off-farm revenue increased by 11.7 per cent.

Table 26 Average farm household revenue pre- and post-CCFGP (Minhe)

Revenue

Revenue in 1998 (¥)

Proportion of revenue in 1998 (%)

Revenue in 2003 (¥)

Proportion of revenue in 2003 (%)

Change in total revenue (%)

Revenue in 2018 (¥)

Crop 2026.6 36.4 1158.4 10.3 -42.8 1184.8

Livestock 978.9 17.6 1153.1 10.2 17.8 1153.1

Other business 841.5 15.1 891.6 7.9 6 891.6

Off farm work 1715.6 30.8 1916.3 17.0 11.7 1916.3

Land rent 0.0 0 0.0 0 N/A 0

Forest products 0 0 4262.6 37.8 N/A 3731.1

Grass products 0 0 944.4 8.4 N/A 251.8

Subsidies

0 0 961.9 8.5 N/A N/A

Total 5562.7 100.0 11288.4 100.0 102.9 9128.8

The CCFGP reduced the sown area of crops in the sampled households in Minhe County and the revenue of crops decreased but the production factors saved from converted cropland are transferred to stock raising and other business.

50

Figure 16 Average revenue per farm household pre- and post-CCFGP (Minhe)

02000400060008000

100001200014000

1999 2003 2007 2011 2015Year

Tota

l rev

enue

(yua

n)

wi t hout CCFGP wi t h CCFGP

The change of total revenue of sampled farm households in Minhe is shown in Figure 16. From 1999 to 2005, the “with CCFGP” revenue continually increases. The revenue will fall in 2006 because of the end of subsidies. From then on, the revenue will keep at that level until 2013. However, in every predicted year, the “with CCFGP” revenue in Minhe is larger than the “without CCFGP” revenue.

Table 27 Revenue in the four counties pre- and post-CCFGP

1999 – 2003 (%)

Revenue Binxian Ansai Gonghe Minhe Crop Livestock Other business Off farm work Total

-2.1 80.3 26.3 94.5 56.9

-47.4 -58.0 133.8 89.2 62.2

-33.0 24.1 3026.4 19.4 20.7

-42.8 17.8 6.0 11.7 102.9

5.4.3 Costs

Without CCFGP，the agriculture production inputs of the sampled household included hiring labor, material factor of production and rent for land. The level in 1999 of the associated costs is assumed to be held constant over the 20 years of this analysis to represent the “without CCFGP” situation. The “with CCFGP” case is based on 2003 data collected from the household survey along with the expenditure data on converted forest and grass predicted by local experts.

51

Binxian Sampled household production costs include hiring labor, material factors of production and rent for land. After CCFGP, other costs associated with the conversion are added. As shown in Table 28, many cost items for the Binxian sampled households fell between 1999 and 2003. Because land in CCFGP is exempted from taxation, the agriculture tax per household is down 30.3 per cent. However, expenditure on CCFGP related enterprises rose. Expenditure on CCFGP caused total costs per household to rise 15.6 per cent. Finally, the material inputs per household were down 3.7 per cent, reflecting the shift out of cropping. In addition, hired labor costs decline by 19.9 per cent, in part because of the rural labor transition from on-farm labor to off-farm labor.

Table 28 Average cost per farm household pre- and post-CCFGP (Binxian)

Cost in 1998 （¥）

percentage in 1998 （%）

Cost in 2003 （¥）

Percentage in 2003 （%）

Change in cost 98-03(%)

1. Hire Labor 23.4 1 18.7 0.8 -19.9

2. Material 1455.5 62.3 1401.0 58.8 -3.7

Pesticide 186.8 8 220.9 9.3 18.2

Fertilizer 691.7 29.6 728.3 30.5 5.3

Seeds 59.5 2.5 35.7 1.5 -40

Rent for agriculture machines 255.0 10.9 236.0 9.9 -7.5

Rent for animal 33.1 1.4 16.7 0.7 -49.6

Other input for crop production 119.6 5.1 45.2 1.9 -62.2

Electronic power and irrigation water 3.7 0.2 4.8 0.2 29.7

Feed 22.9 1 16.6 0.7 -27.3

Animal breeding 5.2 0.2 7.0 0.3 36.1

Livestock medicine 9.5 0.4 9.2 0.4 -2.9

Payment for buying animal and poultry 47.3 2 39.0 1.6 -176

Stable depreciation 14.9 0.6 31.9 1.3 113.4

Others 6.4 0.3 9.8 0.4 52.5

3.Rent for land 6.6 0.3 0.0 0 -100

4. Agriculture fee or tax 849.8 36.4 592.1 24.8 -30.3

5. Expenditure for CCFGP 0 0 372.3 15.6 N/A

Total 2335.2 2384.1 9.8

52

The area of cropland conversion to forestland is larger than that converted to grassland. The average cost per household on CCFGP is steady at about ¥143.2 for the period of 20 years. The main costs come from tending and harvesting Persimmon and Chinese prickly ash (Figure17).

Figure 17 Forest/ grass costs per farm household (Binxian)

0

20

40

60

80

100

120

140

160

1999 2002 2005 2008 2011 2014 2017

year

Yuan

For est Gr ass

53

Figure 18 Average costs per household pre- and post-CCFGP (Binxian)

22802300232023402360238024002420

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

year

Yuan

Wi t hout CCFGP Wi t h CCFGP

Ansai It was found that the costs of the Ansai sampled households changed significantly with the CCFGP. Notably, agriculture taxes per household were down by 17 percent. Expenditure on CCFGP activities accounted for 16.1 per cent of total costs per household in 2003 and caused total costs to rise. The percentage of material input costs per household is not significantly different before and after CCFGP, but the composition is changed. In 1998, fertilizer and the cost of buying animal and poultry are the biggest expenditures in total cost. In 2003, other inputs for crop production dominate because many households followed the local government guide to develop the controlled-atmosphere agriculture.

54

Table 29 Average cost per farm household pre- and post-CCFGP (Ansai)

Cost in 1998 （¥）

Percentagein 1998 （%）

Cost in 2003 （¥）

Percentage in 2003 （%）

Change in percentage 98-03 ( % )

1. Hire Labor 32.5 1.8 226.3 5.5 595.9 2. Material 1415.6 77.7 3107.3 75.3 119.5 Pesticide 39.2 2.2 145.9 3.5 271.7 Fertilizer 406.9 22.3 548.2 13.3 34.7 Seeds 53.9 3.0 7.5 0.2 -86.0 Rent for agriculture machines 21.9 1.2 32.5 0.8 48.0 Rent for animal 60.5 3.3 49.7 1.2 -17.8 Other inputs, power, 23.1 1.3 1347.7 32.7 5739.5 Water 46.2 2.5 29.7 0.7 -35.6 Feed 142.6 7.8 220.8 5.4 54.9 Animal breeding 72.4 4.0 124.7 3.0 72.2 Livestock medicine 18.8 1.0 80.6 2.0 328.2 Animal and poultry purchases 391.3 21.5 234.9 5.7 -40.0 Stable depreciation 17.4 1.0 24.3 0.6 39.5 Others 121.3 6.7 260.9 6.3 115.0 3.Rent for land 10.4 0.6 5.0 0.1 -51.7 4. Agriculture fee or tax 363.7 20.0 121.7 3.0 -66.5 5. Expenditure for CCFGP 0.0 0.0 663.6 16.1 N/A Total 1822.2 100 4124.0 100 126.3

Figure 19 Forest/grass costs per farm households (Ansai)

0

50

100

150

200

1999 2003 2007 2011 2015Year

Yuan

For est Gr ass

As Figure 19 shows, because the area of cropland converted to forestland by Ansai

55

sampled farm households is much larger than that converted to grassland, forest related costs are much higher than grass related costs. Since apple trees enter into their peak production period in 2006, the forest cost increase to that point and remain steady at ¥172.7 per annum per household from 2006 onwards. The production costs of sampled households in Ansai are shown in Figure 20.

Figure 20 Average production costs per farm household pre- and post-CCFGP (Ansai)

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1999 2002 2005 2008 2011 2014 2017Year

Yuan

Wi t hout CCFGP Wi t h CCFGP

Gonghe As shown in Table 30, with the land use change under the CCFGP, the total costs per annum per sampled household in Gonghe change significantly. Compared with before CCFGP, in 2003 each cost item relating to crop production fell (including seeds, fertilizer, hire labor, other input for crop production, machine, fee or tax, etc.). Agriculture tax per household fell by 57.5 per cent. Rent for land and expenditure on hired labor per household are also down by 31.1 per cent and 80.5 per cent respectively. This is because the transfer of cropland among households is less common due to a reduction in cropland area after CCFGP. However, fewer labours are needed because of a reduction in cropland and hence there is a reduction in expenditure on hired labour.

56

Finally, costs related to animal husbandry, such as animal breeding, animal medicine and payment for buying animal, increase because sampled households transfered inputs from cropping to animals and poultry husbandry.

Table 30 Average cost per farm household pre- and post-CCFGP (Gonghe)

Cost in 1998 （¥）

Percentage in 1998 （%）

Cost in 2003 （¥）

Percentage in 2003 （%）

Change in percentage 98-03 ( %)

1. Hire Labor 378.8 5.2 73.9 0.9 -80.5 2. Material 6413.2 88.6 4639.1 55.7 -27.7 Pesticide 120.3 1.7 63.9 0.8 -46.9 Fertilizer 1239.2 17.1 570.4 6.8 -54.0 Seeds 326.1 4.5 136.5 1.6 -58.1 Rent for agriculture machines 1012.8 14.0 297.7 3.6 -70.6 Rent for animal 0.0 0.0 0.0 0.0 0.0 Other input for crop production 494.9 6.8 64.6 0.8 -86.9

Electric power and irrigation water 47.7 0.7 40.7 0.5 -14.7 Feed 2324.5 32.1 2298.2 27.6 -1.1

Animal breeding 6.7 0.1 7.2 0.1 7.5 Livestock medicine 157.3 2.2 163.9 2.0 4.2 Payment for buying animal

and poultry 366.4 5.1 452.9 5.4 23.6 Stable depreciation 287.9 4.0 490.3 5.9 70.3 Others 29.4 0.4 52.6 0.6 79.1 3.Rent for land 511.0 7.1 352.1 4.2 -31.1 4. Agriculture fee or tax 310.7 4.3 132.2 1.6 -57.5 5. Expenditure for CCFGP 0.0 0.0 3131.3 37.6 N/A

Total 7613.7 100.0 8328.6 100.0 9.4

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Figure21 Forest/grass costs per farm household (Gonghe)

0

500

1000

1500

2000

2500

3000

1999 2002 2005 2008 2011 2014 2017

Year

Yuan

For est Gr ass

Figure 22 Average costs per farm household pre- and post-CCFGP (Gonghe)

0

2000

4000

6000

8000

10000

1999 2002 2005 2008 2011 2014 2017Year

Yuan

Wi t hout CCFGP Wi t h CCFGP

Minhe With the change of land use associated with the CCFGP, total annual costs per household of the Minhe sampled farmers grew by 15.1 per cent. Each cost item relating to crop production fell (including seeds, fertilizer, hired labor, machinary, fee or tax,

58

etc). In contrast, animal and poultry husbandry costs increased (feed, animal breeding, animal medicine, etc). This is consistent with participating households transfering parts of their resources from crop production to livestock husbandry.

Table 31 Average costs per farm household pre- and post-CCFGP (Minhe)

Cost in 1998 （¥）

Percentage in 1998 （%）

Cost in 2003 （¥）

Percentage in 2003 （%）

Change in percentage 98-03 (%)

1. Hire Labor 31.9 1.8 12.3 0.6 -61.6 2. Material 1561.8 85.9 1331.0 63.6 -14.8 Pesticide 92.0 5.1 57.9 2.8 -37 Fertilizer 554.8 30.5 321.1 15.3 -42.1 Seeds 245.2 13.5 33.1 1.6 -86.5 Rent for agriculture machines 98.7 5.4 38.9 1.9 -60.6 Rent for animal 29.4 1.6 13.8 0.7 -53.2 Other inputs for crop production 0.0 0 0.0 0.0 0 Electronic power and water 25.5 1.4 20.4 1.0 -19.9 Feed 359.4 19.8 495.8 23.7 37.9 Animal breeding 6.0 0.3 9.1 0.4 50.8 Livestock medicine 16.1 0.9 23.5 1.1 45.6 Buying animal and poultry 117.9 6.5 272.6 13.0 131.2 Stable depreciation 14.9 0.8 42.6 2.0 185.6 Others 1.8 0.1 2.0 0.1 13.2 3.Rent for land 11.6 0.6 0.0 0.0 -100 4. Agriculture fee or tax 213.3 11.7 84.6 4.0 -60.3 5. Expenditure for CCFGP 0.0 0 665.6 31.8 N/A Total 1818.6 100 2093.4 100 15.1

In the 20 year period, forest product costs fluctuate between ¥116.8 to ¥173.5 per annum per household. From 2001 to 2005, when grass production is entering into its peak output time, the associated costs are higher than at other times.

59

Figure 23 Forest/ grass costs per farm households (Minhe)

0

40

80

120

160

200

1999 2003 2007 2011 2015Year

Yuan

For est Gr ass

Figure 24 Average costs per farm household pre- and post-CCFGP (Minhe)

1600

1800

2000

2200

1999 2002 2005 2008 2011 2014 2017

Year

Yuan

Wi t hout CCFGP Wi t h CCFGP

Overall, costs with the Program for the sampled households are greater than without the CCFGP at every time period. Transaction /implementation cost Participating in the CCFGP adds to households’ expenditure. These costs include purchasing and transporting seedlings. However, for Binxian, Ansai, Gonghe and

60

Minhe sample households, these transaction costs are ¥1.2, ¥26.2, ¥2.4, and ¥6.4. It is a minor part of total cost.

5.4.4 Net Profits

Based on the predictions of average costs and revenue set out in Sections 4.4.2 and 4.4.3, the average net profits with and without project are caculated for the 20 year time period. Binxian Without the CCFGP, the average net profits of Binxian sampled households remain ¥1394.4 per annum assuming that their costs and revenue will not change over the 20 year period. With the CCFGP, the average net profits of Binxian sampled households increase to ¥3265.8 per annum in 1999 and then to a peak ¥4090.6 per annum in 2004 when persimmon come into peak production. In 2005, net profits drop in line with declining prices of forest and grass products. In 2007, the CCFGP subsidy ends and the average net profits fall to ¥3431.5 per annum. In the following years, they vary from ¥3390 to ¥3482 per annum depending on the harvest season of Alfalfa.

Figure 25 Total revenue, costs and profits per farm household pre-CCFGP (Binxian)

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

1999 2003 2007 2011 2015

Yuan

t ot al r evenue t ot al cost s net pr of i t

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Figure 26 Total revenue, costs and profits per farmer household post-CCFGP (Binxian)

-3000

-2000-1000

0

10002000

3000

4000

50006000

7000

1999 2003 2007 2011 2015

Yuan

t ot al r evenue t ot al cost s net pr of i t

Ansai Without the CCFGP, the average net profits per annum of Ansai sampled households remain ¥3153.1 assuming that their costs and revenue will not change in the 20 year prediction. With CCFGP, the average net profits increase to ¥2545.4 in 1999 and then to ¥6366.3 in 2006. With the end of CCFGP subsidy in 2007, they decline to ¥3765.1. In 2008, when Ansu apricot reaches to its peak production, the average net profits increase to ¥6245.1 per annum. After that, excepting for year 2016 when the average net profits increase to ¥8228.4 with poplar harvest, they remain at about ¥6000 per annum.

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Figure 27Total revenue, costs and profits per farm household pre-CCFGP (Ansai)

-3000-2000-1000

0100020003000400050006000

1999 2003 2007 2011 2015Year

Yuan

t ot al r evenue t ot al cost s net pr of i t

Figure 28Total revenue, costs and profits per farm household post-CCFGP (Ansai)

-6000-4000-2000

02000400060008000

100001200014000

1999 2003 2007 2011 2015Year

Yuan

t ot al r evenue t ot al cost s net pr of i t

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Gonghe Without the CCFGP, the average net profits of Gonghe sampled farm households remain at ¥15675.6 assuming that their costs and revenue will not change over the 20 year prediction. With the Program, the average net profits fluctuate with varying forest and grass production. The average net profits of sampled Gonghe households rise to ¥22706.7 in 1999 but fall back to ¥15652.5 in 2004 driven by smaller outputs and large costs. In 2005, with increasing output of Siberian peashrub and Dahurian wildry, the average net profits go up to ¥17151.1 for sampled households. With the end of the CCFGP subsidy and Ansu apricot going out of production in year 2007, profits will decline. In 2009, they would fall to its lowest point of ¥15023.9. After that, net profits would fluctuate with the output of Dahurian wildrye.

Figure 29 Total revenue, costs and profits per farm household pre-CCFGP (Gonghe)

-10000

-5000

0

5000

10000

15000

20000

25000

1999 2003 2007 2011 2015Year

Yuan

t ot al r evenue t ot al cost s net pr of i t

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Figure 30 Total revenue, costs and profits per farm household post-CCFGP (Gonghe)

-15000-10000

-50000

5000100001500020000250003000035000

1999 2003 2007 2011 2015Year

Yuan

t ot al r evenue t ot al cost s net pr of i t

Minhe Without the CCFGP, the average net profits of sampled Minhe households would remain ¥3744.1

assuming that their costs and revenue will not change in the 20 years. With the Program, the average

net profits increase to ¥4624.9 in 1999 and then to ¥9577.9 in 2004. With the end of subsidies in

2007, the average net profits decline to ¥7954.6. After that, the average net profits remain at about

¥7000 throughout the period.

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Figure 31 Total revenue, costs and profits per farm household pre-CCFGP (Minhe)

-3000-2000-1000

0100020003000400050006000

1999 2003 2007 2011 2015

Yuan

t ot al r evenue t ot al cost s net pr of i t

Figure 32 Total revenue, costs and profits per farm household post-CCFGP (Minhe)

-4000-2000

02000400060008000

100001200014000

1999 2003 2007 2011 2015Year

Yuan

t ot al r evenue t ot al cost s net pr of i t

5.4.5 Difference between Net Profits With and Without the Program

Subtracting net profits with CCFGP from net profits without CCFGP (net profits difference) allows the testing of the research hypothesis Net farm household income with CCFGP induced land use changes is greater than net farm household income

66

prior to the introduction of the CCFGP. This is the amount by which farms are better/worse off under the CCFGP. Binxian From 1999 to 2004, the net profits difference per farm household gradually increases from ¥1871.3 to¥2696.2. In 2005, with the decline of persimmon price, it drops to ¥2236.6. In 2006, it returns to the level of 2004 in line with harvest of Alfalfa. With the end of subsidy, the net profits difference decreases to ¥2037.1 in 2007. After that, it fluctuates around ¥2079.2 depending on the forest and grass production season. Throughout the 20 years period, the net profits difference for sampled Binxian households is positive, indicating that the CCFGP improves their livelihoods.

Figure 33 Net profits difference per farm household (Binxian)

0

500

1000

1500

2000

2500

3000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year

Yuan

The Net Present Value (NPV) of the average net profits difference per household at different discount rate are presented in Table 32. At a three per cent discount rate, the NPV of difference of net profit is ¥31,391.1. At 10 per cent discount rate, it falls to ¥17,923.0, and at 20 per cent, it falls to ¥10,138.7. The Program makes the sampled Binxian households better off.

Ansai

67

From 1999 to 2001, the net profits difference is negative, indicating that sampled farmers’ livelihoods are made worse by the Program during those years. In 2002, the figure is zero, implying that livelihood was no different with and without the Program in this year. From 2003 to 2018, the difference remains positive, demonstrating improved livelihood compared with no Program. In 2007, with the end of subsidies, the difference of net profit remains positive. At a three per cent discount rate, the NPV of the difference of net profit per household with and without the CCFGP would be ¥28,209.6. At 10 per cent and 20 per cent discount rate, it drops to ¥12,086.6 and ¥4135.7. This shows that sampled farmers are better off with the Program even with high discount rates (Figure 34).

Figure 34 Net profits difference per farm household (Ansai)

- 1000

0

1000

2000

3000

4000

5000

6000

1999 2003 2007 2011 2015Year

Yuan

Gonghe Over the 20 years, the net profits difference of sampled Gonghe households fluctuates significantly. In 2004, 2009 and 2015, the net profits difference is negitive, showing that farmers are worse off with the Program. In the other years, the difference is positive.

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Figure 35 Net profits difference per farm household (Gonghe)

- 2000- 1000

010002000300040005000600070008000

1999 2003 2007 2011 2015Year

Yuan

At a three per cent discount rate, the NPV of the net profits difference per sampled Gonghe household is ¥48,194.2. When the discount rate increases to 10 per cent and 20 per cent, the NPV drops to ¥31,071.1 and ¥20,464.7. This result shows that the sampled farmers are better off with the Program even facing high discount rate (Figure 35).

Minhe The net profits difference per sampled Minhe household remains positive from 1999 to 2018, indicating that these farmers are better off with the Program. In 2002 and 2007, the difference reaches its highest level. At a three per cent discount rate, the NPV of net profits difference per sampled Minhe household is ¥55,623.7. At 10 per cent and 20 per cent, the NPV drops to ¥30,233.4 and ¥15,443.2. This result shows that the sampled Minhe farmers would be better off with the Program even facing high discount rate (Figure 36).

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Figure 36 Net profit difference per farm household (Minhe)

0

1000

2000

3000

4000

5000

6000

7000

1999 2003 2007 2011 2015Year

Yuan

Table 32 NPV of net profits difference at different discount rate

Unit: yuan 3 % 10 % 20 %

Binxian 31391.1 17923.0 101387 Ansai 28209.6 12086.6 4135.7

Gonghe 48194.2 31071.1 20464.7 Minhe 55623.7 30233.4 15443.2

To sum up, the difference in net profits with and without the Program varies across the sampled farmers in the four counties. Binxian and Minhe have positive differences across all 20 years. These two counties’ samples are always better off with the Program. In contrast, the Ansai and Gonghe samples have positive value in most of years but experience negitive differences in some years. Since the sampled households from all four counties show positive NPV of the net profits difference for the 20 year period, in general, the Program makes the sampled households better off.

6. Sensitivity Analysis

The results outlined in Section 4 show that in addition to the discount rate, the expected

70

income of the sampled farm households are affected by the extent of Program subsidies, crop prices, forest and grass output and price. Counties like Gonghe and Ansai have large farm areas with a high propotion of CCFGP lands providing large expected forest and grass output. These factors can affect farm households’ choice of involvement in the Program. In this section, the Program subsidy, crop productivity, and forest and grass output and price are taken as sensitivity factors. Their impacts on net profits difference are examined. This allows a deeper analysis of the land use decisions of sampled households.

6.1 Impact of the Program Subsidy

The CCFGP subsidy is the policy instrument being used to change land use choices in North West China. Subtracting the subsidy from farmer household revenue and observing the change in net profits difference helps to examine the impact of the subsidy on the Program on land use. Subtracting the cash and grain subsidy from revenue and adding seedling costs into costs from 1999 to 20077 allows an analysis of the net profits difference if no subsidy was applied.

Figure 37 Impact of the subsidy on net profits difference per farm household (Binxian)

0

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1500

2000

2500

3000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Yuan

basel i ne wi t hout subsi dy

Without the subsidy from 1999 to 2007, the net profits difference per sampled household in Binxian falls. Within the 20 year period, at a three per cent discount rate,

7 Assuming that all sample households would receive the subsidy from 1999 at full level and the subdidy would be ended in year 2008. Gonghe mainly conduct grass planting, its subsidy would be ended in 2 years.

71

the NPV of the difference without subsidy reduces 7.9 per cent compared to the baseline. However, the net profits difference for all 20 years remains positive. This shows that without the government subsidy, sampled farmers could change their land use pattern without reducing their living standard. In other words, in Binxian, sampled farm households have the incentive to change their land use without government support. The subsidy acts as additional income to farmers and does not affect their land use decision-making if only considering income (Figure 37).

The net profits difference of sampled Ansai households without the subsidy from 1999 to 2005 is negitive, demonstrating that farmers would be worse off in that period if they participate in the Program. From 2006 to 2018, the net profits difference becomes positive, showing that forest and grass output of CCFGP compensates farmers’ costs and makes them better off. In the 20 year period, the NPV of the difference without subsidy would reduce by 68.2 per cent comparing to the baseline at a three per cent discount rate. This result shows that the subsidy plays an important role in Ansai sampled households’ land use decision making. Without government support, there would be a significant period of time in which the sampled Ansai farmers would be made worse off by the land use change (Figure 38).

Figure 38 Impact of the subsidy on net profits difference per farm household (Ansai)

- 6000

- 4000

- 2000

0

2000

4000

6000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year

Yuan

basel i ne wi t hout subsi dy

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There is no significant impact of the Program subsidy on Gonghe sampled households. Within the 20 year period, the NPV of the difference without subsidy would fall by 5.1 per cent compared to the baseline at a three per cent discount rate. However, one issue is worth noting. Without the surport of the subsidy, there is a relatively large initial cost for farmers who initiated the change to their land use pattern. In the case that farmers who cannot obtain the funding to convert cropland to forest and grass, the Program subsidy is important (Figure 39).

Figure 39 Impact of the subsidy on net profits difference per farm household (Gonghe)

- 2000- 1000

010002000300040005000600070008000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year

Yuan

basel i ne wi t hout subsi dy

Without the subsidy, the net profits difference per sampled household in Minhe is negative from 1999 to 2000. Farmers are worse off if they participate in the Program. From 2003 to 2018, the difference remains positive, showing that forest and grass output of CCFGP compensates farmers’ costs and make them better off. In the 20 year period, the NPV of the difference without subsidy would be reduced by 12.8 per cent compared to the baseline at a three per cent discount rate. This result shows that the subsidy may not be required in order to change Minhe sampled households’ land use pattern (Figure 40).

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Figure 40 Impact of the subsidy on net profits difference per farm household (Minhe)

- 10000

1000200030004000500060007000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017Year

Yuan

basel i ne wi t hout subsi dy

In summary, the Program subsidy has varied effects across the sampled farmers from the four counties. There is little impact in Binxian, Gonghe and Minhe, but a large impact in Ansai. The impact is closely linked with the propotion of the subsidy in households’ revenues. Ansai has the highest ratio of 31.9 per cent, while for Binxian, Gonghe and Minhe, it is 5.8 per cent, 2.8 per cent and 8.5 per cent.

Table 33 Impact of the subsidy on net profits difference of the sampled household

NPV of net profits difference per household without subusidy

(¥ )*

+- % comparing with the baseline

Binxian Ansai

Gonghe Minhe

28,896.9 8975.1

45,714.2 48,480.8

-7.9 -68.2 -5.1 -12.8

Note: *3 per cent discount rate

6.2 Impact of inceased price falls

The price of CCFGP forest and grass output is important in determining farm

74

households’ long-term revenues. Price changes for forest and grass products of CCFGP were predicted in Section 4.4.1. Since Chinese domestic markets have witnessed a number of cases of sharply declining prices after good harvests of agricultural products, it is useful to examine the case where the predicted prices of outputs fall a further 50 per cent. Figure 41 shows that from 1999 to 2004, the larger price falls have little relative impact on the net profits difference in Binxian. After 2005, the effect is consistent with the extent of forest and grass output. Compared with the baseline, the NPV of the net profits difference with increased price falls is reduced by 7.2 per cent. Since conversion forest and grass outputs only account for 1.1 per cent of Binxian sampled households’revenues in the early years and 2.2 per cent at the time of highest harvest volume, the difference with increased price falls remains positive over the 20 year. There is little effect on sampled Binxian farmers.

Figure 41 Impact of forest and grass price decline on net profits difference (Binxian)

0

500

1000

1500

2000

2500

3000

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Year

Yuan

basel i ne f ur t her pr i ce f al l s of F&G

Ansai presents a different picture. Figure 42 shows that due to the further decline in the prices of forest and grass products, the net profits difference is reduced in the period from 2003 to 2018. In years 2007, 2014, 2015 and 2018 the difference becomes negative. The NPV of the difference per household with future price falls would be ¥5293.4 at a three per cent discount rate, a decrease of 81.2 per cent compared to the baseline.

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Figure 42 Impact of forest and grass price decline on net profits difference (Ansai)

- 1000

0

1000

2000

3000

4000

5000

6000

1999 2003 2007 2011 2015Year

Yuan

basel i ne f ur t her pr i ce f al l s of F&G

Gonghe displays a similar situation to Ansai. Higher price falls of forest and grass products would have a significant impact on the Gonghe sampled households. With forest and grass prices falling a further 50 per cent, the NPV of the difference per household would be ¥25,153, a decrease of 47.8 per cent compared with the baseline. Hence, the projected improvement in sampled Gonghe farmers’ livelihoods is sensitive to future price changes for forest and grass output (Figure 43).

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Figure 43 Impact of forest and grass price decline on net profits difference (Gonghe)

- 2000- 1000

010002000300040005000600070008000

1999 2003 2007 2011 2015Year

Yuan

basel i ne f ur t her pr i ce f al l s of F&G

Figure 44 shows that there is a fall in the net profits difference with increased forest and grass price reduction after 2002. The NPV of the difference per sampled household in Minhe would be ¥30,016.9 at a three per cent discount rate, a decrease of 46 per cent compared to the baseline. This result indicates that forest and grass price change would affect farmers’ revenue to a large extent, but the Program still makes the sampled farmers better off.

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Figure 44 Impact of forest and grass price decline on net profits difference (Minhe)

0

1000

2000

3000

4000

5000

6000

7000

1999 2003 2007 2011 2015Year

Yuan

basel i ne f ur t her pr i ce f al l s of F&G

In summary, the county most heavily affected by the further falls in forest and grass prices would be Ansai, followed by Gonghe, Minhe and Binxian. The difference in the effect across the four counties depends on the propotion of converted forest and grass revenue in total sampled households’ revenues. In peak output season, forest and grass revenue accounts for 66.6 per cent of Anhai sampled households’ revenue, the highest among the four, followed by Minhe, 47.9 per cent, Gonghe, 29.2 per cent and Binxian, 2.2 per cent.

Table 34 Impact of forest and grass price falls on net profits difference

of the sampled households

NPV of net profits difference per household with declined forest and grass price

(¥ )*

+- % comparing with the baseline

Binxian Ansai

Gonghe Minhe

29,127.8 5293.4

25,153.0 30,016.9

-7.2 -81.2 -47.8 -46.0

Note: *3 per cent discount rate

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7. Conclusion

The impact of CCFGP on the livelihoods of participating farm households is analysed in this research through changes in land use patterns and hence changes in the net profit of these households with and without the CCFGP. Costs are deducted from revenues to derive the net profits under the two policy scenarios. A timeframe of 20 years –from 1999 to 2018 – is set out in the analysis. The research result shows that the CCFGP has changed land use patterns for the sampled households in the four counties. Consequently, the biophysical characteristics, costs and revenues of participating households as well as agricultural production system have changed. Ensuring that these changes fulfill the Chinese Government’s ecological target is dependent on farmers’ long-term land use decisions. These might not develop according to government’s expectation due to technical, natural and market uncertainties faced by farm households. Land use patterns have changed significantly after the CCFGP. In total, the cropping land area of the sampled farms in the four counties is reduced by 70.6 per cent. The Program affects the area and species of crop production of the four counties to various extent. On the other hand, the area of forest of all sampled households increased by 5834.2 mu and the area of grassland of sampled households increased by 4757.8 mu after the CCFGP. The total forest and grassland area involved in CCFGP accounts for 74.8 per cent of the total arable land area in the four counties. CCFGP also reduces contract activities of agricultural land between collectives and households as well as among households. In Gonghe County alone, there is a drop of 96.3 per cent of arable land being contracted out compared to before CCFGP. Based on the survey result, the revenue structures of the sampled farmers across the four counties change under the CCFGP. A comparison of revenue structures before and after CCFGP is based on four items: crop, livestock, other business, and off-farm work. Other business refers to the production of fruits, hay and acquaculture. Reduced cropping area leads to decreased crop revenues to varying degrees in the four sampled counties after the CCFGP is implemented. By 2003, crop revenue is reduced by 2.1 per cent, 47.4 per cent, 33.0 per cent and 42.8 per cent in Binxian, Ansai, Gonghe and Minhe. At the same time, there are increases in revenues related to livestock, other

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business and off-farm work in the farms sampled in the four counties at various levels. The exception is that livestock revenue in Ansai dropped sharply due to a reduction in the number of sheep. Among the four counties, Binxian has the largest increase in its livestock revenue, which is 80.3 per cent, due to a shift to the production of special animals. The trend shows that sampled farm households in the four counties have started to shift away from agricultural production and have diversified their production activities after the CCFGP. Based on projections made beyond 2003, revenues from forest and grass products will rise to 66.6 per cent of the total revenue in Ansai, followed by 47.9 per cent in Gonghe, 29.2 per cent in Minhe and 2.2 per cent in Binxian during the peak season. Cost structures have also changed in the four sampled counties. All of the sampled farms incurred higher costs after CCFGP, mainly from the expenditure on growing trees and grass under the Program. In Gonghe and Minhe where pastoral activities dominate, each cost item relating to crop production falls while costs relating to livestock production increase, indicating a shift out of cropping to livestock production. Except for Ansai, there is a decrease in the cost of hiring labour in part due to the reduction in cropping land and the rural labour transition from on-farm to off-farm work. The CCFGP has been associated with a shift of labour from on-farm activities to off-farm employment in the sampled farms, although to different degrees. Costs of hiring labour after the CCFGP were found to fall, and the numbers of migrant workers and revenue from off-farm work increase. Revenues from off-farm work increase by 94.5 per cent, 89.2 per cent, 19.4 per cent and 11.7 per cent in Binxian, Ansai, Gonghe and Minhe. However, since there is an increasing trend of rural labor transfer throughout China in recent years and many factors have an effect on the process, it is difficult to estimate precisely the contribution of the Program to this trend. The research results show that the NPV of the net profit with CCFGP is greater than that without CCFGP in each of the four counties over the 20 years time period. The result remains when different discount rates (three per cent, 10 per cent, and 20 per cent) are applied in the calculation. Even under the assumption that the price of future forest and grass products declines by a further 50 per cent, the net profit with CCFGP is still greater than without CCFGP, provided that this price fall has no supply response. This indicates that farmers are better off with the Program and also explains the reason why

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the CCFGP has been received with unprecedented enthusiasm and participation by farm households. A sensitivity analysis was conducted to examine the impact of subsidy on land use change induced by CCFGP. Results show that even without subsidy, the net profit of farm households with CCFGP is greater than that without CCFGP in each of the four counties over the 20 years time period. However, the Program subsidy has varied effects across the sampled farmers from the four counties. Without the Program subsidy, the difference in net profit with and without the Program reduces by 7.9 per cent, 68.2 per cent, 5.1 per cent and 12.8 per cent in Binxian, Ansai, Gonghe and Minhe. The Program subsidy has the greatest impact on the net profit of sampled Ansai farm households where the subsidy provides a higher percentage of the revenue of farm households’ total income. This shows that the Program subsidy is important in some counties in changing land use patterns while its impacts in other counties are less significant. This finding indicates that the “broad brush” approach of paying a single rate of subsidy is inefficient in achieving sustainable land use change in Program areas. Even though subsidy payments are not required to induce land use change in some counties (i.e. counties except Ansai in this research), no land use changes were made when there was no subsidy before the CCFGP was in place. This might be due to a lack of initial capital to help farm households make the transition, a lack of knowledge about the potential of an increase in revenue if farmers change their land use pattern, or simply high information costs associated with the change. Because of these “barriers” to land use change, the CCFGP can be seen as an important contribution to seeing change affected. It provided capital for the investment in change. It spread knowledge about alternative land uses. It lowered the costs of information required for the changes to be introduced. Since farmers are better-off with land use change, they are unlikely to revert to previous land use practices once the CCFGP payments are withdrawn. It is worth noting, however, that this conclusion relies on future outputs and prices of forest and grass products. The four counties are all located in arid and semi-arid areas where water shortages and frequent natural disasters can result in lower survival rates for trees and grass. Farmers are therefore likely to encounter natural and technical uncertainties in obtaining the expected outputs. Furthermore, China has witnessed a number of cases of

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good harvests leading to lower incomes. It is expected that large-scale tree and grass plantation of the Program would increase forest and grass products supply and reduce the price. There is a possibility that further price falls would trigger the adoption of other crops. Finally it is important to note that the continuation of land uses that involve long-term revenue streams – such as tree crops – requires farmers to have confidence in their security of tenure over the land. If farmers expect that their land may be confiscated without compensation then there is an incentive to engage only in short term cropping where the uncertainty of being able to gain a return on the farming investment is less. The imperative therefore is for the Chinese Government to ensure that farmers’ rights over the CCFGP land are well defined and secured. If this is not the case, there is a risk that once the payment of subsidies expires, short term expedient returns will be preferred to long term (if somewhater larger) returns and the land use changes achieved will be reversed.

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Previous Research Reports in this Series Wang, X., Han, H. and Bennett, J., 2004. China’s Land Use Management. Sustainable Land Use Change in the North West Provinces of China Research Report No.1. Asia Pacific School of Economics and Government, the Australian National University. Bennett, J., Zhang, L., Dai, G., Xie, C., Zhao, J., Liang, D., Liang, Y. and Wang, X., 2004. A Review of the Programme for Conversion of Cropland to Forest and Grassland. Sustainable Land Use Change in the North West Provinces of China Research Report No.2. Asia Pacific School of Economics and Government, the Australian National University.

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