Jikun Huang

Center for Chinese Agricultural Policy

Chinese Academy of Sciences

China’s Agricultural Development and Policies: Past Performance and Future Prospects

Average annual growth rate (%) of agricultural GDP

0

1

2

3

4

5

6

7

8

1979-84 1985-95 1996-00 2001-05 2006-08

Average annual growth rate in agricultural GDP was about 4-5 times of population growth rates.

0%

20%

40%

60%

80%

100%

1980 1985 1990 1995 2000 2005

Forestry

Fi shery

Li vestock

Crop

Shares of output values within agricultural sector, 1980-2005, (%)

Within agricultural economy: falling the shares of crops,rising the shares of livestock and fishery

0%

20%

40%

60%

80%

100%

1980 1985 1990 1995 2000 2005

Cash crops

Other cereal s

Mai ze

Wheat

Ri ce

Shares of crop areas, 1980-2005, (%)

Rising horticulture and other cash crops…

Share of non-agri employment of rural labor, 1981-2006 (source: based on CCAP’s surveys)

0

0.1

0.2

0.3

0.4

0.5

0.6

Full timeFull time + seasonalFull time + seasonal + part time

Source (%) of farmer’s income

0

10

20

30

40

50

60

70

80

90

1978 1980 1985 1990 1995 2000 2005 2007

Agri cul ture Non-Agri cul ture

Per capita rural income in real term (1978=100)

0

100

200

300

400

500

600

700

800

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

Per capita real income: Rural vs Urban

(indexed in 1978)

0

100

200

300

400

500

600

700

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

Rural Urban

Urban income / rural income

0

0.5

1

1.5

2

2.5

3

3.5

4

Rati o

Inequality trend: Gini ratio in rural

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

1978 1983 1988 1993 1998 2003 2008

Rural poverty incidence in China, 1978-2007

0

5

10

15

20

25

30

35Under official poverty line

Under $1/day in PPP

%

Calories per capita per day (gram)

0

500

1000

1500

2000

2500

3000

1979 2003 0

10

20

30

40

50

60

70

80

90

1979 2003

Source: FAOSTAT

0

10

20

30

40

50

60

70

80

90

1979 2003

Protein per capita per day (gram)

Fat per capita per day (gram)

Share of undernourished in total population (%)

0

5

10

15

20

25

30

1979-1981 1990-1992 2001-2003

FAO, 1996 and 2006

Questions

• What are major driving forces of China’s agriculture in the past?

• What are prospects of China’s agriculture in the future?

The Rest of the Presentation

Agricultural Development and Policies in the Past 30 Years: Successes, Challenges and Recent Policy Responses -- Institutional reform -- Agricultural technology -- Market liberalization -- …

Prospects of Agriculture in the future

Concluding Remarks

Institutional Reform

Total Factor Productivity for rice, wheat and maize in China, 1979-95

50

100

150

200

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

Rice

Wheat

Maize

Institutional change (HRS) was major source of TFP growth in 1979-84

Source: Jin et al., 2002, AJAE

Small farming: Challenges for labor productivity, modernizing agriculture and food safety

Average farm size (ha/farm)

0

0. 1

0. 2

0. 3

0. 4

0. 5

0. 6

0. 7

0. 8

1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Source: NSBC

Opportunity:Rising rental market…

There are signs that China’s land rental markets are rising…

• Rapidly increasing over time

• Nearly 30% in Zhejiang Province

Land Rented-In

0

2

4

6

8

10

12

14

16

1988 1995 2000 2005

Per

cent

Age Range 1990 2000

16-20 23.7 75.8

21-25 33.6 67.2

26-30 28.8 52.5

31-35 26.9 47.6

36-40 20.5 43.3

41-50 20.8 37.6

Challenges: Percent of workforce off-farm, by age range

Source: CCAP’s surveys

200695

Number of farmers’ associations in a national representative survey

Source: CCAP’s survey in 2009

0

20

40

60

80

100

120

140

160

180

2003 2004 2005 2006 2007 2008

Percentage of villages with FAs:

22%

Percentage of farmers participated in FAs: 4.5%

Estimated number of farmers’ associations in China, 2008

Major Decisions on Key Issues of Promoting Rural Reform and Development

The 3rd Plenary Session of CCCP, 12 Oct 2008

• Rural reforms and institution changes:– Agri operation institutions: agri land (30 yrs

long term); farmers’ cooperatives; etc;

– Rural land institutions: land titling; rental market; but more restrict in land use change; etc;

– Rural financing/credit: …

– Integrated urban and rural development: factor markets; public goods provision; …

– Rural governance and democracy management institutions; and

– Establish resource-saving and environmental friendly agricultural production system.

Agricultural Technology

TFP of rice, wheat and maize in 1979-1995（ 1979=100）

50

80

110

140

170

200

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997

Rice

Wheat

Maize

Technology changes have been major sources of agricultural productivity growth after 1985 (Huang and Rozelle, 1996; Jin et al., 2002 ；Jun et al., 2008)

In 1985-97, TFP grew at about 3%

TFP Growth Rates of Grains and Cotton (1995-2004)

0

1

2

3

4

5

EarlyIndica

LateIndica

Japonica Wheat Maize Soybean Cotton

TFP

Percent per year

Internationally, if a country’s ag TFP rises more than 2% a year, it is GREAT … China’s rate of rise is nearly 3 percent per year!

Agricultural research investment intensity (%)

in China

0

2

4

6

8

10

12

1990 1995 2000 2005

Government fiscal investment in

agricultural research(billion yuan in 2005 price)

Since 2000, the rise in research investment has been higher in China than any other country in the world …

Agricultural biotech research investment

0

200

400

600

800

1000

1200

1400

1600

1800

1986 1988 1990 1992 1994 1996 1998 2000 2002

Plant Agriculture

Huang et al., 2005, April, Science

(million yuan in 2003 price)

2003: 1.65 billion yuan = US$ 200 million or US$ 950 million in PPP

One of the largest investors in plant biotech in the world

Bt cotton areas in China, 1996-2007

0

500

1000

1500

2000

2500

3000

3500

4000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

10

20

30

40

50

60

70

面积

Bt%

About 7.1 million farmers adopted Bt cotton in 2007

（ 1000 ha） （ %）

Major findings on Bt cotton impacts

in 1999-2001 (per hectare)

• Reduce pesticide use: 34 kg 923 yuan

• Increase yield: 9.6% 930 yuan

• Increase seed cost: 570 yuan

• Reduce labor input: 41days 574 yuan

• Increase net income: 1283-1857 yuan (US$

155-225)

Huang et al., 2002, Science; Huang et al., 2003, Agricultural Economics

Major findings on GM rice impacts (per hectare)

• Reduce pesticide use: 17 kg 270 yuan

• Increase yield: 6 % 406 yuan

• Increase seed cost: ?? yuan

• Reduce labor input: 8.4 days 168 yuan

•Increase net income: 844 yuan

(US$ 102)

Huang et al., 2005, Science

Challenges in China’s Agricultural Technologies

Agricultural research:- Public dominated R&D system- Less response to farmers’ demand- Still lack of funding and too much depend on

competitive grants- Lack of top scientists and innovated team

Agricultural extension:– Unjustified tasks;– Inappropriate institutional setting– Lack of incentives– Inadequate human capacity– Lack of funding

Non-extensionadministrative

Law/regulationimplementation

Commercialbusiness

PUBLICEXTENSION

Holiday andothers

Time location of local extension workers in 2005

Source: CCAP’s survey in 35 counties from 7 provinces

Major Decisions on Key Issues of Promoting Rural Reform and Development

The 3rd Plenary Session of CCCP, 12 Oct 2008

• Agricultural modernization:– ...– …

– Technology innovations: focused in modern tech; research reform; extension reform; etc;

– Infrastructure: irrigation; soil; etc;

– New service system: … 3 public services systems (tech extension, animal disease control, and foodsafety monitoring); etc

– …– …

Market Liberalization

Markets in 1980

• Almost NONE …

• Government bought ALL agricultural commodities / sold ALL inputs

Government rice procurement and free market sales of grain

0

10

20

30

40

50

60

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Total Quota%

quota

free market”}

Integration in China’s Markets (percent of market pairs that have integrated price series)

1991-92 1997-00 2001-2003

Corn 46 93 100

Soybean 56 95 98

When using statistical tests (on more than 800 pairs of markets), almost all markets move together in an integrated way, up from less than ½ in the early 1990s (when markets were NOT integrated)

Agricultural tariff rate (%): Prior to WTO accession (1992-2001) : 42% 21%

China’s WTO commitment (2001-2005): 21% 11%

0

5

10

15

20

25

30

35

40

45

1992 1998 2001 2005

Nominal protection rates (%) in China, 1980-2005

-80

-60

-40

-20

0

20

40

60

80

1980-1993 1994-2001 2002-2005

Rice Wheat Soybean Milk Pork Vegetable

This slide shows that while the prices of some commodities were much higher than world market prices in the 1980s (those commodities > 0) and many were way under world market prices (those commodities < 0)

Nominal protection rates (%) in China, 1980-2005

-80

-60

-40

-20

0

20

40

60

80

1980-1993 1994-2001 2002-2005

Rice Wheat Soybean Milk Pork Vegetable

… by the 2000s, the prices of most of China’s commodities were nearly equal to the prices of the same commodities on world markets … this means that China is VERY OPEN … these numbers are more close to those in Australia and New Zealand than Japan, Korea or Europe

Input market liberalizationNominal protection rates of urea and other

fertilizer, 1978-2001

0

20

40

60

80

100

120

140

160

180

1990-91 1992-93 1994-95 1996 1997 1998 1999 2000 2001

Urea 硫酸钾 Potassium Chloride

Challenges: import has been rising faster than export since China joined WTO in 2001

China’s Agricultural trade during 1992-2006

0

5

10

15

20

25

30

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bill

ion

US

$

Export

Import

China’s WTO accession

The Change of China’s agricultural trade(net export, billion US）

-30

-25

-20

-15

-10

-5

0

5

10

15

20

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bill

ion

US$

Land-intensive products

Labor-intensive products

… China is beginning to move towards exporting those commodities in which it has a comparative advantage (e.g., labor intensive commodities, such as fruit and meat) … While importing land intensive commodities (such as soybeans and cotton)

Exports – fruit, meats, aquaculture

Imports – soybeans, cotton, hides

Tax Reduction Program Completed

• Completely eliminated taxes

• Farmers now pay no taxes or fees

0

2

4

6

8

10

2003 2007

0

8.1%

Percent of Value of Output

Agricultural subsidies/supports (billion yuan)

0

20

40

60

80

100

120

2004 2005 2006 2007 2008

OthersAggregate inputsMachineryQuality seedGrain subsidy

2004: 0.7% of agri GDP; 2008: 4% of agri GDP

Subsidies and supports have been rising significantly, butmost of them are decoupled, have little intervention in the market

Prospects of China’s Agriculture in the future

Prospects of China’s agriculture under trade liberalization

Models: GTAP Assumptions:

- Major demand driving forces- Major supply driving forces- Trade policies

China’s Agricultural Import in 2001-2020Under baseline (billion US$)

0

2

4

6

8

10

12

1420012020

China’s Agricultural Export in 2001-2020Under baseline (billion US$)

0

2

4

6

8

10

12

14

20012020

Self-sufficient level (%) of agriculture under baseline, 2001-2020

0

20

40

60

80

100

120

Rice

Wheat

Coarse

grains

Oilseeds

Sugar

Fibre

Horticulture

Beef andm

utton

Pork andpoultry

Milk

Fish

Processedfood

2001 2020

Concluding remarks: Agricultural performance

• Agriculture has been growing at about 5% annually since 1980s;

• The growth has been associated with:- Significant changes in agricultural structure: move to more

competitive sectors;

- Rapid growth of off-farm employment.

Concluding remarks: institutional reforms

• Institutional changes have played important roles in China’s agriculture.

• However, there will be great challenges ahead in terms of small farming, lack of cooperatives, and agricultural modernization.

• More innovated policies on land and farmers’ cooperatives are critical for China’s agriculture in the future.

Concluding remarks: technology

• Technologies have been major source of agricultural productivity growth in the past 30 years.

• Technologies will continue to be engine of its productivity growth in the future.

• However, China’s public agricultural research and extension system needs substantial reforms to meet farmers’ demand for technologies.

• Policy response: increase funding; reform R&D and extension system.

Concluding remarks: Market reforms

• China’s market has been increasingly integrating into the global market.

• China’s domestic markets have been also increasingly integrated.

• While import of land-intensive products will rise, export of labor-intensive products will also rise.

• However, there are also great challenges in small farming in ensuring the increasing demand for quality and safety foods in the future.