Agricultural Development Poverty Seminar

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

Shares of output values within agricultural sector, 1980-2005 , (%) Within agricultural economy: falling the shares of crops, rising the shares of livestock and fishery

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)

Source (%) of farmer’s income

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

Per capita real income: Rural vs Urban (indexed in 1978) Urban income / rural income

Inequality trend: Gini ratio in rural

Rural poverty incidence in China, 1978-2007 Under official poverty line Under $1/day in PPP %

Ca lories p e r capita per day (gram) Source: FAOSTAT Protein per capita per day (gram) Fat p e r capita per day (gram)

Share of undernourished in total population (%) 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 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) 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

Challenges: Percent of workforce off-farm, by age range Source: CCAP’s surveys 2006 95

Number of farmers’ associations in a national representative survey Source: CCAP’s survey in 2009

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 T he 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 ） 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 ) 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 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 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 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: 41 days 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

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 T he 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 quota free market” }

Integration in China’s Markets (percent of market pairs that have integrated price series) When using statistical tests (on more than 800 pairs of markets), almost all markets move together in an integrated way, up from less than ½ in the early 1990s (when markets were NOT integrated) 95 93 1997-00 98 100 2001-2003 46 Corn 56 Soybean 1991-92

Agricultural tariff rate (%): Prior to WTO accession (1992-2001) : 42%  21% China’s WTO commitment (2001-2005): 21%  11%

Nominal protection rates (%) in China, 1980-2005 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 … 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 liberalization Nominal protection rates of urea and other fertilizer, 1978-2001

Challenges: import has been rising faster than export since China joined WTO in 2001 China’s Agricultural trade during 1992-2006 China’s WTO accession

The Change of China’s agricultural trade (net export, billion US ） … 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 8.1% Percent of Value of Output

Agricultural subsidies/supports (billion yuan) 2004: 0.7% of agri GDP; 2008: 4% of agri GDP Subsidies and supports have been rising significantly, but most 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 2001-2020 Under baseline (billion US$)

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

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

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Agricultural Development Poverty Seminar

by IFAD International Fund for Agricultural Development on Sep 29, 2009

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Agricultural Development Poverty Seminar — Presentation Transcript