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Social Policy
Optimize, Balance, Boost
First policy document of the year continues pursuit of agricultural structural reform
By Wang Hairong | NO. 7 FEBRUARY 16, 2017


Scientists check the effects of a newly developed pesticide in a greenhouse in the Chinese Academy of Agricultural Sciences in Beijing on January 25 (XINHUA) 

Liandaowan, shaped like the curved blade of a sickle, is China's corn belt. It stretches from the northeast to northwest, then extends to the southwest with most of the area lying in semi-arid and semi-humid climate zones.

Reportedly accounting for one third of China's total corn acreage, Liandaowan is one of the regions most affected by the ongoing agricultural structure reform. For 13 consecutive years, agricultural structure reform was the focus of the first policy document of the year released by the Central Committee of the Communist Party of China and the State Council, China's cabinet, and 2017 has been no exception.

This year's No.1 Central Document, a weathervane of government priorities, continues the focus on agriculture, farmers and rural areas, mooting deepening supply-side reform and nurturing new engines to power agricultural and rural development.

It also stipulates measures to invigorate the market, such as reforming the pricing mechanism and purchasing policies of agricultural products, the rural financing system and land use policies. Migrant workers and other talented people are encouraged to start businesses and engage in innovation in rural areas, thereby generating new jobs for farmers and increasing their incomes.

Structural shift 

Briefing the media on the document on February 6, Tang Renjian, deputy head of the Central Rural Work Leading Group and Director of the Office of Central Rural Work Leading Group, said it dwells on agricultural supply-side structural adjustment and other reform measures to smooth government-market relations.

The restructuring would include adjustment of agricultural product structure, production model and industrial structure. Tang said product structure adjustment is intended to optimize products by eliminating ineffective supply and reducing low-end supply while increasing effective and high-end supply in response to market demand.

"To adjust the production model is to promote green production and rehabilitate ecological environment," Tang remarked.

In rural areas, new industries and business models would be developed. There would also be initiatives to promote the integration of primary, secondary and tertiary industries and to upgrade all agricultural production links. All this is aimed at increasing the value of the entire agricultural production chain, Tang explained.

The document also emphasizes technology innovation, agricultural and rural infrastructure development, and the provision of public services.

What does this mean for Liandaowan specifically? The new document says the acreage of corn will be further reduced, especially in non-optimal areas. Instead, other crops should be grown, such as quality edible soybean, tubers and coarse grains and beans.

In 2016, Liandaowan and other areas' corn acreage was reduced by about 2 million hectares. This year, as Tang Ke, Director of the Department of Market and Economic Information of the Ministry of Agriculture, said at a press conference in January, it will be further slashed by more than 670,000 hectares. By 2020, the corn-producing area in Liandaowan will be cut by 3.33 million hectares, as per a plan issued by the Ministry of Agriculture in November 2015.

A balancing act 

Supply-side structural reform in agriculture was launched to increase farmers' incomes and guarantee effective supply, with a focus on improving the quality of agricultural supplies, Tang Renjian said at the media briefing.

Currently, the major problems facing China's agriculture have changed from overall supply shortage to structural imbalance. This is manifest in the periodical excessive supply of some products and a shortfall in other products.

In 2015, China had a grain shortfall of 25 billion kg. However, grain import totaled 125 billion kg, which resulted in a deficit of more than $46 billion for the state exchequer. Speaking at a forum on modern agriculture in Beijing last year, Chen Xiwen, former deputy head of the Central Rural Work Leading Group, gave more examples of the structural imbalances. For instance, while the domestic market was short of soybean, the supply of corn increased.

The imbalance goes back to 2007, when the government began a temporary policy of purchasing and stockpiling corn in three northeastern provinces—Heilongjiang, Jilin and Liaoning—and Inner Mongolia Autonomous Region. According to Liu Xiaonan, Deputy Director of the Economy and Trade Department at the National Development and Reform Commission, under this policy, when market prices fell below the government-set minimum purchasing rates, the government bought corn from farmers and stored it.

It gave farmers more incentive to plant corn. Consequently, China surpassed the United States to have the largest corn acreage in 2014, Zhang Shihuang, a scientist with the Chinese Academy of Agricultural Sciences, told Beijing-based Economic Daily.

Then came the continuing global economic downturn, plunging oil prices, and weak need for processed corn (as ethanol fuel). All this made the price of corn in the international market plummet. From July 2013, the price of domestic corn stayed above that of imports. The difference was so large that people stopped buying domestically produced corn, which ended up lying in storage.

Many animal feed companies began to use the cheaper imported corn and other grains such as sorghum, barley, and distiller's dried grains, according to Han Jun, another Deputy Director of the Office of the Central Rural Work Leading Group.

"China's corn stocks are forecast to account for more than half of global stocks by the end of 2015/16, having nearly doubled in just five years," a U.S. Department of Agriculture statement said.

Subsequently, the government decided to reduce corn acreage in non-optimal localities in Liandaowan. This was done mainly because such localities have low and unstable yield of corn, according to Ye Zhenqin, Director of the General Office of the Ministry of Agriculture. Besides, these areas also have a relatively fragile ecological environment and corn production is likely to cause soil erosion.

In March 2016, the government scrapped the temporary corn purchasing and stockpiling policy and instead, let the market set the price. It decided to subsidize corn producers so that those in optimal producing areas would continue to plant the crop.

After the policy was reformed, the gap between domestic and international corn prices gradually narrowed and in January 2017, domestic price dipped below that of imported corn, Han said. In 2016, the import of corn and substitutes dropped by around 30 to 40 percent.

In the previous years, lured by high corn prices, a large number of farmers switched from soybean to corn. China used to be a big exporter of soybean. Gradually, it became the largest importer of the crop. But now, as corn prices have returned to market level, this distortion of resource allocation is being gradually corrected, Han added.

While reducing corn-planting areas, the Ministry of Agriculture also issued a circular in 2016, expanding soybean acreage. The No.1 Central Document encourages expansion in the production of silage maize for animal feed, quality forage grass, and beans. It also urges transferring pig pens to major corn-producing areas.

Besides corn, the document details other structural adjustments as well. It stipulates that the scale of aquaculture in inland water bodies such as lakes and reservoirs should be "reasonably determined" to promote capacity reduction and boost efficiency. Also, aquaculture in paddy fields and low-lying saline land should be encouraged.

It supports the healthy development of advanced marine aquaculture and modern marine farms. Marine fishing should be managed by setting up a total catch. Fishermen will be supported to reduce vessels and switch to other industries.

Long-term mechanisms 

You Fei, an associate researcher with the Institute of Agricultural Resources and Regional Planning under the Chinese Academy of Agricultural Sciences, calls for long-term mechanisms to remedy structural imbalance in addition to short-term policies in response to international market fluctuations.

"Although scrapping the temporary corn purchasing and stockpiling policy is important for structural adjustment and destocking, yet in the short term, it will deal a heavy blow to big planters who have purchased corn planting equipment and mastered the technology," You told Beijing Review. "They have to bear the loss incurred by the change."

Abrupt policy changes are not conducive to nurturing a new breed of farmers or long-term sustainable development of agriculture, You said. He suggests establishing long-term mechanisms and making medium- and long-term plans for structural adjustment. He thinks that scaled and mechanized production should be promoted to lower costs and increase the competitiveness of agricultural products.

You also believes that farmland use right transfer is crucial for agricultural mechanization and the enforcement of environment standards. If land is divided up into small pieces, it is difficult to carry out mechanized operations and enforce the environment standard, he said.

This year's No.1 Central Document encourages scaled production through various means such as land operation right transfer and cooperatives.

You proposes that agricultural subsidies should target individuals rather than the industry. "Subsidies (targeting production) are a major disincentive for farmers to transfer their land use right," You pointed out. Price and production subsidies to farmers will push up land rent, and the planters leasing the land have to bear all risks.

He suggests that low-income rural residents should be given subsidies, social insurance and job opportunities in exchange for the right to use their land. In this way, planters can become real market players, lower cost and increase efficiency.

In addition to supply-side structural reform, You said demand-side problems, such as food waste, should be addressed too.

Copyedited by Sudeshna Sarkar 

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