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Proliferation of subsidies in China:
Helpful or Harmful?
Fred Gale
China’s spending on agricultural support has been rising rapidly
China expenditures on
major agricultural subsidy programs, 2004-12
35
Agricultural insurance
Billion dollars
30
County "awards"
25
20
General input
subsidy for grain
producers
15
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: ERS analysis of data from China Ministry of Finance.
Agricultural
machinery
Improved seed
Direct payment to
grain producers
Since 2009, officials have also been raising
support prices
China support prices for wheat and rice,
2004-2014
160
140
Rice
Yuan per 50 kg
120
100
Wheat
80
60
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: ERS analysis of data from China National Development and Reform Commission
China and U.S. Agriculture:
More in common than we might think
1976 Chinese poster: “Reap an abundant
Harvest; store grain everywhere.”
Stabilizing prices was a big concern for U.S. policymakers
in the early 20th century.
U.S. corn prices, 1910-33
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
Dollars per bushel
In the 1930s, USDA Secretary
Henry Wallace advocated
creation of an “ever normal
granary”—a buffer stock to
stabilize prices.
…This idea was borrowed from
the Chinese
Source: USDA, ERS analysis of data from
National Agricultural Statistics Service.
However, the United States never found a satisfactory means of achieving
long-term stability in prices without unintended side effects.
U.S. corn prices, 1910-2013
9.00
8.00
6.00
5.00
4.00
3.00
2.00
1933
Agricultural
Adjustment
Act
1.00
0.00
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Dollars per bushel
7.00
Source: USDA, ERS analysis of data from National Agricultural Statistics Service.
Decline in global prices has disrupted a Chinese strategy of
engineering ever-rising prices
China-U.S. corn prices--a yawning gap
12
China
Dollars per bushel
10
8
6
U.S. Gulf price
4
2
0
2000 2002 2004 2006 2008 2010 2012
Source: USDA, China National Grain and Oils Information Center,
China Ministry of Agriculture
Chinese authorities announced plans to
move away from price supports
for soybeans and cotton
High Chinese soybean prices
Made imported soybeans more
attractive
Million bales
China cotton consumption declined as
stockpiling elevated price
60
50
28% decline in
China cotton
use
40
30
20
Ending Stocks
10
2012/2013
2010/2011
2008/2009
2006/2007
2004/2005
2002/2003
Chinese cartoon depicts a foreigner
Filling the “Chinese market” with “imported
Soybeans.” Farmer holds a small bag of
“domestic soybeans.”
2000/2001
0
Domestic
Consumption
Source: USDA production, supply and distribution estimates
China’s
“target
price”
experiment
Chinese policymakers envision a system that alternates between subsidies to
farmers and consumers, depending on market prices.
Chinese policymakers envision this:
…but will market prices evolve like this?
Subsidies are a sign of weakness, not strength
China's agricultural imports from major supplying countries;
Imports rise despite increasing domestic support
China
began
subsidy
programs
30
25
20
15
Began
raising
price
supports
China
joined
WTO
From United States
Brazil
Southeast Asia
Australia
Canada
10
New Zealand
5
Argentina
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Billion Dollars
35
Raising productivity is the key to
improved returns for farmers and food security
“High standard field” project
Using drones to spray wheat fields
However, China’s institutional problems undermine
sustained productivity improvements
With vague property rights and
weak rural banking systems, fixed
asset investment in Chinese agriculture
relies heavily on Government campaigns.
Investments often are unprofitable
and fall into disrepair after the initial
campaign is completed.
Abandoned greenhouse structures from past
investment campaigns are common in the Chinese countryside.
China is concerned about its aging population of farmers
…very similar to concerns in the United States
during the last century
Aging farm population: common during urbanization
United States, 1950
25
China, 2006
20
15
10
5
Age of farmers
Source: Agricultural censuses, U.S. 1950 and China 2006
60 or older
51-60
41-50
31-40
21-30
20 or less
65 and older
55-64
45-54
35-44
25-34
0
Under 25
Percent of farmers
30
Challenges to building a sustained
relationship with China in agriculture
• Opacity of Chinese policy-making and
implementation
• Conflicts over how agricultural prices are
determined
• Technology cannot replace efficient
mechanisms for allocating land, capital and
human resources
For more information on China’s agricultural support…
Growth and Evolution in China’s Agricultural Support
Policies by Fred Gale
Economic Research Report No. 153, August 2013
http://www.ers.usda.gov/publications/err-economicresearch-report/err153.aspx
“U.S. Exports Surge as China Supports Agricultural
Prices” by Fred Gale
Amber Waves (ERS online magazine), October 2013
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