China’s Agricultural Policy Transition: Impacts of Recent Reforms and Future Scenarios

This paper reviews recent development of China’s agricultural domestic support policy, especially the transition from taxing farmers and agriculture to providing direct subsidies to grain production and purchased inputs. A model-based quantitative analysis on the effects of these policy changes has been conducted. Simulation results suggest that recent policy changes have likely achieved the declared policy goals of increasing grain production and boosting farm income. Much of the increase in grain production and farm income can be attributed to higher per unit return to arable land, land reallocation to grain production, and extra agricultural employment triggered by the policy changes. Based on the assumption that China’s public assistance to agriculture and farmers will continue and rise, two hypothetical future scenarios are simulated. If China uses up all its support allowance permitted by the WTO using existing instruments, increased grain production, changing trade pattern seemingly contrary to China’s comparative advantage, increased rural employment, and significantly higher farm income (16 percent) will be expected. If alternative, decoupled instruments are applied to raise China’s agricultural domestic support to the same allowed level, China’s agricultural production and trade will remain unchanged, rural employment stays stable, but farm income will experience a higher boost (17 percent). Contributed Paper prepared for presentation at the International Association of Agricultural Economists’ 2009 Conference, Beijing, China, August 16-22, 2009. Copyright 2009 by the authors. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided this copyright notice appears on all such copies.