An In-Depth Analysis of the Direction of Agricultural Policy Transformation

That agriculture possesses inherent weaknesses is one of the main reasons many people cite for why agriculture must be protected. However, agricultural protection can at best mitigate the negative effects of agriculture's inherent weakness; it cannot eliminate it. From international experience, only the development of modern agriculture can turn agriculture into an industry capable of competing with other industries on an equal footing. Therefore, developing modern agriculture is the fundamental remedy for eliminating agriculture's inherent weakness, while agricultural protection is merely a palliative measure for mitigating its negative effects.

Since 2002, the total amount of subsidies directed by central and local governments toward agriculture has grown ever larger, yet agriculture's inherent weakness has not been eliminated, agriculture's competitiveness has not risen, and farmers' satisfaction with agricultural product prices and their enthusiasm for engaging in agricultural production have not improved. Faced with such a situation, should we spend ever-increasing fiscal funds to protect an agriculture that can never compete with other industries, or should we devote great effort to building an agriculture that can compete with other industries? The answer is self-evident. Modern agriculture cannot take shape in an environment divorced from market competition and devoid of market risks that need to be guarded against. Therefore, to build modern agriculture, agricultural policy must be transformed.

Shift from policies that help farmers avoid risk to policies that incentivize farmers to pursue efficiency

The household contract responsibility system introduced in the early period of reform had as its policy essence the empowerment of farmers to raise production efficiency, whereas measures now in use such as the minimum grain purchase price and temporary storage programs have as their policy essence the mitigation of farmers' market risks so as to ensure that their incomes do not decline. It should be affirmed that these policies play a positive role in stabilizing agricultural production and safeguarding farmers' interests, but their negative effects, such as distorting prices and increasing inventories, must not be overlooked. Among these, price distortion reduces the efficiency of agricultural resource allocation, and inventory increases undermine the stability of production. In other words, these policies designed to help farmers avoid risk are effective in the short term, but in the long term they will become increasingly difficult to sustain as the accumulated fiscal burden gradually grows.

As the most populous country in the world, China's food security is a vital strategic issue that must never be taken lightly at any time. The key measure for safeguarding food security is to eliminate the natural risks and market risks of agriculture. In mitigating agriculture's natural risks and market risks, the government's responsibility is to build a system of agricultural infrastructure with the character of public goods, specifically including a system for agricultural technology research, development and extension; a system for collecting, organizing, analyzing and publishing agricultural meteorological information and agricultural product market information; and a system of agricultural infrastructure such as roads and water conservancy, so that the broad community of farmers can promptly obtain the technology, information and infrastructure they need. The responsibility of agricultural operating entities is to optimize resource allocation and give full play to the comparative resource advantages and market competitive advantages of their regions. Only when a situation is created in which the government does what the government should do and does not assume the duties of farmers, and farmers do what farmers should do and do not assume the duties of the government, can the functions of an effective government, an efficient market and enterprising farmers all be brought fully into play.

Gradually shift from Amber Box policies to Green Box policies

Although China's agricultural subsidies produce the effect of income subsidies, we still define them as agricultural production subsidies. The main reason for emphasizing this point is the concern that farmers will not grow grain.

⟦NL> If farmers' non-agricultural income continued to increase while farmland did not circulate and there were no restrictions whatsoever on farmland use, then indeed more and more land might go uncultivated. However, this is not the case in China. In recent years, on the one hand, the number of farming households has gradually decreased along with the advance of urbanization and industrialization; on the other hand, the micro-scale of agricultural operations has gradually expanded along with the circulation of farmland. The larger the micro-scale of agricultural operations, the more suitable it is for growing land-intensive crops. Under the influence of this endogenous crop selection mechanism, the decline in grain production is bound to be limited and short-term.

Agricultural production subsidies reduce the efficiency of resource allocation domestically and are constrained by WTO rules internationally. In preventing the distortion of agricultural product price signals and circumventing the WTO rules' restrictions on Amber Box policies, the basic practice of various countries is to decouple agricultural support from agricultural production and gradually convert agricultural subsidies belonging to Amber Box policies into agricultural support belonging to Green Box policies. For example, after the United States enacted its 2014 Farm Bill, its Amber Box subsidies fell to an extremely low level. China must also gradually adjust agricultural subsidies belonging to Amber Box policies into agricultural support under Green Box policies.

In recent years, China's agricultural production costs have climbed rapidly. At present, domestic agricultural product prices are already higher than the duty-paid landed prices of imported agricultural products within quota. For example, the duty-paid landed prices of beef, mutton and pork are less than 26,000 yuan and 12,000 yuan per ton respectively, less than half the prices of beef, mutton and pork on the domestic retail market. Raising domestic agricultural product prices under such circumstances has the effect of increasing farmers' incomes on the one hand, but also increases the pressure of foreign agricultural product imports on the other. As a populous country with relatively scarce per capita agricultural resources, it is necessary for China to use foreign agricultural resources and the international agricultural product market to adjust domestic agricultural product supply and ease the resource and environmental pressure on domestic agriculture. However, large-scale imports of agricultural products will affect the employment and incomes of Chinese farmers.

Shift from property rights policies in physical form to property rights policies in value form

In practice, the ways in which property rights to grasslands, forests and wetlands are defined tend to copy agricultural practices. But grasslands, forests and wetlands differ greatly from cultivated land, and simply imitating agricultural practices is not appropriate. The following uses grassland animal husbandry as an example for illustration.

1. The core issue of grassland animal husbandry is coordinating the relationship between a stable herd size and fluctuating grassland grass yield, as well as the differences among various grassland parcels in the seasons suitable for grazing

Historically, herders coordinated the relationship between unstable grassland grass yield and stable herd size through nomadic grazing. In reality, nomadic grazing is no longer the only measure for coordinating this relationship; newly added measures include supplementary feeding, building warm sheds, delivering winter lambs, and marketing fattened livestock in autumn. From the trend, because defining grassland property rights down to the household helps strengthen herders' incentives, internalize externalities, stop property rights infringements and form clearly expected returns, the scope of applicability of matching specific grasslands to specific herder households through property rights division and fencing will gradually expand as the average operating scale of herder households grows. However, at present this practice is not yet universally applicable.

Community members of grasslands share commonly recognized norms of behavior and a tradition of mutual trust and mutual assistance. They are closely connected, which facilitates monitoring and stopping free-rider behavior, and the coordination cost of collective action is relatively low. This is an important reason why community grasslands adopt property rights arrangements of common ownership and joint management. Common ownership and joint management of community grasslands is the foundation for stakeholders to coordinate interests, mitigate conflicts and achieve win-win cooperation; it is a way to combine the stability and flexibility of grassland use; and it is a measure to enhance the integrity of the grassland ecosystem. This is an important reason why common ownership and joint management of community grasslands has a long history.