Analysis of the Opportunities and Challenges for Agriculture, Rural Areas and Farmers under the New Normal

At present, China's economic development has entered a new normal, and is shifting from high-speed growth to medium-to-high-speed growth. How to continue strengthening the foundational position of agriculture and promote the sustained increase of farmers' incomes against the backdrop of slowing economic growth is a major issue that must be resolved. Changes in social structure, the reduction of surplus rural labor, population aging, environmental degradation and excess production capacity all place new demands on work related to agriculture, rural areas and farmers. What impact will the economic new normal have on the development of agriculture, rural areas and farmers? And how should we respond? For this issue, the Dialogue column conducted an exclusive interview with Ye Xingqing, Director of the Rural Department of the Development Research Center of the State Council.

Host: Zhang Weibin, reporter for this newspaper

Guest: Ye Xingqing, Director of the Rural Department of the Development Research Center of the State Council

Ye Xingqing is Director and Research Fellow of the Rural Economy Research Department of the Development Research Center of the State Council, concurrently Vice Chairman of the Chinese Forestry Economics Society, Standing Director of the Chinese Agricultural Economics Society, and a member of the Academic Committee of the China Institute for Rural Studies at Tsinghua University. He has long been engaged in theoretical and policy research on agriculture, rural areas and farmers.

1

New Strategy for Food Security: Safeguard Grain Production Capacity, Reform the Price System

Host: Under the new normal, what new changes are there in the national food security strategy?

Guest: The new national food security strategy of “relying mainly on ourselves, basing ourselves on domestic supply, ensuring production capacity, importing appropriately, and relying on scientific and technological support” both maintains the necessary stability and continuity and also features new developments.

The scope of “safeguarding” has contracted. According to the traditional statistical scope for grain, China's grain self-sufficiency rate had already fallen to 88.7% in 2013, but this was mainly caused by the rapid growth of soybean imports. Continuing to use the broad measure that includes cereals, beans and tubers to calculate the grain self-sufficiency rate is neither consistent with international practice nor with the actual situation of China's food security work. Narrowing the general requirement of basic grain self-sufficiency to “basic self-sufficiency in cereals and absolute security of staple rations” is conducive to concentrating resources on key priorities.

The requirements for “safeguarding” have been raised. “Ensuring production capacity” is the most important foundation for safeguarding national food security. But this production capacity should be healthy and sustainable. To this end, the central authorities clearly put forward two new requirements: first, adhere to placing equal emphasis on quantity and quality; second, base ourselves on the present while taking the long term into account. In the future production of cereals and other agricultural products, greater attention must be paid to quality and safety, to source control, and to supervision across the entire production and marketing chain.

The approach to “safeguarding” has changed. For the first time, “appropriate imports” was proposed as an important component of the food security strategy. While raising domestic production capacity, actively participating in international trade and opening up broad channels for grain imports will make China's grain supply more reliable and its market more stable.

The responsibilities for “safeguarding” have been adjusted. Under the new historical conditions, the respective boundaries of the roles of government and market, and of the central and local authorities, need to be redrawn. It is clearly stipulated that the central and local authorities share responsibility, with the central authorities bearing primary responsibility, and that local governments at all levels should foster a sense of the overall situation, increase investment in grain production, and consciously shoulder the responsibility of safeguarding national food security. This is conducive to forming a unified national grain market.

Host: In the face of the new situation and strategic adjustments, what are the main reform tasks for doing a good job in safeguarding food security?

Guest: It should be normal for grain prices to be formed by market supply and demand, but past policy practice deviated from this original intention: the range of varieties subject to the minimum purchase price and temporary storage policies was continuously broadened, market-supporting purchases were initiated with increasing frequency, and market-supporting purchases accounted for an excessively large share of market circulation. Such policy practice played an important role in mobilizing farmers' enthusiasm for production, but its impact in misallocating agricultural resources cannot be ignored. Although it is an inevitable trend for domestic prices of agricultural products to exceed the after-tax landed import prices, and the turning point of the inversion between domestic and international agricultural product prices was bound to arrive sooner or later, the market-supporting purchase policy made this turning point arrive earlier. In the face of this dilemma, the minimum purchase price and temporary storage systems must be reformed, that is, in accordance with the principle of “separating price from subsidy and letting the market set prices,” a target price system for agricultural products should be gradually established.

Letting correct market signals allocate agricultural resources and letting correct market signals determine grain production capacity is the correct path to achieving national food security. To this end, it is necessary to reform the price formation mechanism for grain and other agricultural products.

From a long-term perspective, cotton and soybeans are suited to a reform approach that is not linked to production behavior and that subsidizes the price difference according to the sown area or output of a certain fixed year, whereas when the minimum purchase prices of major cereal varieties with higher self-sufficiency requirements, such as rice and wheat, exceed the after-tax landed prices calculated at out-of-quota tariff rates, the price difference may be subsidized to farmers according to the actual output or sown area of the year, linked to production behavior.

2

Responding to Challenges Requires Transforming the Agricultural Development Model

Host: Against the backdrop of the current economic new normal, what challenges does China's agricultural development mainly face?

Guest: China's agriculture faces five major challenges, specifically including how to escape the awkward situation of a “policy market,” how to orderly withdraw “unhealthy” production capacity, how to break through the dilemma of being squeezed “from above and below,” how to adapt to the new normal of “long-term trade deficits” in agricultural products, and how to guard against the risk of falling into a “land transfer deadlock” for agricultural land.

The first challenge was already mentioned in the analysis of the grain issue. The second challenge refers to the fact that a considerable part of current agricultural production capacity is obtained at the cost of sacrificing the ecological environment, is “eating into the food of future generations,” and is overdrafting the future. This is specifically manifested in the following five aspects: first, production capacity obtained at the cost of excessive use of modern inputs. Second, production capacity obtained at the cost of severe overexploitation of groundwater. Third, production capacity obtained at the cost of encroaching on wetlands. Fourth, production capacity obtained at the cost of severe soil and water loss. Fifth, production capacity obtained at the cost of using contaminated soil and affecting food quality and safety. The third major challenge refers to how, under the double squeeze of the “price ceiling” and “Amber Box subsidy” constraints and rising production costs, to scientifically determine the self-sufficiency level of major agricultural products and reasonably arrange the priority order of agricultural industry development. Since 2004, agricultural product trade has continuously shown deficits, and the deficit has grown larger and larger. The overall self-sufficiency rate of agricultural products has entered a downward channel, which will bring a fundamental impact on the pattern of China's agricultural resource allocation. The fifth major challenge refers to the fact that as the powers of contracting rights become greater and greater, the impact on China's agricultural land transfer and the transformation of smallholder farming remains to be seen.