China Programme • Volume 13 • Number 9 • 11th March 2009

China Boosts Agriculture Spending in Face of Global Crisis

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China’s response to the global financial crisis, a stimulus package worth US$ 585 billion over two years, includes a five-fold increase in spending on agriculture, boosting it from US$18 billion to US$106 billion. The government is expected to spend nearly US$ 26 billion to stock commodities such as grains and edible oils.

China’s rural population of nearly 700 million depends heavily on agriculture as a source of income and livelihood. Although the Chinese economy has grown at nearly double digit rates for a decade, rural income has grown by only 6 to 8 percent. Similarly, growth in agricultural output, for example in grains, has not kept pace with wider growth, ranging between 0.7 and 9 percent in the last five years.

Although Chinese agricultural output has risen, some experts attribute the gains to bumper harvests rather than underlying improvements in domestic agricultural productivity. Some in the private sector, such as Liu Yonghao, chairman of the New Hope Group, China’s largest agricultural producer, believe that China must “raise rural productivity before we can really raise rural consumption.”

Raising rural consumption has been an important component of Beijing’s plans to keep the economy growing. To that end, measures on subsidies for electronic appliances and other goods have been included in the stimulus package. The government has also made plans to address unemployment, as income earned by migrant workers contributes more than half of the income of the entire rural population, according to Song Hongyuan, director of the Research Center for the Rural Economy in the Ministry of Agriculture. Nearly 10 million migrant workers have already lost their jobs as a result of the global economic contraction.

Food security concerns as well as declines in rural incomes are informing Chinese policy on agriculture. The stimulus package contains many provisions on the use of renewable energy, but it is unclear whether current intensive farming practises will change. According to Lin Erda of the Chinese Academy of Agricultural Sciences, agricultural yields will decline by 14 percent to 23 percent by 2050 if water issues and environmental degradation are not addressed.

China, among WTO Members is a relatively low subsidizer of agriculture. Its Percent Producer Support Estimate, an OECD measure that aims to capture agricultural subsidies, has hovered around 7 percent in recent years. Meanwhile, major developed country agricultural producers such as the US and EU have averaged 18 and 33 percent, respectively. Heavy subsidizers such as Switzerland and Norway have figures nearing 70 percent.

The manner in which the Chinese stimulus package is used may be more important than its scale. The right set of policies could avert a future food crisis and “green” domestic agricultural productive capacity. However, a misstep could lead to lower employment and income in rural China.

ICTSD reporting.

One response to “China Boosts Agriculture Spending in Face of Global Crisis”

Jonathan Hepburn 27th August 2009 at 11:30
For analysis of how domestic support and market access provisions in the draft Doha farm deal could affect China, see ICTSD’s country study by TIAN Zhihong, “Implications for China of the December 2008 Draft Agricultural Modalities”, online at http://ictsd.net/i/agriculture/50467/