New Chinese Agricultural Policy

Executive summary

The development of China's agricultural sector is underpinned by improvements to the policy framework. This has been highlighted since the installation of new leadership within China’s government in 2012, who have rolled out updates that support agriculture and lead to an increase in farmers’ incomes, which are expected to grow faster than ever before. And while land remains a major obstacle for agricultural development in China, recently released government policy documents clearly support land use rights transfer. The expectation is that the transfer of land use rights will speed up as the market is now regulated and straightforward, which will lead to benefits across the entire sector.

Importance of policy

Following a period of policy developments that lead to growth in the industrial sector, in 2004 China's central government began focusing on agriculture for the first time, and this has continued. But while ongoing improvements to the policy framework have led to impressive growth in the country's agricultural sector, certain challenges and issues remain that are still urgently in need of further reform. In a recently published report, New Chinese Agricultural Policy, Rabobank looks at the impact recent policy changes have had on the country's agriculture sector. According to the report's author, Chenjun Pan, government plans outlined in late 2013 and early 2014 address some of the challenges and issues that are still urgently in need of further reform. Pan: “In November 2013, the Third Plenary Session of the 18th Central Committee of the Communist Party of China announced its intention to expand the ongoing reform of the agricultural sector over the next five years. Chinese agricultural policy has not changed radically following the summit – the key theme is the continued commitment to the development of favourable agricultural policy – but instead, it has been reformulated and refined in order to carry on the spirit of reform, with much stronger implementation guidelines aimed at addressing any major imbalances in the agricultural system. Furthermore, the unprecedented amount of media coverage the plenum received demonstrates this government’s determination to be held accountable. The 2014 No. 1 Central Document presents a refined land reform policy, stating that rural land ownership, contractual rights and land use rights are separate. This is a new take on land reform policy and a very big step towards pushing for the transfer of land use rights.”

Urban and rural differences

With incomes in urban China three times higher than those in rural areas, farmers’ low income is an important social issue. Narrowing the income gap between urban and rural areas has become the top priority of the central government, which has launched a number of policies that support agriculture. These include exemptions from agricultural tax and the extension of subsidies. But the current wide income gap between the rural and urban sectors has other implications. The consumption pattern in rural areas is very different to that in urban areas, while rural demand is driven more by price than by concerns about quality and safety - two important drivers of urban demand. Pan: “Despite the increasing importance of food safety and quality as drivers of urban demand, China’s fragmented rural food supply chain cannot meet urban requirements. This is because Chinese agriculture is based on small-scale production and the supply chain is uncoordinated. Large food companies find it difficult to deal with thousands of individual farmers. Although agricultural output has increased substantially under favourable policies, urban consumers are moving away from products with mass-market appeal and becoming more concerned with food safety and quality. To adequately address these concerns, the current agricultural system would need to be upgraded, but upgrading an entire agricultural system is a great challenge. A number of complex policies geared towards improving the overall agricultural system are already in place: strengthening science and technology applications, improving rural infrastructure, encouraging new types of farming organisations and encouraging the transfer of land use rights. Urbanisation is also high on the agenda for coordinating urban and rural development. The migration of farmers to urban areas facilitates the creation of more and larger farms, which will boost agricultural machinery and farm inputs businesses.”

Future developments

Land use rights transfer and policies on urbanisation are two of a number of ways to make it easier to increase the scale of the average farm to create more ‘family farms’, farms that are larger than household farms and have sufficient scale to make modern farming practices feasible, Pan explains. “Different models of farming will coexist. A single model is not suited to the Chinese reality. Large farms will become more important in supplying agricultural output, but individual or family farms are expected to continue to dominate production. Nonetheless, the average scale of family farms will need to increase to accommodate the application of new production methods and mechanisation. Cooperatives are likely to become the chief farmer organisations, engaged in regulating the fragmented, low production and linking individual household farms with large food companies. The subsectors of seeds, genetics, livestock farming, agri-machinery and technology-related services will benefit from the changes in ongoing consumption growth, the scale expansion of farms, the adoption of technology and mechanised farming and land use rights transfer. These changes will provide new growth potential to companies that can offer services to improve modernisation and production scale in the above areas.”

For more information, contact Chenjun Pan.