Boost subsidies to save China's farms
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Farm subsidies and overall farm policy were once more high on the agenda of the National People's Congress, and figured prominently in Premier Wen Jiabao's government work report. Farm subsidies have been a fixture of government policy since the turn of the century. This is because farming and rural issues are at the core of China's national interests and policy. But much more needs to be done.
First, China's 1.3 billion people have to eat. Do we need farm subsidies in order for the Chinese to eat? The answer is "absolutely yes." Since the 1990s, more and more farmers have moved into the cities and the trend is accelerating. Many young farmers work full-time in cities, buy homes there and send their kids to urban schools. Often only the elderly are left behind to farm the land. For years now, sustaining the production growth of staple grains has been in doubt and this calls China's food security into question. With farm acreage decreasing annually, safeguarding crop production remains the key to feeding China's 1.3 billion-plus population.
Second, rural households have very low disposable income. Only a few rural areas match the national average per capita GDP. Subsidies matter to all farm households and some depend almost entirely on them. Farmers would be inclined to spend more if the government provided direct economic incentives. And without increased spending by rural households, stimulating domestic demand will remain a pipe dream.
Put another way, the wholehearted support of the government is needed to stimulate rural consumption in a meaningful way. If farm incomes increase significantly, rural markets will improve dramatically and aggregate rural demand will contribute to economic progress.
But the rural-urban gap is huge. In 2009, the average farm income was 5,153 yuan – around one third of the urban average of 17,175 yuan. And the gap is widening. The government has a long way to go in promoting agricultural development.
What is more, on a global scale, agricultural competition is driven by government subsidies. The current international arena provides the Chinese government with its last opportunity to use subsidies as a legitimate tool to promote a Chinese industry. Even under the free trade regime of the World Trade Organization (WTO), farm subsidies remain a grey area.
Agricultural trade liberalization lags far behind the trend to free trade in other sectors. The reason is simple. Both the United States and the EU maintain massive farm subsidy programs to protect their agriculture. By contrast, the Chinese government has imposed heavy taxes on farming for decades. Even during the years of economic reform, China's agricultural sector, to all intents and purposes, subsidized the industrial sector.
These reverse subsidies are the root of China's three most intractable problems: Farmers, the Countryside, and Agriculture – the so-called San-nong problems. For years, the government has invested too little and squeezed too much from the farming sector. So today, Chinese agriculture lags far behind the country's fast growing economy and is becoming a costly bottleneck holding back its transitional economy.
At present, farm subsidies add a semblance of fairness to China's social welfare distribution. Experience tells us that the level of a nation's agricultural development is indicative of its overall economic efficiency. A developed nation must have a developed agriculture. And most often in today's world, agricultural development is based upon subsidized farming. For example, farming is the most federally subsidized profession in America. Farm subsidies continue to represent America's largest corporate welfare program. To combat rampant inequity in income distribution the Chinese government should give higher subsidies to farmers.
Will world-wide farm subsidies last forever as the dominant government policy? Probably not, but it is most likely the WTO will continue to overlook the farm subsidy issue through 2012 and beyond. Before they reappear on the WTO agenda, farm subsidies may serve as reasonable tool to ameliorate China's current income distribution problems, which are seen as critical by many social experts.
In conclusion, no area or sector in China deserves government help more than rural areas and agriculture. Rural infrastructure, rural education, as well as farming, all need more investment. China cannot afford to leave its farmers behind. To save its farms and farming families, the Chinese government should take advantage of the next few years and vigorously enhance its farm subsidy programs.
The author is a columnist with China.org.cn. For more information please visit: http://www.china.org.cn/opinion/node_7075405.htm
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