November 29, 2 005

China should not try to be self-sufficient in grains, OECD says

Though Chinese farmers get much less government support than their competitors, Chinese policymakers should embrace new reforms by moving away from price supports, enhance the environmental sustainability of agriculture and other measures, said the Organisation for Economic Cooperation & Development (OECD) in a benchmark study.

It also added that the Chinese government should abandon its goal of meeting 95 percent of domestic grain demand from local production.

In the report, it is stated that the government subsidises 6 percent of its farmers' income, which is far lower than in most OECD countries. Neighbouring Japanese farmers collect 58 percent of their income from government handouts, while South Korean farmers get 64 percent.

The average producer support estimate across all 30 OECD economies was 31 percent in the same 2000-03 period.

However, the Chinese government subsidies is dominated by measures to support farm produce prices, "which are among the least efficient and most trade-distorting ways of helping farmers," the report said. It is estimated that some US$51.7 billion were given to farmers in 2003, with the highest subsidies going to commodities like milk, sheep meat, soybeans and corn.

Much of the support is prompted by government's grain policy and as such, the government could improve the competitiveness of Chinese agriculture by not trying to be self-sufficient in grains.

Instead, the country should switch the extra resources to labour-intensive products such as fruits and vegetables, where the country has a "competitive advantage," the report said.