From News, page 4, issue no. 361, Mar 31st, 2008
Translated by Zuo Maohong
Original article: [Chinese]

Determined to stave off any possible threat to its grain supply, the Chinese government issued a substantial new grant to help farmers overcome rising supply costs that are eating away their enthusiasm to plant crops. At stake is China's summer grain harvest.

Nine days after the National People's Congress (NPC) approved an agriculture budget of 562.5 billion yuan for the fiscal year 2008, the Chinese government decided on March 27 to appropriate another 25.25 billion yuan to boost agriculture and grain production.

To re-invigorate farmers' enthusiasm to grow crops, 20.6 billion yuan of the subsidies would be given to them directly for materials and seed. The rest would be used for agricultural infrastructure, to pay interest on agricultural loans, and other purposes.

Despite similar moves in the past, this year's injection was unprecedented one in both amount and scope. However, whether the subsidies would succeed in encouraging farmers to plant grains, in enhancing grain production, and in easing inflation remained in to be seen.

Costs Dashing Profits
"Rising prices for farming materials, to a large extent, have canceled out profits made by the growth in grain prices," said Song Tingming, vice-chairman of China National Association of the Grain Sector.

As prices of raw materials such as crude oil and coal have surged in recent years, agricultural materials such as fertilizers, seed, and diesel oil, have also climbed. Since the beginning of 2008, farming materials have become prohibitively expensive for most farmers in China.

Ma Yingjie, a farmer of Fuyu county in Jilin province, was one of those worried. Since 2007, he said, corn prices in his county had grown by about 14%, while fertilizer prices had doubled. Despite the approaching plow season, Ma still had yet to buy any fertilizer.

In mid-March, the Lanzhou Municipal Bureau of Price Controls surveyed a random sample of 160 farm households in 16 towns, and found that prices of four frequently-used fertilizers in Lanzhou, had increased 38.18% over last year.

An official engaged in the survey said increasingly expensive fertilizers had kept farmers away. Without thorough fertilizing in the spring, farmers were afraid that the whole year's production would be seriously impacted.

Ratcheting up the Aid
In response to rising farming costs, the government has thus far arranged a total of 63.8 billion yuan for farming material subsidies, including the 48.2 billion yuan made available by the NPC in the 2008 budget and the 15.6 billion yuan of grant made available just recently. All told, farmers would enjoy a 40-yuan subsidy for each mu (1/15 hectare) of crops they grew. Last year, this figure was 17.

Besides farming materials, other subsidized items would include grain, certified seed, and farming machines etc. Among them, grain subsidies would total 15.1 billion yuan and be dispensed directly to farmers together with those for farming materials. The two items alone would create a 50-yuan subsidy for each mu of crops. For a farmer like Ma, who grows 16 mu of corns, he would be subsidized at least 800 yuan this year.

In addition, the government decided on March 26th to raise the minimum grain purchase prices—rice and white wheat prices were 0.07 and 0.05 yuan per jin up respectively.

Defending Spring Sowing
According to several experts the EO had interviewed, the additional expense on agriculture aimed to prevent summer grain production from taking a dive.

In spite of policymakers' awareness that strong agricultural production would be the key strength to fight inflation this year, natural disasters that had stricken large parts of the country added a degree of unforseen uncertainty. Moreover, farmers' unwillingness to grow crops would be another impediment to a sufficient summer harvest.

While the south was still recovering from a harsh blast of snow storms during the Spring Festival, the northeast, north, and middle parts of China, the country's most important grain-producing areas, have been suffering severe droughts since winter.

At an emergency meeting of the Heilongjiang provincial government on March 18, it was revealed that 53 cities of the province had arable soil with moisture content 30% lower than normal years, and 86.98 million mu (about 5.8 million hectares) of land there had run dry. Severe spring droughts also hit Hebei and Henan, which respectively had 50 million mu (about 3.3 million hectares) and 12 million mu (0.8 million hecares) of land dried out.

Statistics from the State Flood Control and Drought Relief Headquarter showed a total of 237 million mu (15.8 million hectares) of land hit by droughts, 44 million mu (about 2.93 million hectares) up on the same period of last year. According to weather forecast, rainfalls in the east this spring would decrease too, which might negatively impact the summer harvest there.

Farmer's Enthusiasm Low
Beside the danger posed by droughts, farmers' have become increasingly disinterested in planting crops.

According to a recent survey of 200 village leaders and farmers in nine main grain-producing provinces, 4.1% said they would increase sowing acreage, while 10.8% said they would reduce it, said Ma Jun, chief economist of Deutsche Bank, Great China.

Ma believed this was a dangerous sign. If farmers were less willing to grow crops, production would drop, and higher grain prices could lead to speculative hoarding, he said.

In southern areas where usually two rice crops are grown every year, farmers now tended to grow only one, with some farmers having given up entirely. According to an urgent notice issued by the Ministry of Agriculture (MOA) recently, stabilizing summer rice acreage would be the first priority of rice production work this year.

Yuan Longping, a research fellow at the Chinese Academy of Engineering, said farmers would be more enthusiastic if they were subsidized for selling grain instead of growing crops.

Doubtful Efficiency
The subsidies were meant to be a signal for farmers that growing crops is profitable, said Song Hongyuan, deputy director of rural economics at the MOA. However, more thought they were only temporary expedients.

Shen Minggao, chief economist of CitiBank China, said the moves wouldn't necessarily stimulate crop growing. Since planting areas were relatively dispersed while purchasing markets were increasingly integrated, he explained, farmers were inferior to purchasers when negotiating prices.

He thus suggested that the scale of agricultural production be expanded, and trade unions be simultaneously set up so that information could be better shared and farmers more influential in price negotiations.

Ministry of Finance official Liu Shangxi said there had been too much policy switching on agricultural issues--when there was too much grain, they simply controlled prices; when too little, they tried all means to subsidize and protect production. Policymakers failed to treat the industry seriously as a whole, he said, which influenced expectation of farmers' willingness to grow crops.

According to Yuan Longping, the present subsidy scheme "was good, but not to the point". Instead of compensating according to sowing acreage without considering harvest, he suggested subsidies based on grain sold. "The more a farmer sells, the more subsidies he gets. In this way, farmers will be more enthusiastic."