More effort should be made to stabilize grain prices and further increase farmers' incomes this year. And a long-term mechanism is needed to better protect farmers' interests and rights.

With the government giving more support to agriculture, the rural economy and farmers in recent years, grain production and farmers' incomes have increased. But the foundations for such an increment are not fully established. Overall production capacity has not really improved. Grain policies this year should focus on increasing production and preventing a reduction in grain prices.

The total grain output reached a record high of 469.5 billion kilograms last year, a 9 per cent increase on 2003. And the average output was 3,234 kilograms per hectare, 6.6 per cent higher than in 2003. The huge increase was because of last year's favourable climate conditions and the country's supportive grain policies.

Decision-making departments followed market rules and took a rational attitude towards last year's price hikes, choosing not to force them down with administrative orders.

Currently the country's total demand for grain is about 485 billion kilograms per year with an annual increase of 0.8 per cent. As long as domestic production reaches 465-475 billion kilograms this year, grain supply can meet demand, although some grain will still have to be imported. Though not an easy job, such a goal can be achieved with proper macro-control policies.

However, how long grain prices can remain at the current high level is the question which worries farmers the most. Prices remained low for seven years following price increases between 1993 and 1996. Fluctuations are inevitable for various reasons. But big price drops should be prevented in the coming years. Otherwise, rural areas and farmers will suffer.

So, grain policies this year should follow certain rules: planted areas should be protected to guarantee output; the direct subsidy system should be completed to financially support farmers and agricultural production; more support should be given to irrigation construction and other public projects in grain production areas; a compensation mechanism should be established to reimburse grain production regions; the foreign trade of grain products should be adjusted to cope with domestic needs.

The average income of Chinese farmers was 2,936 yuan (US$355) last year, a 6.8-per-cent increase on 2003. The government's support contributed less to the rise than farm produce price hikes or non-agricultural employment.

As there is little room for a further rise in grain prices or production this year, cost-saving and non-agricultural employment should be the main ways of increasing rural labourers' incomes.

The government should control price hikes in the rural arena. The price of fertilizer increased by about 20 per cent last year, which greatly reduced the impact of favourable policies. The 700 million yuan (US$84.64 million) given in subsidies to the fertilizer industry did not produce the anticipated impact. It would be better to give direct subsidies to the farmers themselves.

Agricultural structures should be adjusted to improve efficiency and ensure grain security. Forestry and animal husbandry should be developed. Standardized agricultural production should be promoted. Regional distribution should be optimized to create centralized production zones.

Modern methods of distribution should be developed.

More support should go to the development of rural enterprises, non-agricultural industries in rural areas and urbanization. Employment should be expanded to solve the problem of surplus rural labour. Payment for migrant workers should be increased and their working conditions improved.

At current production levels, about 180 million labourers are needed in the country's agricultural sector. The other 310 million surplus rural labourers should find jobs in non-agricultural sectors. But statistics show that, in 2003, only 180 million of those surplus workers found such jobs.

The labour shortage emerging in some regions last year was because payment was low and working conditions were poor. The actual wage level of migrant workers has not changed much in the past decade. The regional labour shortage shows that the time of having an unlimited supply of cheap labour is gone.

Related laws and regulations should be completed to rule out discriminatory policies against migrant workers and protect their legal rights. At the same time, the government should do more to train the labour force.

In 2005, the government should continue to promote rural reforms and guarantee, in law, farmers' rights and interests.

First, revisions should be made to existing laws and regulations on land use to protect farmers' rights during the urbanization process.

About 166,000 to 200,000 hectares of land are needed for urban construction every year. That means about 2.5-3 million farmers will lose their land each year. But the current compensation levels are far too low. Many farmers who have lost their land have found themselves living in poverty without a job. This improper land requisition has caused serious social problems.

To protect farmers' rights, the principles of equality and fairness should be honoured in the requisition system. Rural collective non-agricultural land should be allowed to be sold in the marketplace. A social security system including a minimum living allowance, pension and medical insurance, all funded by land transaction profits, should be set up for farmers. Farmers who lose all their land should be included in the urban social security system.

Second, rural tax reform should be continued and the reform of township governments should be promoted. Getting rid of some grassroots government departments and merging others according to actual needs is important to solidify the achievements of the tax reform system in rural China. After abolishing agricultural taxes, local governments should transfer money from department to department, getting it to where it is most needed and using it cost-effectively, in order to meet the financial needs of rural public services.

And simply reducing the number of people supported by government revenues is not enough. A top-to-bottom institutional reform should be carried out. Public institutions in rural areas should be differentiated according to their functions. Those organizations practicing administrative and management functions should be categorized as administrative departments while others practicing commercial activities should become non-public enterprises.

Last but not least, the rural financial system should be reformed to meet the need of rural development.

Rural credit co-operative reforms should be furthered to solve the financial difficulties of farmers. Any assessment of the reforms should not only be based on the level of capital and the proportion of bad loans in the co-operatives. Structural improvements and democratic management are also important criteria.

Fostering a competitive rural financial market is the way to solve the problems in this sector. Agricultural banks should increase the support of rural enterprises. Private financial institutions should be encouraged in rural areas. The reform of the rural interest rate market should be steadily promoted.