By Han Jun, Development Research Center of the State Council

Research Report No 001, 2010

Despite the unprecedented shock from the international financial crisis and the serious impact of natural disasters, China's agricultural and rural development demonstrated a sound momentum in 2009. Grain production reaped the sixth consecutive bumper harvest, farmers' income rose fairly fast for the sixth consecutive year, more migrant rural workers were employed, rural social undertakings scored major progress in development, rural reform advanced tangibly, and in particular the reform of collective forests tenure made major breakthroughs. In general, the good conditions facing agriculture and rural areas were major achievements resulting from the efforts made by various departments in different fields, which provided a solid foundation for fast and steady economic development and made outstanding contributions to national stability.

In 2010, the work concerning agriculture, rural areas and farmers will face grave difficulties and challenges. This paper gives a preliminary analysis of the trends and symptoms of the performance of agriculture and rural economy and also puts forward some relevant proposals.

I. Prevent Sliding in Grain Production

Grain production has risen for the sixth consecutive year. At a time when supply is relatively adequate, inventory is abundant and grain-growing efficiency is low, the tendency to neglect grain production is very likely to rear its ugly head in 2010. China should draw lessons from the past experience. Over the past three decades, grain production witnessed two drastic falls against the backdrop that grain production had been increased for roughly six successive years. One fall ran from 1985 to 1989 and the other from 1999 to 2003. If policy guidance is ambiguous, signals are not strong and no measures are taken to guarantee grain-growing acreage, grain production is highly likely to fall rather steeply and grain prices are likely to rise sharply.

At present, international grain market is volatile in demand-supply relationship and China can hardly change the fairly tight aggregate grain supply and demand in the short and medium terms. In preventing a new slide in grain production, a key policy measure is to stabilize grain prices and grain production capacities. The minimum grain purchase prices and the temporary purchase and stockpiling policy introduced in recent years have played a remarkable role in stabilizing the grain market. In the future, China should continue to raise the minimum grain purchase prices. Farmland water conservancy works play a fundamental role in ensuring higher grain production capacities. In this respect, China, by relying on old facilities for too long a time, has to make a lot of renovations, but is facing a huge funding shortage. Without substantially more inputs, the country will find it difficult to stabilize grain production capacities, let alone bring them to a higher level. In the future, China should carry out farmland water conservancy works in a big way and in particular it should drastically intensify support for small farmland water conservancy projects. In 2009, the central finance subsidy for small farmland water conservancy projects was only 4.5 billion yuan, of which only 3.2 billion yuan was used to support 400 pilot counties in this endeavor. It is suggested that the central finance drastically increase inputs in small farmland water conservancy works, just as it did in 2009 for farm machinery.

II. Prevent Widening in Urban-Rural Income Gap

This is a more difficult target than stabilizing grain production. In recent years, the state has drastically intensified policy support for agriculture and farmers. But the urban-rural income gap, in both absolute and relative terms, has continued to widen. During the 1998~2008 period, farmers' income rose 5.6% annually on average but the urban personal income rose 9.1%. The gap was 3.5 percentage points. In 2009, the rural per capita net income was 5,153 yuan, which was 8.5% higher than in the previous year if the price factor was deducted. On the other hand, the urban per capita disposable income was 17,175 yuan, a growth of 9.8% year-on-year. The urban-rural income gap was 3.1:1 in 2002, and widened to 3.33:1 in 2009. The urban-rural development disparity in poverty-stricken regions was even more serious. In Guizhou Province, the urban-rural income gap widened from 3.7:1 in 2000 to 4.2:1 in 2008. In the ethnic and border areas, farmers' income growth was even slower. The monitoring report by the Ministry of Civil Affairs indicates that 52.5% of the 40.07 million poverty-stricken people measured by the new standards are living in ethnic areas. In 2008, ethnic groups accounted for 46.2% of the low-income people in the key poverty-stricken counties in the west region. In 2010, the prices of farm products as a whole face a downturn pressure and both the number of migrant rural workers and their wage level are difficult to rise and there is no new impetus to continue to increase their income. As regards policy formulation, China should first implement price policies to support cotton, pig, dairy, oilseed, sugar and other major products, and second continue to encourage farmers to seek employment opportunities outside their native places. Although jobs offered to migrant rural workers are on the rise, their employment in some developed coastal areas has not returned to the pre-crisis level. Currently, it is too early to say there is an “overall labor shortage”. However, the government should strengthen services required for farmers to seek employment outside their native places and intensify skills training for them so that they can get full employment. Third, China should increase subsidy for agriculture and allow farmers to get more benefit from such subsidy. Fourth, China should intensify support for farmers in the old revolutionary bases, ethnic areas, border areas and poverty-stricken areas to increase their income.

III. Prevent Retrogressive Effect of Policies Designed to Boost Rural Demand

Thanks to the state policy to boost rural consumption, rural consumer demand became visibly higher in 2009, with the retail of consumer goods being higher than the national and urban levels for the first time in many years. But the per capita farmers' consumption was below one-third of the urban level. Not only the farmers' possession of main consumer durables was far lower than in their urban counterparts, their housing quality was also far inferior. Both international experience and the law governing the change of China's urban personal consumption structure indicate that rural consumption is switching from food and clothing to housing and transportation and there exist great potentials to expand rural consumption in the following ways. One, the rural sale of home appliances, automobiles and motorcycles should be intensified. While the ceiling prices of home appliances for rural market and their grades should be raised, their varieties and models should be diversified so that farmers can have more choices. Two, supporting farmers to build homes and improve housing conditions should be taken as a priority measure to expand rural consumption. In 2008, rural housing consumption was about 500 billion yuan, accounting for 18.5% of total rural consumption, next only to food. If rural housing consumption can grow 20%, it will trigger a 100-billion-yuan demand. The effect will be far greater than the rural sale of home appliances. In 2009, the central finance allocated 4 billion yuan to support 800,000 farmers to improve their dilapidated homes in 23 provinces and regions. Overall, the support was strong enough. At present, 97.99 million farmers' homes are brick and wood structures and another 21.24 million farmers' homes are straw and clay structures, noted for poor quality and low earthquake resistance. Therefore, farmers have a strong demand to improve their housing conditions. Large-scale rural housing construction is bound to spur rural consumption and the development of decoration, home appliance, furniture, textile and other related industries. If a “rural new home project” is launched nationwide and if rural road, water supply, drainage, sewage treatment, garbage treatment, methane generation, gas supply, heat supply and other scientific, educational, cultural and health facilities are constructed, it will greatly improve the rural environment for production and living and become a new engine to drive up domestic demand. Shandong, Hebei and Zhejiang Provinces as well as Tibet Autonomous Region have made the first move in this respect and accumulated experience in supporting rural housing construction with credit, building material, land, and tax incentives. In 2006, Tibet began to introduce a home project for farmers and herdsmen across the region. So far, over 200,000 families have moved into new, safe and comfortable homes. This has become a bright part of development in Tibet and has been cited as the Party's good government project. Currently, conditions are adequate for China to launch a drive for rural home construction, which can be taken as an important leverage to expand rural demand and improve rural life in 2010 and during the 12th Five-Year Plan period. Three, the environment for rural consumption should be improved. While rural water, power, road and gas systems should be improved and rural information technology application should be promoted in a big way, a new round of rural power grid transformation should be launched.

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