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Agricultural Policy
China's agricultural policy since the foundation of the People's Republic has been characterized by a confusing succession of political and ideological campaigns, five-year plans, and ad hoc policies, including several sharp turns in orientation. However, an important distinction can be made between pre-reform and post-reform policies. Between 1949 and 1978 China's leaders tried to implement several varieties of agricultural policies, based on top-down command and control, and operating on collectivized land. Since 1978, however, China's economy has been opened to market elements and decentralized economic decision making by individual households and businesses. Agriculture was the first sector to benefit from this fundamental reorientation in policy. With the reintroduction of family farming and the dissolution of collective production units operating on collectivized land, China's agricultural sector rapidly began to increase production and productivity. Today, China has a dual system of a "socialist market economy" with growing market orientation in the agricultural and food sectors. State control through production quotas, price fixing, and managed consumer supply is basically restricted to a few core commodities, primarily grains (rice, wheat), where Chinese politicians still regulate markets (primarily to guarantee sufficient grain supply for urban consumers at low prices).
Short Description of the Problem
China's agricultural policy since 1949 can be divided into two main periods:
WB00860_.gif (262 bytes) The pre-reform period of a centralized command-and-control system in agriculture, in which large-scale production units worked on collectivized land
WB00860_.gif (262 bytes) The agricultural reforms since 1978, in which family farming was reintroduced into the Chinese agriculture together with numerous elements of privatization and market orientation
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The pre-reform period  
In the pre-reform period between 1949 and 1978, the centralized command-and-control system severely restricted farmers' economic freedom and initiative. Their land was confiscated by the state and merged into huge collectivized production units. These collectives worked on a quota basis and operated according to directives from superior political cadres, who excelled in revolutionary enthusiasm, but were often unfamiliar with local conditions and sometimes lacked agricultural know-how. During some periods the production units were organized as communes, which attempted to create a new communist human being.  
The disastrous consequences of this agricultural development ideology are well documented, not only for China, but also for the former Soviet Union and Eastern Europe. Agricultural production in that period grew only slowly and barely kept up with population growth. The slow development was interrupted several times by severe crises, most notably by the massive famine during the "Great Leap Forward."
Of course, there were many different phases during that period due to the various "campaigns" initiated by the state and the Communist party in order to boost agricultural production and accelerate rural development. For our purposes, however, it is not necessary to distinguish these various political and economic campaigns and discuss the specific economic measures they implemented. They were all based on a fundamentally faulty concept of economic development: the idea that political cadres could design a master plan for the (agricultural) economy that just would have to be implemented and enforced from above. It was not only the false concept that a state bureaucracy could centralize economic decision making, but also a program that systematically discouraged individual initiative among the farmers.
Agricultural reforms since 1978
With the introduction of economic reforms in 1978 the situation changed fundamentally. Although Marxist slogans are still used today by Chinese leaders to describe the country's so-called "socialist market economy," they are mostly political rhetoric. In practice, privatization and market elements have been widely introduced into the agricultural system. Family farming has become the dominant principle in China's agriculture. While the land is still legally owned by the state (or the "collective"), it is rented and cultivated on a longer-term basis by individual farm households, who are responsible for their own economic activities. Many agricultural products such as fruits, vegetables, and pond fish can now be sold by farmers on commercial markets, either directly or through retail channels. Farmers in close proximity to large urban agglomerates, in particular, can often accumulate modest wealth by shipping their products to the free markets in the cities. The farmers around Shanghai, for example, have become quite wealthy. While the city population, spoiled by state-subsidized food, have complained about the high prices on these farmers' markets, they have nevertheless appreciated the superior quality and more diverse supply of the products.  
Only grain - primarily rice and wheat - is still produced under central planning and distributed by the state-procurement system. The farmers have to supply this system at fixed or negotiated prices that are higher than in the past, but still significantly below the free market price. At least 50 million tons of grain are annually acquired by the procurement system at government-set prices; another 40 million tons have to be provided by the farmers at negotiated prices. Only when these targets have been met can farmers sell additional grain on the free market. The procurement system is used to balance grain deficits in certain provinces with surpluses in other parts of the country. Moreover, the procurement system is probably still necessary to provide this basic food commodity at a low price to the urban poor, such as the growing number of urban unemployed. In other words, since 1978 China has had a dual system of central planning and market orientation in agriculture.
Recent developments and problems
In the mid-1990s the Chinese government was growing increasingly concerned that grain production might not keep up with demand. The problem was obviously caused in part by the stronger market orientation of Chinese farmers, who converted significant amounts of cropland to horticulture land and fish ponds, or produced feed grain instead of food grain for their livestock. The production of high-value agricultural products such as fruits, vegetables, pond fish, or meat, that could be sold on the free market had become much more profitable than food crop cultivation at government-set procurement prices. The government responded by introducing the so-called Grain Bag policy. It was a mixture of measures, some clearly targeted to tighten (provincial) government control over grain production, others obviously designed to favor decentralization and a more consistent supply of agricultural inputs and infrastructure investments. Basically, the provincial leaders became responsible for securing a sufficient grain supply for their province. They are now required to stabilize or increase the sown area for grain, increase the supply of inputs to raise yields, and balance the demand of urban residents with available supplies. If there is a grain deficit in their province, they have to purchase the necessary grain on the domestic market or request imported grain from the central government. Governors of provinces with grain surpluses are responsible for managing grain sales to provinces with grain deficits and establish long-term trade agreements (for details see Crook, 1997).  
Although the Grain Bag policy has probably contributed to the increase of grain production in recent years, it is unclear at what costs. The central government has shifted primary responsibility for the grain transfers to the provinces. This decentralization has certainly increased felxibility, but at the same time burdened the provincial governments with additional control and management functions. This has created a number of problems. The provinces have chosen different measures to implement their policies, ranging from "old-style" top-down pressure and control to market- and price-oriented approaches. There is also concern that farmers in some provinces have been pressed into growing more and more food grain on land that could be cultivated more productively with other high-value agricultural products for export. In economic terms, it might make more sense to import land-extensive crops (such as wheat and rice) and to save China's scarce cropland for high-value export products, such as fruits, nuts, or vegetables.
Related Arguments

Agricultural Policy:   Trends     Impact    Data Quality    Prediction Error    Intervention Possibilities    Intervention Costs

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Revision 2.0 (First revision published in 1999)  - Copyright 2011 by Gerhard K. Heilig. All rights reserved. (First revision: Copyright 1999 by IIASA.)