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China’s Agriculture and the Path Towards a Modern Industrial State
Scott Rozelle, Stanford University
Jikun Huang, Center for Chinese Agricultural Policy
Transformation Path
Percent of Pop’n in Ag. Sector
Income per Capita World Development Report
Overall Increase in Offfarm Work
0%
20%
40%
60%
80%
100%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
off-farm busy season part time farm only
In 2000: 45% of rural labor force have jobs off the farm … more than 80% of households have at least 1 person working off the farm
In 1980: only 4% worked full time off the farm
>50%
2006
Percent of Workforce Offfarm, by Age Range
Age Range 1990 2000 1620 23.7 75.8 2125 33.6 67.2 2630 28.8 52.5 3135 26.9 47.6 3640 20.5 43.3 4150 20.8 37.6
2006
8590% 8590%
> 70%
Migrationfastest growing segment
0%
4%
8%
12%
16%
20%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Percent o
f Total W
orkforce Migrant
Wage Earners
Self employed
TVE/Local wage earning local
migrant
0%
4%
8%
12%
16%
20%
1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Year
Percent o
f Total W
orkforce Migrant
Wage Earners
Self employed
TVE/Local wage earning local
migrant
Self employed also growing fast … sign of healthy growth or break down of formal wage sector?
In 2000: > 80 million people work in these microenterprises (or should we call them nanofirms—1.4 persons/firm
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1980 1985 1990 1995 2000 2005
Proportion of self employed
Trade/Transportation/ Enterprise
Handicraft
Custom labor provider/services
While in some countries the rise of a selfemployed sector is seen as symptomatic of the failure of the formal wage sector, in China there is evidence, the self employed sector is healthy, growing and increasingly sophisticated …
Relatively capital intensive … growth rate of profits and capital stock exceed that of TVEs
From petty traders and marginalized street vendors …
... to manufacturers and …
… to highend tradesman!
Hourly Earning for Self Employment and Wage Jobs
Mean Medain Std. Dev.
Wage Earning 2.0 1.4 3.9
Self Employment 7.8 2.4 36.8
Hi return Hi Risk
Hourly Earnings for Self Employment and Wage Earners
Self employed rural enterprise employ nearly 100 million people in 2005!
Therefore, it can be seen self employment is entrepreneurial; employmentcreating; and engine of growth …
Per capita income in rural Average:330%; Bottom 10%:180%; Top 10%:407%
500
500
1500
2500
3500
4500
5500
6500
7500
1980 1985 1990 1995 2001
Average
500
500
1500
2500
3500
4500
5500
6500
7500
1980 1985 1990 1995 2001
Botton 10% Top 10%
Transformation Path
Percent of Pop’n in Ag. Sector
Income per Capita
Since 1980 … China has clearly begun the path of transformation …
But, with still only about 40 percent of population in urban areas … if it is to continue to be successful in developing … it needs to necessarily continue to move along this ruralurban transformation path …
Necessary but not Sufficient • Shifting labor to off farm sector / shifting population from
rural to urban is necessary … key is job creation in cities in industrial/service sectors
• But not sufficient … – Need to make sure those who are left behind are taken care of … – Need to make sure those who do not get jobs off the farm are being
invested in … – So: process can continue … – And, so: there is stability …
• Here is where the Role of Agriculture comes in … the poorest are still in agriculture … Agriculture is going to provide a large part of the resources for the remaining rural households to make the transformation ..
Goal of Rest of Presentation • Can China’s Ag/Rural Economy Continue to Grow and Overcome the Problems Inherent in any Longrun Development Process?
– Environment for Continued Growth
– Potential Constraints to Growth of Rural Economy
– Responses
Environment for Continued Growth
• Technology • Domestic Markets • International Trade
Does China have the “technology tools”?
Agricultural Productivity and the Technology that is Driving it
TFP for Wheat in China, 197995
50
80
110
140
170
200
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
First 7 year period: > 7% annually
Since 1985 … 2% per year
Growth of Wheat, Rice and Maize TFP in China, 1979 to 1997
Rice
Wheat
Maize
TFP for Wheat in China, 197995
50
80
110
140
170
200
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997
First 7 year period: > 7% annually
Since 1985 … 2% per year
Rice
Wheat
Maize
What about after mid 1990s?
… and beyond … TFP Growth Rates of Grains and Cotton (19952004)
0
1
2
3
4
5
Early Indica
Late Indica
Japonica Wheat Maize Soybean Cotton
TFP
Jin, Huang and Rozelle, 2007
Percent per year
Contributions to Productivity
• Before 1984: – MOST: property rights reform (decollectivization) – SOME: technology – a bit to extension and education
• After 1984 – ZERO: property rights reform (decollectivization) – a bit to market emergence and education – none to extension – MOST to technology
Contributions to Productivity
• Before 1984: – MOST: property rights reform (decollectivization) – SOME: technology – a bit to extension and education
• After 1984 – ZERO: property rights reform (decollectivization) – a bit to market emergence and education – none to extension – MOST to technology
Yield “Frontier” of Rice, Wheat, and Maize,
0
2000
4000
6000
8000
10000
12000
1982 1984 1986 1988 1990 1992 1994 1995
Tons per Hectare
Rice Wheat Maize
Sown area weighted of sample provinces Sown area weighted of sample provinces
Rise of “Yield Frontier” in China’s Experiment Stations for Rice, Wheat, and Maize
Around 2 percent per year growth
Average Variety Turnover
0
0.1
0.2
0.3
0.4
0.5
1983 1989 1995
Rice Wheat Maize
All varieties turnover every 2 to 5 years!!!
Varietal Turnover in China’s Agriculture, 1983 to 1995 (proportion of area planted to new varieties)
Agricultural research investment intensity (%) in China
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Plant biotech research expenditure (million yuan in 1999 price, 22 institutes)
0
10
20
30
40
50
60
70
80
90
100
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2003
Total1999: $100 million US
Total—2003: $300+ million
Bt cotton areas in China, 19962003 (thousand hectares)
0
500
1000
1500
2000
2500
3000
1996 1997 1998 1999 2000 2001 2002 2003
More than 5 million farmers adopted Bt cotton in 2003
Major findings on Bt cotton impacts in 19992001 (per hectare)
• Reduce pesticide use: 34 kg 923 yuan • Increase yield: 9.6% 930 yuan • Increase seed cost: 570 yuan • Reduce labor input: 41days 574 yuan
• Increase net income: 12831857 yuan (US$ 155225)
A net increase of about 20 30% … this is a HUGE increase in productivity!
How good are China’s Domestic Markets?
Corn and Soybean Marketing Regions and Flows
Distance from port
y = 0.0002x + 2.0022 0 1 2 3 4
0 500 1000 1500 2000 2500
km
Price (yuan)
Changes in corn price across China as markets increase its distance from port, 2000
Port—New Orleans
Location of Major Corn Markets in Greater Mississippi Valley
St. Louis
U.S Soybean (1985) price
480.00
490.00
500.00
510.00
520.00
530.00
540.00
550.00
560.00
570.00
580.00
Sample markets: distance from coast
Price ($/100
bu)
US Corn Prices
Percentage change in price for every 1000 kilometers of distance from port
8% 3.5% 5% US – 1998
7% 4% 3% 2000
9% 9% 4% 1999 10% 10% 4%
China 1998
Rice Soybean Corn
Dalian
Guangzhou (Shekou Port)
Soybean Market Integration between Regions
4.83* 4.33* 4.01* 3.93* 4.84* 5.87* 5.36* 1996
3.84* 3.82* 3.21* 4.15* 5.21* 4.33* 3.88* 1997
4.02*
4.84*
AH=> NX
3.73* 3.57* 1999
4.05* 4.85* 4.67* 4.72* 5.56* 4.13* 1998
GD=> GS
GD=> SaX
HLJ=> DL
JL=> TJ
AH=> SaX
AH=> SD
Year
DickyFuller Test critical value rejecting null of no integration @ 5% (10%) level is 3.3 (3.0)
Integration in China’s Markets (percent of market pairs that have integrated price series)
95
93
199700
98
100
20012003
46 Corn
56 Soybean
199192
More than (45*44)/2 = 800 pairs of markets
Percent Grain in Sown Area in China: 1950s, 1970s and 2003
1970s
2003 Grain
Grain
Other
Other … including horticultural producers
Steady rise in cash crops / fruits / livestock / aquaculture
Other
Grain
1950s
Rise of specialization (entire nation)
• In a recent survey of 650 communities in China, we asked the leaders: – Do farmers in your village specialize in the production of a field crop, tree crop or livestock commodity? 0
5
10
15
20
25
30
35
1995 2004
Data source: China National Rural Economy Survey (CCAP) 56è61è73
International Trade
… and: Falling Barriers and Opening to the Outside World
20
0
20
40
60
80
100
7879 8084 8589 9094 9597 9899 26Jun
Rice Wheat Maize Soybean
Huang, 2001
including WTO’s Accession
China has one of most liberalized tariff schedules in the world
Growth in International Ag Trade
0
5
10
15
20
1980s 1990s > 2000
Percent P
er Year
• Exports > Imports – Between 1982 and 2006, only 2 years in which Im > Ex (2005/2006)
– 2007: Ex > Im
• China is now the 4 th largest ag trading nation in the world
-10000
-8000
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
12000
1985 1987 1989 1991 1993 1995 1997 1999 2001
Land Labor
Agricultural Trade Balance by Factor Intensity, 1984 to 2002 (mil US$)
Labor intensive crops
Land Intensive crops
Net exports
Imports – soybeans, cotton, hides
Exports – fruits, meats, aquaculture
Summary
• Some of the basic foundations of a supportive environment exist for continued rural growth:
– Technology for raising technical efficiency / expanding productivity
– Markets for raising allocative efficiency / gains from specialization
– Gains in Domestic / International Market Liberalization
But, there are problems …
• Small Farmers
• Scarce Land (and falling??)
• Scarce Water
Small Farmers and Lack of Organization
• Since 1950, China’s average size of farm has fallen …
• between 2005 and 2006, first year average farm size rose
Growth of Cooperatives and Farmer Associations – Targeted mostly at provision of
technology and inputs and marketing
0 10 20 30 40 50 60 70 80 90 100
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Index (2003=100)
And, these small farmers are mostly “on their own”
Cooperative movement still small
Percent of villages with Cooperatives / FAs
Percent of households that belong to Cooperatives / FAs
8 % 2 %
In Greater Beijing: only 4% of villages had cooperative / only 8% of farmers (China Horticulture Survey)
Comparing with other nations: Percentage of Households Participating in Coops/FAs
0
20
40
60
80
100
US (early 1900s)
Japan (1950s)
Korea (1970s)
China (now)
Loss of Cultivated Land?
[Shenzhen in 1980 and 2000]
Production + import trends
PLUS pictures such as these …
Land use maps by six categories in 1985
Cultivated land (paddy + upland)
Forestry area Grassland
Water area Built up AreaBuA Unused land
Land use maps by 6 categories in 2000
Cultivated land (paddy + upland)
Forestry area Grassland
Water area Built up AreaBuA Unused land
Area converted from cultivated land to other land use categories (1988 to 2000)
But, conversion is a “twoway street”
Area converted to cultivated land from other land use categories (1987 to 2000)
Accounting for changes in cultivated land in China, 1988 to 2000
+ 5.7 million ha 3.0 million ha 2.7 million ha (NET GAIN)
[ + 1.9%]
Between 1988 and 2000, China actually experienced a net increase in cultivated area … different than Ministry of Land Resources
From other uses to farm land
From farm land to other uses
0 5 10 15 20 25 30 35 40 45
1 2 3 4 5 6 7 8 9 Ecoenvironment degree
%
Comparing the change of “quality” of cultivated land that was converted to other uses with the “quality” of newly expanded cultivated area in China, 19852000.
Final Result: Decrease in “quality”: around 0.5%…
Lost cultivated area
New cultivated area
Using EcoEnvironment Measure
China’s Water Problems
• They are severe … in some places … and loom as a serious constraint …
• Groundwater table falling steeply … but, only in 8% of northern China (about 4% of China’s arable land area)
• But water quality is improving …
Recent Responses:
The “tidal wave” washes into Rural China
• Public Infrastructure Investment
• Subsidies
• Other Programs
Composition of investment projects public vs. development
13%
87%
Total number of projects in sample
9,138 projects (in 2459 sample villages)
Development Projects
Public goods investments
Most of projects in rural China now focus on the provision of public goods … different than the 1980s
Nearly 4 per village during the study period … or almost 1 per year
Type of PUBLIC GOODS projects
Around 2/3rds of public goods investments into 5 types of projects
Clinic, 3 Drinking water, 11
Irri., 14
Schools, 14
Roads, 21 Other
public projects,
37
11
Rising Investment Over Time (100 village study)
• Nearly all villages experienced rising investment into public goods
• Poor received greater increase, absolutely and in percentage terms
• In 2004, per capita investment almost US$100/capita 2004 0
50
100
150
200
250
300
Richer Villages
Poorer Villages
2000
2004
2004
2000
Yuan / year
Table4. Determinants of number of public goods projects at village level between 1998 and 2003 Dependent variable: Number of public goods projects
Population weighted
Tobit
Targeting factors Net per capita income, 1997 (yuan) 4.10e08 0.00014
0 1.22 Net per capita income square, 1997 (yuan) 1.66e08 0
0.7 (1.88)* Percent of minority population 0.002374 0.00291
0.79 (1.86)* Percent of hilly land over 25 degree 0.007085 0.002949
(3.64)*** (1.91)* Distance from village committee to township seat (km) 0.011216 0.01641
0.97 (2.06)** Distance from the village seat to the nearest road (km) 0.01607 0.00658
(3.81)*** (1.96)* Total population, 1997 (person) 0.00021 0.000271
(3.57)*** (6.34)*** Distance between two most distant small groups within this village (km) 0.002905 0.039351
0.2 (2.93)*** Demand side factors Number of collective enterprise 0.107772 0.074373
(2.75)*** (2.67)*** Percent of selfemployed households 0.026779 0.019392
(3.28)*** (3.65)*** Percent of migrant labors 0.00576 0.00572
1.48 (1.96)* Per capita land (mu) 0.04014 0.02637
1.39 1.33 Percent of effectively irrigated land 0.00685 0.00866
(3.95)*** (6.66)*** Other factors Number of fellow villagers with township above governments, person 0.030891 0.020646
(4.12)*** (3.94)*** Village head turnover, 19982003, 1=yes,
0=no 0.22298 0.102749
(1.71)* 0.97 Village head occupation prior to office: 1=fulltime farmer, 0=not 1 0.21257 0.16451
(1.88)* (1.75)* Schooling of village head, year 0.003529 0.01813
0.14 1.07 Party secretary occupation prior to office: 1=fulltime farmer, 0=not 1 0.10934 0.06384
0.93 0.66
Determinants of Public Investment
Summary on Investment Spending: Where? To Whom?
Determinants, investment in public goods from above: – Poor
– Minority
– Smaller
– Remote
– Mountainous villages
it is almost as if leaders were following a blueprint drawn by development economists … progressive and welltargeted
Rising … But Still Not Enough! Total Spending: China versus Japan/Korea
0
100
200
300
400
500
Japan 50s
Korea 80s
China 2000
China 2004
Total Inv./Capita (US dollars, PPP terms
New Subsidy Programs
New Subsidy Policies in 2004 (source: ERS China team)
Policies Estimated Cost
Direct Subsidies $5 billion (PPP terms) to Farmers
Agricultural Tax Reduction $510 billion
Input Subsidies $200 mil.
China also eliminated more than 2 to 3 billion US in exports subsidies (for cotton and maize??) …
But, Doubled Size of Program in 2005/06
• $15 per acre (at nominal exchange rates)
[$60 per acre in PPP terms]
• Can they continue?
• Below 4 percent gross value of production [China is allowed 8.5% percent by WTO rules]
Source: our own survey
Higher in 2007/2008?
Tax Reduction Program Completed
• Completely eliminated taxes
• Farmers now pay no taxes or fees
• No grain quota 0
2
4
6
8
10
2003 2007
0
8.1%
Percent of Value of Output
Other New Programs
New programs to upgrade rural education …
All compulsory education (grades 19) is now tuition free …
• Nascent Rural Health Insurance Program
• Even More Nascent Rural Social Security Program
Gradual improvement in rural governance …
Every three years there are nearly 1 million village elections in China …
… increasingly formal and more and more competitive
Final Summary
So where is China? What does it need to do to keep moving?
Percent of Pop’n in Ag. Sector
Income per Capita
Stage 1 – Development Strategy
• Get Property Rights Right (1978) • Get Technology Right (1980s/1990s) • Get Prices Right (> mid1990s)
– Inside the domestic economy – Across international borders
Summary of this presentation: China is doing this well … mostly … so far
What do they need to do in next stage?
Transformation of Agriculture – Stage 2 In the longer run, the challenge may be more complicated!
Commodity Markets
Increase specialization
Raise allocative efficiency
New Technology/Investment
Increase output / unit of land
Raise technical efficiency
Mechanization
Substitute for ag labor
Raise labor productivity
Cultivate Land Rental Mkts / Tenure issues
Increase land quantity
Raise labor productivity
Continue!
Stage 2 (continued)
Stage 2
Added Challenge
Needs a lot more investment 4 times this years … and do for 25 years in a row!
0
100
200
300
400
500
Japan 50s
Korea 80s
China 2000
China 2004
China 2020?
Total Inv./Capita (US dollars, PPP terms
The REAL CHANGE in AG
• Cornè Fuel …
• Things will be very good for all of those that have land in the future …
• Farmers are now in the Energy Business!
• Probably more important than anything the gov’t will do!
Thank you