All previous studies consistently show that research-led technological change is the main engine of agricultural growth . Technology produced by China’s agricultural research system accounts for most of the rise in the cropping sector’s total factor productivity between 1980 and the late-1990s . Despite this past record, China faces considerable challenges. Although as a publicly funded agricultural research system, it functioned well and addressed many important problems, its expenditures have been tied to public budgets. Falling fiscal support has taken its toll. Currently, there is much concern that agriculture research investment intensity has declined since the early 1980s and reached a dangerously low level, only 0.44 in 1999 . At the same time, the increasing evidence of overlapping, inefficiency, over-staffing, and inappropriate technology make fundamental reform of the current research system an essential task.Price and market reforms were key components of China’s policy shifts from a socialist to a market-oriented economy. The reforms associated with China’s policy reforms, however, began slowly and have proceeded gradually. Market liberalization began with non-strategic commodities such as vegetables, fruit, fish, livestock, and oil and sugar crops. Little effort was made on the major crops. And, although the aims of the early reforms were to raise farm level prices and gradually deregulate the market, most of the significant early reforms were done by administrative measures . However, as the rights to private trading were expanded in the early 1980s, and official allowed traders the to buy and sell the surplus output of almost all categories of agricultural products,mobile grow rack the foundations of the state marketing system began to be undermined.

Since the mid-1980s, market reforms have continued though only in a stop and start way. For example, after record growth in agricultural production in 1984 and 1985, a second stage of price and market reforms was announced in 1985 aimed at radically limiting the scope of government price and market interventions and further enlarging the role of market allocation. Because of the sharp drop in the growth of agricultural production and food price inflation in the late 1980s, however, implementation of the new policy stalled. Mandatory procurement of grains, oil crops, and cotton continued. After agricultural production and prices stabilized in 1990-92, another attempt was made in early 1993 to abolish the grain compulsory quota system and the sale at low prices to consumers. The state distribution and procurement systems were substantially liberalized, but the policy was reversed when food price inflation reappeared in 1994: government grain procurement once again became compulsory. As well, a provincial governors’ grain responsibility system was introduced in 1994-95, aimed at encouraging greater grain self-sufficiency at the provincial level. Further retrenchments followed; in 1998 the central government initiated a controversial policy change prohibiting individuals and private companies from procuring grain from farmers . Grain quota procurement prices were set more than 20% higher than market prices, which meant a transfer in favor of those farmers able to sell at that price . Not surprisingly, stocks started to accumulate and procurement and market prices had to come down relative to international prices in 2000. Despite these periodic cycles in the reform process, markets have gradually emerged in rural China.According to Lardy , the share for agriculture was just 6% in 1978 but had risen to 40% by 1985, 79% by 1995 and 83% by 1999. Moreover, the state’s intervention was unable to halt the flow of grain across provincial boundaries.

Huang and Rozelle find that agricultural prices for all major commodities, including rice, wheat, and especially for maize and soybeans have moved together across far reaching localities within China. Continuing the trends found in Park et al. , China’s markets are becoming more integrated and efficient, and increasingly resemble those in more market-oriented economies. What have these policies meant for nominal rates of agricultural protection in China? Tables 3 and 4 show recent estimates based on quota and negotiated procurement prices and on wholesale market prices since 1985 for selected agricultural commodities. The requirement that farmers submit a mandatory delivery quota at below market prices has represented a lump-sum tax on farmers and lump sum subsidy to the urban consumers who were able to get access to sales at below-market value . Between 1990 and 1997 the average price farmers received for compulsorily delivered grains and soybean was between one-eighth and one-third below the border price. In the late 1990s, however, those prices were above the border price. Although all of China’s major crops were affected, wheat and cotton, the nation’s main imported farm commodities, received relatively favorable treatment relative to rice. That is true not only in each price category , but also in that a higher proportion of rice production is procured at the low quota procurement price. Meat producers, by contrast, still appear to receive less they would if they could sell their output at international prices. More-recent estimates by Huang and Rozelle , however, take quality differences into account more carefully. Their estimates suggest there is less protection in place than Table 3 implies. In particular, wheat wholesale prices may be no higher and possibly even lower than import prices of similar-quality grain. Recent structural shifts in soybean markets have made it so domestic soybean prices are only 15%, not 40%, above border prices. In sum, despite substantial efforts to liberalize the price and market structure of China’s agricultural sector, producers of major agricultural commodities continue to be penalized by commodity-specific policies of procurement. Despite that migration of farm workers to rural industrial and service activities, the average farm size and the share of farm household income from farming have fallen steadily since the late 1970s . When the impact of the recent re-appreciation of the domestic currency is also taken into account, the situation is even worse . It is therefore not surprising that many farm families have invested their surplus funds and labor in non-farm activities rather than back into agriculture. Much of that investment has gone to REs and family-owned businesses. Employment, output and exports in these sectors have increased rapidly. The share of non-farm income reached 50% in 2000 , and the per capita income differences between eastern, central and western provinces have persisted and even expanded.

In its most basic terms, the commitments in agricultural sector can be classified into 3 major categories: market access, domestic support, and export subsidies . The commitments on market accession will lower tariffs of all agricultural products, increase access to China’s markets by foreign producers of some commodities through tariff rate quotas , and removes quantitative restrictions on others. In return, China is supposed to gain better access to foreign markets for its agricultural products, as well as a number of other indirect benefits. Domestic support and export subsidies are the other two critical issues that arose during the course of negotiations. Together with a number of other market-access commitments make China’s WTO accession unique among all other developing countries that have been admitted to the WTO’s new environment. The import market access commitments that China has made to WTO members appear to be substantial. Overall agricultural import tariffs declines from about 21% in 2001 to 17% by 2004. The simple average agricultural import tariff reduced from 42.2% in 1992 to 23.6% in 1998 . Although important, when taken in the context of the discussion in the previous section about China’s external economy reforms of the last two decades, one would have to conclude that the commitments are merely an extension of China’s past changes. WTO in this way can be thought of as just another step on China’s road to opening up its economy. With a few exceptions , most of agricultural products will become part of a tariff-only regime. According to this part of the agreement, all non-tariff barriers and licensing and quota processes will be eliminated. For most commodities in this group, effective protection will fall substantially by January 2002 and fall even further by 2004 . To the extent that tariffs are binding for some of these commodities, the reductions in tariff rates should stimulate new imports. It is important to note, however, that although published tariff rates will fall on all of these commodities,ebb and flow table imports will not necessarily grow summarily. Indeed, for many products, China has comparative advantages in many commodities presented in Table 5. For example, lower tariffs on horticultural and meats might impact only a small portion of domestic market. Although tariffs fall for all products, since China produces and exports many commodities at below world market prices, the decreases will not affect producers or traders. Hence, the real challenge for agricultural products with tariff-only protection will be for crops such as barley, wine, and dairy products. In order to attempt to understand what may happen for some of these crops, it is instructive to examine the case of soybeans.

In this case, producers in China clearly did not have a comparative advantage. Before 2000, the import tariff for soybeans was as high as 114%, importers required licenses, and China’ farmers grew most of the nation’s soybeans. However, in anticipation of the China’s WTO accession, tariffs were lowered to 3% in 2000. After this lowering, officials also phased out import quotas. Consequently, imports surged from 4.32 million metric tons in 1999 to 10.42 mmt in 2000. In 2001, most observers believe soybean imports exceeded 14 mmt. Prices also fell and the nominal protection rates of soybean declined from 44% in the early 2000 to less than 15% in October 2001 . From this case it is possible to see that when the protection rates are high and there is high demand for a commodity, imports can move up sharply. Such movements, however, can be limited for a class of commodities called “national strategic products.” China’s WTO agreement allows officials to manage trade of rice, wheat, maize, edible oils, sugar, cotton and wool with tariff rate quotas . These commodities are covered under a special set of institutions. As shown in Table 6, except for sugar and edible oils , the in-quota tariff is only 1% for rice, wheat, maize, and wool. However, the amount brought in at these tariff levels is strictly restricted. For example, in 2002, the first 8.45 mmt of wheat will come in at a tariff rate of 1%. The in-quota volumes, however, are to grow over a three year period at annual rates ranging from 4% to 19%. For example,maize TRQ volumes increase from 5.70 mmt tons in 2002 to 7.20 mmt in 2004. China does not have to bring in this quantity, but provisions are in place that there is supposed to be competition in the import market so if there is demand inside China for the national strategic products at international prices, traders will be able to bring in the commodity up to the TRQ level. At the same time, there are still ways theoretically to import these commodities after the TRQ is filled. Most poignantly, tariffs on out-of-quota sales will drop substantially in the first year of accession and fall further between 2002 and 2005. If the international price of maize were to fall more than 65% below China’s price after 2004, any trader is allowed to import maize. But, during the transition period, most people believe such rates are so high that in the coming years they will not bind.After the first 4 to 5 years of accession, a number of other changes will take place. For example, after 2006, China agreed to phased out its TRQ for edible oils. State trading monopolies also will be phased out for wools after 2004 and gradually disappear for most of other agricultural products . Although China National Cereals Oil and Foodstuffs Import & Export Co. will continue to play an important role in rice, wheat and maize, there will be an increasing degree of competition from private firms in the importing and exporting of the grains in the future. In its commitments to WTO accession, China also agreed to a number of other items, some of which are special to the case of China. First, China must phase out all export subsidies and not to introduce any these subsidies on agricultural products in the future.