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Growing Pains

China’s major staple producers are lagging in economic growth, especially compared to areas that rely on them to support their local populations. As subsidies from the central government fall short of filling these regional gaps, calls to retool the farmer compensation policy are cropping up

By Xie Ying , Xie Xuewei Updated Apr.1

According to the National Bureau of Statistics (NBS), China produced a total of 695.4 billion kilograms of staple crops (grains, potatoes and beans) in 2023, a 1.3 percent increase compared to 2022. This marks the ninth consecutive year that China has maintained a total staple crop output of above 650 billion kilograms.  

In the early 2000s, the Chinese government divided the country into 13 major producing areas, 11 self-sufficient areas, and seven major purchasing areas. They were classified based on farmland area, land quality and staple supply.  

Nearly 78 percent of the total crop output came from these 13 regions, which include Heilongjiang, Jilin, Hebei and Henan provinces.  

Official data reveals that the seven biggest regional purchasers – the municipalities of Beijing, Tianjin and Shanghai, and Zhejiang, Fujian, Guangdong and Hainan provinces – only accounted for 4.3 percent of the country’s staple production.  

Despite their high staple output, major producing areas have low GDP growth, while major purchasers like Guangdong, Zhejiang and Fujian lead China in GDP growth.  

Heilongjiang, China’s top staple producer, has consistently lagged. In 2023, Heilongjiang ranked last in GDP growth among China’s provinces, regions and municipalities. Analysts attribute it to the limited profitability of staple crop production and a lack of secondary and tertiary industries. 

The central government has made efforts to retain farmers in these areas by providing subsidies to individuals and local governments. However, the gap between producers and purchasers continues to widen.  

During the central government’s first rural work conference for 2024, officials proposed to “explore a horizontal, inter-regional compensation scheme between producing and purchasing areas.” Analysts view this as a significant step toward a more comprehensive compensation mechanism and call for detailed rules to ensure its implementation.  

Rooted Issues 
Gao Min, a farmer in Henan Province, China’s second-leading staple crop producer, has benefited from government subsidies.  

Since 2004, Gao has received 15 yuan (US$2) for each mu (666.7 square meters) of his land annually in cash subsidies. Other available subsidies include those for fertilizers, machinery and seed, as well as tax exemptions.  

While he did not need the subsidy for farm machinery, as most small-scale farmers do not invest in large machines, Gao said the agricultural tax exemption has significantly boosted his income. “In the past, we had to submit about one-fifth of our staple output [as agricultural tax]... and sometimes we couldn’t survive on what was left,” he said. “The exemption has greatly reduced pressure on farmers, and I’ve felt much more relaxed since then.”  

In 2009, the State Council, China’s cabinet, passed a 10-year plan (2009- 2020) aimed at increasing China’s total annual staple crop output by 50 billion kilograms. The plan targeted 680 counties and cities in the 13 major producing areas, including Gao’s county.  

However, Gao did not see his income increase.  

A major factor is the meager profits. For example, Gao owns five mu (3,333.3 square meters) where he grows wheat and corn. In bumper years, he yields 500 kilograms of wheat and 600 kilograms of corn per mu, earning a total of about 8,250 yuan (US$1,150). To boost his income, Gao began leasing another 11 mu (7,333.3 square meters) from other farmers two years ago. Minus the 1,200 yuan (US$167) per mu he pays in annual rent, Gao earns an additional 4,950 yuan (US$690) a year.  

Yet this pales in comparison to what city jobs offer. According to NBS data, the average monthly wage of rural migrants working in urban areas reached 4,780 yuan (US$667) in 2023, a 3.6 percent increase compared to 2022.  

As a result, more farmers, particularly younger ones, are abandoning their land for higher-paying urban jobs. Gao, 42, wants to do the same. “[Work in urban areas] is much more lucrative than staple farming. What we plant is worthless,” he told NewsChina.  

His hopes for higher grain prices are unlikely to come true as the government aims to keep staple prices affordable through macro control measures. Meanwhile, the low prices of staples imported from other countries prevent any significant increases in domestic prices.  

Gao is even more concerned about the rising costs of production, including land rent, labor and the prices of pesticides and fertilizers.  

In a 2023 interview with financial news outlet Yicai, Han Jingbo with the National Development and Reform Commission (NDRC) revealed that China’s total cost of staple crop production increased 32.3 percent from 2012 to 2023, with land rents alone jumping a cumulative 80.9 percent. These increasing costs, coupled with the limited resources and the patchwork of separate plots in many rural areas, make it difficult to boost productivity through new technologies or to develop largescale agriculture.  

“The profit margins for the three primary grains [rice, wheat and corn] are generally very slim, and in some cases even negative,” Qian Long, an associate professor with the grain school at the Nanjing University of Finance and Economics, told NewsChina.  

According to the Analysis and Forecast on China’s Rural Economy (2022- 2023) jointly published by the Chinese Academy of Social Sciences and the NBS, the average net profit for one mu of rice, wheat and corn has dropped from 197 yuan (US$27) in 2004 to 47 yuan (US$7) in 2020. 

The profit rate also plummeted from 49.7 percent to 4.2 percent during this period, reaching negative levels between 2016 and 2019.  

Declining Economy 
Despite increases in staple production, local governments in major producing areas face financial strain.  

In 2005, Hua County in Henan Province, China’s leading wheat producer with more than 2.01 million mu (13,400 hectares) of farmland, saw its annual revenues unable to cover its government payroll, according to a 2006 article by Wang Shaogang, former director of the county’s financial bureau.  

Wang said that Hua County invested heavily in infrastructure, as required by the central government, to ensure its staple crop output. However, this left little for other industries, which hindered its overall economic growth.  

Data from Hua County reveals a decline in the disposable income of its urban residents, dropping from 86 percent of the national average in 2012 to 56.4 percent in 2022.  

Gao Min’s county, whose name he requested not to reveal, shared a similar fate. Although the central government grants an annual subsidy of around 40 million yuan (US$5.6m), it comes with requirements for agricultural facilities and equipment that can cost hundreds of millions of yuan, an official from his county’s agricultural bureau told NewsChina on condition of anonymity. 
The imbalance between major producing areas’ contributions to staple crop production and their actual economic status is the norm, according to Chen Mingxing, director of the Rural Development Institute under the Chinese Academy of Social Sciences Henan Branch.  

“In order to ensure national food security, major producing areas have to abandon opportunities to develop other industries and service sectors, leading to potential economic losses,” said Chen, who has focused his research on Hua County.  

Many major producing counties allocate over 90 percent of their land to farmland, Chen added. This is often by mandate, as the central government’s National Land Use Plan issued in 2011 limits large-scale industry and urbanization in major producing areas to focus their resources on agriculture.  

“The low profitability of staple production reduces local government revenues, while the required high costs of support facilities for farmland further widen the economic gap between major producing and purchasing areas,” Chen said.  

From 1994 to 2020, major producing areas experienced slower annual revenue growth compared to major purchasing and self-sufficient areas, Xin Xiangfei of the Institute of Agricultural Economics and Development, Chinese Academy of Agriculture wrote in an article for newspaper Guangming Daily in 2023.  

It is worth noting that many key areas designated for poverty alleviation by the State Council are major producing areas. In Henan, 46 of the 95 key producing counties and cities are listed for poverty alleviation assistance.  

A granary in Shuangyashan, Heilongjiang Province, December 11, 2022 (Photo by VCG)

A customer shops for dried soybeans at a market in Taiyuan, Shanxi Province, May 12, 2023 (Photo by Zhang Yun)

Room to Grow 
Against this backdrop, the central government established a top-down subsidy system in 2009 to compensate major producing areas for sacrificing development in other industries.  

In addition to individual subsidies and bonuses for farmers and rural households, the central government reformed the staple crop pricing system between 2014 and 2016, in which a floor price protects farmers from market lows.  

Subsidies provided to major producing counties have also been increasing annually, growing from a total of 5.5 billion yuan (US$767.6m) in 2005 to 46.7 billion yuan (US$6.5b) in 2020.  

“These subsidies have helped ease the financial pressure faced by local governments,” Zhang Zhaoxin, a researcher at the Rural Economic Institute of the Ministry of Agriculture, told NewsChina. “Some local governments have to spend 4-5 billion yuan (US$558-698m) each year, while their revenues are only one-tenth of that. Without the central government subsidies, they would have been even more distressed,” Zhang said.  

However, Zhang argues that relying on these central subsidies is not a sustainable solution. “The central government is already under enormous financial pressure and it is very hard to keep increasing it,” he said.  

Zheng Zhaofeng from the National Agriculture and Village Development Institute under the China Agricultural University in Beijing pointed out that despite the year-on-year growth in subsidies, compensation still falls short.  

“Subsidies account for a much smaller part of farmers’ average disposable incomes in China than of those in developed countries like the US and Australia,” Zheng said. “In 2022, subsidies made up only 2.2 percent of Chinese farmers’ incomes... significantly lower than the 40 to 60 percent of farmers’ incomes in developed countries,” he added.  

In 2019, Henan reportedly received a 3.4-billion-yuan (US$475m) bonus to distribute to 110 major producing counties, or 30 million yuan (US$4m) per county. But this was far from enough to bring counties’ per capita incomes on par with the national average. 

In addition, when other producing counties missed their quotas to qualify for bonuses, the central government urged provincial governments to provide them regardless, further increasing the financial burden placed on provinces.  

Significant Step 
Experts are increasingly advocating for major purchasing areas to subsidize major producers based on the gap between staple production and consumption.  

The central government has recognized the importance of self-sufficiency since 2004, when in a released document it urged major purchasing areas to retain farmland and achieve a set self-sufficiency ratio, and for self-sufficient areas to maintain the status quo.  

However, official data showed declines in self-sufficiency ratios in both major purchasing and self-sufficient areas. In 2004, the seven major purchasing areas could supply 44.2 percent of their staple crop needs, while the 11 self-sufficient areas met 88.5 percent. In 2021, those ratios dropped to 19.9 percent and 78.4 percent, forcing these areas to purchase a total of 150 million tons in staples to make up the difference.  

The Analysis and Forecast on China’s Rural Economy (2022-2023) revealed that in 2022, only five areas, mostly in North and West China, could export surplus staple crops while remaining self-sufficient, down from 13 in 2003.  

Based on their on-site investigations, experts agree that national food security is too heavily allocated to producing areas, and that purchasing areas can do more to aid them in other ways beyond growing their own crops.  

“As a leading beneficiary, major purchasing areas do not take responsibility for paying subsidies,” Zheng said, adding that major producing areas have helped purchasers to develop other industries.  

Zhong Jue, director of the Agricultural Economy and Development Institute under the Chinese Academy of Agricultural Science, views the 2024 agricultural work conference’s call for a compensation system between regions as a significant step toward improving general subsidies for major producing areas.  

“This system will aim to stimulate staple crop production in major producing areas through increased inputs of technologies, infrastructure and talent to help extend the staple crop industrial chain and increase its added value,” Zhong said. “Direct subsidies of money and resources will push both major purchasers and self-sufficient areas to take on a greater share of responsibility for national food security and promote coordinated development between regions,” he said.  

Difficulties Ahead 
While inter-regional subsidies were first proposed in 2014, according to Chen Mingxing, no comprehensive scheme has been established yet.  

“There were no specific rules and policies to support horizontal subsidies [across regions]. The 2024 work conference should serve as a signal to truly fulfill this policy,” Qian Long noted.  

Zhang Zhaoxin pointed out that realizing an inter-regional subsidy program requires addressing several key issues, such as determining how to calculate consumption of staple goods and track their flow.  

However, these are complex tasks, as consumption data fluctuates frequently and flow involves factors such as purchase and resale, Zhang said.  

To address this, Zhong Jue suggested that food, statistics, transportation and taxation departments collaborate on a data platform to monitor the cross-regional staple transactions and transfers.  

Qian Long also proposed a State-level subsidy fund for staple crop production. Those who exceed their production targets would receive a set bonus from the fund, while those who fail to meet their targets would have to pay into it.  

In recent years, some major producing provinces have tried to generate subsidies by cooperating with purchasing provinces. For instance, Fujian Province which can only produce 23 percent of its staple needs, has established cooperative relationships with 10 producing provinces. However, experts believe that such cooperation primarily focuses on sales and falls short of achieving systemic inter-regional subsidies.  

“For example, major purchasing areas could invest in agricultural processing in major producing areas to produce semi-processed and processed products. This approach would not only save transport costs but also allow producing areas to share in the profits, increase local employment and generate tax revenue,” Chen said.  

He also suggested learning from the “enclave economic model,” under which richer eastern areas invest in a targeted western area or supply it with talent and technologies to facilitate development. In this way, investment and contributions from major purchasers would count toward fulfilling their national food security obligations, all while alleviating financial pressure on producing areas and easing pressure on purchasing areas to grow their own crops. 
However, Qian cautioned that these models involve significant coordination and negotiations between regions and may require legislation.  

As the gap between the contributions of producing areas toward staple crop production and economic growth is a very complex issue involving multiple factors, such as local resources, the market and labor quality, Zhang stressed that taking a multi-dimensional approach is necessary.