Agricultural Policy Monitoring and Evaluation 2019

Chapter 8. China

Support to agriculture

After two decades of gradual growth, the level of support to agricultural producers in the People’s Republic of China (hereafter “China”) has stabilised in recent years with the share of support in gross farm receipts (%PSE) fluctuating in a range of 14-16% in 2016-18. This reflects policy reforms undertaken with respect to the market intervention systems for soybeans, rapeseed, cotton, and maize, as well as to the minimum purchase price system for wheat and rice. The nominal depreciation of the CNY vis-à-vis USD between 2014 and 2017 after a long period of gradual appreciation has been another factor influencing the evolution of price gaps and thus contributing to stabilising levels of Market Price Support (MPS) in recent years. Payments based on area planted have been consistently increasing since 2014 as a result of the recent reforms, but MPS remains the dominant part of total support, generated through both domestic price support policy and various border measures on imports. MPS levels differ across imported commodities, while prices of exported commodities are not supported.

Within the General Services Support Estimate (GSSE), three categories attract the largest financial support: public stockholding, development and maintenance of infrastructure, and agricultural knowledge and innovation system. The GSSE corresponds however to only one-fifth of the support to individual producers in 2016-18.

Main policy changes

Several reforms, initiated in 2017 with respect to the minimum purchase price system for wheat and rice, were continued and deepened in 2018. The minimum purchase prices for both wheat and rice were further lowered. In addition, several parameters in the implementation of the price support system were adjusted. This specifically concerns the guidelines for quality requirements in grain procurement, as well as the market price conditions for activating minimum price procurement of wheat and rice.

The programme encouraging crop shifting from maize to soybeans initiated in 2017 in China’s four Northeast provinces was extended to 2018-19. Several provincial governments have also introduced additional subsidies per area cultivated on top of national subsidies provided to farmers for switching from maize to soybeans or for planting more soybeans in a traditional soybean area.

The disposal of accumulated maize stocks continued to be a priority during 2018. Auctions from state reserves started one month sooner than in previous marketing years and state reserves releases are estimated to have increased by 75% relative to 2017. China National Cereals, Oils and Foodstuffs Corporation (COFCO) – the largest state-owned food processor – continued the expansion of maize processing, including ethanol operations, in several Northeast provinces.

Assessment and recommendations

• Recent reforms to replace intervention prices for key crops by direct payments based on area planted are a step in the right direction of rebalancing the portfolio of agricultural support and reflect China’s policy orientation towards long-term productivity growth and sustainability. The most recent reform of the maize purchasing and storage system has had a direct impact on diminishing both feed costs for livestock producers and storage costs. Such reforms could be extended to gradually include rice and wheat, and they should be time-limited. But should they be maintained in the longer-term, the link between direct payments and production decisions should be further loosened by providing payments on a historical area basis, for instance, and by making them conditional on environmentally-friendly production practices.

• Public expenditure on general services has been increasing, but at a slower pace than support to individual producers. Further efforts are thus needed to restructure agricultural support towards public investment in research and development, and infrastructure. This can be supported by scaling down input subsidies such as the subsidy to purchase farm machinery, and by ensuring that support through direct payments only has a transitory role in backing farmers’ adjustment to a new market environment. Continued reforms to the grain purchasing and storage system will also ease the burden on the cost of public stockholding that still represents the largest expenditure share in general services support.

• Recent reforms in land transfer rules have contributed to the emergence of “new-style” farms, including large family farms, co-operative farms and farms run by agribusiness companies. For the reforms in land regulations to continue delivering expected outcomes, these need to be complemented by further investments in education and training and improved access to financial services.

• Improving the environmental performance of agriculture has recently become one of the central objectives of China’s agricultural policy, as environmental pressures linked to farming are looming large. To establish a solid framework for agri-environmental policies, China should further clarify reference levels for environmental quality as well as define environmental targets well adapted to local ecological conditions. This would also support better monitoring mechanisms for the enforcement of environmental regulations. A comprehensive review of water governance could help to better define responsibilities, remove conflicts and ensure effective and efficient policy implementation. In addition, an evaluation of the performance of the subsidy to the agricultural insurance premium would allow assessing the cost-efficiency of the programme.

• Several broad work plans have recently been put forward across institutions in view of strengthening policies addressing agricultural greenhouse gas (GHG) emissions and supporting the sector’s adaptation to climate change. In this sense, the restructured Ministry of Ecology and Environment could help mainstream adaptation policy objectives across current and planned programmes, including a better targeting of extension services for farmers.

Figure 8.1. China: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) has steadily increased since 2000-02 and represented around 15.3% of gross farm receipts in 2016-18, slightly below the OECD average. More than two-thirds of support to producers are in the form of potentially most distorting transfers, a consistent pattern since 2000-02. Prices received by farmers were on average 12% higher than world prices in 2016-18 (Figure 8.1). The level of support declined year-on-year largely due to a diminishing price gap, driven by continued reforms of the market intervention system for key commodities in conjunction with higher border reference prices on average. The increase in budgetary payments is led by higher allocations towards payments based on area planted for soybeans, maize and cotton (Figure 8.2). With the exception of eggs, peanuts and exported fruit and vegetables, producers are benefiting from high transfers accounting for between 11% and 51% of commodity receipts in 2016-18 (Figure 8.3). At 3.8% in 2016-18, expenditure for general services (GSSE) relative to agriculture value added was close to the OECD average. Total support to agriculture as a share of GDP (%TSE) has remained relatively stable since 2000-02. At 2% in 2016-18, %TSE is nevertheless one of the highest among the countries covered, almost three times higher than the OECD average.

Figure 8.2. China: Drivers of the change in PSE, 2017 to 2018

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 8.3. China: Transfer to specific commodities (SCT), 2016-18

Source: OECD (2019[1]), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 8.1. China: Estimates of support to agriculture

Contextual information

China has the world’s largest population and the second largest land area. It is an upper-middle income economy, with a GDP per capita – adjusted by PPP – close to 79% of the average of countries covered by this report (Table 8.2). However, while feeding almost 20% of the world’s population, it has only 7% of the world’s potable water and 10% of the world’s agricultural land. China is thus a resource scarce country, which results in severe competition between agriculture and other users of land and water resources.

Agriculture still accounts for 27% of employment, but its 8.2% share in GDP indicates that labour productivity is significantly lower than in the rest of the economy. Even if rural incomes are growing at high rates, they remain at around one-third of those in urban areas.

Crop production represents 66% of total agricultural output and its composition has changed significantly over the last decades, driven by the shift towards higher value-added agricultural products such as fruit and vegetables. While average farm size is still less than one hectare, large-scale production has been developing rapidly, including co-operative and corporate farms. North and Northeast provinces have seen more rapid farm consolidation than other regions, as increased labour mobility and transfer of land among farmers over the past three decades have led to gradual adjustments in the farm structure. Livestock production originates mostly from larger-scale commercial units (OECD, 2018[2]).

Table 8.2. China: Contextual indicators

	China		International comparison
	1995*	2017*	1995*	2017*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	2 252	23 301	7.6%	22.7%
Population (million)	1 211	1 390	31.4%	28.8%
Land area (thousand km2)	9 425	9 425	11.8%	11.6%
Agricultural area (AA) (thousand ha)	523 714	528 532	17.4%	17.7%
			All countries1
Population density (inhabitants/km2)	132	150	48	60
GDP per capita (USD in PPPs)	1 860	16 762	7 642	21 231
Trade as % of GDP	19	16	9.9	14.7
Agriculture in the economy			All countries1
Agriculture in GDP (%)	19.8	8.2	3.3	3.5
Agriculture share in employment (%)	52.2	27.0	-	-
Agro-food exports (% of total exports)	7.7	2.4	8.1	7.5
Agro-food imports (% of total imports)	8.7	6.8	7.4	6.6
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	64	66	-	-
Livestock in total agricultural production (%)	36	34	-	-
Share of arable land in AA (%)	23	23	33	34

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

With real GDP growth averaging 6.7% in 2016-18, China has been experiencing a gradual slowdown in economic growth. Its growth trajectory is increasingly dependent on the pace and nature of structural reforms. China’s overall macroeconomic environment remains competitive, with an inflation rate of 2.1% and unemployment of 4.7% over the same period (Figure 8.4).

China has consistently been a net agro-food importer since 2003, but agro-food exports have been steadily growing over the last two decades. China’s agro-food imports are dominated by primary products used as inputs in the domestic food industry, which represented more than half of total agro-food imports in 2017. In turn, primary and processed products for final consumption are key export categories, accounting for 72% of total agro-food exports (Figure 8.5).

Figure 8.4. China: Main economic indicators, 1995 to 2018

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

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Figure 8.5. China: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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Agricultural output growth in China averaged 3.1% in 2006-15, about one-third above the world average (Figure 8.6). This has been driven by strong growth in total factor productivity (TFP) at 3.4% per year, more than twice the global average. TFP trends can be largely attributed to farm consolidation and increased mechanisation of production.

However, the rapid and sustained growth in agricultural output has been exerting mounting pressures on natural resources, including land and water. Agriculture remains the key user of water, accounting for 62% of total water consumption, well above the OECD average (Table 8.3). Water stress is twice as high as the OECD average.

Figure 8.6. China: Composition of agricultural output growth, 2006-15

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

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Table 8.3. China: Productivity and environmental indicators

	China		International comparison
	1991-2000	2006-2015	1991-2000	2006-2015
			World
TFP annual growth rate (%)	4.2%	3.3%	1.6%	1.5%
			OECD average
Environmental indicators	1995*	2017*	1995*	2017*
Nitrogen balance, kg/ha¹	63.5	62.5	33.2	30.0
Phosphorus balance, kg/ha¹	11.2	15.9	3.7	2.3
Agriculture share of total energy use (%)	4.3	2.2	1.9	2.0
Agriculture share of GHG emissions (%)	14.9	7.9	8.5	8.9
Share of irrigated land in AA (%)	9.4	12.8	-	-
Share of agriculture in water abstractions (%)	70.0	62.3	45.4	42.5
Water stress indicator	19.4	21.3	9.7	9.7

Note: * or closest available year. 1. Preliminary data.

Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

Description of policy developments

Main policy instruments

The 13^th Five-Year Plan sets out the key orientations of agricultural policy for 2016‑20. The 2016-20 Plan focuses on “agricultural modernisation” across several dimensions, including: improving the quality and safety of agricultural products; supporting the development of new types of agribusiness; and strengthening the adoption and use of information technologies. Policy frameworks and specific areas for action are further developed in the annual “Policy Document No. 1”, which for the last 16 years has set agriculture and rural development as top priority.

Self-sufficiency for key grains has been an important driver behind China’s agricultural policies over the past two decades. However, the scope of grains covered has evolved since the mid-1990s. The 2019 “Policy Document No. 1” stresses the importance of developing a competitive and sustainable agricultural sector and of continuing supply-side reforms, while it reiterates the importance of guaranteeing the necessary grains production for food security purposes (mainly wheat and rice).

Market price support is the main channel for providing support to Chinese farmers. It is provided through both domestic policies – such as the minimum purchase prices for rice and wheat – and trade policies, including tariffs, tariff rate quotas (TRQ) and state trading.

The minimum purchase prices for wheat and rice are set every year by the National Development and Reform Commission (NDRC) in consultation with the Ministry of Agriculture and Rural Affairs (MARA) and other government institutions. Their application is limited to major wheat and rice producing provinces. They differ by type of grain, are announced before sowing seasons, and only apply for a fixed period limited to several months after the harvest. The central government mandates the state-owned China Grain Reserves Corporation (Sinograin) and other state-owned companies to undertake intervention purchases in the case market prices fall below the respective minimum prices (for three days in a row as of 2018).

The government-led temporary purchase and storage policy at pre-determined prices – mostly intended to stabilise market prices and to ensure adequate supplies – was discontinued in 2014-15 for cotton, soybeans, and rapeseed, and in 2016 for maize. For cotton, this was replaced in 2014-15 by compensation payments covering the difference between pre-determined target prices and actual market prices. For soybeans and maize, it was replaced with direct payments based on area planted since 2016-17.

Budgetary transfers to producers have increased consistently since the end of the 1990s. Most of them are provided through four key programmes: 1) the “agricultural support and protection subsidy”, combining direct payments for grain producers, subsidies for agricultural inputs, and subsidies for improved seed variety, all paid on per unit of land basis; 2) subsidies for purchases of agricultural machinery; 3) subsidies for land consolidation; and 4) subsidies for farmland irrigation construction. Subsidised agricultural insurance schemes have also grown in importance in recent years. The geographic coverage of payments destined to return farmland to forests and to exclude degraded grassland from grazing has been gradually extended, reflecting increasing environmental concerns.

Public stockholding of grains and programmes supporting the development of agricultural infrastructure – including irrigation and drainage facilities – represent the most important categories of general services. Expenditures related to agricultural knowledge and innovation are also sizable.

In the Adjusted Scenario of the Outline of the National Overall Planning on Land Use 2006-20, issued in 2016, a “red line” on arable land was set at no less than 124.3 million hectares. The conversion of farmland for non-agricultural use is strictly controlled. With about 40% of land suffering from various forms of degradation, the Outline calls for the prevention of land degradation and for the treatment of affected land.

China ratified the Paris Agreement on Climate Change on 3 September 2016. Its Nationally Determined Contribution (NDC) includes several commitments, such as: to peak CO2 emissions by 2030 at the latest; to lower the carbon intensity of GDP by 60–65% below 2005 levels by 2030; to increase the share of non-fossil energy carriers of the total primary energy supply to around 20% by that time, and to increase its forest stock volume by 4.5 billion m³ compared to 2005 levels. While the NDC explicitly mentions agriculture, land-use change and forestry, among other sectors, no specific net-emission target has yet been set for the agricultural sector. The only specific quantitative target set for agriculture relates to achieving zero growth in fertiliser and pesticide utilisation by 2020. Other broad objectives concern controlling methane emissions from rice fields and nitrous oxide emissions from farmland, promoting comprehensive utilisation of straw or reutilisation of agricultural waste (UNFCC, 2015[3]; Climate Action Tracker, 2018[4]).

The National Agricultural Sustainable Development Plan (2015-30) sets the goals and paths for China’s sustainable agricultural development in terms of natural resources protection, improved farming practices that are protective of the environment, and a focus on quality and efficiency of production. It sets targeted priorities for different areas by taking into account the capacity of agricultural production, resource endowment, ecological characteristics and other factors (MOA, 2015[5]).

The State Council released its 13^th Five-Year Work Plan to Control GHG Emissions in October 2016, looking to strengthen policies controlling for GHG emissions beyond CO2, such as methane and hydrofluorocarbons (HFCs). The plan includes mentions of reducing methane emissions in the agricultural sector and in municipal waste and sewage treatment (NDRC, 2017[6]).

Domestic policy developments in 2018-19

Developments in the legal framework

In September 2018, the Central Committee of the Communist Party of China (CPC) and the State Council released the National Strategic Plan for Rural Revitalisation 2018-22 for the implementation of the “rural revitalisation strategy”. The Plan’s 37 sections outline key tasks over 2018-22 towards the overall goals of fostering agri-businesses, delivering agricultural modernisation, and creating vertically integrated rural industries. Specific priorities and steps are to be defined for different provinces by 2020 (China Policy, 2018[7]; Xinhuanet, 2018[8]).

The 2019 Policy Document No. 11 — issued in February 2019 — continues to prioritise agricultural and rural development and proposes several key areas for action. These include deepening agricultural supply-side structural reform; optimising agricultural structure; boosting production of green agricultural products or of those in short supply; rolling out plans to increase soybean planting and to support the dairy industry; developing rural industries; as well as promoting innovation in biological breeding, heavy agricultural machinery, smart agriculture, green agricultural inputs and other areas. The Document calls for strengthened transparency of rural land transactions and for speeding up the establishment of a unified land market between rural and urban areas. In terms of agro-food trade, the document targets an enhanced co-operation with countries along the Belt and Road, an active expansion of imports of agricultural products in short supply at home, the diversification of importing channels, and the development of multinational agricultural corporations. For rural development, the Document foresees enhanced actions for improving rural living environments and public services such as education, health care or social security; as well as for improving rural infrastructure (roads, electricity grids and logistics networks), enhancing pollution treatment and environmental protection (SCIO, 2019[9]; Xinhuanet, 2019[10]).

Institutional rearrangements

The 13^th National People’s Congress (NPC) pushed forward in March 2018 a major institutional restructuring, including in the areas of agriculture and environment. The Ministry of Agriculture and Rural Affairs (MARA) superseded the Ministry of Agriculture (MOA). In addition to most of the former ministry’s functions, it also took charge of: agricultural investment projects from the National Development and Reform Commission (NDRC); comprehensive agriculture development projects from the Ministry of Finance (MOF); farmland rehabilitation from the Ministry of Land and Resources; and farmland and water conservancy construction projects from the Ministry of Water Resources. Responsibility for fishing vessel inspection and supervision, previously under the MOA, was transferred to the Ministry of Transport. The Office of the Central Leading Group for Rural Work, a high-level advisory body holding a key role in the implementation of the “rural revitalisation strategy”, was also placed within MARA. The Ministry of Ecology and Environment superseded the previous Ministry of Environmental Protection, while also assuming several responsibilities previously assigned to the NDRC, the Ministry of Water Resources, the MOA, and the Ministry of Land and Resources.

As part of the 2018 institutional restructuring, the State Administration of Grain (SAG) became the National Food and Strategic Reserves Administration (NFSRA), a vice-ministerial agency affiliated with the NDRC. NFSRA consolidates the functions and responsibilities for overseeing the strategic reserves of wheat, rice, maize, oilseeds, cotton, sugar, natural gas, and petroleum from SAG, NDRC, the National Administration of Energy (NEA), the Bureau of Commodity Reserves, the Ministry of Commerce (MOFCOM), and Sinograin (China Grain, 2018[11]; GAIN-CH18071, 2018[12]; NDRC, 2018[13]; NDRC, 2018[14]). The reorganisation also established the State Administration of Market Regulation (SAMR), consolidating into one agency the market regulation functions previously shared by three separate bodies, the General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ), the China Food and Drug Administration (CFDA), and the State Administration of Industry and Commerce (SAIC) (GAIN-CH18069, 2018[15]).

Domestic price support policies

As outlined in the 13^th Five-Year Plan for Agriculture 2016-20 and reinforced by the NDRC, the “improvement” of the minimum purchase price system for wheat and rice continues to be a priority, while “effectively protecting the interests of farmers”. Several reforms initiated in 2017 with respect to the minimum purchase price system for wheat and rice were continued and deepened in 2018. First, the NDRC announced further decreases in the minimum purchase prices. On 9 February 2018, minimum purchase prices for rice varieties were reduced: 1) by 8.3% to CNY 2 400 (USD 381) per tonne for early season indica rice; 2) by 7.9% to CNY 2 520 (USD 399) per tonne for mid-to-late season rice; and 3) by 15.4% to CNY 2 600 (USD 412) per tonne for japonica rice (AMIS, 2018[16]). On 16 November 2018, the NDRC also announced a further reduction in the minimum purchase price for wheat for the 2019 crop by 2.7% to CNY 2 240 (USD 333) per tonne (Cheng, Mande and Xinyi, 2019[17]; NDRC, 2018[18]).

Second, several parameters of the minimum purchase price system implementation were adjusted in May 2018. This concerns the guidelines for quality requirements in procurement, as well as the conditions for activating minimum price procurement of wheat and rice. Only grain of national grade 3 or higher2 will be purchased at minimum prices. Notwithstanding, in cases where there are large volumes of grain below grade 3 due to a weather event or other reason, provincial authorities are urged to pursue their own “temporary reserve” grain purchases. In addition, minimum price procurement can begin only when the market price has fallen below the minimum price announced by the government for three days in a row and must be suspended when the market price rises above the minimum for three days. The minimum price procurement for wheat can start on 1 June, which is about a week later than in previous years, and must end by 30 September. The national programme covers the same provinces as in past years,3 while other provinces can launch at their discretion their own procurement at minimum prices (MOF, 2018[19]; GAIN-CH18039, 2018[20]).

Pilot programmes have been initiated in 2018 across selected provinces to test the replacement of the price support system for farmers with more market-oriented mechanisms. For instance, Xinjiang province is testing the replacement of the price support system for wheat with a market pricing mechanisms and additional direct payments for farmers. In this sense, Xinjiang will no longer carry out the 1.5 million tonnes “temporary reserve” purchase plan initiated in 2009. The “cultivated land fertility protection” subsidy is thus increased in this province by CNY 30 per acre (USD 12 per ha) for winter wheat and CNY 15 per acre (USD 6 per ha) for spring wheat. Pilot programmes are also promoting selenium-enriched wheat, organic wheat, and strong gluten wheat in various areas of the province (Grain News, 2018[21]). Another example is the “2018 Rice Target Price Subsidy Implementation Plan” in Guangxi province, which defines a target price for high-quality rice and introduces compensatory payments (i.e. based on the difference between target and market price) for farmers (Grain News, 2018[22]).

Payments to producers

The programme encouraging cropland shifting from maize to soybeans initiated in 2017 in China’s four Northeast provinces was extended to 2018-19. In the effort to stimulate domestic soybean planting, a subsidy of CNY 150 per mu (USD 355 per ha) is now provided to farmers in these four provinces for planting soybeans. Along with this subsidy, farmers in the largest soybean-producing province, Heilongjiang, receive an additional government subsidy of CNY 350 per mu (USD 833 per ha) for switching from maize to soybeans, and a subsidy of CNY 200 per mu (USD 476 per ha) for planting soybeans in a traditional soybean area. This is a result of the “emergency soybean area expansion plan” issued by Heilongjiang provincial authorities in April 2018. Additional subsidies provided by the Jilin provincial government lead to an overall subsidy ranging between CNY 200 and CNY 580 per mu (USD 476 to USD 1 380 per ha) in 2018 (AMIS, 2018[23]; GAIN-CH18035, 2018[24]; GAIN-CH18048, 2018[25]).

Stockholding policies

The disposal of maize stocks continued to be a priority during 2018. Auctions from state reserves started in April 2018, one month sooner than in previous marketing years. Existing estimates report that between 90 and 100 million tonnes of reserve maize were traded in 28 weeks of auctions from April to October, which represents about 43 million tonnes more than in 2017 (China Grain, 2018[26]; GAIN-CH18060, 2018[27]).

China National Cereals, Oils and Foodstuffs Corporation (COFCO) – China’s largest state-owned food processor – is to expand its maize processing and ethanol operations in Jilin and Liaoning provinces from 2018 to 2020 by aiming to procure around 12 million tonnes of maize overall (GAIN-CH18039, 2018[20]).

Following significant state purchases of cotton during 2011-14, the reduction of cotton stocks was another key priority in 2018. Through auctions in 2018, cotton total stocks are estimated to have fallen from 10.5 million tonnes at the beginning of 2017 to 7.4 million tonnes at the end of 2018 (GAIN-CH18051, 2018[28]). The Chinese government also organised important sales of soybeans from state reserves through 19 auctions accounting for accumulated sales of 1.9 million tonnes by the end of October 2018 (GAIN-CH18068, 2018[29]).

China’s State Council announced in July 2018 a national inspection programme of grain reserves to be launched in April 2019, 10 years after the last national inspection programme of 2009. This will include an in-depth review of the quantity and quality of state-owned grain reserves managed by the new NFSRA, Sinograin, and COFCO. The government already conducted 20 pilot checks in 10 provinces between July 2018 and January 2019. In addition, corporations typically holding state-owned inventories must submit by April 2019 reports about the status of their reserves (GAIN-CH18060, 2018[27]).

Changes in the regulatory environment

The feed industry has been actively promoting reduced protein content in feed in order to diminish soybean consumption. The China Feed Industry Association (CFIA) approved in October 2018 new recommended feed standards (including the “Compound Feed Standard for Swine” and the “Compound Feed Standard for Broilers and Layers”). They are not mandatory, but CFIA guidelines have been followed closely by feed mills in recent years. The new standards set lower minimum requirements for crude protein levels and establish as well maximum protein levels in pig and poultry feed. The lower protein level is to be compensated through the addition of alternative amino acids and enzymes (GAIN-CH18068, 2018[29]).

In June 2018, the NDRC and MOFCOM released the 2018 Foreign Investment Industrial Guidance Catalogue, which removes restrictions on foreign investment in the processing of maize, rice, flour, oilseeds, and sugar. This extends a pilot programme initiated in 2016 across several Free Trade Zones (FTZs) (GAIN-CH18060, 2018[27]).

In response to the African Swine Fever (ASF) outbreak, MARA suspended in October 2018 inter-province pig transportation across 28 provinces, covering about 98% of China’s live pig production. The disease has affected swine herd replenishment and expansion in 2018, as well as feed demand (GAIN-CH18048, 2018[25]).

Agri-environmental linkages

In April 2018, MARA reported that China achieved zero growth in chemical fertiliser and pesticide use in 2017, reaching its target three years in advance of the objective set in China’s NDC. The Ministry also noted that more than 60% of livestock excrement, straw and agricultural plastic film are currently utilised or recycled, while 800 000 hectares (i.e. 0.7% of total arable land) have been covered by pilot programmes to rotate crops or leave the land fallow for ecological conservation and sustainable production. The pilot area is to be expanded to 2 million hectares in 2018-19 (China Daily, 2018[30]).

Trade policy developments in 2018-19

Changes to import tariffs and other taxes on imports

On 31 May 2018, China’s State Council Tariff Committee (SCTC) issued a notice reducing by 56%, on average, most-favoured-nation (MFN) tariffs on 1 499 consumer goods, including 388 agricultural and seafood items (such as prepared cereals or cereal products, processed meat, processed vegetables, or sauces), effective 1 July (SCPC, 2018[31]; GAIN-CH18039, 2018[20]).

As of July 2018, China removed tariffs on soybeans (from 3%) and soybean cake (from 5%) imported from Bangladesh, India, Laos, South Korea and Sri Lanka (AMIS, 2018[32]). In October 2018, China also allowed imports of rapeseed meal from India, subject to certain inspection and quarantine requirements (AMIS, 2018[33]).

During 2018, China implemented four rounds of retaliatory tariffs on United States-origin products, which included agricultural and food products. First, on 2 April 2018, SCTC announced that additional tariffs (ranging 15-25%) on 128 United States-origin products would be implemented, effective immediately.4 The round of tariffs concerned primarily agricultural and food products (84 products), such as fruit (fresh and dried), tree nuts (shelled and in-shell), wine, ginseng, denatured ethanol, and pig meat and pig meat products (MOF, 2018[34]). Second, on 6 July, MOFCOM enacted additional tariffs on selected United States products, including soybeans (at 25%) (MOFCOM, 2018[35]). Third, on 23 August, MOFCOM implemented Schedule II of a round of tariffs on USD 16 billion of trade, first announced on 16 June, which covered only a few agricultural and agricultural-related products (MOFCOM, 2018[36]). Last, on 18 September, the SCTC enacted a supplemental set of tariffs – of 5% or 10% – first announced on 3 August on USD 60 billion of trade; these covered a number of agricultural, food and agricultural-related products across four schedules (MOF, 2018[37]).

On 23 June 2018, China’s Ministry of Finance (MOF) increased the out-of-quota tariff rates from 5% to 50% for glutinous rice imports from Association of South East Asian Nation (ASEAN) economies, effective 1 July 2018 (GAIN-CH18060, 2018[27]).

On 16 July 2018, China announced it would remove the exemptions to the sugar safeguard measure introduced in 2017, and that it would apply the increased out-of-quota tariff on all imports, effective 1 August 2018. The sugar safeguard measure introduced in May 2017 initially covered only major supplying countries, such as Brazil or Thailand, while most other countries were exempted from the safeguard measure as long as their respective market share was below 3%. As there was a sharp increase in the number of such smaller suppliers shipping sugar to China, an increased out-of-quota tariff of 90% was applied to all suppliers as of July 2018, effective until 21 May 2019. This will drop to 85%, effective from 22 May 2019 to 21 May 21 2020 (GAIN-CH186028, 2018[38]).

On 8 June 2018, MOFCOM announced its preliminary anti-dumping findings against imported Brazilian white meat broiler products and imposed an 18.8% to 38.4% anti-dumping tariff on almost all Brazil-origin poultry. The anti-dumping tariffs are to be applied until MOFCOM issues a final ruling on whether these will be removed or become permanent (MOFCOM, 2018[39]).

On 27 February 2018, MOFCOM withdrew anti-dumping and countervailing duties on United States-origin broiler chicken that had been in place since 2010 (GAIN-CH18011, 2018[40]). On 18 January 2018, a WTO panel had determined that the measures were not WTO-compliant5 (WTO, 2018[41]).

On 18 May 2018, MOFCOM published Notice No. 44, announcing that it will terminate its anti-dumping investigation into United States sorghum imports, which had been initiated on 4 February 2018. Previously, on 17 April, MOFCOM announced a preliminary finding that United States’ sorghum exports harmed domestic producers and imposed in response a temporary 178.6% anti-dumping duty beginning on 18 April, which required a cash deposit. MOFCOM’s announcement in May considered that the preliminary anti-dumping duties harmed livestock producers as well as the downstream industry, imposing additional costs on consumers. The Notice stated that cash deposits collected after the 17 April preliminary anti-dumping finding against United States’ sorghum would be refunded. It also terminated China’s countervailing duties investigation on United States sorghum imports (MOFCOM, 2018[42]; GAIN-CH18039, 2018[20]).

On 1 May 2018, China lowered the value-added tax (VAT) rate applied to sales of agricultural products (of both domestic and import origins; including grains) from 11% to 10%. In addition, the VAT rate for processed agricultural products (including food) was lowered from 17% to 16% (MOF, 2018[43]; AMIS, 2018[23]).

Import quotas

In June 2018, the NDRC published Notice No. 7 of 2018 on “Issues Related to Application for Cotton Import Quota Subject to Sliding Duty” to meet the demand of the textile industry. It provides for an additional cotton import quota of 800 000 tonnes subject to a sliding duty. The additional import quota was allocated to non-state owned enterprises (GAIN-CH18033, 2018[44]). China has not issued additional cotton import quotas outside of its WTO TRQ (of 894 000 tonnes) since 2015. In October 2018, China announced that the 2019 import quota for wheat and maize would be maintained at 9.6 million tonnes and 7.2 million tonnes, respectively (AMIS, 2018[33]).

Measures relating to sanitary and phytosanitary aspects

On 9 June 2018, China and India signed a new Memorandum of Understanding amending a 2006 Protocol on Phytosanitary Requirements by extending market access for non-basmati rice from India to China. India could already export basmati rice to China (AMIS, 2018[32]).

China restored market access for chilled and frozen beef for Ireland, the United Kingdom and France, after banning such products in the 1990s due to the BSE (Bovine spongiform encephalopathy) outbreaks (GAIN-CH18049, 2018[45]; IEG Policy, 2018[46]).

In September 2018, China’s General Administration of Customs (GACC) approved and published the “Plant Quarantine Requirements for Imported British Seed Potatoes”, granting market access to British seed potatoes. The United Kingdom joined the United States (Alaska only), Canada, and the Netherlands in having access to the China seed potato market (GAIN-CH18066, 2018[47]).

Following the modification of inspection and quarantine requirements, on 31 December 2018, China approved imports of milled rice from the United States, potentially for use in food processing, chemicals and alcohol (AMIS, 2019[48]).

On 26 February 2018, China’s General Administration for Quality Supervision and Inspection and Quarantine (GAQSIQ) lifted a ban that was imposed in 2016 on wheat imports from six regions of the Russia Federation (AMIS, 2018[16]).

Other trade-related developments

On 8 January 2019, MARA announced the approval of five genetically modified (GM) crop varieties for importation, including one maize and two soybean varieties. These represent the first new approvals of GM crop varieties in 18 months (AMIS, 2019[48]).

A WTO dispute panel circulated its report on 28 February 2019 in response to the request for consultations initiated by the United States on 13 September 2016 regarding certain measures of China’s support in favour of producers of wheat, indica rice, japonica rice and maize during 2012-15. The panel report did not make an assessment for maize, as the price support system for maize was eliminated in 2016. The panel determined that in each of the years 2012-15, China exceeded its 8.5% de minimis level of support for rice and wheat. On that basis, the panel recommended for China to bring such measures into conformity with its obligations under the Agreement on Agriculture (WTO, 2019[49]). A second WTO dispute panel circulated its report on 18 April 2019 in responses to the request for consultations initiated by the United States on 15 December 2016 concerning China's administration of its TRQs, including those for wheat, short- and medium- grain rice, long grain rice, and maize. The panel report concluded, “on the basis of individual findings”, that “China’s TRQ administration as a whole is inconsistent with the obligations to administer TRQs on a transparent, predictable, and fair basis, to administer TRQs using clearly specified requirements and administrative procedures, and to administer TRQs in a manner that would not inhibit the filling of each TRQ”. Among its other key findings, the panel rejected the claim concerning the potential inconsistency covering public notice obligation under the General Agreement on Tariffs and Trade (GATT) in respect to TRQs (WTO, 2019[50]).

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Notes

← 1.  The full title of the No. 1 Policy Document is “Several Opinions of the CPC Central Committee and the State Council on Prioritizing the Development of Agriculture and Rural Areas to Address the Issues Relating to Agriculture, Rural Areas and Rural People”.

← 2.  The quality grade standard is divided into five grades plus a sub-standard category.

← 3.  This includes: six wheat provinces, five early rice provinces, eight middle and late indica rice provinces, and four North-eastern japonica rice provinces.

← 4.  These tariffs had been initially proposed by MOFCOM on 23 March 2018 in response to the United States 232 Trade Action.

← 5.  On 20 September 2011, the United States requested consultations with China concerning China’s measures imposing anti-dumping and countervailing duties on broiler products from the United States.