Growth and Evolution in China’s Agricultural Support Policies

China is perhaps the most prominent example of a developing country that has transitioned from taxing to supporting agriculture. In recent years, Chinese price supports and
subsidies have risen at an accelerating pace after they were linked to rising production
costs. Per-acre subsidy payments to grain producers now equal 7 to 15 percent of those
producers’ gross income, but grain payments appear to have little influence on production
decisions. Chinese authorities began raising price supports annually to bolster incentives,
and Chinese prices for major farm commodities are rising above world prices, helping to
attract a surge of agricultural imports. U.S. agricultural exports to China tripled in value
during the period when China’s agricultural support was accelerating. Overall, China’s
expansion of support is loosely constrained by World Trade Organization (WTO) commitments, but the country’s price-support programs could exceed WTO limits in coming
years. Chinese officials promise to continue increasing domestic policy support for agriculture, but the mix of policies may evolve as the Chinese agricultural sector becomes
more commercialized and faces competitive pressures.