For as long as we can remember, farmers have been concerned about a level playing field when it comes to international trade. This became especially true, once agriculture was brought under the purview of the Agreement on Agriculture and the formation of the World Trade Organization (WTO) at the first of the year in 1995.
Undoubtedly concerned that the playing field with US cotton producers was not level, Brazilian cotton farmers filed a WTO dispute settlement case against US cotton policies in 2002 and won. Recently, US farmers have become increasingly concerned about the agricultural support policies of Brazil and China.
In August 2013, the United States Department of Agriculture Economic Research Service issued a report written by Fred Gale titled “Growth and Evolution in China’s Agricultural Support Policies” (www.tinyurl.com/myes6fz). As Gale notes, “US agricultural producers and industry representatives have raised concerns about China’s increase in domestic farm support.” In 2012, the report said, “budgeted Chinese Government spending on agricultural programs rose to $73 billion.” This expenditure is in sharp contrast to the near zero or even negative net spending on agriculture in years of a decade earlier.
Beginning at very low levels when it joined the WTO in 2001, China has used a mix of policies that Gale sees as driven by three major factors: 1) the desire to modernize its agriculture, 2) “concerns about rural-urban income equality and the potential for rural unrest,” and 3) the goal of “maintaining ‘food security’ and self-reliance.”
Just as US policy makers have sought to identify policies that will support US farmers without exceeding WTO limits, so have Chinese leaders. In the beginning, it is relatively easy to identify policies that both support farmers and don’t raise WTO concerns.
“In 2004, the [Chinese] government announced a national program to phase out the agricultural tax. The tax was eliminated nationwide in 2006,” saving farmers $21 billion a year. They also took a page out of the US playbook instituting direct payments to grain producers, first in limited areas and finally “nationwide in 2007.” The distribution of these payments varied from one area to another.
Like their US counterparts, Chinese farmers have been hit with increasing input costs over the last decade. To help them cover these costs, the Chinese government instituted a general-input subsidy that is increased yearly as costs for petroleum and fertilizes have increased. If these costs decline, the payment remains constant. These policies have helped provide income support for farmers.