Rabobank: New Chinese Agricultural Policy Driving Production Scale and Consumption

12 Feb 2014 --- Chinese agriculture has grown tremendously over the past thirty-five years and with the new leadership in 2012 and a flurry of new government policies, agriculture is expected to experience even faster growth in the coming decade.

According to a recent report from Rabobank – New Chinese Agricultural Policy – new policy adjustments will address balancing the pace of urban and rural development, usher the adoption of mechanisation and new technology in the agricultural system, and facilitate the timely transfer of land use rights in order to create economies of scale.

“Agriculture has been the backbone of the Chinese economy for thousands of years,” states Rabobank analyst, Chenjun Pan. “The pressures associated with feeding a population of 1.3 billion has meant that the domestic agricultural industry is strategically important to national food security. The decisive and supportive role of the Government in agricultural development in China has facilitated new growth in food demand, and farmers’ incomes are expected to grow faster than ever before.”

Agricultural development has always been impacted by policy. Policy-backed growth in the industrial sector from the late 1970’s diverted many resources away from agriculture, widening the economic gap between urban and rural areas. In order to address this, the 2014 No. 1 Central Document emphasises agricultural development as a key priority. The directive advocates cooperation between the industrial and the agricultural sector so that industry promotes agriculture, urban areas support rural development, industry and agriculture reinforce each other, and urban and rural development is integrated.

Personal incomes in urban China are three times as high as in rural areas and narrowing this gap has become top priority particularly as wealth disparities effect consumption patterns. In response the Government plans to increase agricultural subsidies thereby boosting farmers’ disposable incomes and subsequently demand for protein-based products in rural areas.

From a land perspective, China’s current agricultural system is based on small-scale production. This fragmented and uncoordinated supply chain cannot meet urban requirements for food safety and quality, yet small farmers are responsible for the majority of agri output. This has driven the establishment of large commercial farms where both standardised operation and government monitoring is easier. Rabobank expects these farms to continue growing rapidly. Increasing the average scale of household farms to a level at which modern agricultural practices can be adopted will be therefore be key.

Thanks to the Government’s framework for the regulation of land use rights transfer, large areas of land can now be planted collectively, greatly facilitating mechanisation and enhancing efficiency and productivity. New types of farming organisations, such as cooperatives, family farms and specialised large farms, have emerged since land use rights transfer has become possible. The coexistence of these new types of farms has quickly become a new, important source of agricultural production.

Source: Rabobank