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Unexpected Results from China'sAgricultural Subsidies PolicyHui Zhao a , Hong Zhang b & Shixiong Cao ca Monitoring Center of Soil and Water Conservation, Ministry ofWater Resources , Beijing , P. R. Chinab College of Resources and Environmental Sciences, ChinaAgricultural University , Beijing , P. R. Chinac College of Economics and Management, Beijing ForestryUniversity , Beijing , P. R. ChinaPublished online: 14 Feb 2014.

To cite this article: Hui Zhao , Hong Zhang & Shixiong Cao (2014) Unexpected Results from China'sAgricultural Subsidies Policy, Society & Natural Resources: An International Journal, 27:4, 451-457,DOI: 10.1080/08941920.2013.861563

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Policy Review

Unexpected Results from China’sAgricultural Subsidies Policy

HUI ZHAO

Monitoring Center of Soil and Water Conservation, Ministry of WaterResources, Beijing, P. R. China

HONG ZHANG

College of Resources and Environmental Sciences, China AgriculturalUniversity, Beijing, P. R. China

SHIXIONG CAO

College of Economics and Management, Beijing Forestry University,Beijing, P. R. China

Given the huge demand for food created by China’s large population and the highcost of transporting food across such a large nation, a food security strategy basedon local self-sufficiency seems vital. To encourage agricultural production, agricul-tural subsidies have therefore been implemented since 1997. Although subsidies tosupport food production in China arose from the desire to combat poverty and hun-ger, they may have instead led to adverse health impacts, food insecurity, andenvironmental degradation because the complexity of socioeconomic systems pre-vented governments from fully understanding the relationships among the many fac-tors in such systems. China therefore faces enormous challenges before it can attainsustainable food production at levels high enough to end hunger, without undesirableconsequences.

Keywords combating poverty, environmental degradation, food insecurity,human health, subsidies, sustainable development

China has just 7% of the globe’s agricultural land, but now feeds about 20% of theworld’s population from this land (Guo et al. 2010). Food security has been a keyconcern in China since early in the dynastic era (McBeath and McBeath 2009).Given the huge demand for food created by China’s large population and the highcost of transporting food across such a large nation, a food security strategy basedon local self-sufficiency seems vital. Agricultural subsidies have therefore been

Received 9 September 2012; accepted 20 January 2013.Address correspondence to Shixiong Cao, College of Economics and Management,

Beijing Forestry University, No. 35, Qinhuadong Road, Haidian District, Beijing, 100083,P. R. China. E-mail: shixiongcao@126.com

Society and Natural Resources, 27:451–457Copyright # 2014 Taylor & Francis Group, LLCISSN: 0894-1920 print=1521-0723 onlineDOI: 10.1080/08941920.2013.861563

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implemented since 1997, as they have been in many developed and some developingcountries (Popkin 2011). These subsidies reached RMB134.5 billion in 2010 (Wu 2010).Although this approach has encouraged agricultural production, the program’s goodintentions have been undermined by surprising consequences, as has occurred else-where in the world. For example, such approaches have been commonly criticizedfor distorting market incentives and making the food system overly dependent ona few grain crops, most of which are used to feed animals, leading to deleteriouseffects on the environment, on human health, on smallholder poverty, and on tradenegotiations.

Market distortions have been a particular problem. The low prices paid tofarmers and other policies that favor large agribusinesses have prevented millionsof households from engaging in meat production. Corporations and large commer-cial farmers have made fortunes, but rural communities in China have paid theprice (GRAIN 2012). The good intentions of policies designed to help poor peasantfarmers grow enough to eat and to feed others in their community have beensubverted by people and corporations motivated solely by the search for profits,and who grow crops for biofuel and as food for livestock.

Findings and Discussion

Food Security

Although the goal of agricultural subsidies is to strengthen the food supply, atoo-high proportion of the benefits goes to industries that consume food as a rawmaterial. The cheap crops permitted by subsidies therefore accelerate industrialdevelopment rather than increasing the food supply. For example, food and biofuelsdepend on the same resources for production: arable land, water, and energy. Theuse of food crops such as corn to produce ethanol and other biofuels creates seriousnutritional and ethical concerns. For example, the grain ethanol industry has createda new nonfood market for cereals that consumed nearly 2.1% of China’s corn pro-duction in 2010, and this percentage is growing rapidly (Yin 2010). The competitionfor grain has also increased prices, making it more difficult for the poor to obtainsufficient food (GRAIN 2012).

Both Chinese and multinational industries are using considerable amounts ofthis subsidized food supply to generate biofuels and to feed the growing marketfor meat, since both products have a higher profit margin and there are no restric-tions on who can buy crops from the peasants who receive government subsidies.The increasing livestock population is a related problem. The growing demand formeat in China can only be sustained by feeding crops to these animals. This bothwastes food and damages human health. Myers and Kent (2003) provide detailsof this waste. For example, 8 kg of grain is required to produce 1 kg of beef, 4 kgof pork, and 2 kg of poultry. In addition, from 1990 to 2000, the amount of grainfed to livestock increased by 31% in China. Animals already directly or indirectlyutilize up to 80% of the world’s agricultural land, but supply just 15% of all dietarycalories (Stokstad 2010). If everyone ate less meat, the grain formerly used to feedlivestock could feed billions of hungry people and reduce the area of farmlandrequired to feed the world’s population, thereby decreasing pressure on the environ-ment (Stokstad 2010). After decades of progress in the fight against hunger, the num-ber of undernourished people has begun growing again, and as many as 1 billionpeople are now undernourished (Sachs et al. 2010). The underlying causes—changes

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in food and energy prices—have been exacerbated by recent financial crises and theadoption of obsolete development policies by developing countries (Sanchez 2009).

Chinese statistics show that grain production has recently increased by 240%,from 17.8 Mt in 2004 to 60.0 Mt in 2011 (China Statistics Bureau 2012). Thesestatistics conceal a potentially serious problem: Most of this increased productionhas been used to feed livestock rather than people. In addition, the lower prices paidfor the cultivation of staple grains discourages farmers from planting these crops,thereby jeopardizing food security. For example, the area of farmland in Chinadecreased by 6.2% during the last 20 years, from 130 million ha in 1990 to 122million ha in 2011 (China Statistics Bureau 2012). However, the situation is muchworse in some areas. A recent news report stated that one-third of the farmland inYi County of Hubei Province had been abandoned because of a lack of profits forfarmers (Daily Economic News 2012).

Human Health and Poverty

Because grain accounts for the primary cost of raising livestock, the cheap meat per-mitted by grain subsidies has increased the consumption of animal protein. The highcalorie density of meat has led to an epidemic of obesity, with increased incidence ofdiseases such as diabetes, coronary heart disease, and some cancers (Popkin 2011).Since 1990, China’s meat production has increased by 100%, while the number ofoverweight and obese citizens increased by 80% and 160%, respectively (ChinaStatistics Bureau 2012). The public generally does not recognize that their inexpen-sive food entails hidden costs, including higher taxes to pay for agriculturalprograms. As medical costs increase as a result of widespread obesity—supportedlargely by the taxes that fund the subsidies—the hidden costs of the inexpensive foodwill continue to increase (Tillotson 2004). It is increasingly understood that a healthydiet requires fewer animal products and refined carbohydrates and more vegetables,fruits, beans, and whole grains, but a combination of subsidies and market distor-tions discourages the production of these crops for humans.

The main form of malnutrition among adults in both developed and developingcountries is excessive consumption of refined grains, high-fat processed foods, andmeat. This diet has increased the incidence of diseases such as diabetes, coronaryheart disease, and some cancers, particularly when animal-source foods are lessexpensive than healthier alternatives (Popkin 2011). The change in diet has beenaccompanied by a decrease in physical activity, thereby exacerbating the problem.However, there has been relatively little examination of the contribution of agricul-tural and economic policies, or of the agricultural and food environment that resultsfrom these policies, to these problems (Tillotson 2004). The objectives of agriculturalpolicy supported by government subsidies are increasingly being questioned asrecognition of these unexpected side effects grows (Stokstad 2010).

In addition, agricultural subsidies may have impacts far from the countrieswhere they are used to support agricultural policy. For example, soybean and otheroilseed crops from South America have become important as cheap and efficientsources of edible vegetable oils and animal feed (Popkin 2011). This has drivenChina’s large imports of soybeans from South America, and competition from cheapimports has greatly lowered the price paid to poor Chinese farmers. GRAIN (2012)reported that China’s soybean consumption increased by more than 160% between2000 and 2011 when import barriers were removed, but the area planted with

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soybeans decreased by 20%. Chinese farmers could not compete with importedsoybeans that were RMB300 to RMB600 (US $45 to US $90) cheaper per tonne thandomestic soybeans. Similarly, China imported a record maize harvest of 5 Mt in2012, which is more than China imported during the previous 25 years combined.The increased demand is also increasing global prices. The more maize Chinaimports, the more it will undercut its own farmers and the more imports it willrequire from overseas.

The historical experience of developed countries shows that agricultural subsi-dies may not increase farmer income, especially for smallholders, but may insteadbenefit the meat industry and other large agribusinesses (Popkin 2011). This is parti-cularly true when transnational companies enter a market, ruining small farmers inrural communities, who cannot compete with the economies of scale of these busi-nesses (GRAIN 2012). These changes have been supported by enormous directand indirect subsidies (Debate Club 2012). After accounting for inflation, the globalprices of corn and soybeans have declined during the past 30 to 40 years, whereas theprices of fruits and vegetables—which are generally not subsidized—have increased(Popkin 2011). One consequence is that the income gap between China’s urban andrural residents has increased steadily since the 1990s, during a period when China’sagricultural subsidies steadily increased. This income gap increased from RMB3070in 1997 to RMB13190 in 2010, while the ratio of urban to rural income increasedfrom 2.5:1 to 3.3:1 (China Statistics Bureau 2012). It is clear that this situationcannot be easily remedied, but a good start would be to slow or reverse the growthof industrial meat production, discourage excess meat consumption by significantlyincreasing its price, and severely restrict the use of grain to produce biofuel.

Environmental Conservation

The need to produce more grain often leads to excessive pressure on farmland, lead-ing to increased soil erosion and other forms of land degradation. For instance,farming has destroyed huge regions of natural vegetation, accompanied by unknownbut high losses of ecosystem services, and agriculture is responsible for about 30% ofglobal greenhouse-gas emissions (Kiers et al. 2008; Sachs et al. 2010). Chinese agri-culture has intensified greatly since the early 1980s, with large inputs of inorganicfertilizers, pesticides, herbicides, and other resources. China is now the world’slargest user of synthetic fertilizers, consuming 36% of the global total (Guo et al.2010). From 1996 to 2005, Chinese cereal grain yields increased by 10%, but theuse of inorganic fertilizers increased by 51% (Chen et al. 2011). This change hasgreatly increased China’s energy consumption and greenhouse-gas emissions.Searchinger et al. (2008) used a global agricultural model to estimate the impactof land-use change on these emissions, and found that corn-based ethanol, originallypredicted to reduce emissions by 20%, nearly doubled emissions over a 30-yearperiod.

The imbalance between the grain yield and fertilizer increases reported by Chenet al. (2011) reveals another problem: inefficient fertilizer use, unnecessarily increas-ing costs to farmers and causing severe nutrient leaching from fields into bodies ofwater. More than 80% of China’s rivers are now contaminated by agricultural wastessuch as nitrogen, insecticides, and phosphorus. The health impacts of waterpollution are costing China an estimated US $3.9 billion annually (Ministry ofEnvironmental Protection 2009). Long-term fertilization also has severe negative

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impacts on the activity of the soil microbial community in paddy soils, especiallywhen straw is used as compost (Yuan et al. 2012). Growing competition for land,water, and energy, in addition to overexploitation of fisheries, will damage ourability to produce food, as will the urgent requirement to reduce the impact ofagriculture on the environment. The effects of climate change are a further threat(Godfray et al. 2010).

China’s large area of intensive agriculture, often in environmentally inappro-priate areas, also aggravates water shortages. It takes 2,400 to 12,600L of waterto produce 1 kg of meat in China, versus 800 to 1300L per 1 kg of cereal crops(Liu and Yang 2008). The projected rapid growth in livestock production will there-fore significantly increase water demand, particularly after accounting for the cropsthat are used as livestock feed, such as maize, other coarse grains, and soybeans(Rosegrant et al. 2009). Thus, it will become necessary to move away from con-suming large quantities of animal products if we want to reduce carbon emissions,conserve water supplies, and improve health (Popkin 2011). Biofuel production isparticularly problematic, since it requires intensive agriculture that overexploitsnatural resources, increases greenhouse-gas emissions, and consumes more energythan it generates (Martindale and Trewavas 2008).

In the North China Plain, where 50% of China’s wheat is grown, water tablesare falling at rates of more than 1m=year due to excessive withdrawals to provideirrigation (Myers and Patz 2009). The recent rise in China’s meat consumptionhas increased the per-capita water requirement for food production by a factor of3.4, from 255m3 in 1961 to 860m3 in 2003 (Liu and Yang 2008). Thus, reducingconsumption of animal products will reduce the pressure on water resources (Popkin2011). To support irrigated agriculture, more than 45,000 large dams and 800,000smaller dams have been built around the world, changing the flows of some 60%of the world’s rivers (Myers and Patz 2009). China has the most dams of anycountry, with almost 88,000 dams in 2010, most of them implemented for floodcontrol and irrigation (China Statistics Bureau 2012). The result has been habitatloss, an explosion of invasive species, pollution, and changes of local climates.

Perspective

Although China’s food security strategy is essential, the use of subsidies to achievethis security requires a closer look. The results of any policy may differ from expecta-tions because the complexity of socioeconomic systems prevents governments fromfully understanding the relationships among the many factors in such systems.One example is that the subsidies provide farmers with no economic incentive toreduce their depletion of natural resources and no reason to make these resourcesavailable primarily to meet human needs. On the contrary, depletion and diversionof food to industrial uses is likely to increase as a result of subsidies. For example,agricultural subsidies cannot solve structural inequities in an economy and mayworsen them by reinforcing existing advantages. An overreliance on market forceshas also led to suboptimal investment patterns (Kiers et al. 2008). For instance,meat is a more profitable agricultural product than grain, so livestock producerscan outbid impoverished citizens, leaving little grain to meet the dietary needs ofthe poorest citizens.

Although there is room for optimism concerning China’s food security, thismust be tempered by concerns over the problems discussed in this article. China’s

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agricultural subsidies have led to health problems (e.g., increased obesity), environ-mental problems (e.g., increased water pollution), and socioeconomic problems (e.g.,increased rural poverty). China therefore faces enormous challenges before it canattain sustainable food production at levels high enough to end hunger.

Acknowledgments

We thank Geoffrey Hart in Montreal, Canada, for his help in writing this article. Wealso thank our colleagues for their comments on this article before submission.

Funding

This work was supported by the Scientific Survey on Soil Loss and Ecological Safetyin China (2005SBKK).

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