China's impending accession to the World Trade Organization (WTO) will bring benefits to Chinese farmers by forcing the reform of the agricultural sector, according to industry experts.

WTO membership will expand Chinese agricultural exports, and more importantly cause a reform of the State's inefficient agricultural circulation system.

This system has produced depressed grain prices since 1999, which has caused a slump in farmers' agricultural income.

Between 1996 and 2000, farmers' average family income only rose by 2.3 per cent, but their family income from agriculture - including planting and animal husbandry - fell by 7.6 per cent.

In 1996, one year after China suffered a fall in grain production and an accompanying price hike, the government ordered State-owned grain enterprises to purchase all available grain from farmers at a set price. Private dealers were forbidden from buying grain directly from farmers. Therefore State-owned grain enterprises became the only market sellers of grain.

Many farmers increased their production because they believed that the set-price policy would result in fair prices.

However, after incurring losses, some State-owned grain enterprises refused to buy grain at the set price due to a grain oversupply.

As a result, the actual grain price has declined, while the State's losses in grain circulation totalled 200 billion yuan (US$24.1 billion) between 1996 and 1999.

Another failure of the policy is that State-owned grain enterprises have to store large amounts of grain at a high cost.

WTO entry is expected to help facilitate the reform of the inefficient agricultural system and lead to sustainable grain prices.

The reform in the circulation system will also help Chinese farmers compete against foreign grain imports.

"International grain prices are cheaper than domestic prices, but the latter's higher prices are a result of high circulation costs rather than actual production costs," said Chen Xiwen, an agricultural economist and deputy director of the Development Research Centre, a think-tank of the State Council, in an interview with the Guangzhou-based newspaper 21cn Business Herald.

With WTO entry, the whole agricultural circulation system in China will have to be adjusted and become much more market-oriented.

Under a market-driven system, farmers could adjust their planting in accordance with market demand to avoid price risks.

The State should also be supporting farmers by alleviating their tax burden, rather than providing subsidies to inefficient State-owned grain enterprises.

Chinese farmers are at a disadvantage compared to their foreign counterparts as they have to pay village levies, rural education fees and infrastructure fees.

WTO entry will allow farmers to escape these burdens as the trade mechanism encourages the State to invest more in rural education, agricultural technology and infrastructure.

Because of these benefits, scholars say China will not be adversely affected by its recent agreement to lower the maximum agricultural subsidy it would provide as a WTO member. It is believed the compromise was a drop of the 10 per cent subsidy- commonly enjoyed by developing countries - to 8.5 per cent.

"China's economic strength means it cannot afford to provide high subsidies to farmers," said Lu Feng, an agricultural economist with Peking University.

Under WTO agricultural rules, government support for farmers is categorized as "green box" policies or "amber" policies.

Green box policies include support and investment in rural education, technology and water conservation projects. These costs should be funded by the State and therefore not be allowed to distort agricultural prices. Amber policies may influence the price of farming products by providing price subsidies and subsidies on the purchase of seeds and fertilizers.

The WTO requires member economies to reduce their use of amber policies and instead encourage more green box policies.

As a result, the Chinese Government has promised to increase its investment in rural education and technology.

Compared to the United States, Canada and Brazil, China's agricultural sector is disadvantaged by having a high level of rural unemployment.

However, the WTO will create a larger market for China to export labour-intensive products, such as fruit, aquatic products and flowers.

The WTO will also fuel China's urbanization by creating more manufacturing jobs.

"The basic disadvantage of the Chinese agricultural sector is its excessive labour and limited land, and in the long term, this can be solved by creating more urban employment," said Chen. "In this aspect, the WTO can play an important role."