China's agricultural industry must adopt essential countermeasures to reduce the negative impact of its accession to the World Trade Organization (WTO) and to seize opportunities, said an article in the weekly Beijing Review.
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The 900 million rural people are feeling the pinch of the WTO. It is predicted, during the first five years after WTO entry - which occurred in December - the country's farming sector will be hit the hardest.

In line with the WTO agreement on farming, the Chinese Government has pledged to reduce the average import duty to 17.5 per cent by 2004 and to 15.6 per cent by 2005 from the current average of 21.3 per cent.

It has also pledged to use a tariff-rate quota (TRQ) system, instead of the original quota administration system, for certain sensitive products such as wheat, corn, rice, edible oil and sugar, as well as to cancel export subsidies, keep its subsidy rate for farming at 8.5 per cent and abide by the terms of the WTO Agreement on Sanitary and Phytosanitary Measures (SPS).

While integrating into the liberalization process of the global farm produce trade, Chinese agriculture is being exposed to immense risks and challenges by removing trade barriers and opening up the domestic market.

Currently, administration of the production, distribution and trading of farm products are divided among agricultural, domestic trade and foreign trade departments. Such an administrative system, obviously, cannot adapt to the new situation following WTO entry.

The domestic prices of wheat, soybean, corn, cotton, edible oil and oil crops and sugar and sugar crops are 10 to 70 per cent higher than in the international market. Once foreign farm products flood into China, the country's farming sector will be hit hard. This will result in an even slower growth of income and rising unemployment rate for farmers, whose income heavily relies on primary farm products such as grain, cotton, oil and sugar crops.

Although the prices of meat, vegetables, fruit and seafood products are 40 to 80 per cent lower than those in the international market, they have difficulties meeting the requirements for variety, appearance, taste, freshness and processing for such products in the international market.

In the short term, WTO entry will trigger the following three problems: First, adding to the difficulties of selling domestic farm products and pressures for distribution; second, causing a price drop for some farm products in the domestic market; and finally, preventing income growth of farmers in some areas and undermining their enthusiasm for farming.

Nevertheless, the agriculture sector has already done much preparation for WTO entry, including four voluntary tariff cuts that have lowered import duty from 46 per cent to 21 per cent.

In fact, farm product imports have already increased, with soybean imports reaching an annual 3 million kilograms. Although more import quotas will be given to US-produced wheat, corn, rice and cotton, the TRQ system, in place until 2005, will remain a barrier since low duties are only applied to imports under the quota level.

Some experts believe the expanded import quota is within the country's capacities and massive dumping of foreign farm products is unlikely in the first few years after WTO entry.

The country's WTO entry will also play a positive role in accelerating the modernization of domestic farming, the article noted.

First, it is conducive to the opening-up of domestic agriculture. Following its WTO entry, China, in accordance with international rules, will further improve domestic agricultural policies and regulations, optimize the investment environment, open up the domestic market and absorb more foreign capital, technology and managerial know-how.

Second, it will accelerate the readjustment of the farming structure, as well as the structure of farm imports and exports. China has rich labour resources and inadequate arable land. Given this, China will expand imports of corn, wheat, oil crops, sugar crops, soybean, cotton and other resource-intensive farm products, and increase exports of vegetables, fruit, flowers and other labour-intensive horticultural products. Animal husbandry, excluding dairy and wool products, will benefit most from the WTO entry.

Third, it will help improve the export environment of Chinese farm products. WTO membership enables China to enjoy non-discriminatory trade status as do other members, thus reducing the costs of trade negotiations and trade, and opening formal channels for Chinese farm products to enter the international market.

Many experts stress domestic farming needs to adjust its production structure, establish management and product distribution systems suitable for international market rules and reduce market-opening risks.

China's WTO accession will promote the reform of agricultural management and product distribution systems. This is more important than product competition.

This last year China has conducted the reformation of the cotton distribution system by liberalizing eight grain sales regions, marking the full opening of cotton purchase markets. The government is phasing out mandatory grain purchase.

Following China's WTO accession, the State's monopolized grain distribution system will be ended. Nurturing a new distribution system is a countermeasure China must adopt. The State should formulate a series of policies and rules to protect agriculture, striving to raise the agricultural protection rate to 15 to 20 per cent in 2010.

The State should support capital and technology-intensive industries through industrial policies, to offset the negative impact on agriculture brought about by trade liberalization, and to upgrade domestic farming.

And the domestic taxation policy will play an important role in income redistribution, thus curbing the expansion of income differences following WTO accession, enabling all groups to equally enjoy the benefits of trade liberalization and preventing social disorder.

Necessary conditions should be created for the transfer of agricultural labourers. It is a basic trend that agricultural labourers move toward industry and the service sector and from rural to urban areas. This is also essential for China to realize its industrial modernization.

Finally, a relatively high deposit rate should be maintained and foreign capital be absorbed. The transfer of agricultural labourers needs a forceful back-up of capital supply. Due to the great number of labourers and low capital-labour ratio, the increase in capital will still be a key factor in the future.

Agriculture in China will pay a price for the WTO accession. However, from a long-term point of view, there are more pros than cons. If proper measures are taken, Chinese agriculture will make substantial progress in the near future.