Chen Xiwen & Han Jun

Research Report No 072, 2003

I. Promote the Development of New Socialized Service Organizations in the Rural Areas and Provide Effective Support for Strategic Agricultural Restructuring

Our investigations in the three counties（Xiangyang county of Hubei province, Yanling county of Henan province, Taihe county of Jiangxi province） show that in the traditional agricultural regions, their advantage in grain and cotton production has been waning and their efficiency has been declining due to the changes in the supply and demand of agricultural products. As a result, the road to increasing the income of farmers by increasing grain and cotton production has become ever narrower. For this reason, a strategic agricultural restructuring is inevitable. In the course of restructuring agriculture, the lack of an unimpeded marketing system for agricultural products and the absence of a sound agricultural service system are the main problems now facing household-based operation. Therefore, it is a matter of urgency to develop new service organizations in the rural areas.

As far back as in the early 1980s, the central government explicitly advocated in its policies for returning the supply and marketing cooperatives to the farmers. However, despite many years of hard work, the goal of returning these cooperatives as a whole to the nature of farmer cooperative economic organizations is still beyond reach. The original functions of these cooperatives have been replaced by other forms of economic organizations (such as the private economy and the self-organized cooperative economic organizations). Therefore, it is wrong to merely emphasize that special treatment should be given to these cooperatives so that they can survive. Instead, it is preferable to proceed from the actual conditions of the rural areas and carry out necessary adjustment of the goals designed for the system reform of these cooperatives. At present, there is neither a property ownership relation between the supply and marketing cooperatives at various levels nor a control by the higher cooperatives over the stocks of the lower ones. The grassroots cooperatives are no longer the "legs" of the county-level cooperatives. Each cooperative is an independent legal entity and enjoys the independent right to operate. Throughout our investigation, not a single person raised the issue of restoring the cooperative economic nature of these cooperatives. Since the nature of these cooperatives as cooperative economic organizations is in fact degenerating, the goals set for the system reform of these cooperatives should be reexamined. From the perspective of development, the grassroots cooperatives where conditions permit may be transformed into cooperative economic organizations of the farmers. As to most cooperatives and their enterprises, their property right ownership relation should be redefined first. After that, it is perhaps preferable to define them as private enterprises that make their own management decisions and take full responsibility for their own profits and losses.

Our investigations in the three comities also show that the task to reform the state-owned grain-operating enterprises is still arduous. At present, most of these enterprises are noted for lacking a separation of government administration from corporate management, a separation of policy-oriented operations from commercial operations and a separation of reserves from operations. This is the key cause of heavy losses, overstaffing and inefficient operating mechanism for most state-owned grain-operating enterprises. It is also a fundamental reason why these enterprises have been fraudulently soliciting grain subsidies. A precondition for accelerating the reform of the state-owned grain-operating enterprises is to truly separate their policy-oriented operations from commercial operations and to improve their ownership structure and control structure. At present, these enterprises are operating on a simplistic ownership structure and are lacking vitality. Therefore, it is necessary to transform these enterprises into joint-stock companies as soon as possible so that a pluralistic ownership structure can ignite their inherent vitality. Different types of grain-operating enterprises should be encouraged to adopt different methods to restructure themselves and to pursue economy of scale. In the meantime, the state-owned grain-operating enterprises should encourage farmers to grow crops on a contract basis so as to integrate purchasing, processing and marketing. Various market subjects should be allowed to compete, and enterprises of different forms of ownership should be allowed to be involved in grain purchase and wholesale transactions. As overstaffing is a problem that inevitably confronts the reform of the state-owned grain-operating enterprises, it is necessary to change staff identities and redirect them to other occupations as soon as possible.

Our investigations also show that the extension of agro-technology is costly and that accepting a new technology takes time due to the low educational qualities of the farmers. This determines that the extension of agro-technology is mainly a public welfare endeavor, which should be assumed by the government. For this reason, it is necessary to maintain the stability of agro-technical extension institutions. For the agro-technical extension system, stability is essential. But innovation is more important. According to our investigations in the three counties, it is not a good idea to establish an agro-technical station in each and every township. Emphasizing the "three delimitations" (personnel, organizational structure and budget) alone for these stations cannot solve all problems. Agro-technical extension should be divided into two categories: the extension of a general nature and the extension of a public welfare nature. And the two categories of extension should be dealt with and reformed in different ways. For the extension of a general nature, the emphasis should be placed on the establishment of technical demonstration farms. The forecast and prevention of plant pests and animal diseases should be the government responsibility. The government should establish specialized institutions staffed with specialized personnel, and should bear the subsequent expenses. Poultry and livestock disease prevention should also be separated from veterinary service. For the agro-technical extension system, innovation should be made to enable the system to carry out technical contracting and other payable services by making best of its advantages and specialties. The precondition for the system to do so should be that the wages of the core personnel are guaranteed by government finance and that agro-technical extension of a public welfare nature is guaranteed.

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