Thematic papers

China’s agricultural research system and reforms: challenges and implications for developing countries

Jikun Huang, Ruifa Hu
Center for Chinese Agricultural Policy, Chinese Academy of Sciences, China

Scott Rozelle
University of California Davis, United States of America

The expansion of real output of China’s food and agriculture sector ranks as one of the nation’s great achievements. Publicly funded agricultural research has been key to the impressive performance (Huang et al. 2003). Expenditures grew rapidly from the early 1960s to the mid-1980s, and the number of agricultural researchers increased throughout (Fan and Pardey 1992). The rising research investment resulted in a steady stream of productivity-increasing technology.

China was the first nation to extend semi-dwarf rice varieties and drought- and pest-resistant wheat cultivars in the 1950s (Stone 1988). Its scientists also developed hybrid rice in the early 1970s and a number of successful varieties in the 1970s and 1980s. Several studies conducted by the Chinese Academy of Agricultural Sciences (CAAS) show that technology contributed more than 40 percent of agricultural growth (Zhu 1997). Recent studies on agricultural total factor productivity (TFP) further confirm that agricultural productivity growth has mainly come from technology changes, including the expansion of high-yielding varieties (HYVs), other embodied input technology and improvement in farming systems (Huang et al. 2000; Fan and Pardey 1997; Jin et al. 2002). The major output of agricultural research - improved varieties and farming system management - has come from national, provincial and prefectural institutes as well as from agricultural universities (Huang et al. 2003).

There is concern, however, that the research system might have weakened after the late 1980s. The overall funding for agriculture research stagnated between 1985 to 1995 (Huang and Hu 2000). The long lag time between agricultural research expenditure and benefits mean that the adverse effects of spending slowdowns only become evident five or ten years later. This may partially explain the lower crop growth rates, particularly of grain yields, in the late 1990s and over the last three years.

On the other hand, the future demands on agricultural research in China will be substantial. The country has less than 10 percent of the world’s arable land and one-fourth of world per capita water availability, but feeds more than 20 percent of the world’s population. To keep pace with increased demands from projected population increases, food production in China will have to increase continually (Huang et al. 1999; World Bank 1997). Given the limitations on arable land, productivity increases will have to be the primary source of increases in output (Nyberg and Rozelle 1999).

To maintain higher food self-sufficiency levels, policy-makers tried to raise funding for agricultural research by shifting financial support from institutional support to competitive grants, moving more funds from basic research to research aimed at solving the problems of economic development and encouraging research institutes to be self-sufficient by selling their technology (Rozelle et al. 1997). However, these policies have given rise to several questions. Can China’s public agricultural research financing maintain a strong agricultural research system? How can China manage the commercialization of agricultural research? What is the role of the private sector in generating and providing agricultural technologies for farmers? What kinds of reforms are necessary to improve the efficiency of agricultural research?

Answers to these questions are critical to policy-makers, producers and the agricultural industry in China. The lessons and experiences of China with its agricultural research policies are also expected to have significant implications for developing countries, many of which face similar financing and institutional problems. The study attempts to shed some light on the questions listed above.

The paper is organized as follows. In the next section, the paper reviews the existing structure of the agricultural research system. The trends and structure of agricultural research financing and revenues are then examined and current reforms and policies subsequently discussed. The final section provides the conclusions, the policy recommendations for China’s Government and the implications for other developing countries.

Agricultural research institutions: an overview

Public funding

Agricultural research in China is overwhelmingly financed and undertaken by the public sector; private sector-led agricultural research is minimal. In 1999, the public research system comprised over 1 600 research institutes and more than 130 000 staff employees (Table 1), plus about 55 000 retirees who are dependent on research institute budgets for their pensions. Public agricultural researches are conducted in agricultural research institutes (i.e. the mainstream agricultural research system or MARS), universities and non-agricultural research institutes. MARS personnel accounted for 83 percent of the total number in 1999; the rest was about equally distributed among the universities and research systems under other ministries. It is estimated that the number of research personnel from the private sector engaged in agricultural research is no more than 500 (Pray 1998). Research expenditure of the private sector is only about 1.7 percent of the nation’s total agricultural research budget.

Table 1. Number of institutes and staff size of the public agricultural research system in China in 1999

Source: Authors’ survey; database from the Ministry of Sciences and Technology.

a Under universities, agricultural research staff consists of professors or lecturers who have research projects in agriculture-related fields. The numbers in the other columns include all professional and support (and other) staff working in and/or supported by the institutes.

b Others include those not working under the mainstream agricultural research system (MARS) or universities (i.e. Chinese Academy of Sciences).

c The numbers in parentheses are the staff shares (in percent) within MARS.

Decentralization

Ninety-five percent of the research centres and more than 85 percent of research staff within MARS are found in subnational levels. Provincial and prefectural agricultural research institutes number 451 and 712, respectively (Table 1). National level research institutes accounted for only 10 percent of personnel in 1999 or about 8 percent of China’s total number. Each province has its own provincial academy of agricultural sciences, at least one agricultural university and several other agriculture-related colleges at the provincial and prefectural levels. Most prefectures have their own agricultural research institute.

All core budgets of research institutes at provincial and prefectural levels are funded by the corresponding local governments. Research projects conducted at the provincial and prefectural institutes are financed mainly by local governments. In terms of budget allocation, national level institutes within MARS account for only 12 percent of China’s agricultural research budget (Table 2). Provincial and prefectural institutes account for 51 percent and 34 percent, respectively. The budget per personnel at the national research institutes (77 000 yuan/personnel) is higher than those at the provincial (54 000 yuan/personnel) and prefectural levels (40 000 yuan/personnel).

Staffing

Agricultural research in China is primarily built around the research institutes of the CAAS, provincial and prefectural academies and, to a lesser extent, the agricultural university research system.^[3] Researchers in the universities account for only 8 percent of the total agricultural research staff while consuming 7 percent of the budget (Table 2). Overstaffing in agricultural research institutes and an underfunded agricultural research system may partially explain the underutilization of human resources in universities.

Table 2. Total revenue of the public agricultural research system in China in 1999

Source: Authors’ survey; database from the Ministry of Science and Technology.

a This category includes agricultural research institutes outside of the mainstream agricultural research system (MARS) and universities (i.e. Chinese Academy of Sciences).

b Numbers in parentheses are the revenue shares (%) within MARS.

Research orientation

Food security has been one of the central goals of China’s national policy since the 1950s. Basic staples, particularly grains, had been the priority of research programmes in the 1960s and 1970s. The country’s rising income has resulted in changes in diet, with demand for non-staple food increasing since the 1980s. Corresponding to these changes, the structure of agriculture has gradually moved towards non-staple crops, livestock and other agricultural products. Even with these changes in the agricultural production structure, however, about 68 percent of the research budget is still allocated to crops and only 18 percent to livestock (Huang et al. 2003).^[4] These rates have been nearly constant over the last two decades. Because a large part of income of the poor comes from crop production, the crop-oriented public research system (i.e. the "pro-poor" system) contributes to both food security and poverty alleviation objectives.

Challenges

Lack of institutional coordination

A decentralized research system has potential merits as it could easily prioritize research programmes to meet local farmers’ needs and develop appropriate technologies for specific environments. But there are also several disadvantages associated with this system. Low coordination among institutes can lead to duplication of research activities among regions, which may lower the overall efficiency of the country’s research investments. Also, given the financial constraints of many less developed areas in China, the decentralized system may have significant implications for agricultural technology and farmers’ incomes in poor areas. Inefficient resource allocation can easily result from management conflicts as well as from similarities of research priority settings between central and local governments, among various ministries (at the central government) or bureaus (at local government) within the same jurisdiction and among local research institutes in similar regions.

Overstaffing

The inordinately large number of unqualified researchers together with lack of research funding is the dilemma that China’s agricultural research system faces. Among the 130 000 personnel, about 70 000 are categorized as "active research" staff. In the absence of a national pension system, China’s agricultural research also supports more than 55 000 retirees through the institutes’ budgets. The number of active researchers is about three times that of the United States of America and the former Soviet Union (Table 3). This comparison does not intend to measure the research capacity but to highlight the fundamental problems in China’s research system - namely, overstaffing and the employment of a large number of unqualified researchers. Table 3 also shows that China’s number of agricultural researchers per million US dollar of agricultural GDP is higher than all the other countries except East Germany.

Such a resource distribution pattern is characteristic of the socialist economy regime. In the socialist economy, the strategy in resource allocation is to replace scarce capital with human resources paid depressed wages. With the transition from planned to a more market-oriented economy, the original wage level has lagged far behind the expectations of agricultural researchers. Consequently, agricultural researchers have shifted to other sectors as evidenced by the recent decline in their number.

Excess burdens

The research institutes in China support a large proportion of retired staff. It is estimated that the ratio of working staff to retired staff has increased from 4:1 in the early 1980s to about 2:1 in 1999.

Table 3. International comparisons of the number of agricultural scientists

Source: Pray and Umali (1998); Huang et al. (2003); authors’ survey.
* Refers to total staff instead of to active research staff.

For the 1 219 agricultural research institutes under MARS, retirees comprise 49 percent of the existing staff. Because core funding from the government has not been raised enough to cover the requirements of the wage and pension system, an increasing portion of a research institute’s budget is allocated to the payment of retired staff. For example, in the case of the CAAS, a fifth of the academy’s budget - or 32 percent of the academy’s core funding - is on average spent on about 4 600 retirees (58 percent of working staff). In other research institutes such as the Institute of Crop Breeding and Cultivation and the Institute of Vegetable Crops and Flowers, payments made to retirees account for almost the entire core funding allotted to these establishments.

Agricultural research financing

Agricultural research financing has been undergoing fundamental changes since the 1980s. Before the research reforms initiated in the mid-1980s, the government provided all of the funding for research. Planners allocated most of the funds through five-year plans with supplementary funding given for special issues arising during the planning period. The former State Science and Technology Commission (SSTC), which became the Ministry of Sciences and Technology (MOST) in 1998, together with the Ministry of Agriculture (MOA) and other ministries wrote the research component of these plans with assistance from special committees made up primarily of senior scientists from various disciplines. Most of the funds were then allocated on a formula basis to research institutes found mostly at the national levels. A similar funding mechanism was followed at the provincial and prefectural levels.

There has been a gradual shift from formula-based financing to competitive grants. Lack of funding to maintain operations has pushed agricultural research institutes to generate revenue from commercial activities, which now accounts for 41 percent of the total budget.^[5] The government fiscal budget accounted for only about 50 percent of the budget of institutes by the late 1990s (Table 4).

Table 4. China’s agricultural research investment in the public research system, 1985-1999

Source: Ministry of Sciences and Technology.

Trends in agricultural research investment

China’s agricultural research system has remarkably expanded in the past five decades. The rapid growth of the agricultural research system has benefited from unrelenting efforts of the government. Expenditure for agricultural research grew by 13.5 percent annually in real terms between 1976 and 1985 (Huang et al. 1999). From the mid-1980s to the mid-1990s, however, government investment in agricultural research did not increase and even declined in many years (Table 4). This raised concern over China’s ability to meet the growing demand for agricultural products resulting from rapid economic growth. To make up for the slow growth and even decline in agricultural research spending after the mid-1980s, China restarted its growth in public investment in agricultural research after the mid-1990s.

Following is a brief summary of the trends:

1. Slow growth of total agricultural research investment

Total investment (including government fiscal expenditure and research institutes’ commercial income) in agricultural research^[6] grew from 1 355 million yuan in 1985 to 6 368 million yuan (current prices) in 1999, representing an increase of about four times the original figure (Table 4). However, measured at the real value (i.e. deflated by the general price index), the annual growth rate was only 3.6 percent in 1985-1995 or about 4 percent in 1985-1999; these rates fell below the growth rate of agricultural GDP, which exceeded 4 percent in the corresponding periods.

2. Resumption of fiscal expenditure growth after the mid-1990s

Table 4 shows that fiscal spending on agricultural research declined in real terms in 1985-1995. Annual growth rate was -1.3 percent. Growth resumed at a rate of 7.4 percent annually in 1996-1999 (Table 4). Recent interviews with officials from the Ministry of Finance (MOF) revealed that the annual growth rate of agricultural research expenditure had exceeded 10 percent in 2000-2003.

3. Rising commercial income with declining growth rate

Non-government fiscal investment or income generated by research institutes from commercial activities - a major source of research institutes’ revenues from 1985 to 1993 - declined drastically after 1993 (Table 4). While annual growth rate reached 12.1 percent in 1985-1995, it fell to 3.9 percent in 1996-1999.

Intensity of agricultural research investment

Internationally, agricultural research investment intensity (i.e. agricultural research investment expressed as a percentage of agricultural GDP) is often used to gauge the level of investment in agricultural research. Table 5 shows that this indicator declined for China during the period of 1985- 1996 and resumed growth only recently.

Table 5. Intensity of investment in agricultural research and technical extension service in China, 1985-99 (%)

Source: Ministry of Finance; Agricultural Policy Research Centre, Chinese Academy of Agricultural Sciences.

Based on government budgetary allocations for agricultural research (excluding income generated by research institutes through commercial activities), the percentage dropped from 0.40 percent in 1985 to 0.20 to 0.23 percent in the late 1990s. If income generated by research institutes and investment in agricultural research by foreign companies and private enterprises are included the analysis, investment intensity in agricultural research still amounted to only 0.44 percent by 1999.

Table 6. Intensity of agricultural research investment in the mid-1990s

Source: Rozelle, Huang and Pray (forthcoming); Pray and Umali (1998).

^a The figures refer to private investment (0.01) and income generated from development activities by research institutes (0.21).

^b The figures for the 16 high-income countries are based on data from the late 1980s.

This remains as one of the lowest investment intensities in the world, particularly among developing countries (Table 6).

Investment in biotechnology research

China considers agricultural biotechnology as one of the primary measures by which the country can improve national food security, raise agricultural productivity and secure its competitive position in international agricultural markets. To achieve these goals, China has been immensely improving the innovation capacity of its national biotechnology programmes since the early 1980s. In contrast to the stagnation or even declining trends of public agricultural research staffing and expenditure in 1985-95, the number of plant biotechnology researchers more than tripled in the past two decades.^[7] It is estimated that there were already about 2 700 researchers (including support staff) working on plant biotechnology by 2003 (Table 7). If the animal sector is included, the number of agricultural biotechnology researchers may be more than 4 000, probably among the largest in the world.

Table 7. Estimated size of research staff and annual expenditure on plant biotechnology research in China, 1986-2003*

Source: Huang et al. (2004).
* Expenditures include both project grants and costs related to equipment and building.

The growth in agricultural biotechnology research investment in the public sector has been substantial. The estimated investment in plant biotechnology research was only US$4.2 million in 1986 when China formally started its "863 Plan" (Table 7). The investment grew to US$8.3 million in 1990, US$10.5 million in 1995 and US$38.9 million in 2000. The increase in 1995-2000 represents an annual growth rate of about 30 percent. Investment in plant biotechnology research continued to grow in the first few years of the 21st century. Spending on plant biotechnology reached US$55.9 million in 2003 or about 44 percent higher than that in 2000. Nearly all investment in biotechnology in China comes from government sources (Huang et al. 2002).

Bt cotton is one of the most often cited examples of progress in agricultural biotechnology in China. In addition, other transgenic plants with resistance to insects, disease or herbicides and plants of improved quality have been approved for field release. Some of them are nearly ready for commercialization. These include:

• transgenic cotton lines resistant to fungal disease;

• rice resistant to rice stem borer or bacteria blight, diseases and herbicides;

• wheat resistant to barley yellow dwarf virus;

• maize resistant to insects and with improved quality;

• poplar tree resistant to Gypsy moth;

• soybeans resistant to herbicides; and

• transgenic potato resistant to bacterial disease or Colorado beetle (Huang et al. 2004).

From 1997 to 2003, the National Agricultural Biosafety Committee received a total of 1 044 (821) cases of GMOs (GM plants) for field trials, environmental release, preproduction and commercialization, of which 777 (585) cases were approved. Eighteen transgenic cotton varieties generated by Chinese institutions and five varieties from Monsanto with resistance to bollworm were approved for commercialization in China in 1997-2002. While several GM varieties of tomato, sweet pepper, chili pepper and petunia have also been approved for commercialization since 1997, the areas under these four crops are very small.

Challenges ahead

While there has been increasing investment in agricultural research since the mid-1990s, China is still underinvested in this area. An insufficient research budget may severely affect the stability of the country’s research system as well as the enthusiasm of researchers. Based on interviews, the time spent on research activities by agricultural researchers has dropped from 74 percent in 1985 to about 50 percent in the late 1990s.

Improvement of agricultural research capacity is the other challenge that China has to hurdle. For the country as a whole, Ph.D. degree holders averaged only 0.57 for every 100 agricultural research personnel in 1999 (Table 8). The percentage of researchers with doctoral degrees differed largely among research institutes. It was 2.84 percent for national research institutes in 1999 and 0.58 percent for provincial research institutes. Although prefectural research institutes employed more than 46 000 people, only 12 researchers held Ph.D. degrees (or 0.03 percent of the total) in 1999. A similar pattern held for researchers with M.Sc. degrees (Table 8).

Table 8. Agricultural research staff by education and position in national and local research institutes under MARS in 1999

Source: Ministry of Science and Technology.

The need to beef up research capacity is as urgent for the less developed regions under China’s highly decentralized research system. While the decentralized system has its own merits, it may also present some constraints to agricultural productivity growth, food security and poverty alleviation in poor areas as local ability to invest in agricultural research depends on local income and financial capacity.

Table 9 presents agricultural research investment intensities by region, which shows negative correlation between investment intensity and economic development or income. Western China had the lowest investment intensity value (0.26 percent) followed by Central China (0.30 percent) and Eastern China (0.36 percent). The difference between Western and Eastern China is even larger if investment in national institutes located in the regions is included.

Western China is the least developed region with average per capita income of 1 502 yuan in 1999 (Table 10). Nearly half of China’s rural poor is located in the region. Western China’s poverty incidence (7.3 percent) was nearly 6 times as high as that in Eastern China (1.3 percent).

Table 9. Regional agricultural research investment intensity under MARS in 1999 (%)

Note: Eastern China includes Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, Guangxi and Hainan; Central China includes Shanxi, Inner Mongonia, Jilin, Heilongjiang, Anhui, Jiangxi, Hunan, Hubei and Henan; Western China includes Sichuan, Chongqing, Yunnan, Guizhou, Tibet, Shaanxi, Gansu, Ningxia, Qinghai and Xingjiang.

Table 10. Regional income and poverty in rural China, 1999

Sources: Ministry of Agriculture, 2000; National Statistical Bureau of China, 2000.

National strategy to reform the agricultural research system

The reforms in the agricultural research sector vividly illustrate the propensity of the leadership to implement deep reforms in even the most tradition-bound sectors (Maddox and Swinbanks 1995; Rozelle et al. 1997). As part of China’s general move to distance itself from the rigid, closed planning system, reformers have gradually implemented a series of science and technology policies designed to fundamentally alter the behaviour and output of research institutes. In addition to opening up to the outside world, agricultural research reforms of the 1980s and 1990s targeted two main areas. The first involved changing the basis for distribution of research funds into a more competitive system, focusing resources on the most productive scholars and institutes. The second area highlighted policies that encouraged research institutes to commercialize the products of their research, allowing them to retain profits and reinvest these as a major source of revenue for their research work. Since the late 1990s, a new reform aimed at modernizing the agricultural research system has been initiated.

Reforms prior to 1999

1. Competitive grants and focused research programmes

Beginning in the early 1980s, national research policy gradually increased the proportion of funding allocated competitively by encouraging funding agencies to award grants and fellowships to researchers who put forth the best proposals. Prior to this, directors of research institutes and their department heads allocated the funds provided by the SSTC to projects, laboratories and individual scientists. Currently, most research funds from national sources can only be accessed through competition. National leaders also competitively allocate funds to priority research areas such as biotechnology research through programmes such as the 863 programme and the Special Foundation for Transgenic Plants. Most of the national and provincial STCs (Science and Technology Committees) have expert committees made up primarily of scientists who rate proposals on the basis of defined criteria (e.g. the expected contribution to farmers, proposed methodology and research originality).

While the gradual trend towards competitive grants characterize the funding of agricultural research projects in the 1990s, institutes still get "administrative fees" (shiyefei or core funding) on a formula (or non-competitive) basis from the MOA or their local budgetary authorities. These cover base salaries, pensions and other operation costs. For the most part, administrative fees are used for the research staff’s basic salaries and benefits such as housing subsidies and medical assistance. One of the biggest uses of administrative fees has been to support retired personnel. Frequently, when administrative funding from a unit is insufficient to support welfare needs, an institute’s director will invariably divert research grants by raising overhead rates or allowing project members to have the right to withdraw a portion of the grants (normally ranging from 5 to 15 percent) as a "bonus" for their project staff in order to meet the fiscal need.

Shifting the criteria for dispensing research grants away from the old formula to a more competitive selection standard is expected to significantly impact on research productivity and the government’s priority areas for research. Research productivity may increase with this reform as larger funding can be allocated to more productive research institutes and individual scientists. Meeting the government’s targets in such areas as food security, poverty alleviation and environmental protection can also be easily incorporated into research programmes chosen competitively.

2. Commercialization reforms

Policy-makers began encouraging research institutes to earn their own income through commercial activities in the mid-1980s. In 1987, the SSTC chairman announced a plan to push scientists to think like entrepreneurs. MOA officials soon copied the SSTC moves and likewise encouraged agricultural research institutes to earn money (Liu 1991). Researchers interviewed recall that they initially gave little credence to the new directive since seed prices were heavily subsidized and there was little prospect of making a commercially viable product except for seed.

As budgets became increasingly tight and the need to reform grew, the nature of commercialization evolved. Reformers originally designed the policy changes as a way to encourage institutes to capitalize on breakthroughs in research. It soon became an accepted practice, however, to make money in any way possible. Income generated from commercial activities rose rapidly in the late 1980s and early 1990s (Table 4). In the early reform period, commercial activities ranged from institutes selling products they themselves produced (e.g. plant breeding institutes selling new plant varieties) to activities that were far from their traditional discipline such as running hotels and restaurants or selling industrial products. Recently, more income has been generated from the technologies closely associated with the area of expertise of the individual agencies.

Unfortunately, a weak intellectual property rights (IPR) system makes licensing of a technological breakthrough a non-viable option for manufacturing enterprises or technology development firms.

Licenses and technology contracts typically are not honored for very long. For an economy with hundreds of millions of small farmers, the cost of enforcement or strict implementation of a strong IPR system may be extremely high. More frequently, a research establishment can partially capitalize on a breakthrough by manufacturing and distributing the product itself.

3. Impact of reforms

Rozelle et al. (1997) found that China’s agriculture reforms were only partially successful. Although the real income from commercial enterprises increased rapidly from 1985 to 1994, only a small amount of that income was used to fund research. The funds generated from commercial activities were insufficient to offset the shortage of government support for research. Moreover, the growth of income generated from commercial activities slowed down after the early 1990s.

On the other hand, while competitive grant funds may have focused resources on the better scientists, funding for agricultural research projects did not increase in real terms for all types of research institutes. Since a number of staff members in commercial enterprises had not been removed from the rolls, funds per scientist did not go up as the officials had hoped.

While there has been an increase in technology transfer because of the commercialization process, the change has not been significant. In fact, much of the commercialization activities by public agricultural research institutes in the early reform period had little to do with the technology for which they were responsible. IPR and contractual laws in China are apparently too weak for technology to be profitably and successfully licensed.

Because of these reasons, the common perception by the late 1990s was that the reforms, though perhaps successful in the beginning in terms of changing the structure of China’s research institutes, had only partially reached the goals or targets that the reformers expected.

A new push for reform

1. Strategy and plan

The perceived failure of earlier reforms to provide new technologies to producers and cure the twin problems of duplication of research among institutes and overstaffing has created a new impetus to launch another round of research reforms. In addition, the needs arising from China’s move to a more market-oriented economy and the challenges of research in the new high technology fields occasioned further reforms in the agricultural research system. In this new round, the challenge that officials have set for themselves is a daunting task - namely, to create a modern, responsive, internationally competitive and fiscally sustainable agricultural research system (State Council 2000). The goals to better commercialize its products and raise funding per scientist are necessary to attract and retain the best people engaged in agricultural research.

To meet the above goals, the government laid down several measures to modernize the agricultural research system. The reforms have attempted to separate current research activities into those that can be commercialized (most are pure applied research) and those that should be maintained in the public "research innovation base" (applied-basic and basic researches and those with strong public goods nature). For those le. in the non-commercial sector, outstanding research staff and researchers with potential are separated from those without potential. Additionally, those identified as high quality scientists have received receive higher salaries and a large increase in per capita support.

Based on the above principles, officials from the MOST drew up a 1/3-1/3-1/3 plan for agricultural research reform in the late 1990s. Reformers believe that by fully commercializing some agricultural research institutes, specific research programmes or activities in each research institute, a third of those institutes’ staff can be separated from the research system. During the transition phase of reforms for the institutes or programmes/activities to be commercialized, the core funding can be gradually reduced until the revenues of the institute-cum-enterprises become fully dependent on outside sales. On the other hand, those institutes and programmes in the institutes that partly provide public goods (named as non-profit public institutes which are also believed to account for about one third of total staff) receive public funding to cover part their expenses. The rest of the agricultural research system is maintained and placed into an innovation base and given a raise in both core funding (particularly researchers’ salaries) and research budgets.

The ultimate objective of China’s research reform is to have a modern, state-of-the-art, internationally competitive agricultural research system. With such high competition, they hoped to be able to attract the better scientists. Higher levels of funding for the qualified researchers are expected to keep them from diverting their attention from research to other areas such as consulting or commercial activities. The MOST predicted that in such a system (which would also give the research institute’s director more discretion over salaries and hiring), more scholars from overseas would also be attracted to return.

2. Challenges of recent reforms

A recent study shows that institutes have faced several challenges during the reforms - even with considerable additional investment (Huang et al. 2003). Support for retired staff has been a serious problem. In the CAAS, for example, pension and medical payments to retirees in 1999 on average took up 32 percent of the core funding. The average ratio of retired staff to currently active staff was 0.6:1 in 1999, ranging from 0:1 in newer or growing research institutes (e.g. the biotechnology research institutes) to nearly 1:1 in older research institutes (cropping-oriented research institutes). In the traditional institutes that have been around for many years and which typically have an aging staff and many retirees, more than half of the core funding has been allocated to pensions and health care. Active scientists in these research institutes relied mostly on project funding or consulting for their salaries.

National research directors also pointed out that without a firm commitment to increase funding, the national research system might not follow the path directed by the MOST. Some institutes in the rich regions that initiated the commercialization reform in the late 1990s have gradually returned to the government for support. In the less developed provinces where local government financial revenue generation is weak and investment in agricultural research not viable, leaders have used research reform as a mechanism to cut the budget. Quickly, however, reformers in the less developed provinces and even in the more developed coastal provinces have discovered that a few agricultural research institutes can succeed commercially. Those that struggled included institutes originally thought to be engaged in "applied" research. The main question is whether or not newly commercialized institutes can survive in China’s current institutional and legal system.

Management problems were bound to arise as academics do not always make good businessmen and managers were seldom given real authority to restructure the firm. According to interviews, managers were almost always prohibited from laying off workers. In the minds of institute managers, commercialized enterprises must continue to take care of their retirees and other employees, otherwise they will become the burden of the institute.

Another problem that has hampered commercialization efforts has been the unfavourable business environment for many firms in the agriculture sector. A poor IPR system, fragmented technology markets (e.g. for seed) apart from other factors keep agricultural technologies from prospering. Low profit rates, high transaction costs for servicing small producers and other high costs of doing business limit the commercialization of many firms.

3. Lessons and new policies

In facing the problems confronting agricultural research, China’s leaders have realized that while reforms are needed, increasing financial support is a necessary condition for success. Even with successful commercialization, large increases in budgets are needed to fund the elite scientists at levels needed to modernize the research sector and attract the best minds in the country. Recently, commodities and technologies that have strong public goods features and positive social implications have been strengthened within the public research system. Meanwhile, other commodities and technologies that have high possibility of private sector entry have been gradually commercialized with support from the public sector.

Although commercialization of many of the institutes can succeed and contribute to budgetary savings, policy-makers recognize that the process may take time. A longer time period with more support is needed to allow for a redirection of efforts and a restructuring of firms. Recently, managers have been given authority in some institutes to lay off workers and provide a better incentive system for the enterprises to operate profitably.

Concluding remarks

China is highly acclaimed for its ability to feed its growing population despite its extremely limited natural resources. Over the last four decades, per capita availability of food, household food security and nutrition have all improved significantly. Increased domestic production is almost solely responsible for increased per capita food availability, significantly contributing to poverty alleviation and farmers’ incomes.

China’s experience shows that technological change in developing countries is the main engine for agricultural growth, increased farm incomes and poverty alleviation. Publicly funded agricultural research has played a critical role in generating the technologies to meet the needs of hundreds of millions of farmers. However, the success of research-led technology changes in the past does not imply that agricultural research will be necessary to effectively meet the farmers’ demand for agricultural technology in the future. Many things are undergoing changes.

This paper shows how China has been trying to reform its overburdened, public-dominated and decentralized research system in order to establish a modern, responsive, efficient and internationally competitive agricultural research system. The study shows that commercializing agricultural research does not imply a weakening of government’s role in financing agricultural research. Agricultural research driven by commercial interests will naturally be directed towards the most commercially viable products and technologies. A market-driven research system will lead research directed towards food security, poverty alleviation and environmental sustainability. The crucial role of agricultural research necessitates that government be a primary source of funding in the decade to come. The efforts and costs involved in enforcing a strong IPR system also imply the importance of a viable public financial support system for agricultural research.

There are a few other lessons from China’s experiences in agricultural research investment and sectoral reforms, which may also have implications for other developing countries under similar situations. Following are some of the more important lessons learned:

• The commercial component of research reforms may not be successful if other reforms (such as output, input and technology market reforms) have not taken place in the rest of the economy.

• Not all agricultural research institutes and technologies can be commercialized.

• The commercial businesses of research institutes require a market-oriented institutional and management system.

• Academics need to learn marketing and management skills to successfully operate commercial enterprises.

• The importance of public and local research on biotechnology is recognized.

The fact that Bt cotton was developed by government researchers in parallel with its development by international companies clearly made it more palatable to the government and ensured that there was a strong lobby in favour of the technology.

China’s leaders recently raised agricultural research investment substantially and took a decisive step to reform and strengthen its public agricultural research system. These have many implications for developing countries that are facing similar financial and efficiency problems in the public research system. Although funding through various possible sources from non-government financial channels is expected to increase in the future, a thorough reform of the existing public agricultural research system should be accompanied by the implementation of other policies and reforms, particularly those related to lifting the barriers to private participation in research and technology transfer. To increase the ability of commercialized research institutes to generate income and attract private investment in agricultural research, reforms should continue to focus on: i) liberalizing agricultural input and output markets; ii) implementing and enforcing the policies related to IPR and ownership; iii) reducing barriers to market access of private participants in the research and technology sector; and iv) providing greater government funding for research to assist local firms in the initial stages of private development.

The research capacity and technology gaps between rich and poor regions and their implications for income distribution have not been adequately addressed in the current research system in China. As the bulk of funding of local research institutes comes from the corresponding local government’s fiscal revenue, it is expected that the technology gap between the rich and poor regions will increase if the lack of coordination among national and inter-regional institutes continues to plague the current decentralized system and if policy-makers neglect regional research investment in the future.

References

Fan, S. & Pardey, P. 1992. Agricultural research in China: its institutional development and impact. The Hague, International Service for National Agricultural Research.

Goldman, M. 1989. Science and technology in post-Mao China. Massachusetts, United States of America, Harvard University Press.

Hu, R., Huang, J., Jin, S. & Rozelle, S. 2000. Assessing the contribution of research system and CG genetic materials to the total factor productivity of rice in China. Journal of Rural Development, 23: 33-70.

Huang, J., Rozelle, S., Pray, C. & Wang, Q. 2002. Plant biotechnology in China. Science, 295: 33-70.

Huang, J. & Hu, R. 2000. Agricultural R&D investment system and pattern: current situation and international comparison. Management World, 3: 170-179.

Huang, J. & Hu, R. & Rozelle, S. 2003. Agricultural research investment in China: challenges and prospects. Beijing, China Finance and Economy Press.

Huang, J. & Hu, R., Pray C., & Rozelle, S. 2004. Plant biotechnology in China: public investments and impacts on farmers. Paper to be presented in the 4th International Crop Science Congress. 26 September - 1 October. Brisbane, Queensland, Australia.

Huang, J. & Hu, R. Zhang, L. & Rozelle S. 2000. Economy of China’s Agricultural Research Investment. Beijing, China Agricultural Press.

Huang, J., Rozelle S. & Rosegrant, M. 1999. China’s food economy to the 21st century: supply, demand and trade. Economic Development and Cultural Change, 47: 737-766.

Jin, S., Huang J., Hu, R. & Rozelle S. 2002. The creation and spread of technology and total factor productivity in China. American Journal of Agricultural Economics, 84(4): 916-930.

Liu, J. 1991. Quanguo nongcun jingji fazhan: shinian guihua he dibage wunian jihua (The nation’s rural economic development: the 10-year plan and the eighth 5-year plan). Beijing, China Economic Press.

Maddox, J. & Swinbanks D. 1995. China still hopeful ten years on. Nature, 378(7): 537-552.

MOA. 1999. The 50 years of China’s agricultural science and technology. Ministry of Agriculture, Department of Science, Technology and Education. Beijing, China Agricultural Press.

MOA. 2000. China’s agricultural yearbook 1980-2000. Ministry of Agriculture, Department of Science, Technology and Education. Beijing, China Agricultural Press.

Nyberg, A. & Rozelle S. 1999. Accelerating china’s rural transformation. Washington, DC, World Bank.

Pardey, P.G., Roseboom J. & Craig. 1997. Agricultural R&D investments and impact. In J.M. Alston, P.G. Pardey & V.H. Smith, eds. Paying for agricultural productivity. Washington, DC, International Food Policy Research Institute.

Pray, C. 1998. Private investment in China. Working paper. Rutgers University, New Jersey, United States of America.

Pray, C. & Umali, D. 1998. Private agricultural research: will it fill the gap? World Development, 26: 1127-1148.

Rozelle, S., Huang, J. & Pray C. forthcoming. Re-engineering China’s green revolution. Centre for Chinese Agricultural Policy, Chinese Academy of Sciences. (draft)

Rozelle, S., Pray, C. & Huang J. 1997. Agricultural research policy in China: testing the limits of commercialization-led reform. Comparative Economic Studies, 39: 37-71.

NSBC. 2000. Statistical yearbook of China 1980-2000. National Statistical Bureau of China. Beijing, China Statistical Press.

Stone, B. 1988. Developments in agricultural technology. China Quarterly, 116 (December).

The State Council. 2000. The tenth five-year plan. (draft)

Tang, T. 1984. Science and Technology in China. London, Longman.

World Bank. 1997. At China’s table: food security options. Washington, DC, World Bank.

Zhu, X. 1997. The contribution of R&D to agricultural growth in China: methodologies and applications. Beijing, China Agricultural Press.