Policy and integrated management Environment

Updated July 1997

Sustainable Agriculture and Rural Development in China, Part 2:
China's Transition to SARD

prepared by
Li Xiaoyun, Centre for Integrated Agricultural Development
Zuo Changsheng, Ministry of Agriculture
Jeffrey B. Tschirley, FAO
Shwu Eng Webb & Ashley Morton, FAO consultants
From "Promotion of sustainable agriculture and rural development in China: elements for a policy framework and a National Agenda 21 Action Programme" (FAO/UNDP/Ministry of Agriculture, China, 1997)

See also: Environment Specials
  • Global climate maps
  • Organic agriculture
  • Integrated coastal area management
  • Biodiversity in agriculture
  • Earth Summit+5
  • Agroclimatic concepts
  • Remote sensing
  • Maps of the World Food Summit
  • Sea-level rise and agriculture
  • THIS SECTION OF THE REPORT outlines opportunities, actions and a few examples of how China can start its transition to SARD. Among the steps needed are:

    Actions required for sustainable agriculture in China

    China made great progress in recent years to open, market-oriented mechanisms that are favourable to agricultural food production. So far, they have been much less successful in applying effective policies aimed at reducing environmental impacts in the agriculture sector. The challenge is to design policies that maintain food security goals but enhance the productivity of both human and natural resources.

    Starting the transition to sustainable agriculture and rural development in China will require coordinated actions at national, provincial and local levels that address policy adjustment, strengthening of human and institutional capacity, management of natural resources, and the sound use of external inputs. To achieve these objectives, China's government will have to initiate actions in 4 key areas:

    Taken together, these areas form a framework for initiating sustainable agriculture and rural development programme in China. Success in one area will depend on effective implementation of measures in the other 3 areas. The four sections which follow elaborate specific actions which China should take to achieve SARD. The prescribed actions are not exhaustive as there is a wide range of options available.

    Agricultural policy adjustment

    More than four decades of government control of agriculture has distorted agricultural resource and product markets to the point that unnecessary and costly environmental degradation is undermining future food production. Sustainable agriculture systems must meet three goals, they must:
    1. increase net production and productivity;

    2. avoid or control the negative impacts from pollution and resource degradation; and,

    3. provide social equity in the form of access to food and other factors required for a productive life.

    4. Nearly all technical options to increase food production have environmental, social or economic trade-offs. But important benefits in all these categories can be realized by concentrating on practices that promote economic diversification, ecological resilience and efficient energy use.

    Eliminate subsidies on urban food consumption

    The target of 50 mt of grain procurement was set in the mid-50's for urban residents' direct food consumption when China's per capita income was very low and grain accounted for more than 90 per cent of protein and energy source. With the rapid increase in per capita income, per capita meat consumption has increased by more than three times in the past 15 years. Per capita grain consumption - in particular low quality rice consumption in urban areas - has declined sharply with residents purchasing only about one quarter of the grain authorized in coupon distributions.

    For urban residents, government should provide subsidized grain only to low income households (about one-quarter of the urban population). This could save the government more than 100,000 m. yuan in subsidy costs (procurement, processing, and distribution) and will free the government to re-direct these funds toward developing infrastructure in rural areas, agricultural research and development, conservation incentives to producers, and adopting additional market reforms that favour natural resource conservation.

    Phase out delivery quotas of grain, allow markets to determine output

    The elimination of price subsidies on urban grain consumption would raise the costs of backyard livestock production and facilitate the development of a feed industry and livestock specialization.

    This has three implications. First, the development of larger scale feeding operations could facilitate the development of renewable energy sources (biogas) for rural development. The processing of livestock waste could create a secondary market for low-cost organic nutrients to replace chemical fertilizer. Second, at the higher levels of manufactured feed use, the demand for corn, wheat, and soybeans will increase and rice will decrease, creating a need to shift crop areas or depend more heavily on trade and transport of grains. Third, grasslands that were brought into cultivation to fulfil grain production targets can return to grazing. For example, in 1960s and 1970s more than 2.7 million ha. in Inner Mongolia was converted into grain crop farming. Grassland in the Northeast such as Lilin was also converted to grow grain.

    National grain production and distribution policies have a major effect on agriculture/ environment interactions. Given its low levels of investment in research, technology and information systems, the government's target of producing 500 m.t. of grain by the year 2000 will almost certainly require the continued conversion of marginal land to cropland and intensification of production on existing cultivated land.

    The financial and environmental costs will be high. Yet if market forces were allowed to operate, the population would likely demand only about 470 - 475 m.t. of grain by the year 2000, of which about 10 mt could be supplied as imports. This would reduce pressure to convert land and to intensify cultivation, and would permit production of a wider variety of products based on the comparative advantage of agroecological zones and prevailing market conditions. More emphasis could also be placed on improving the management of land already under cultivation, both to increase yields and to mitigate adverse environmental effects.

    There is increasing awareness of the importance of food safety. Products that are organically grown and certified by NEPA or use less chemical inputs such as green products and are certified by Ministry of Agriculture are becoming more popular. Consumers are willing to pay higher prices. Market-oriented policies and more systematic certification of these products could promote the production of these environmentally friendly goods.

    This also has implications for poverty alleviation. For example, the cultivation of high value speciality crops in upland areas could increase farmer's income in the area thus allowing for more investment in conservation.

    Establish the strategic grain storage for low income urban consumption and poor areas

    China holds large on-farm and off-farm (public and commercial) stocks of grain, ranging from 420 m.m.t. to over 450 m.m.t. in 1994. A major problem in China's grain economy is the lack of a price-guided market system to direct the supply and demand for grains. The releasing behaviour of the high volume of on-farm stock have significant implication for both domestic and international market. As the market becomes more developed and there is less of a need for farmers to hold large volume of stocks, it is important for the government to design strategies to integrate these stocks to the market without creating price fluctuations.

    The required grain for food security reasons should be purchased from the market instead requesting provincial government to turn in at a specified price. This will avoid having the provincial government adopt administrative measures such as trade barriers.

    Design strategies to gradually reduce grain stocks

    The high volume of grain stocks can lead to high loss rate of stored grain. The FAO has estimated the average loss rate of stored grain is 8 to 10 per cent worldwide, but in China the estimate ranges from 12 to 18 per cent. On-farm grain storage is an idle, risk management asset which is not used for productive purposes elsewhere. Choices by households (e.g. to convert grain stocks to cash) could have implications for aggregate investment and growth.

    In China, although, grain production often fluctuates less than 5 per cent, market prices in China often fluctuated by more than 20 per cent because of uncertainty of government policy. Much of the price fluctuation in the international market in the last 3 years can be attributed to China's erratic purchasing behaviour.

    Eliminate subsidies on external inputs but create incentives for soil and water conservation

    For over 40 years and until recent years, the Government linked the distribution of some farm inputs, especially chemical fertilizer, to the production of specified crops in certain areas. That is, inputs are allocated by administrative rather than market means, at prices that are directly or indirectly highly subsidized. The pricing structure does not reflect the relative scarcity of resources and cannot serve as signals indicating consumer demand producer supply behaviour. This leads to the mis-use of agro-chemicals on crops. Similarly it is estimated that, while each province sets its own water prices, in general they recover only 50-60 per cent of the costs, thus leading to a financial burden for local governments and inefficiency in water use.

    Phase out subsidies for chemical fertilizers

    The State spent more than 30,000 m. yuan to make up difference in procurement and urban resale prices. It expended additional amount for delivering inputs such as chemical fertilizers, plastic sheeting as well as transportation, processing and grain bureau operating costs which easily double the input subsidy. Even though the fertilizer market has been liberalized to some degree in the last two years, farmers still have troubles in adjusting the use of fertilizer and pesticides. Policies that reduce pesticide and fertilizer subsidies need to be accompanied with increased farmer training, re-orientation of research, education and extension services to ensure that they are driven by farmers' actual needs.

    Governments should review policies relating to the purchase, registration, formulation, application and disposal of pesticides taking into account the International Code of Conduct on the Distribution and Use of Pesticides and incorporate principle of Prior Informed Consent (PIC).

    Develop pricing structures for water which reflects its scarcity

    Over application of water by farmers is encouraged by water charges that are uniform irrespective of the quantity used.

    Groundwater charges to farmers cover only the costs of pumping and distribution; there is no "capital" charge for the water itself. Also, because charges for surface water are usually higher than groundwater pumping costs, farmers have an incentive to sink tubewells even when surface water is available.

    Set food security as long-term objective

    The importance of grain for direct human consumption in China is declining as income increases. The pursuit of food self-sufficiency based on conditions that existed 40 years ago, when grains were the major and often the only item in the diets of many Chinese, is no longer appropriate. It is too costly and reduces China's ability to produce other goods and services that have a higher economic and social value.

    Self-sufficiency, can be viewed from different perspectives. Traditionally, it is defined as a country's ability to produce the quantity of food necessary for subsistence. Alternatively, it may be defined as a country's ability to acquire enough foreign exchange earnings to purchase necessary food requirements from the world market. With the development of food processing technology, self-sufficiency can be safely achieved base on the above definition. If this approach were adopted, then the strategy would be to strengthen the economic sectors where China would appear to have a comparative advantage. In agriculture this could include higher value food crops and the livestock sector.

    Despite its potential for causing environmental degradation, the development of the livestock industry could have a significant multiplier effect on the rural economy and a net positive effect on land quality. Livestock waste management can provide a reliable source of renewable energy for rural industrial development.

    Policies that create off-farm employment opportunities, and increase infrastructure investment in rural areas to mitigate urban and rural income differentials. Renewable energy sources are bound to play an important role in providing reliable energy to create off-farm employment opportunities while converting crop and livestock waste into usable products and services to sustain rural economic development.

    With the redefinition of food security it could be in China's interest to import some feed grain to develop manufacture feed and meat industry. There is no doubt that the global market can absorb China's increasing demand for feedgrain and wheat. The remaining question is whether China is a reliable market for exporting countries. If so, they will be able to provide agricultural products at competition prices and China can, at the same time, achieve its long-term food security.

    Information for improved decision-making

    Successful implementation of SARD will require a massive long-term effort to gather, analyze and distribute information on agricultural policies and practices, the condition of external resources, and environmental pollution. These activities need to be carried out at the national, provincial and local levels and must complement each other. They must also be supported by government investment in information gathering activities.

    Domestic structures and public opinion on environmental issues help to identify preferences and set appropriate land use goals, including the need for access to food, and an adequate diet. Transformation of current and future food production systems requires a land or resource-use planning approach and the formulation of explicit goals for alternative land uses. Planning is also necessary to define incentives for sustainable use, and to promote changes of attitude and values toward improved land use options.

    Information development activities

    Information activities at the national level perform 3 functions. First, the national level must be a clearing house for information generated at the local level. Approaches which have been successful in one region or province must be shared and, when appropriate, extended to other regions. Second, the national level must coordinate and promote the development of resource inventories to assure full data coverage and consistency across provinces. It needs to assemble these inventories to assess China's progress in the context of the objectives of SARD. Third, the national level is the focus of information on national policy priorities and programmes as well as external affairs.

    Local and provincial actions will, by necessity, focus on information that is region specific, thus recognizing that environmental and economic problems and then solutions will vary widely from one region of China to another.

    A large scale resource survey and integrated agricultural zoning were initiated in the mid-80's aimed at rational and provincial zoning for geomorphology, natural resources, integrated agriculture, commodities, forestry, infrastructure, soil conservation and desertification.

    In the late 80's the Integrated Agricultural Development Programme, started as follow-up the land use zoning and planning. The programme has been extended from the plain areas, with medium-low yield farm land or salinized arable land, in North and Northeast China, such as 3H area, to the hilly and mountainous areas of North- and South-Western China.

    During the early 90's a comprehensive national agro-ecological zones study was carried using satellite remote sensing, groundtruthing, and geographic information systems.

    There is an urgent need to make these data and information available in user friendly format. Training needs to focus on the integrate GIS and AEZ approaches into policy analysis to develop a location-specific, holistic approaches to natural resource utilization which builds-in the flexibility needed to respond to changes in natural, economic or institutional conditions. This approach can help to identify land with production constraints, needed improvements in infrastructure, and soil and water conservation requirements. It can facilitate the integration of grain and cash crop production, livestock production, and protective and economic forest as well as fishery processing.

    Design decision-support tools for integrated analysis and planning

    Even where good assessment and monitoring data exist, they are not often integrated into the decision-making process. For example, lack of research into the causes of degradation of grazing land or the development of new approaches to sustainable land use are not major limiting factors. The inability to use available information and experience in the decision-making is a limiting factor in formulating appropriate policies and promoting their implementation. Establishing the required data and information base should take place in 5 phases:
    1. Establishment of a multi-disciplinary inter-ministerial task force led by the Ministry of Agriculture in conjunction with the State Science and Technology Commission, the State Planning Commission, National Environmental Protection Agency, and the Administrative Centre for the Coordination of Agenda 21, among others.

    2. Data collection and management:
      1. National inventory of land, water
      2. agro-biodiversity and ecological data;
      3. selected household survey consumption and production data;
      4. policy impact data.

    3. Data information and management through GIS and other information systems.

    4. Integrated "State-of-sustainable-agriculture" assessment reports.

    5. Promotion of provincial and country information system to support SARD planning processes.

    6. Establish a closer link between the levels of pollution, its sources and the associated health effects. For example public awareness of the impact of pollution on individuals is needed for Hubei Province in order to deal effectively with these problems. To generate this awareness, public institutions must work more closely together with industry and private groups on monitoring and researching these issues.
    To integrate sustainability into the policy framework there is need to internalize natural resource degradation and environmental damage into traditional production functions.

    Although there are some environmental monitoring systems in place, it is apparent that none of them systematically analyse the costs of environmental degradation. The paucity of accurate, time-series and comparative data is a major constraint to raising the awareness of decision makers and the public to the economic, social and environmental benefits to be obtained though implementation of SARD.

    Rural energy

    There are a number of practical options for China to increase its energy supply to rural areas while protecting the environment and increasing productivity. Among these, at the household level, are the introduction of more efficient energy devices including cooking stoves and heating.

    Biomass plantations are an effective way to reduce greenhouse gas emissions and provide rural people with a diversified source of income and products with multiple uses. To have a significant effect China would have to reforest nearly 5 m. ha. per year for the next 25 years which would increase the amount of forested land to about 20 per cent. Utilizing wood and other biomass and their residues is an effective way to reduce greenhouse gases by substituting for coal and increasing the carbon sequestration. Bioenergy, besides providing sustainable energy in gaseous, liquid and solid forms, can create new job opportunities, improve rural infrastructure and enhance the local and global environment.

    Modernization and restructuring of rural industries using cleaner fuels, cost-effective pollution control technologies and, for example in the livestock industry, introducing improved breeding and feed programmes is also needed to contribute to China's overall reduction in the emission of greenhouse gases. Less local air pollution contributes to greater plant productivity and improved human health.

    Greater support is needed for the development of low- or non-carbon energy technologies in the agricultural and rural sectors. This means that renewed commitments are needed to applications that are based on energy sources such as solar, biomass, biogas and wind. Financial incentives (with defined beneficiaries and limited duration) can have a major effect on the introduction and diffusion of environmentally sound energy technologies; it also fosters the development of private sector businesses that can produce and service the technologies.

    From the 1960s onward, the Government and local authorities have encouraged and financed tree planting to limit soil erosion by wind and water. The practice of planting trees around villages, canals and roads has been successful and widely adopted. China is also in the forefront of agroforestry technology and has developed several successful methods for inter-planting trees with crops. Yet success is yet to be achieved in establishing sustainable supplies of fuelwood.

    A larger area of fuelwood plantations is needed to improve the rural energy situation and also to reduce the pressure from fuel gathering. The incentives to maintain such plantations, however, depend upon local land tenure practices and relative fuel prices in the locality. Ideally, fuelwood production should be part of an integrated watershed development programme in which forestry is combined with crops and pasture on appropriate soils and slopes, to maximise conservation of soil and moisture.

    Investment

    To achieve the country's stated goals for sustainable agriculture, an amount of approximately US$ 15,000 m. is required annually for the entire sector. Unfortunately estimates on the potion of this amount that should be invested in land and water conservation, integrated production technologies, pollution control, conservation of agro-biodiversity etc. is not available. However, assuming that a conservation investment in sustainable agriculture would be on the order of 10 per cent of the total amount, this would imply that China would need to invest approximately US$ 1,500 m. annually for the conservation and protection elements of a sustainable agricultural programme.

    Among the activities to be carried such are strengthening the ability of extension networks delivering information to farmers on integrated practices and programmes. Training and information programmes should stress technologies such as IPM, IPNM, integrated crop management, ecological practices. As Chinese farmers begin to rely more on market signals for their production decisions, the extension personnel need to provide essential market and policy information to farmers and educate them on the optimum and safe use of agro-chemicals.

    As rural women occupy a key position in the rural economy, training must take into account the feminization of China's agriculture. The significance of women's roles in China's agricultural and rural development must be highlighted. An area in need of improvement is the introduction of women extension workers in extension networks to assist females and female heads of households on improved small farm management and production practices. The information generated from women farmers' leadership research would be very useful for the effective implementation of future technology transfer programmes and rural development projects.

    Funding for SARD

    The government needs to reallocate expenditures on financing urban consumption of grain and edible oils to investment in infrastructure, human resource training and promoting the adoption of proven technology and practices are consistent with SARD principles and beneficial to farmers. The percentage of the Ministry of Agriculture budget that should be allocated to sustainable agriculture needs to be re-examined. For years one to three the target could be 5-10 per cent; years 3 to 5 could be 10-15 per cent; years 5 to 7 could be 15-20 per cent.

    Some of the funds for investment in SARD should be from the State allocation. However, there is an important role for the provinces and, theoretically, the private sector. One relatively easy and quick option would be for China to give incentives to international private (and public) investors requiring that the elements of SARD be reflected in their projects according to rational guidelines established by the government.

    Incentives, enforcement and capacity building

    The environmental price of food production is usually found in the loss of natural vegetation, biological diversity, soil erosion, water pollution and groundwater depletion. Inevitably, there are divergent views about how land should be used, whether for industrial crops, food nature conservation or industry. These conflicts exist for coastal and inland areas and common property resources (e.g. forests, grazing lands and oceans and seas). The government needs to develop clearly defined procedures to resolve conflicting interests in society. This requires the participation of stakeholders (farmers, local land managers, non-governmental and governmental organizations, consumers and others) and evaluating the environmental costs and benefits of different land use options.

    For economic, political, food security and other reasons, China will continue to promote policies that are expedient in the short-term, but contribute little to long-term sustainable agriculture and rural development. The transition to sustainable agriculture will take time but there are a variety of policy instruments available.

    Change may be accomplished by carrot-and-stick methods which offer rewards or penalties proportional to the environmental damage caused.

    Whereas regulatory (command and control) structures often create new problems, fiscal measures to promote environmentally-friendly techniques and economic incentives have been found to be cost-effective in correcting policy and market failures. These include charges for the destructive use of natural resources (e.g. farming on steep slopes, destruction of hedgerows or windbreaks) or for emissions based on the costs of meeting agreed target concentrations (the polluter pays principles).

    Policies should provide incentives and through training in adopting technology or practices to improve productivity, If properly done, the intensification of production on land that is already intensively farmed can forestall the conversion of natural ecosystems and create direct environmental benefits.

    The "green certificate project" already introduced in 154 countries (1994) is an example of an incentive to promote sustainable agriculture. Such programmes need to be carefully expanded. In particular, as the rate of growth in grain consumption has levelled off to roughly the rate of population growth, there is actually little economic rationale for converting large areas to agriculture. The focus should instead be on improving the management of land already under cultivation, both to increase yields and to mitigate adverse environmental effects.

    Strengthen land tenure and reform property rights

    Numerous studies confirm that the security and duration of farmers' tenure directly affects their decisions to exploit or enhance

    their land. The uncertainty and limited transferability of land use rights gives little incentive to improve land productivity beyond one or two growing seasons. The introduction of the household responsibility system for crop production is an example of a policy that has disrupted traditional, sustainable cropping patterns in favour of techniques with rapid, but unsustainable, payoff.

    This systems should be reformed taking into consideration duration, fees and procedure for annual contract renewal, transfer of users right with possibility to inherit, and agricultural land zoning.

    Implement property rights reform

    The distribution of ownership or long-term user rights of natural resources is central to the improved management of China's natural resources. As their market-oriented economy evolves, ownership incentives should be used to induce sustainable production practices. However, privatization also requires that more people are aware of the environmental consequences of their activity. Thus, governments must invest in appropriate education and extension programmes such as IPM, IPNM, cropping systems management and ecological agriculture.

    Use tax policies to internalize environmental costs

    Improved environmental quality should be among the guiding criteria in shaping tax policy. Taxes collected from private sector will be increasingly important as a source of revenue. Tax policies need to encourage employment and economic opportunities while discouraging environmentally damaging production and consumption decisions. The tax system should be designed to raise sufficient revenues without damaging capital formation, job creation, environmental improvement and social equity.

    Resources that remain in government ownership may be used efficiently by relying, in part, on market and pricing signals. For example, full-cost user fees for irrigation water, grazing land, mining, could be used to protect the resource base by serving as a disincentive for over consumption but also generate government revenue. Also, taxes on legal pollution discharges are more easily enforced than are fines for illegal pollution, and promote efficiency in the production process. More research is needed to develop market-based incentives that could yield substantial environmental and economic benefits.

    One area where the regulatory framework appears entirely inadequate is groundwater exploitation. At present, the only requirement for sinking a well is money to finance the drilling and the pump. Better local regulation of groundwater use is an urgent priority.

    Adjustments in the Ministry of Agriculture

    MoA's administrative function is too narrowly defined and has insufficient numbers of staff with professional backgrounds in ecology, environmental protection and pollution control.

    Inter-disciplinary and participatory approaches

    A few Chinese institutes have successfully used approaches such as PRA (Participatory Rural Appraisal) and FSR (Farming Systems Research) in China. This was done with support from government departments and international donor agencies in areas such as research, development and training projects, poverty alleviation, environmental protection, integrated agriculture, and forestry (including agro-forestry). The participation of the farmers in analysing their problems and needs and designing and implementing the projects, greatly increases the effectiveness and sustainability of most development activities. This should be institutionalized in the MoA and through the extension systems.

    Participatory research and promoting land use alternatives

    One of the main constraints in applying land use alternatives is the lack of convergence between policy objectives and the farmers' real situations, their needs and problems. For example, one basic need, farmers' firewood supply, is often neglected by forestry project officials and technicians. This happens because the outsiders often think that the farmers have improved their life enough to buy coal for fuel. In such circumstances afforestation and watershed projects often fail to meet their objectives.

    A farmer-based and problem-oriented approach should be promoted to mobilise farmers' participation and to put their knowledge, experiences and ability in technology adaptation and dissemination.

    Conservation and management of agro-biodiversity

    As a signatory to the Convention on Biological Diversity there are a number of key actions required to be undertaken in China. These include:

    Improved management of grasslands

    The problem of overgrazing in many, but not all instances, is closely linked to land tenure agreements. Under the old commune system, with communal ownership of both and animals, there was little incentive to intensify production and therefore little overgrazing. When the household responsibility system was introduced, households were assigned their own animals but not their own land; this provided an incentive to overgraze.

    More recently, a contract system for grazing has been introduced in Heilongjiang, Jilin, Qinghai, Shanxi and Inner Mongolia. The contracts are from 5 to 15 years and include terms designed to restrict overgrazing and other damage to grassland. In some regions, this introduction of individual responsibility for land has virtually eliminated overgrazing and produced a dramatic improvement in the condition of the contract plots. But in Inner Mongolia the general positive impact of the contract system has been counteracted by increased concentration of the excessive standing stock.

    With or without changes in land tenure, the objective should be to balance the stocking rate with the grazing (carrying) capacity of each grassland area. An important element in the disruption of this balance may be the introduction of imported breeds, which require high-quality forage all the year round. This has put pressure on the pasture during the spring and early summer when the new growth is not yet well established.


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