Farm Woes Plague China

Some 25 years ago, China's pathbreaking agricultural reforms produced a 30% increase in grain output in just half a decade. But recently, a drastic runup in food prices exacerbated by natural disasters has exposed festering problems in the nation's agricultural sector.

Since 1990, annual growth rates of industrial output, gross domestic product, and population have averaged 22.8%, 11.4%, and 1.16%, respectively. Grain output, however, has edged up an average of only 0.1%.

According to economist Guocang Huan of J.P. Morgan & Co., several factors are behind this dismal performance. Government investment in agriculture, mainly in infrastructure, has fallen sharply, from over 13% of total fixed investment in 1978 to 1.8% last year. Use of agricultural technology is lagging, and farmers have been squeezed by high input inflation (particularly for capital goods), rising taxes and consumer prices, and limits on grain prices.

Meanwhile, cultivated land has fallen by about 2.7% since 1985, in the wake of rapid urbanization, real estate development, deteriorating infrastructure, and natural disasters. And millions of farm workers are seeking better jobs in rural industries and coastal industrial areas.

Last year, China shifted from being a net grain exporter to being a net grain importer. It now plans to step up agricultural investment, limit local taxes on farmers, and cap prices on farm machinery. But unless it develops a comprehensive long-term strategy to boost grain output and farm productivity, warns Huan, its economic future may be threatened by chronic food shortages and high inflation.

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