By Han Jun, Xu Xiaoqing & Xiao Junyan

Research Report No 206, 2005

I. Analysis on Agriculture and Rural Economic Performance in 2005

According to preliminary statistics from the relevant departments, natural disasters in 2005 were more serious than the average level recorded since 1992. At the same time, due to the improved supply and demand of farm products in the international market in the past two years, the stagnant price of farm products in the international market had an obvious impact on the downward trend of the prices of domestic farm products. Despite some difficulties, a series of measures had been taken by the Central Government in 2005 for the purpose of ensuring the stability in grain production, alleviating the financial burden on farmers, increasing the farmers’ income and promoting the transfer of surplus rural laborers. This has provided an important condition for the sound performance of rural economy.

1. Grain production was satisfactory

The total output of summer grain amounted to 106.25 billion kilograms, an increase of 5.1% year on year; the output of early rice was 32.5 billion kilograms, an increase of 1%. At present, autumn crop harvesting is to begin, and if the weather conditions are favorable, it is likely that the annual grain output, on the basis of 469.45 billion kilograms in 2004, would increase by 6 billion kilograms to reach 475 billion kilograms.

2. Farmers’ incomes increased significantly

In the first half of 2005, the per-capita cash income of farmers was 1,586 yuan, an actual growth of 12.5% year on year. This growth rate was 3 percentage points higher than that of urban residents’ income, which was rarely seen in the past years, and the growth rate was 1.6 percentage points higher than that of 2004 year on year, laying a solid foundation for the growth of farmers’ income in the year. The following factors contributed to the rapid growth in farmers’ income: first, the wage income grew fast. In the first half of the year, per-capita income was 521 yuan, a growth of 16.6% year on year, and the growth rate was 2.7 percentage points higher than that of the same period of 2004. In particular, the number of laborers seeking odd jobs in other places stood at 88.45 million, an increase of 4.4%; and per-capita income from migrant laborers was 191 yuan, an increase of 23.7% year on year. Second, income from sales of farm products increased remarkably. In the first half of the year, per-capita cash income from sales of farm products was 707 yuan, an increase of 20.3% year on year. Of this growth, 80% came from the incremental amount of farm products sold, and 20% came from the price of farm products sold. Third, income from family-based operations of secondary and tertiary industries grew stably. In the first half of the year, per-capita income was 241 yuan, an increase of 14.7% year on year. Fourth, taxes and fees dropped while government subsidies continued to increase. On average, each farmer got 8 yuan from subsidies for grain, farming machines and refined seeds, the same level as in the previous year. Per-capita payment of taxes and fees was 5.6 yuan, a decline of 51% year on year, of which, per-capita amount of agricultural tax payment was less than 1 yuan, a decline of 87.2% year on year. If no extremely abnormal weather occurs, the production of major farm products could be stabilized and would increase slightly, and the growth rate of farmers’ income would be maintained basically at the level of the previous year.

II. Acute Problems in the Current Rural Economic Operation

In 2005, rural economic performance was basically sound and satisfactory. However, judging from the fourth quarter, there are also some obvious uncertain factors in the rural economic performance, and these problems deserve high attention.

1. Unfavorable impact from the macro economy

On the one hand, the economic growth rate in the second half of the year slowed down slightly, the problem of overcapacity in some sectors began to expose itself, and growth rate of efficiency dropped. If the economic growth rate slows down remarkably, it will have an impact on the employment opportunities of surplus rural laborers and their wage levels. On the other hand, the price of energy continues to hover at a high level, this will not only lead to the high level of prices of farming materials and to the rise of agricultural production costs, but also likely cause the residents to cut down their expenditure, adjust their consumption structure and hold back their consumption demands for farm products.

2. The driving force of grain price is weakened

In 2004, grain price increased by 28.1% percent, and of the 314 yuan of farmers’ income increase, 165 yuan was materialized through the rise of grain price. In 2005, however, due to such factors as a basically balanced supply and demand and the anticipation for an increase supply, the rise of grain price is weakened and on a downward trend. In the past two years, grain production of major grain producing countries in the world declined significantly due to serious natural disasters, and grain prices kept rising, and the rise of China’s grain price last year was also highly related to it. In 2004, grain output in the world increased by 10%, and in 2005, grain output was stabilized or increased slightly. At present, grain price on the international market continues to decline, and this will also affect the stability of domestic grain price.

3. The price of farming materials keeps rising and shows no sign of decline

Although the state has adopted fairly forceful policy measures to reign in the price rise of farming materials, the effect is pretty limited, and the price of farming materials continues its upward trend. In the first half of 2005, the price of farming materials rose by 10.4% year on year, of which, the price of fertilizers rose by 15.4%. Even if the rise rate of price is computed at 15%, farmers would have to pay an extra of more than 30 billion yuan for farming materials in the year, equivalent to an extra per-capita expenditure of about 40 yuan. The main reasons for the rise of farming materials are: energy prices of petroleum, natural gas and coal are still hovering at high levels, the traffic and transportation bottlenecks are still there, and the costs for the production and transportation of farming materials are impossible to drop.

4. Policy factors directly lead to a drop of actual benefits for farmers as compared to the previous year, and its stimulating role is weakening

In 2005, the Central Government continued to increase policy investment in the countryside, but the increase of direct subsidies for farmers was not that remarkable, and its stimulating role in boosting grain production was not as direct and strong as in the previous year. In 2005, although the number of provinces, autonomous regions and municipalities abolishing agricultural tax on farmers increased to 27, the amount of agricultural tax exempted totaled to 22 billion yuan, plus the newly increased subsidies for grain production, refined seeds and the purchases of farming machinery for farmers totaling 3.14 billion yuan, benefits directly offered to farmers through the policies amounted to 25.14 billion yuan, equivalent to 56% of that in the previous year.

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