The new move by Chinese governments to take out 10 billion-strong yuan (about US$1.2 billion) from its grain risk fund to directly subsidize individual rural households this year will have a far-reaching influence on China's grain production, say researchers and market observers.

The subsidies will go to the country's grain farmers in 13 major provincial grain-producing areas to reverse the continuous drop of grain output and slow income growth to narrow the widening gap between rich and poor.

The 13 provincial areas are the provinces of Heilongjiang, Jilin, Liaoning, Hebei, Henan, Jiangsu, Anhui, Hunan, Hubei, Sichuan, Jiangxi, Shandong, and Inner Mongolia Autonomous Region, which account for about 69 percent of China's grain growing areas.

"The subsidy policies further extend our expectations on China's grain yield," said Li Siheng, a research fellow with the State Grain Administration.

"Now it is timely and mature to implement such policies after years of deliberation by the Chinese government," Li said.

He said the subsidies were "an inexorable choice" for China since it is now in a critical period of restructuring its agriculture.

China's cereal output fell for five years in a row to 431 million tons last year from a record high of 512 million tons in 1998 while its farmland was also down 7 percent from 1998 to about 100 million hectares in 2004.

Chinese grain growers who are struggling to increase their household income, of course, welcome the state subsidies as they have long complained that planting grain crops is less lucrative than growing fruit or raising fish or poultry.

"I have never expected the subsidies to reach us so soon," said Wang Guishan, a farmer at Qingfeng Village of Dayingzi Town, Anshan City of northeast Liaoning Province, one of China's major grain producers. Wang was the first in his village to received about 903.63 yuan (about US$109) of subsidies.

Hundreds of millions of farmers like Wang can also enjoy a package of supporting measures including the massive subsidies to grain growers, setting minimum grain purchasing prices, strictly protecting farmland and the phasing-out of agricultural tax in five years.

It is the first time in Chinese history for governments to directly subsidize individual rural grain growers. China used to earmark tens of billions of yuan in subsidies for the State-owned grain distributing and wholesaling sector in an indirect way to support grain production.

However, grain growers benefited little from the subsidies as they went to the state-owned grain sector, which was operating at a loss and had until recently a monopoly over grain purchase and the wholesale business.

To make things even worse, many state-owned grain enterprises were still in gaping deficits due to poor management and slow reactions to the markets, thus taking up too many governmental funds and exerting great pressures to raise grain purchasing prices.

The direct subsidies from SOEs to farmers spell the changes in China's grain-supporting policies after its accession to the World Trade Organization in 2001, observed Chinese agriculture researchers.

"Such subsidies to grain growers are within the permission of the so-called 'greenbox policies' of the WTO," said Gong Dejun, a research fellow with Rural Economies Research Institute of Liaoning Provincial Development Research Center.

"The policies will help stabilize China's grain production and bring the country's agriculture more in line with international practice," Gong said.

Wan Fumin, director of Liaoning Provincial Department of Agriculture, said the 10 billion yuan of direct subsidies to farmers convey an important message to tens of millions of peasants that the governments are supporting to grow cereal products.

Wan said the direct subsidies to farmers would also have a far-reaching impact on China's balance of market supplies and demands, even help improve its agricultural products' competitiveness.

However, he also recommended caution towards the results of the policies.

"It is difficult to fuel up peasants' enthusiasm to grow grain with only such direct subsidies," Wan said, "the complete implementation of such polices and a reasonable price are more important."

"We have to wait and see," he said.

(Xinhua News Agency May 6, 2004)