A Study On The Grain Fiscal Support Policies Under The Trade Liberalization

Market access, domestic support and export subsidy are the three kinds of essential content of the WTO Agreement on Agriculture. In order to protect the development of domestic industries, every country used to control the import by tariff barriers and non-tariff barriers to support domestic production of agricultural products, which in the long run leads to many economically adverse results, like the overproduction and the augmentation of government fiscal burden, the reduction of international division of labor and the increase of consumption price. The policies of export subsidy and price support result in the increase of the price of agricultural means of production and the stagnation of agricultural industrial structure. Since the middle of 1950s, every country has been concerned with the adverse effect of agriculture protection and attached great importance to pursuing the economic rationality in the process of agriculture modernization and changing the price support into income support to support the industrial development. The agriculture support policies, which accord with trade liberalization of agricultural products, have been formed through years.Grain is the most important farm crop in China's agricultural production and has been given protection to the greatest degree. Domestic support policy is the main agricultural policy to support and protect grain production. At present, the fiscal policies used to protect the grain industry are the minimum purchasing price, the direct income subsidy, factors of production subsidy and the infrastructure construction of farmland. After our country accomplished the five-year transient period in 2006, both the fulfillment of the Agreement on Agriculture and the demand of domestic market require the opening of domestic grain market and the formation of grain support policies that accord with trade liberalization. In price support policies, the minimum purchasing price regarded as the amber box measure which will seriously distort the market mechanism should be cut down, together with the adjustment of the enormous expenditure for purchasing grain which is the fiscal burden of main grain producing regions. In production support policies, direct subsidy and factors of production subsidy are established to compensate grain-producing farmers' loss in income in the process of grain marketization, so it is the prime aim to increase farmers' income stably while it is unknown whether the goal of food security will couple well with the goal of income increase. In the import trade, our country has adopted tariff quotas in grain import. But in the future the high tariff rate will be reduced gradually and the quotas will be increased step by step, and a great deal of overseas imports of high quality and low price will have impact on domestic grain market. Domestic grain industry needs support and the grain fiscal support policies need strengthening. In addition, there are conflicts between agriculture multi-function and the goal of grain support policies to a certain extent, such as the great conflict between the policy of returning cultivated land to forest and that of grain support which are implemented in the same place at the same time will counteract the performance of each other and cause a waste of fiscal input.Based on above problems, it is necessary to adjust current grain fiscal support policies. The paper aims to find out the approach to adjust the grain fiscal support policies that both accord with the WTO rules and are useful to increase farmers' income, ensure food security and reduce government fiscal expenditure. The main content and conclusion of the paper are as follows.Firstly, the paper analyzes the impact of trade liberalization on the development of grain industry. It is found that trade liberalization has double effect on the development of grain industry. From the advantageous perspective, trade liberalization is favorable for the improvement of grain management efficiency and grain comprehensive productive capacity. From the disadvantageous perspective, the grain products which do not have comparative advantage will be affected by the imports of low price and high quality, and grain industry of the main sale regions along southeast coast will shrink while that of the main producing regions in central and western China will compete with the imports. On the other hand, the room of market access will diminish, domestic support policies will be confronted with the pressure of reduction and the grain fiscal support policies need reform, all of which will conflict with the implementation of the policy of returning cultivated land to forest.Secondly, the paper analyzes current situation and problems of the grain fiscal support policies under trade liberalization. It is found that our country has gradually formed the grain fiscal support system with direct subsidy as the main body, minimum purchasing price as the complement, and the factors of production subsidy and infrastructure construction of farmland as the support, whose basic goal is to increase farmers' income and ensure food security. With observation of the practice from 2002 to 2006, it is seen that the effect of grain fiscal support policies is distinct and sustainable, but there are still some problems, including that the input of grain fiscal support policies is not enough and the structure is not reasonable, that there are many uncertainties in the minimum purchasing price policy, that there are some weak points in the implementation of direct subsidy policy, that the policy of factors of production subsidy conflicts with the goal of environmental protection and that the integration between each support policy has not been carried out.Thirdly, the paper evaluates the implementation performance of gain fiscal support policies under trade liberalization. First of all, it establishes a theoretical framework to evaluate the policy performance, including the object set of the support policies, their implementing cost and benefit and approaches for evaluating the performance and so on. Then it makes analysis of the implementation performance of each supporting policy, from the direct income subsidy policy to the projects of infrastructure construction of farmland, grain minimum purchasing price and the factors of production subsidy policy. Finally, it carries out case study on grain producing city and sale city. It is found that the structure of supporting policies has not been optimized, that there is some irrationality in the policy design and that the policy performance is not distinct, especially the direct income subsidy policy, projects of the infrastructure construction of farmland and the comprehensive direct subsidy for the increase of agricultural means of production which belongs to the policy of factors of production subsidy.Fourthly, the paper constructs a model of farmers' behavior in grain production to carry out microeconomic analysis on the implementation of grain fiscal support policies under the multi-objective system. With full consideration of the real agricultural situation, it quantifies the support policies and constructs the function of farmers' grain production. The paper studies the impact of the support policies and policy of returning cultivated land to forest on grain yield, farmers' income and environment quality by comparative static analysis. This part focuses on the realization of the multi-objectives and the coordination between each policy set on the condition of maximizing farmers' benefit. It is found that there are obvious conflicts between the goals of agricultural policies, represented by those between the policy of minimum purchasing price and that of returning cultivated land to forest and those between the direct income subsidy and the policy of returning cultivated land to forest.Fifthly, referring to previous study, the paper constructs Grain Sector Equilibrium Model (GSEM) to make empirical analysis of the welfare economic effect of support policies with the year of 2004 as the basis period. It is found through the empirical analysis that current support policies indeed improve the social welfare of the grain industry. Among which, the policy of returning cultivated land to forest abates the social welfare of grain industry while the minimum purchasing price policy increase more social welfare than the direct income subsidy policy, which reflects that grain price support policy gives producers more stimulation than income support policy. Besides, in direct income subsidy policy, the means of subsidizing according to area is better than that to yield. Such research approach, which is rarely seen in current domestic research, is innovative in discussing the optimal structure of grain support policies to some extent.Sixthly, the paper refers to the experience of WTO members in implementing the grain fiscal support policies. With EU, the United States, Japan and Taiwan Province as studying objectives, this part reviews current situation and developing trend of international grain fiscal support policies and makes comparison with our country (the mainland). It is found that there is negative relativity between the degree of trade liberalization and AMS use ratio, that the policy goal of diversification will undoubtedly lead to the diversified structure of support policies, that it is the international trend to substitute direct income subsidy for price support policy and that every country has adjusted and integrated grain fiscal support policies with that of returning cultivated land to forest, established agriculture risk compensation mechanism to support the reform of grain support policies and managed grain fiscal supports policies according to laws and regulations.Seventhly, the paper advances a series of suggestion and measures to adjust and optimize grain fiscal support policies and improve the policy performance, including how to establish a scientific and perfect system of grain fiscal support policies, how to reduce the pressure of grain subsidy by making full use of the two markets and the countermeasures to strengthen the construction of legal system of agricultural subsidy to realize the sustainability of grain fiscal support policies. The suggestion is very positive and realistic to perfect the system of grain support policies, strengthen government macro control of grain market and protect domestic weak industries against the background of trade liberalization.