A Study On The Effects Of Agricultural Direct Subsidy In China

Entering into 21th century, China began to implement agricultural tax reduction or exemption, and gradually began to enforce the policy of direct subsidies to farmers in the whole country. At the same time, grain production, rural per capita net income of agriculture, grain acreage, fertilizer usage and pesticide expense are also increased in China. Whether direct subsidies contributing to increased agricultural output and farmers' income, and what is the role that direct subsidies played in China's agricultural production, especially in food production, some answers have been given by researchers from different aspects. However, existing studies on the effect of direct subsidies in China are mostly based on macroscopic data or microscopic survey cross-sectional data, which means articles that directly measure the subsidy effect are rarely seen. And whether direct subsidy promoted the production and output of grain is still controversial. Therefore, this research trying to systematically, comprehensively and directly explore the effects of direct subsidy by building farmer output-consumer decision making model and labor-capital investment decision making model, and by using 2006-2010 rural household survey panel data of four cities in Henan Province.Theoretical model inferences and empirical analysis results show that China's agricultural direct subsidy policy has boosted the production, income and consumption of farmers significantly, and thus well achieved the policy objectives. Among them, different income groups have different subsidy effect, specifically the production effect of high income group is nearly 10 times bigger than low income group's. Direct subsidy increases the total income, farm income and grain income but not non-farm income; Meanwhile direct subsidy increase the return rate of agricultural labor which means the farm labor is relatively more attractive than non-farm labor after subsidy. Also direct subsidy contributed to the increase of living consumption and food expenditure and thus has a welfare effect.After the proof of production effect, we focus on analysis the mechanism of these direct subsidy effects. Direct subsidy enhances the relative return rate of on-farm labor, so farmers increase their time on farm labor and this lead to the increase of agricultural output, which is the why direct subsidy has production effect. The increase of on-farm labor time is at the expense of reduction of the non-farm labor time. Meanwhile direct subsidy makes farmer enjoy more leisure and decrease total labor time. The relationship of on-farm labor and capital expenditure has been complementary. Along with the on-farm labor time, capital expenditure also increased under the impact of direct subsidy. But the seeds expense in capital expenditure is rigid and not affected by direct subsidy. The relationship between on-farm labor and agricultural production pattern is not clear because direct subsidy does not significantly affect the machine plough and sowing area and only slight affect the machine harvest area.In addition to the positive effect on production and income of farmers, direct subsidy also has negative impact on the agricultural ecological environment. From environment effect analysis on both extensive and intensive marginal, we find that direct subsidy stimulates excessive fertilizer and pesticide usage therefore is harmful for the environment. But the environmental effects of extensive margin do not exist because direct subsidy makes grain area decrease significantly. OECD countries have realized the environmental effects of different agricultural subsidies and they have formatted the strategies to deal with the adverse impact, we introduced these potential effects and strategies in Chapter VII and offered some advices to agricultural environment policy in China.Through a comprehensive discussion of the effect of agricultural direct subsidy policy, the research affirmed the prominent role of subsidy policy on enhancing farmer's enthusiasm on agricultural production and also pointed out the potential negative environment effect of it. The conclusion of this research is important and significant for the reform and completion of entire agricultural subsidy system in China.