China's agricultural sector has witnessed a productive year, despite such challenges as tentative government reform and severe droughts.

According to the National Bureau of Statistics, revenue for agriculture in the first three quarters of last year totalled 869.9 billion yuan (US$105.2 billion), up 7.6 per cent from the same period in 2000.

Yields of key cash crops and animal and aquatic products all recorded strong growth.

In the first half of last year, the yield of meat and aquatic products grew by 4.3 and 3 per cent respectively compared with the same period in 2000.

Another bright spot in the agricultural sector was the hike in per capita income for the rural population, which reached 1,641 yuan (US$198.4) in the first nine months of 2001, an increase of 5.2 per cent year-on-year.

During the first six months of 2001, the value of production by township enterprises nationwide surpassed 1.4 trillion yuan (US$169.3 billion), an increase of 11.2 per cent on a year-on-year basis.

Restructuring

Although complete statistics for last year are not yet available, experts from the Ministry of Agriculture are applauding the initial progress China has made in the restructuring of its agricultural sector and rural economy.

Experts said the nation is expected to speed up the sector's upgrade from its current focus on quantity-based agricultural production to an emphasis on quality after the country's accession into the World Trade Organization (WTO) in November.

The output of quality farm produce, such as wheat, rice, corn and organic vegetables, has been rising rapidly as farmers across the country are beginning to cater to the increasing demand for high quality, healthy food in recent years.

Acreage devoted specifically to quality wheat harvests has been increased by 1.3 million hectares, now accounting for almost one-fifth of China's total wheat acreage. This strategy has reduced China's dependence on imports, experts said.

Acreage devoted to growing high-quality early season rice exceeded half that reserved for the overall production of early season rice - up 23 per cent year-on-year. Early season rice production makes up about a quarter of total rice production in China, where rice is the staple food for at least half of its 1.26 billion population.

The provinces of Hebei, Shandong, Henan, Shanxi and Shaanxi in northern China account for over half of the country's wheat acreage due to the restructuring of the agricultural industry, while farming areas in the Yangtze River valley and Northeast China have reduced their wheat-sowing areas. Ideal for rice production, these areas are expanding the total acreage reserved for growing quality rice.

Chin's production of beef, peanuts, and other items has also been readjusted according to each area's comparative advantages.

Exports from the eastern region represented 79.35 per cent of the nation's total agricultural value in the first three quarters of last year, while imports to the region made up 93.27 per cent of the nation's total agricultural imports in the same period.

Experts from the agricultural ministry said agricultural trade in the region will continue to take the lion's share of the nation's total trade. The region's imports and exports are expected to witness a surge as a result of China's WTO membership.

The nation's central provinces have been positioned as production and processing bases for animal products, while the western area has been targeted for major efforts to develop environmentally-friendly farm produce.

Grain acreage

Though encouraging agricultural restructuring, the government continues to pledge a halt in the shrinkage of acreage devoted to grain growing , fearing a continuous decline in grain production would threaten the country's food supply. But the government's efforts have so far produced little effect, as grain production is often a losing operation for farmers.

To balance grain output with demand, China needs to stabilize its total area of grain cultivation at 110 million hectares, said Wu Hongyao, an agricultural ministry's divisional director.

In 2000, farmland devoted to grain production plummeted year-on-year by 6 million hectares, to 107.1 million hectares, the lowest since 1949.

The acreage downsizing momentum apparently continued last year, as initial arrangements made by local agricultural authorities reduced acreage by another 2.66 million hectares, according to Wu.

Grain distribution

Agricultural economists argued that poor results from the government's efforts to stabilize grain acreage are due to the increasing reluctance of farmers, who are becoming more market-oriented, to grow more loss-making grains.

The situation has pushed the State to expand reform of the country's grain distribution.

The national conference on grain, held in August, decided to speed up the establishment of a free market price system in major grain markets, including East China's Zhejiang, Jiangsu and Fujian provinces, Shanghai Municipality, South China's Hainan and Guangdong provinces and North China's Beijing and Tianjin municipalities.

Vice-Premier Wen Jiabao called it a "necessary step" towards pushing forward the reform and said the system would help speed up agricultural restructuring and enhance the competitiveness of Chinese farm produce.

Currently, farmers are required to sell their crops only to State-owned grain businesses at a protective price, usually higher than the market price. But many State-owned grain circulation enterprises did not pay that price, in order to avoid losses. As a result, farmers have become more reluctant to grow grains.

The government hopes the market-oriented grain circulation reform will help increase farmers' income, but it also worries that a free market will increase farmers's reluctance to further reduce their planting of grains.

Economists predicted that grain circulation reform in the major markets would not be extended to other provinces quickly. "But after all, it has started," said Zhou Qiren, a renown agricultural economist with Peking University.

Foreign investment

The slow pace of market-oriented reform in rural areas has resulted in decreased foreign investment in China's agricultural sector.

From 1994 to 1998, foreign investment in agriculture accounted for only a small fraction - roughly 1.7 per cent - of the country's total foreign investment. Foreign funds in the sector have dwindled by almost 20 per cent since 1999.

While the key factor in declining foreign investment is due to the fewer comparative advantages offered by China's agricultural sector,laggard administrative policies and a weak rural market are also to be blamed, experts said.

They urged the government to open more channels and enhance its administrative transparency in order to attract more overseas investors to the sector. In addition, they said that improved information services for both investors and domestic enterprises would help bridge the two sides.

WTO accession

Experts are betting that China's WTO accession will fuel market-oriented reform in its rural areas. But they also recognize that agriculture was one of the most contentious issues during the country's 15-year journey into the WTO.

WTO membership requires the reduction or eventual elimination of policies distorting trade, production and consumption of agricultural commodities do not comply with WTO principles.

This translates into a reduction of high average tariffs against the imports to 15 per cent within five years, a new tariff-rate quota system, reduction of trade-distorting domestic subsidies and elimination of export subsidies.

Trade of some key agricultural products, such as grains, cotton, oil and dairy products, which used to enjoy strong support from the government, are expected to bear the brunt since WTO membership.

While rising imports of these main products are expected to place more pressure on local farmers, the WTO's requirement of a unified market and a transparent policy environment may also benefit Chinese farmers in the long term.