EXECUTIVE SUMMARY

Background

The Sustainable Agriculture Working Group (SAWG) focused its 2001 work plan on issues related to sustainable agriculture in the coastal region. Chinese members identified this area as worthy of SAWG attention because of the rapid changes occurring there in social, economic and environmental characteristics. The SAWG selected the Yangtze and Zhujiang (Pearl) river deltas for a field survey and workshop. This format enabled SAWG to interact with Chinese researchers, provincial and local government officials, program managers, farmers and technical specialists and with invited international experts. Co-chairs of the Biodiversity Working Group participated in the workshop. The workshop included presentations on invasive species, biotechnology and WTO in response to comments at the 2000 Council meeting.

The southeastern coastal area is the strongest economic zone in China and is a major force in ongoing globalization and modernization. The area has developed rapidly and has experienced profound changes in social and economic structure. However, from a sustainable development perspective, there are many problems needing urgent solution. Among them are agriculture and its environmental protection.

The coastal area of China includes Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong and Hainan provinces. Although covering only 5.3% of the land area of the country, the area had 19% of the population, 21% of the urban population, with a population density of 454 persons/km2 in 1998. Its GDP made up one-third of the national total.

The coastal provinces have a good physical foundation for agriculture. The climate is favorable for agriculture in a sub-tropical to tropical environment, although seasonal floods and drought are problematic. The region features a very diverse agricultural sector. Triple cropping on paddy lands is common – double rice followed by rapeseed or a green manure crop. Upland crops include tree fruits, tea and nuts. Pigs and poultry dominate livestock production. While these traditional commodities still dominate the landscape on an area basis, the agricultural sector is rapidly becoming more diversified with increasing output and value of horticultural crops, floriculture and various aquatic products for export and domestic markets. These latter enterprises are characterized by larger scale, high technology and large capital investment, often from off-shore sources.

The land use pattern in the coastal area is changing rapidly in response to various forces. The product mix is changing in response to market opportunities both domestic and off-shore. There is intense competition for land (space) from urbanization, industrialization, transportation and recreation. Considerable farmland is being lost to these uses despite the food grain security policy and its regional production quotas. The scale of farm operations is increasing as investment increases and markets demand assurances of quality and supply continuity.

Environmental problems in the coastal area are serious and threaten the sustainability of agriculture in the region. Most of the environmental problems are manifested through declining water quality. Pollution from non-point agricultural sources includes excessive pesticide and fertilizer application rates. In both cases the rates are much higher than science and economics indicate are optimal. Point source pollution includes intensive livestock operations, Township and Village Enterprises (TVE's) and urban and rural households where waste management systems are not adequate to maintain water quality for subsequent uses. Non-agricultural sources of pollution that adversely affect agriculture include acid rain and ozone emissions. The introduction of many types of plant material from off-shore for horticulture and floriculture poses potential problems with invasive species in the coastal eco-system.

Recommendations

1 Issue: Pollution of water supply

1) Background: Water pollution- Water pollution from poorly managed fertilizer use and intensive livestock and aquaculture production is the most serious agri-environmental problem in the Coastal Region. Agriculture is responsible for more water pollution than the urban and industrial sectors.

2) Recommendation: Mitigation of serious water pollution problems will require a series of specific actions including:

· Improvement of the system of agricultural environmenatal management；

· Establishment and Enforcement of environmental regulations for non-point pollution;

· Investment in environmental R&D;

· Increased public awareness of pollution threats to sustainability;

· Concrete actions to widen the adoption of remedial technologies.

2 Issue: Low fertilizer use efficiency and excessive application rates

1) Background: Thirty to fifty percent of nitrogen fertilizer applied is lost to the environment. China has some of the highest application rates in the world, and well above those of most intensive production systems in developed countries. Poor macronutrient balance contributes to poor efficiency, as does inconsistent product formulation. The consequences are many – higher production costs and lower net incomes for farmers, air pollution from fertilizer factories, eutrophication of water bodies, reduction in drinking water quality, increasing number of red tides and excessive nitrate levels in vegetables.

2) Recommendation: The solutions have to be multi-dimensional, combining technology, regulation and economic measures:

· Removal of indirect subsidies on fertilizer production;

· Introduction of pollution taxes to improve efficiency and application rates;

· Rationalize production on the basis of comparative advantage and domestic resource costs;

· Raise farmer awareness of environmental costs and income penalties from poor fertilizer management;

· Encourage more efficient and balanced fertilizer use.

3 Issue: Overuse of pesticides

1) Background: While pesticides of various kinds are important elements in producers' technology tool kit for high productivity in food and fiber production, excessive applications are an important impediment to sustainable crop production. Pesticide use has been increasing in China despite clear evidence that application rates are often higher than necessary. Excessive use can:

· Lead to death or sickness of farmers;

· Lower farm incomes because of unnecessary expenditure on pesticides;

· Reduce the value of downstream fish production;

· Increase water purification costs to meet drinking water standards.

· Reduce competitiveness in domestic and international markets due to pesticide residues in foods.

2) Recommendation: The needed actions include:

· Development of a national strategy for Integrated Pest Management (IPM). The strategy should become part of wider development strategies for environmentally responsible production practices and safer foods;

· Change the conflicting roles of government departments regarding regulation, production and sale of pesticides.

4 Issue: Food safety

1) Background: Overuse of fertilizers, pesticides and to a lesser extent livestock medicines has led to many commodities having nitrate contents or residue levels above those permitted in China or acceptable for international trade. Thus there is a serious health risk to consumers and loss of revenue from exports.

2) Recommendation: Corrective action needed includes:

· The measures described above for pesticides and fertilizers

· Research to develop rapid residue detection methods that can be applied in food markets.

5 Issue: Air and water pollution from livestock

1) Background: China's economic success and rising incomes have led to rapid development of the livestock sector (especially pork). However, the economic benefits have carried severe environmental penalties. Large volumes of pig and poultry wastes are discharged into watercourses without treatment and emissions of nitrous oxide and ammonia into the atmosphere are increasing. Technologies are available to handle livestock wastes although some may need to be imported and adapted to Chinese conditions. There is, however, no national strategy to address the waste disposal problem.

2) Recommendation: The actions required include:

· Development of a national livestock waste management strategy to provide the general framework for local action;

· Improve the policy and regulatory framework with clearly defined and enforceable discharge and emissions standards and effective waste disposal charges;

· Introduce meaningful penalties for breaches in regulations;

· Disseminate information on "best practices" with emphasis on the small producers who still produce a large proportion of pork and poultry output;

· Draw lessons from EU and N. American experience on the failure of regulatory approaches alone to achieve good livestock waste management.

6 Issue: Loss of arable land

1) Background: Competition for land (space) in the coastal area is intense. Arable farmland is being lost to urbanization, industrialization, transportation systems and recreation. In most cases these uses are more profitable. Agriculture is becoming a relatively smaller proportion of economic activity as a consequence of rapid development in other sectors; a normal phenomenon in all developing countries. The extent of the land loss to agriculture is well documented elsewhere. Most of the land use change is irrevocable.

Laws are in place to protect arable land for agriculture, yet arable land continues to be developed for non-agricultural uses, often in a fragmented manner that hampers efficient agricultural use of remaining areas. The current policy on land user rights affects the utilization pattern of land resources. Where tenure is unclear, occupying land for non-agricultural use is considered to be rather easy.

2) Recommendation: The Government of China should re-enforce its policy on user rights and control of land resources to ensure that it meets China's long term needs regarding domestic food production capacity. Land use planning should be strengthened to ensure appropriate land allocations among competing uses.

7 Issue: Comparative advantage and economics of food production

1) Background: Many studies on the potential impact of China's entry into the WTO attempt to determine where China can compete in a more liberal trading environment. The current consensus suggests that China can compete domestically and internationally in labor-intensive segments of the economy, but not in land intensive sectors. As policy constraints on agricultural production are relaxed, market forces will likely cause large structural changes in the agricultural product mix and regional concentrations of production. Studies at Nanjing Agricultural University suggest that China possesses comparative advantage in vegetables, rice, cotton, fruit, pork, beef, mutton, poultry and fish and does not have comparative advantage in wheat, corn, rapeseed and eggs. The analysis further notes that some regions have comparative advantage for certain commodities due to climate, location relative to markets, labor supply, and land and water resources endowments. This suggests that there will be significant changes in regional production concentrations for many agricultural commodities in response to market forces and reductions in government intervention.

2) Recommendation: Policy actions recommended in order to enable comparative advantage to operate in the interests of both economic efficiency and environmental goals include relaxation of restrictions on internal grain trade; removal of regional food grain production quotas; market-oriented R&D investment; reduction in perverse subsidies; and inclusion of market considerations in long-term infrastructure investments. Social impacts of structural adjustment also need to be taken into account.

8 Issue: Education in rural China

1) Background: Farming, like so many other aspects of life, has become a knowledge intensive activity. There are now many technical challenges in producing food in a sustainable manner. Chinese farmers have a high level of traditional production knowledge. The traditional knowledge needs to be augmented to produce, in a sustainable manner:

i) the quantity of food, which China needs to feed itself, and

ii) the quality of food, which China needs to gain access for its products to world markets, especially following entry to the WTO.

If China's farmers are to raise their level of income, they will need to augment their traditional knowledge with the new knowledge necessary to meet the standards of quality that will be demanded by China's citizens and its export markets. For reasons of food safety, food products containing residues of pesticides, heavy metals, or, bacteria with the potential to cause food poisoning will not be acceptable.

In order to insure that China's success in food production is sustainable, it is necessary but not sufficient that farmers (and extension workers) be educated in the techniques of sustainable agriculture. It is additionally necessary, that the nation as a whole be sensitized to the need for environmental protection. Since all society impacts the sustainability of agricultural production, all society has a role to play in insuring the sustainability of agricultural practices.

2) Recommendation: In the interests of attaining sustainability in its agriculture sector, the Government of China should increase its resource commitment to educating its farmers and extension workers. This is one of the investments required to become part of the knowledge economy.

Special Topics

The 2000 CCICED meeting suggested three topics for SAWG input – WTO, biotechnology and biodiversity conservation. Our response:

WTO – This topic is receiving considerable attention by the CCICED Working Group on Trade and Environment. The SAWG cooperated with the WGTE in their 2001 work on WTO impacts on agriculture. A paper on that topic is appended to this report as Annex 1. Summary observations by Huang and Rozelle:

The changes in agriculture caused by WTO are a continuation of past trends rather than a radical policy change.

The impacts of WTO on farmers' incomes are very modest.

How well China's farmers will fare in the post-WTO world depends on much more than WTO. Decision-making skills of farmers in a market economy and access to foreign markets, investment capital and technology will all be critical to success.

Biotechnology – The policy issues surrounding biotechnology have been at the forefront of public policy debate in many countries in recent years. While some products of biotechnology in agriculture and medicine have been in general use for many years, more recent activity involving inter-species gene transfer have come under intense scrutiny. Concepts such as transgenic and genetically modified organisms – GMO, though often ill-defined, are debated in the public policy domain.

China has active programs in agricultural biotechnology and, in a global economy needs to be an active and informed participant in the international debate. A paper on that topic is appended to this report as Annex 2. Summary observations by Morrissey:

The following public policy position is suggested at the national level on the use of biotechnology techniques in agriculture:

1. Biotechnology be used when NO GENES are moved between cells, e.g., diagnostics.

2. Biotechnology be used where genes are moved WITHIN SPECIES with appropriate controls, e.g., within species plant breeding.

3. Each country makes its own decision on a case-by-case basis depending on its own mix of perceived risks and benefits where genes are moved ACROSS SPECIES.

For example:

i) a country with an urgent need to feed its people might pre-test and utilize transgenic crops.

ii) a country with less urgent needs might restrict the use of transgenics to crops where protein components are not used as food for humans, e.g., consume canola oil, but not canola protein.

iii) A third country might allow the use of transgenic crops for the production of human medication – but only in a high containment greenhouse, e.g. production of blood anticoagulant in a plant species.

3. Biodiversity conservation – Co-chairs of the CCICED Biodiversity Working Group (BWG) participated in the SAWG 2001 workshop. The SAWG generally supports the observations and recommendations of the BWG regarding invasive species, eco-system management, reclamation with native species, avoiding reclamation with monocultures and return of fragile cultivated lands to grassland/forest. The SAWG does not support a BWG recommendation regarding outright prohibition of introduced plant materials. SAWG supports thorough evaluation of risks to minimize potential problems.

Suggestions for Phase 3 Task Forces

The SAWG suggests the following issues as candidates for task forces:

1.Aquaculture - This is a large and growing industry. Warm water, close proximity of ponds to each other and rapid turnover of stocks suggest there is a high risk of disease – and therefore concern over food safety. Experience elsewhere indicates that disease rates increase more than proportionally as stocking density per unit area increases. The risks include bacterial, viral and parasitic diseases; water pollution from application of control measures; unsafe food due to chemical residues; and losses in the market place from rejected shipments.

2.Non-point source pollution from crop inputs – Application rates of crop inputs

are excessive from both an economic and environmental standpoint. Pesticide and fertilizer accumulations in water and soil are high and residues in foods are a growing concern. Conflicting governmental roles in production, regulation and sale of crop inputs contribute to the problem. Farmers and the general public are not sufficiently informed about these problems or their consequences for human health.

3.Fragile land – Alternative uses or land management practices for large areas of fragile lands now under cultivation need to be explored to address degradation problems. Reduced tillage and crop residue retention on the soil surface are needed. Permanent vegetation cover is needed to curtail soil erosion and desertification on steep slopes. Agro-forestry may also present economic opportunities, since the wood supply from natural forests is declining. Ruminant livestock production under environmentally responsible stocking densities may also have significant potential. Trees, grass and better soil management can help mitigate climate change by acting as carbon sinks and can help reduce the threat of flooding by reducing sediment levels in streams and lakes.

4.Mitigation of pollution problems with biological approaches – Engineering solutions to pollution problems are generally costly. New technologies for bioremediation are being developed in many places around the world. Transfer and adoption of existing technologies should be undertaken. Investment in environmental R&D in China may be too low.

5.Tillage and crop residue management – Excessive or inappropriate tillage is a worldwide problem. Much of the soil erosion and land degradation in China can be attributed to high intensity tillage or the removal or burning of crop residue on land used for annual crops. Effective conservation tillage technologies can be applied in China in conjunction with retaining or making more effective use of crop residue. Multiple economic and environmental objectives could be accomplished with the successful demonstration and adoption of reduced tillage techniques.

6.Livestock wastes – The number and size of intensive livestock operations is increasing. These can become point source pollution contributors in the absence of appropriate waste management infrastructure and government regulation.

7.Rural transition – Managing the transition of rural China from a predominantly agricultural to a more diversified economy is a major challenge involving many ministries and jurisdictions. One likely process in this transition will be farm and farmland consolidation. Social impacts will likely be significant and should be explored and better understood.

8.Sustainability of agriculture in west China – The particular characteristics of agriculture in west China may warrant special attention with a task force – high incidence of rural poverty, vast regions of low productivity resources, serious resource degradation, harsh climate and limited infrastructure for education, other social services and processing and marketing of farm products. The main sustainability issues in many parts of the area may be more social and environmental in nature than economic.

9.Carbon sinks and climate change - The recent agreement of the UN Convention on Climate Change in Bonn in July of 2001 to recognize agricultural soil carbon sinks as a scientifically recognized and internationally accepted method to mitigate against greenhouse gases and global warming provides an incentive for both developed and developing countries to develop more sustainable land management systems. This decision to include agricultural soil sinks in the Kyoto agreement (to be ratified in 2002) sends a very strong message to the farmers and land managers of the world. In addition to the many primary and secondary environmental and economic benefits of adopting more sustainable land management systems there will be greater economic and social opportunities associated with carbon trading and capacity building in developing countries.

Agricultural Structural Adjustment and Sustainable Development

in China's Southeastern Coastal Area

1. Brief review of the work of the Sustainable Agriculture Working Group

The southeastern coastal area, especially the Yangtze and Zhujiang river deltas, is the largest and strongest core economic belt in China and a main force that will lead China in participating in globalization and realizing modernization in the 21st century. With the reform and opening up over the past more than 20 years, the area has developed rapidly and experienced profound changes in the social and economic structure. But from the angle of sustainable development, there are many problems needing urgent solution. Among them are agriculture and its environmental protection. So the Sustainable Agriculture Working Group(SAWG) has devoted its last report to the CCICED to this area, hoping to raise constructive proposals on sustainable agricultural development in the area.

From March 25 to April 4, 2001, SAWG carried out an on-the-spot investigation of the representative areas of the Zhujiang River Delta and the Yangtze River Delta. In the Zhujiang River Delta, the group toured Guangzhou, Zhaoqing, Shenzhen and Zhuhai, where it inspected the Dinghushan Natural Reserve, an eco-agricultural demonstration farm, an agricultural modernization area and an agricultural science and technology center, heard reports by Guangdong provincial and local officials and experts and held discussions. In the Yangtze River Delta, the group toured Shanghai, Suzhou, Wuxi and Nanjing, where it inspected agricultural development zones, modern agricultural parks and ecological villages, the agricultural ecological station and Taihu Lake station of the Chinese Academy of Sciences and heard reports on related information.

After the field investigations, the group held an international forum in Nanjing of Jiangsu Province on the comprehensive management of water and land resources in Southeast China area on April 5-6. Participants were representatives of government organizations, international organizations (WWF etc.), international consulting companies, domestic research institutions and universities and experts of the biodiversity working group. Participants discussed the comprehensive management of water and land resources, biodiversity and global problems, agricultural environmental protection and the impact of China's accession to the WTO on China's agriculture. Following the forum, the working group began to discuss its work starting on April 7 and fixed the outline and division of labor in compiling an annual report.

The annual report is written on the basis of the on-the-spot investigations and forums in reference to the past work and a large amount of literature. It is divided into three parts, first introducing the agricultural development in the Yangtze and Zhujiang river deltas and then discussing the existing problems and offering some policy recommendations concerning sustainable agricultural development in the southeastern coastal areas. The conclusions and recommendations in the report have been submitted to the CCICED and other departments for reference.

2. Economic and agricultural development in the Yangtze and Zhujiang river delta areas

The southeastern coastal area of China covers Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong and Hainan, including the Yangtze River Delta and the Zhujiang River Delta. Although covering only 5.3% of the land area of the country, the area had 19% of the population, 21% of the urban population, with a population density of 454 persons/km in 1998. Its GDP made up one-third of the national total. Its local fiscal revenue accounts for 34%; fixed assets investment and floating assets made up 36% and 43%, respectively. The amount of foreign capital actually used on the per capita basis was 126 US dollars and the fixed assets investment on the per capita basis was 4,000 RMB yuan. This shows that it is an area with the biggest population density, the most developed economy, the highest urbanization level and the highest degree of openness; it is also a key area that will have a major impact on China's participation in the globalization process and on the Pacific-rim economic sphere and plays a significant role in China's economic development.

2.1 Development of the Yangtze River Delta

The Yangtze River Delta, with Shanghai as the center, is the most developed area in the Yangtze River basin and even in the whole country economically, in science and technology and culturally. The area spans Jiangsu, Zhejiang and Shanghai, including Shanghai, Nanjing, Suzhou, Wuxi, Zhenjiang, Changzhou, Yangzhou, Taizhou, Nantong, Hangzhou, Ningbo, Jiaxing, Huzhou, Shaoxing and Zhoushan, totaling 15 cities and 74 counties or county-level cities under their administration. The land area makes up 1% of the national total; population is about 6%; GDP, 15.4%; per capita GDP, 2.5 times the national average; and contributions to the central revenue is 22%.

The delta is in the confluence of the trunk of the Yangtze River and the southeastern coastal area. It enjoys a superior geographical location and has a vast economic inland area, thus giving rise to the features of high degree of openness and outstanding comprehensive advantages. Now the delta has become the largest comprehensive industrial base in the country, with a complete range of industrial sectors of a fairly high level and strong technical force. Its total export volume accounts for one third of the GDP; the amount of foreign capital makes up one third of the fixed assets investment. The industrial added value makes up over one fifth of the national total. The rapid development of township enterprises has made county-level cities new non-agricultural activity centers.

The delta has a good foundation for agriculture, with a high degree of intensive operation. It is an area of the country with high and stable yields. Although the land area occupies 3.5% of the national total, the output of major agricultural produce, such as grain, cotton and oil-bearing crops in the national total is 2-3 percentage points higher than the percentage of cultivated land in the national total. Its aquatic products, tea and cocoon account for 13%, 15% and 27%, respectively.

Since the 1990s, especially since the late 1990s, the development of the Yangtze River Delta has assumed some new features: One is that its regional industrial structure is undergoing massive adjustments, which were originated from the Asian financial crisis, slowing down of the global economy (especially in developed countries), China's imminent accession to the WTO, the oversupply of major manufactured goods and agricultural produce and deficient aggregate demand. The industrial structural adjustment manifests itself in (a) the rise of the proportion of the tertiary industry, up to 40% in Shanghai, Nanjing and Hangzhou, 10 percentage points higher than the national average; slight increase in the proportion of high technology industry and the development of industrialization and modernization of agricultural operations, with the input of technical equipment and mineral fertilizer more than double the national average; (b) the rapid development of infrastructure facilities including express highways, airports, harbors, electric power, telecommunications and information, creating the conditions for across-the-board opening up and further improvement in the investment environment; (c) a quick shift to market economy, with the trading volume of production factors and the commodities increasing steadily and the entry of a large number of foreign capital financial institutions, making it favorable to fuse with the international economy.

High intensity economic development has inevitably brought about all kinds of pressures. There are still many problems in realizing sustainable social and economic development. First of all, the economic growth in the delta mainly relies on the push by investment. It is thus inevitable to use a lot of land, energy and raw materials. Secondly, the convergence of urban industrial structure, compounded by no clear division of work among cities and heavy presence of processing industry as the main undertaking are unfavorable to optimizing the area's comparative advantages, especially its advantages in R & D and personnel. Competition at the same level inevitably leads to duplicated construction and mutual malicious competition. Thirdly, the regional environmental pollution, especially pollution by sewage, emissions by township enterprises and surface pollution, is very serious, thus degrading the quality of the environment. Fourthly, administrative segmentation has not only made city functions imperfect but also denied effective coordination among cities, thus leading to irrational utilization of resources as there is no unified planning.

2.2 Development of the Zhujiang River Delta

The Zhujiang River Delta Economic Zone is situated in the southern part of Guangdong Province. It covers Guangzhou, Shenzhen, Zhuhai, Dongguan, Zhongshan, Jiangmen, Foshan and Huizhou city's Huicheng District, Huiyang, Huidong and Boluo, Zhaoqing City's Duanzhou District, Dinghu District, Gaoyao and Sihui. The whole zone covers 54,600 km2, 30% of Guangdong Province. The 1999 resident population was 28,598,500, 39.4% of the provincial total and the per capita cultivated land was 0.049 hectares. There are 28 cities (including central city areas of county-level cities), 420 administrative towns, with the density of cities and towns being 108/10,000 km2.

Since the beginning of the 1980s, the Zhujiang River Delta has succeeded to effect sustainable and rapid development of the economy by converting the policy, geographical and personnel advantages into realistic economic advantages. In 1998, the GDP of the whole area was 582.5 billion yuan, 74.1% of the provincial total; per capita GDP reached 22785 yuan or about 2745 US dollars; its industrial output value was 997.7 billion yuan, accounting for 78.1%. In 1980-1998, GDP increased at an average annual rate of about 17%, higher than the growth rate of the whole province and the whole country in the same period. The background of development for the whole region is high density of population and cities, rapid economic development and heavy pressure on resources and environment.

As the Zhujiang River Delta already had a good foundation for realizing modernization, the area is likely to continue its growth momentum in the next 5-10 years. The area should adopt such measures as carrying out structural adjustment and developing high technology (especially electronics and information industries) by developing outward looking economy, pushing urbanization, raising the level of science, technology and education, accelerating infrastructure construction and controlling environmental pollution. On the other hand, sustainable development will encounter a series of problems, such as conflict between population and land and environmental problems, energy shortage and inadequate technical innovation.

2.3 Agricultural development in the Yangtze and Zhujiang river deltas

2.3.1 Changes in the overall environment for agriculture

Although the coastal area has a superior foundation for agriculture, with the changes in the external environment, the relative position of agriculture in the economy of the area has dropped. The functions as a grain production base are shrinking and it is inevitable for the shift of agriculture and structural adjustment. The changes in the overall environment of agriculture are mainly agricultural structural adjustment and China's accession to the WTO.

(1) Adjustment of agricultural structure

After a score of years of efforts, China has basically solved its food supply problem and grain has even entered a stage of relative surplus. Since 1995, the total grain supply has exceeded total demand, with inventories growing sharply and market prices falling steadily. Although, from a long-term point of view, China's national condition featuring more population and less land determines that grain supply is tight and it remains an arduous task to ensure effective supply. But the fact that there is currently a grain surplus calls for corresponding adjustment. At present, China has about 8-9% surplus of grain and other major agricultural products. This has provided an opportunity to adjust the mix of crops grown to make it more compatible with the market and relieve the long-standing tremendous pressures of grain production on agricultural resources and ecosystem. The central task in the new stage of agricultural development is strategic structural adjustment.

Meanwhile, changes have also taken place in comparative advantage of regional grain production. Grain production tends to move westward and northward. The steady increase in the investment in agriculture in the coastal areas has pushed up labor cost and land prices, hence the steady rise in the cost of agricultural production, thus losing its competitiveness as compared with inland areas. The major changes in the economic context and pattern of grain production have driven the objective of eliminating commodity grain production in the coastal areas (mainly Jiangsu and Zhejiang). When the state has relaxed its policy control over grain production in the five coastal provinces and cities and done away with grain production targets and deregulated the prices, the area should take further steps to effect a shift of agriculture and strategic structural adjustment.

(2) China's accession to the WTO

After China becomes a WTO member, agricultural product markets will inevitably be challenged by foreign products. But it is also favorable for China's agriculture to adopt a comparative advantage strategy. At present, every agricultural laborer has only one hectare of land to till while in the United States, every agricultural worker has to till 118 hectares. If calculated by the 1987 US dollar price, the agricultural productivity of each agricultural worker in 1994-1996 was only 1.1% of the US agricultural labor productivity in 1979-1981. Entering the mid-1990s, due to several price hikes, the prices of China's major agricultural products have become one third higher than the international market level. Generally speaking, China has lost its comparative advantage in the production of land-intensive agricultural products (grain crops, cotton and oil-bearing crops) but still retained its comparative advantages in labor-intensive products (vegetables, fruits and flowers) and some of animal by-products and aquatic products.

In the context of continuing reform and economic globalization, the basic line of thought for easing the supply of agricultural products, especially food grain is to shift from the traditional "highly self-reliant" grain security to a new food security by adjusting its agricultural structure, displaying comparative advantage in agricultural production, increasing agricultural productivity enhancement investment such as agricultural R&D, rural infrastructure and water control. The so-called new food security is to ensure the supply of food grain needed by the whole population, which means not only providing adequate food but also helping them raise the ability to improve the living standards and to buy grain. The heart of China's agricultural structural adjustment is to display comparative advantage, produce agricultural products with comparative advantage, increasing labor-intensive products, gradually raising the net import of grain and other land-intensive products, raising agricultural labor productivity and industrialization of agricultural operations, greatly developing ecological agriculture, water-efficient agriculture and diversified modern agriculture, increase investment into agricultural R&D, helping farmers improve strains of seeds to increase production and income, thus easing the pressure of agriculture on resources and environment.

2.3.2 Current conditions and problems of agriculture in the Yangtze and Zhujiang river deltas

(1) Current conditions and experience of agricultural development

The southeast coastal area has a good foundation, with a large number of intensive operations. With strategic structural adjustment, major changes have taken place in the agricultural sector in the Yangtze and Zhujiang river deltas. Agriculture is beginning to shift from traditional plant culture to modern industrial agriculture, from mainly plant culture to greenhouse and livestock production, from inward looking to outward looking, from labor-intensive to technology-intensive, from singular operation to diversified integrated operation, from individual operation to larger scale operation, with the level of industrialization of agricultural operation rising steadily.

Through years of efforts, the agricultural structural adjustment in the Yangtze and Zhujiang river deltas has yielded successes. First of all, the proportion of crop culture has dropped and livestock production and aquatic industry has risen and diversification has occurred under the precondition of ensuring the basic farmland and grain production capacity. Guangdong province was the first to adjust its agricultural structure. Its crop culture has dropped from 65.4% in 1980 to 43.9% in 1999 and livestock production and fisheries have risen from 25.4% and 21.2%. The ratio of grain crops and cash crops is 62:38 and the ratio of their output value is 26:74. Garden crops, vegetables and aquatic production have risen sharply. The Yangtze River Delta has begun to reduce the area of wheat and rape seed and increase the area of seeds, vegetables for export, flowers and specialty, highly-efficient economic crops.

The distribution of agricultural zones is tending to become more and more rational, with a diversified modern agriculture emerging. A number of agricultural production bases with local characteristics and crop culture advantages have been built during the structural adjustment that is oriented toward the market and looking outward. Production is moving toward larger scale, regional and specialized operations. The Zhujiang River Delta, for instance, has made great efforts to develop quality fruit, off-season vegetables, aloes and other economic crops and the Yangtze River Delta has taken up crab production. Modern agriculture of all descriptions has appeared in the two areas, including greenhouses agriculture, export agriculture, ecological agriculture, precision agriculture and sight-seeing agriculture (or tourism agriculture).

"Dragon head" or flagship enterprises have played roles in the industrialization of agricultural operations. With structural adjustment, agricultural industrialized organizations with modern agriculture as the main undertaking and streamlined production, processing and marketing and integration of agriculture, industry and trade have grown rapidly, giving rise to a number of what are known as "dragon head" enterprises that have a considerable economic strength and market competition and can help farmers become wealthy. With local resources as the foundation, these organizations and enterprises have identified their own leading products and built commodity production bases and adopted advanced technologies, giving a big boost to local agricultural development.

Output of quality agricultural products has increased and efficiency has improved; the market has been enriched and farmers' incomes have risen. In Guangdong for instance, through structural adjustment, the province has encouraged farmers to develop marketable famous brands, quality and specialty products, to boost their incomes. If calculated according to the 1990 price, the per capita income reached 3654 yuan in the whole province, about one third more than in 1995.

The successful experience of the Yangtze and Zhujiang river deltas in building modern agriculture, in addition to the support of natural and geographical advantages and township enterprises, include mainly: (a) carrying out large scale agricultural modernization demonstration. Guangdong Province, for instance, has built ten major agricultural modernization demonstration zones in the Zhujiang River Delta, and, through standardized farmland and basic facilities and the all-round development of market-oriented products, built wholesale markets for agricultural produce, which, together with "dragon head" enterprises, has promoted the industrialization of agricultural operations. By signing production and sale contracts with neighboring farmer households, it has effectively promoted the optimization of agricultural structure in the areas; (b) through various demonstrations and training, spreading advanced technical equipment and management methods, raising the level of farm mechanization, including modern biotechnology, irrigation and information technologies, adopting modern management methods and means to manage agriculture and lowering transaction costs; (c) Importing, cultivating and spreading new varieties, including the import of foreign vegetables, flowers and aquatic species to expand the areas for plant culture and animal industry ( problems concerning importing new strains will be discussed in later sections). Good results have also been achieved in cultivating new varieties at home.

(2) Major problems

Despite the achievements, there are still some problems. The most outstanding among them is the position and role of government in agricultural structural adjustment and modernization of agriculture.

No doubt, government has an important role to play in agricultural structural adjustment, including policy guidance, information service and technical demonstration. However, agriculture in the southeastern coastal areas is modern industrial agriculture, closely associated with markets. If the government intervenes extensively in the area of competition or attempts to direct production, it will inevitably court discipline by the market.

During our investigations, we have found that many areas have established agricultural modernization demonstration parks, which seem to be duplicative. Most of the parks have been established with the support of the government. Due to lack of full assessment, many parks (especially in the Yangtze River Delta) cannot meet the market demand and the demand of the local conditions. Many of the parks function as high-tech agricultural production and sightseeing facilities without much differentiation among them, often lacking specialties. Many parks have used a lot of high technologies to the neglect of adaptable technology and the integration of different technologies. Due to lack of economic analysis and scale of operations, the prices of agricultural products are too high in many parks and the efficiency is low, making them unable to compete with similar products from abroad. On the one hand, it lacks a stable high-income stratum to support the quality agricultural product market and on the other hand, it might meet with a drastic adverse impact after China's accession to the WTO. Besides, in face of the changing market, production without the protection of orders and contracts is fragile and incomplete information would lead to a new round of surplus production. So, these parks have, more often than not, become "imagery projects", which is hard to continue without sustained input or is unlikely to spread on a large scale.

Relatively speaking, the ability of coastal farmers is high. Our government should have full faith in the abilities of farmer households as economic persons, clarify its position and put emphasis on building and safeguarding market order, encourage farmers to display their regional comparative advantage, raise the utilization rate of resources and the quality of their products.

Meanwhile, problems concerning resources and environment arising from modern agriculture are getting serious. This will be discussed in the next section.

3. Resources and environment problems confronting agriculture and sustainable development in the coastal areas.

3.1 Agricultural development and resources and environmental problems

With the highly intensive activities of mankind, the sustained and rapid growth of the economy and intensive agricultural development, the whole southeast coastal area is confronted with a series of resource and environment problems. Land resources are dwindling and degenerating; the ecological service functions have declined; water quality is deteriorating, land-sourced pollution is getting serious and poses serious threats to the health of the people and sustainable social and economic development. The daily deteriorating quality of resources and environment has become the biggest hurdle to the sustainable, rapid and steady social and economic development in the southeastern coastal areas. Protection and consolidation of the resources in the areas and improving environmental quality have become one of the century-spanning tasks in need of urgent solution.

(1) Land area has been reduced sharply and the soil is deteriorating.

The occupation and reduction of cultivated land is an inevitable consequence of local economic development and also a restricting factor to agricultural development. Statistics show that in the recent 50 years, the cultivated land in the Yangtze River Delta has been reducing at an average annual rate of 0.57-1.15%, especially in the recent four years, when the cultivated land has been reduced by more than 200,000 hectares. But, land use as gardens has increased by 6,100 hectares; land for construction purposes has increased by 163,100 hectares; and land use for communication has increased by 32,300 hectares, exceeding the national average by five times. In 1989-1999, cultivated land was reduced by 160,000 hectares, averaging 16,000 hectares annually in the Zhujiang River Delta excluding areas under the administration of Huizhou and Zhaoqing. This was 65% of the total arable land reduction in the whole province. The per capita cultivated land is only 0.031 hectares. In Guangdong Province as a whole, the total land reduction in the six years from 1993-1999 was 165,500 hectares. By 2010, about one third more than the existing cultivated land is expected to be reduced. In the recent 15 years, the cultivated land has been reduced by 32,00 hectares in Shenzhen, accounting for 89% of the total cultivated land area, 21,000 hectares in Zhuhai, 38% of the total cultivated land in the city and 61,000 hectares in Shanghai, 20% of the total cultivated land. Further reduction of land is expected.

The soil resources of the areas have been deteriorating. The areas subject to water loss and soil erosion in the 1990s was twice as much as in the 1970s. Although the soil erosion areas have been reduced to 25%, new water loss and soil erosion areas have appeared due to stone quarries, mining and reclamation of land on slopes. At present, the new areas suffering from water loss and soil erosion in the Zhujiang River Delta are 5% of the total land area and it is 6% in Zhuhai, 8% in Shenzhen and 4.2% in Guangzhou. The irrational utilization of land has resulted in an imbalance in soil nutrition. Nitrogenous fertilizer has been over-applied; phosphate fertilizer has been accumulated in the soil; the application of potash fertilizer is inadequate. About 90% of the cultivated land lacks boron and molybdenum and 40% lacks zinc. Due to blind application of nitrogenous and phosphate fertilizer, soil and water have been polluted by nitrogen and phosphate. The nitrogen content of the soil is greater than 1.5g/kg in Yixing City in the Taihu Lake basin. It rose from 31.4% to over 80% in the 17 years from 1982 to 1999. The soil with an instant phosphate content greater than 15mg/kg rose from 2.6% to 20%. The nitrogen and phosphate movement from soil to water is twice as high as in other areas, causing serious pollution of water and soil.

(2) Surface-based pollution has been aggravated and water quality has been deteriorating.

The surface pollution in the coastal area mainly comes from discharge by intensive animal and poultry production, pesticides, fertilizer and sewage. Due to intensive development of industrial agriculture in the coastal area, surface pollution has been aggravated and a large amount of pollution has led to serious deterioration of the water environment near cities. In recent years, the nitrogen flowing into the water environment every year (including water discharge from fields and surface run-off) is about 400,000 to 500,000 tons. Application of nitrogenous fertilizer in the Taihu Lake area in 1990-1997 rose from 346,000 tons to 422,000 tons; that of phosphate fertilizer rose from 66,000 tons to 81,000 tons, adding up to a total discharge of nitrogen and phosphate of 4545kg/km2 and 46.5kg/km2. The discharge of these nutrients is the main cause of eutrophication of the water of harbor areas and the occurrence of red tide. Data for 1999 show that the quality of water in the Nanjing section on the lower reaches of the Yangtze River was 2.4 times the Category II standard and that in the Qidong county section rated as Category III. The trunk and tributaries of the Zhujiang River were mostly rated as Categories II or III. The water near cities was seriously polluted by organic matter and the water quality was inferior to that of Standard Category IV. Eutrophication and red tide are getting more and more serious. About 70% of the Taihu Lake area has been polluted and the water quality of 80% fails to meet the standards of State Category III. Ammonia nitrogen and total phosphate contents in most of Taihu Lake only met Category IV standards. Water shortage due to water quality is serious. Two very large outbreaks of blue algae in Taihu Lake in 1991 and 2000 caused an economic loss of more than three billion yuan. Red tide with a high content of phosphate occurred in the western sea area of Xiamen in 1987 and in the Dapeng Bay of Guangdong in 1990. The frequency of red tide in the Yangtze River mouth in Shanghai increased from one time in several years to 5-6 times a year. The number of red tides off Hong Kong increased from twice in 1987 to 17 times in 1997. The red tide has seriously affected the fishing industry and offshore economic development.

Pollution caused by fertilizer, pesticides and irrational irrigation has seriously harmed the quality of agricultural produce. A survey of 320 polluted spots in the region carried out by agricultural investigators in recent years indicated that vegetables polluted by nitrate and nitrite every year has exceeded one million tons and the total area polluted by heavy metals made up 80% of the total area surveyed. The nitrate content of vegetables for year-round consumption in large cities has exceeded the critical level. These findings should arouse serious attention by responsible agencies.

(3) Biological resources are declining and ecological security is out of control

In 1995, the wooded area in the whole region was 33.49 million hectares. The current area of wooded land is only 18.54 million hectares, with a forest cover of 32.96%. Although afforested areas have increased in recent years, forest destruction is still very serious. There is improvement in local areas, but deterioration as a whole.

Over-fishing and pollution by heavy metals and organic matter in the Yangtze River Delta have seriously threatened the stocks and survival environment for shrimp, crab and other aquatic resources. Fish stocks in the four major offshore fishing grounds have been dwindling and quality has been deteriorating. Silverfish in Taihu Lake has become virtually extinct. The annual silverfish output around the Yangtze River mouth in Shanghai was three million tons in the 1960s. But in the 1980s, the annual output was only 290,000 tons. In the 1990s, the whole fishing ground disappeared. The wetland in the Futian Natural Reserve of Shenzhen City in the Zhujiang River Delta has been reduced by 148 hectares in the recent decade, accounting for 49% of the total area. The number of rare land birds has been reduced by 33%; that of water birds has been reduced by 23%, and worm-eating birds have been reduced by 40%. The red wood trees, which used to occur across the southern shores, are now sparsely scattered, with the number of families reduced from the original 40 to seven or eight species.

Due to the lack of ecological security-risk evaluation, the large number of species imported from elsewhere in China and abroad pose a serious threat to the ecological environment of the regions. In Guangdong, 57% of the newly imported species did not undergo ecological security risk evaluation. For instance, the "Fushou spiral shell" imported and raised in rice paddies, although yielding considerable economic returns, is now threatening the growth of farm crops due to large scale proliferation, so much so that it is now very difficult to control. Imported "rice weed" and "water-guard" are proliferating very rapidly, threatening the crops and water environment and exacerbating pollution.

(4) Air pollution is serious and acid rain is frequent

Air pollution mainly caused by soot and vehicle emission in the coastal area is very serious, adversely affecting agricultural production. At present, the annual amount of coal burned in the Yangtze River Delta is nearly 80 million tons. Shanghai has 1.5 million motor vehicles, driving up the contents of NO and micro particles (PM10). The frequency of acid rain has reached as high as 30-40% of events. The emission of SO2 in the Zhujiang River Delta has reached 277,000 tons/yr, and other waste gas emissions reached 464,000 tons/yr., which respectively account for 64% and 53% of the total in Guangdong, making acid rain in the whole area very frequent. The acid rain frequency is 69% in Guangzhou, with an average pH of 4.4, and 83% in Jiangmen County, with an average pH of 3.8. The area of grain crops, cash crops and vegetables subject to acid rain in the four provinces of Jiangsu, Zhejiang, Fujian and Guangdong has reached 450 ha./yr., causing an annual economic loss of 1.54 billion yuan, accounting for 34% and 36% of the total in the 11 provinces in South China. The economic loss from forests due to acid rain has reached 5.8 billion yuan annually, 35% of the total loss in the 11 southern China provinces. The frequency of acid rain over the recent 20 years in the area has been increasing. The pH 4.8 and 5.0 isolines have obviously moved southward. The soil pH value in Zhejiang and Fujian has dropped by 0.1-0.2 units since the 1960s. By 2050, the salt-based saturation of the soil will drop by 50% in Fujian and by 35% in the Hangzhou area. Acid rain will lead to acidification of soil, thus affecting regional economic performance

(5) Compound pollution has been aggravated and environmental quality has been deteriorating.

With rapid development of industrialization and urbanization, the region will become an area with serious compound pollution resulting from multiple channels and from multiple polluting sources. In recent years, the eutrophication of the water bodies in the region has accelerated and nitrate content of the underground water has exceeded the prescribed standards and surface water has been more seriously polluted. The pollution of soil and agricultural products by heavy metals has become more and more serious. SO2 and dust in the air have increased. Acid rain has become more and more frequent. The particulates in cities are increasing (PM2.5 has exceeded the new American standard of 0.065mg/m3 by 2.6 times), causing environmental pollution and ecological destruction in large areas, posing a serious threat to regional development and people's health.

According to a survey, the soil in Yixing of Jiangsu Province in the Yangtze River Delta has been polluted due to irrigation by wastewater from a copper plant, with the total copper content of the soil rising from 20mg/kg to 150mg/kg and nearly 66.6 hectares of land yielding nothing. The soil in Fuyang of Zhejiang Province was victimized by compound pollution due to irrigation with waste water and deposits of waste gas particles, with the contents of Cu rising to 819mg/kg, Zn to 1564mg/kg, Cd to 6.8mg/kg, Pb to 465mg/kg, Ni to 617mg/kg and As to 25.2mg/kg. Nearly 666.6 hectares of land had to be abandoned or planted to other crops. A 666.6 hectare vegetable production base in Hangzhou City was polluted by benzopyrene (Bap content reached 42.3~376.8µg/kg, and the background value of the soil was 15 µg/kg) and heavy metals (Hg, Pb, and Cd). Many varieties of vegetables had to be changed. In the Zhujiang River Delta and Guangzhou City, the cadmium content in the soil in the 1990s exceeded the prescribed standards by 70% and 58.3% (Cd health standards in the soil is ≤0.3mg/kg) and the mercury content of the soil exceeded the standards by 50% and 16.7% (the health standard is≤0.2mg/kg). The lead content of the soil in the Guangzhou City irrigation area exceeded the standard by 16% (the health standard is ≤60mg/kg). On many occasions, rice is polluted by cadmium and other products are polluted by mercury, lead and arsenic.

It is worth noting that there are now more and more micro toxic heavy metals and volatile (BTEX) and semi-volatile (PAHs, PCB, PCDD/FS) toxic organic contaminants than in the past. Due to interaction and complexity between pollutants and environmental media, the environmental pollution problems have to be solved by modern science and technology.

3.2 Experience of domestic and foreign studies

In recent years, all countries in the world are more and more concerned about the direct threat to human survival and economic development due to deterioration of environmental quality. In highly developed areas of some countries, such as the northeastern part of the United States, the northeastern part of Japan, Greater London in Britain and the Ruhr area of the Rhine River in Germany, efforts are made to study the basis and control of environmental factor pollution such as water, soil, air and ecology. Researchers have listed economically developed areas as major areas where environmental conditions have deteriorated due to strong interference by humans. There are four trends in international environmental science: (a) Utilization rate of resources and regional environmental quality evolution in the context of global changes; (b) the interaction and interface processes among surface water, soil, air and ecological systems; (c) the relationship between coupling and feedback in the evolution of regional environmental quality and human activities and economic system processes; (d) multi-disciplinary integrated study of environmental quality deterioration.

China began to study the environmental problems of water, soil and air pollution and control from the late 1970s. In recent years, many research projects have been carried out on the resources and environmental problems in the Yangtze and Zhujiang river deltas. But due to several reasons, no in-depth study has been done concerning human activities, economic processes and environmental quality evolution, especially surface pollution, in the economically developed southeast coastal areas.

At present, both China and other countries are stepping up studies of environmental quality deterioration brought about by rapid development of the economy, such as IGDP, WCRP, ZHDP and Diversities program as well as MA (millennium ecosystem assessment). All elevated the regional environmental problems to the height of the interaction between man and nature and linked them with global changes and regional economic development, getting deeper into the evolution, mechanism and control theories of environmental quality with the aim of controlling regional or global environmental changes and promote sustainable social and economic development.

This shows that, domestic or foreign, there are the problems of deterioration of resources and environmental quality in areas that have experienced rapid economic development. The evolution and control problems have been listed as major projects for study.

4. Recommendations for sustainable agricultural development in the southeast coastal area.

In order to promote sustainable development of agriculture in the southeastern coastal area, protect resources and raise the utilization rate of resources, and effectively check the deterioration of the environment and improve the general quality of the regional environment, we make the following recommendations:

(1) To clarify the position and role of agricultural modernization in the coastal area.

At present, agriculture in the southeastern coastal area is in a transitional and restructuring stage and urgently needs clear positioning of its functions and roles. Agricultural modernization is a dynamic process. Agriculture in the coastal area should feature high efficiency, high quality and environmental-friendliness in order to exploit the region's comparative advantage. It is an important component of the urban economy in the regional, national and international context. To benefit from comparative advantage while ensuring environmental protection, industrial modern agriculture in the coastal areas with a high density of cities should not emphasize self-reliance in grain supply. Instead, it should (a) provide high quality, high added value fresh agricultural products and; (b) provide environmental service for cities. The latter is often ignored. The service function of the agricultural ecological system can improve the environment, landscape and investment opportunities for cities and also bring about economic benefits from tourism. In this sense, industrial agriculture must be diversified.

Restructuring in the coastal areas is going ahead with considerable momentum. It is necessary during the transitional period to exercise unified management and coordination without too much intervention. Guidance should come from the market economy. Agricultural production should be oriented toward displaying regional comparative advantage, lowering cost, raising the utilization rate of resources and environmental protection. In order to prevent extreme market fluctuation and over-production, it is necessary to fully develop agriculture, with due consideration given to scale efficiencies and production diversity. To ensure the quality and competitiveness of agricultural products, it is necessary to establish an agricultural product quality testing and monitoring system and an environmental protection system in the rural and river basin areas. There must be clear division of functions, concerted efforts in law enforcement and improvement in corresponding laws, regulations and policies while giving priority to surface pollution and the rational utilization of resources. It is also necessary to strengthen division of labor and cooperation among different regions. At the same time, it is necessary to increase investment in agricultural sciences and technology and to pay attention to the integration of modern technology in agricultural development in the coastal regions, especially the development of technologies that reduce production cost.

(2) Emphasize protection of cultivated land and strictly manage resources.

It is imperative to strengthen planning for the utilization of land and pay attention to the protection of land under cultivation, strictly control the areas of basic farmland under priority protection and prevent unwarranted occupation of cultivated land for urban development. Efforts should be made to strengthen overall control of water loss and soil erosion resulting from the leveling of hilly land in the development zones. The land occupied should be compensated for by adopting such method as "dynamic balancing" or "creating an equal plot of land that is used". In the development of new land reclamation areas, special attention should be given to the assessment of environmental impact. One of the important reasons for the existing utilization pattern of land resources is the policy on ownership rights to resources. As the tenure of land is often not clear, it is easy to occupy land for other non-agricultural uses. The inevitable result is excessive development and destruction of land resources. It is, therefore, essential to revise the ownership policy and control of land resources.

In grain production, it is, first of all, necessary to rationally arrange the proportion of grain production and regulate the self-sufficiency level in light of local conditions. Special economic zones, which have a low self-sufficiency rate, should ensure grain supply through the market or by signing contracts with farmers. At present, the regulation and balancing of grain self-sufficiency should be based on the country as a whole. At the same time, it is necessary to take into consideration international market development and regulate grain supply within a region or among different regions. In the restructuring, it is necessary to ensure the stability of the basic farmland. Once needed, the land occupied may be reclaimed for grain production (known as storing up grain in the land).

(3) Strengthen water environmental control and reduce surface pollution.

To strengthen protection and management of water sources, special attention should be paid to the protection of the sources and quality of the Yangtze River and Zhujiang River, improve the environment of the Taihu Lake basin, economize the use of water and establish a unified water quality monitoring and management system. The discharge of industrial waste water and sewage water, especially agricultural non-point pollution that causes eutrophication and red tide of lake and sea water have aroused great concern from society. It is, therefore, necessary to strictly control the discharge of industrial and sewage water into rivers, lakes and seas and raise the rate of treatment. At the same time, it is necessary to adopt or improve the implementation of a wide range of measures to ensure the rational application of fertilizer and pesticides. These measures should include both regulatory approaches, e.g. the banning of the most toxic pesticides, and economic instruments, e.g. the imposition of pollution taxes on nitrogen fertilizers and pesticides. The aim should be to reduce the application of nitrogenous and phosphate fertilizer and improve the application methods to raise utilization rate. Through restructuring, the discharge of nitrogen and phosphate should be reduced to prevent non-point pollution of agriculture. Comprehensive methods should be adopted to prevent and control plant diseases and pests and strictly control high-residue farm chemicals and harmful additives. In the Taihu Lake area, the areas for aquatic production should be regulated and controlled and efforts should be made to improve the production techniques, treat waste water and bottom mud and adopt biological and engineering means to control eutrophication. In the coastal area, efforts should be made to strengthen planning for the development of polders, strictly control land pollutants from being discharged into the sea so as to prevent red tide.

In a word, water and environment control in the region is a comprehensive and complicated issue that needs concerted efforts from all quarters. In order to effectively implement the above measures, unified leadership of the whole region or even the participation of the central government should be strengthened to map out a common program of action and regional policies. This is a problem that needs urgent solution.

Concerning the water environment control in the Taihu Lake area, the following recommendations are made:

· To strengthen overall pollution control by integrating efforts to control water, soil and pollution from fertilizer and other pollutants discharged by industry, agriculture and daily life. Special attention should be given to the remediation of East Taihu Lake.

· To intensify the unified management of the whole lake area and map out laws and regulations concerning water environment control in order to quicken the pace of environmental control and intensify monitoring and control of the environmental quality of the lake area.

· To reduce the application of nitrogenous fertilizer (about 15%), improve the application methods to raise utilization rate; control the application of organic fertilizer and, through restructuring, reduce the application of fertilizers and pesticides in general.

· To rationally adjust and strictly control the expansion of the areas for aquatic production in the lake area and inside the lake. The development of fish, shrimp and crab should be well distributed and appropriated to reduce pollution arising therefrom.

· To organize related units to strengthen the control and restoration studies of the surface pollution and water quality of the Taihu Lake area.

To prevent surface pollution caused by areas surrounding the lake, it is necessary to adjust the structure by preventing stone quarrying, reducing the discharge of wastes of rural living and animal droppings and build broad leaf forests and grass protective belts on the banks of the lake to prevent pollutants from flowing into the lake water.

(4) Launch a major program to control pollution from livestock enterprises

China's economic success and rising incomes have led to the rapid development of the livestock sector (especially pork production) over the past 20-30 years. Average annual growth rates have been two to five percentage points faster than the crop sector, and its shares of total agricultural GDP has doubled. Per capita consumption has more or less doubled over the past 20 years although rural consumption levels tend to be 25-50% lower than in urban areas (Fuller, 1997). However, these economic benefits have carried severe environmental penalties. The environmental costs have been high with large volumes of solid wastes from pig and poultry units; 40% or more of wastes being discharged without treatment into watercourses; and increasing emissions of nitrous oxide and ammonia to the atmosphere. Moreover, the relative importance of this pollution is likely to grow worse in the future as point source industrial and domestic wastes are brought more under control.

The main issue is not the appropriate technologies – these generally exist although some may need to be imported and adapted to Chinese conditions. It is the lack of a national strategy to address the waste disposal problem. Some Provinces have responded to the problem but have been hindered by the lack of adequate regulatory and economic mechanisms to ensure compliance.

The main actions required are: Development of a national livestock waste management strategy to provide the general framework for provincial and local action; Prepare and implement provincial and county level integrated agricultural waste management strategies for the collection and use of livestock wastes; Improve policy and regulatory framework with clearly defined and enforceable discharge and emissions standards and effective waste disposal charges; Introduce meaningful penalties for breaches in regulations and expand the range of economic instruments to discourage poor livestock waste management, e.g. introduction of pollution taxes to limit waste discharges from livestock farms and fisheries; Strengthen or prepare planning constraints and guide lines to optimise the spatial location of livestock production units; Increase support for the adoption and dissemination of appropriate technological measures, with emphasis on introducing the better techniques for livestock waste management already available in China and additional ones from the developed countries. Draw lessons from N. America and the EU on the failure of regulatory approaches alone to achieve adequate livestock waste management.

(5) To strengthen ecological construction and pay attention to ecological security and agricultural cleaner production.

Although the forest cover in the area is close to 50%, the total biological mass has not increased accordingly. Study shows that it would take 150 years to re-construct a stable forest ecological system. It is, therefore, necessary to have a long-term point of view and make persistent efforts with regard to ecological construction with afforestation as the main task. In addition, to ensure ecological security, it is imperative to conduct risk appraisals of imported species in order to prevent new varieties from having adverse effects on the ecological system.

At present, many areas have established several kinds of ecological models, such as woods and gardens model in the hilly areas, marshland model in the low-lying areas and aquatic production and comprehensive utilization model. All have accumulated a lot of experience. In the Zhujiang River Delta, Heshan City has spread the model of planting mixed needle and broad leaf trees interplanted with grass and fruit, with the area reaching 20,000 hectares. The economic returns for the last ten years have reached 1.5 billion yuan and social benefit has been 3.3 billion yuan. All the experience should be spread through demonstration.

To advocate agricultural cleaner production and build a pollution-free agriculture one of the major tasks is ecological construction. What is needed is to control soil, water, fertilizers and pesticides. It is necessary to develop new ways of fertilizer application and agricultural management and establish and improve the monitoring and appraisal system on the impact of fertilizer and irrigation on environment, strengthen the comprehensive management of pesticides and perhaps subsidize the production of high efficiency and low toxicity farm chemicals. The low efficiency and inferior quality of fertilizer for growing vegetables are caused, in many cases, by artificial factors driven by conflicting interests. It is necessary to exercise oversight and control through the enforcement of existing laws.

On the evolution and control of water and soil resources and environmental quality, priority should be given to comprehensive control, including optimization of the ecological environment. First of all, during the transition period, it is essential to pay attention to investment in science and technology instead of being driven by market forces or economic returns. Special attention should be given to investment and support to science and technology concerning ecological environment. Secondly, in the transition and development periods, it is necessary to pay attention to appraisal of the quality of the ecological environment and to conduct in-depth experiments and demonstration studies to avoid blindness in development. It is also necessary to formulate laws, regulations and policies favorable for ecological management, strengthen publicity of the significance of a good ecological environment and put it into action.

(6) To control compound pollution and pay attention to the control of micro toxic pollutants.

Compound pollution is an important part of environmental pollution control in the region. The methods already established include a new method of using optic-chemical and heterogeneous chemical principles to remove sulfuric particulates in the air, a method of using chemical and biological purification to control point-based pollution discharge, and a new technology to use alkalization and fermentation and other chemical and biochemical method to utilize wastes. Among the new methods, the utilization of organisms (plants and microorganism) to remove pollution from soil has become a hot topic in the world. This method needs process mechanism (microscopic), soil-plant-microorganism system (mesoscopic) and regional scale (macroscopic) monitoring and appraisal. The compound pollution caused by micro toxic contaminants in the environment is sure to become a new problem of environmental pollution confronted by rapid development of the economy and should merit full attention of relevant agencies.

(7) To carry out study of the problems concerning resources and environmental quality in the southeastern coastal area.

It is a burning task brooking no delay to solve this stern and practical problem of the deterioration of resources and environmental quality in the region. The strategic objectives for solving this problem should, initially, be: to enable the region to avoid or check further deterioration of the environmental quality arising from the rapid development of the economy in the whole region; An understanding of the history, current conditions and future development trends of such resources as water, soil, air and ecological resources should lay a scientific foundation for the coastal provinces to realize modernization.

The scientific objectives for solving the problem should be:

a. Relationships between development and utilization of land resources and the evolution and feedback of environmental quality, including time and space patterns

b. The interfacing process and control of the deterioration of environmental quality of water bodies, including nitrogen-phosphate bio- and geochemical processes and control of eutrophication of water bodies.

c. Safe production and monitoring of agriculture, including evolutionary mechanism of the ecological system, and monitoring, control and appraisal system of ecological safety of agriculture.

d. Mechanism of pollutants formed by heavy metals and organic contaminants including the mechanism for the formation of soil pollution by heavy metals

In a word, the solution of the deterioration of environmental quality in the region will not only lay a solid foundation for the coastal provinces to realize modernization but also play a warning role for future development of the middle and western parts of the country and the whole of the southeastern area. Based on this perspective, it is recommended that the relevant departments of the state should establish projects and organize research units to carry out research into the evolution of the resources and environmental quality in the region.

ANNEX 1

Trade Liberalization, WTO and China's Food Economy in the 21st Century: Large, Modest, or Little Impact?

Jikun Huang

Center for Chinese Agricultural Policy, Chinese Academy of Sciences

Scott Rozelle

Department of Agricultural and Resource Economics, University of California, Davis

I. Introduction

After 14 years of negotiation it is likely that China will join the WTO in 2001. The sheer size of China's economy and its rapid growth will make China a crucial player in the future development of world markets for inputs and outputs of food and agricultural products, agribusiness, and industry. What are the impacts of trade liberalization in general and WTO in particular on China's agricultural production? What are their implications for China's food security and world trade? What are the policy implications of the changes in the economy resulting from trade liberalization?

The answers to these questions are by no means clear. Many studies show that both China's economy and the rest of the world will benefit from China's WTO accession, but they disagree on the impacts on China's agriculture. Some researchers claim that the impacts on China's agricultural production and world trade are marginal (Anderson, 1997). Others believe that the impacts of trade liberalization on China's agricultural sector should not be understated (Wang, 1997; DRC, 1998; Huang, 1998). On the other hand, several more recent studies concluded that the projections based on theoretical simulation models may overstate the impacts of WTO on China's agricultural sector (Huang et al., 2001).

The overall goals of this paper are to examine the impacts of trade reform on China's agriculture trade patterns in the past 2 decades and to explore both theoretical and realistic effects of trade liberalization on China's food balance in the early 21st century. The paper is structured as follows. The next section presents an overview of China's agricultural trade in the past 2 decades. In the third section, the effects of trade liberalization on China's agriculture are projected using an agricultural sector-wide general equilibrium model. Finally, conclusions and policy implications from the study are summarized in the last section.

II. China's Agricultural Trade Pattern Overview of Trade

One of the most significant features of China's open door policy and the shifting trade regimes is the remarkable expansion of China's international trade. The average annual exports rose from US$ 22.16 billion in 1980-84 to US$160.84 billion in 1995-97, an increase of more than 7 fold or an annual growth rate of 14.6% (Huang an Chen, 1999). Although imports also increased significantly, the annual growth rate of imports (12.2%) was lower than export growth. This moved China from a trade deficit in 1980s to a significant trade surplus in 1990s. China has enjoyed an annual trade surplus of about US$ 23 billion since the mid-1990s. China had about US$ 140 billion foreign exchange reserve in 1998 (SSB, 2000).

Agricultural trade had been an important contributor to China's foreign trade. The share of agricultural trade in China's total trade has declined. China's agricultural trade has also increased during the past two decades, but at a slower growth rate. As shown in Table 1, China's agricultural trade value increased from US$9,112.8 million in 1980-84 to US$25,772 billion in 1995-97, with an annual growth rate of 6.0%. During the same period, the annual growth rate of agricultural exports was 8.0%. China's agricultural trade balance has been in a surplus position since 1983. The annual agriculture trade surplus reached about US$ 4-6 billion in the 1990s.

In terms of the degree of "openness", the ratio of agricultural trade to agricultural GDP has increased from 10.3% in 1980 to 14.9% in 1997. This indicates that China's agricultural sector has been increasing its participation in world agricultural markets since the1980s. Comparing agricultural exports and imports, from 1980 to 1997 the ratio of agricultural exports to agricultural GDP increased from 4.6% to 9.1%, while the ratio of agricultural imports to agricultural GDP has barely changed. This may suggest that China's increasing participation in world agricultural markets is mainly in its agricultural export sector, a reflection of moving from an import substitution strategy to a more export oriented regime.

The Changing Structure of China's Agricultural Trade

Trade disaggregated by crops indicates a changing composition of trade and suggests an export trend toward products in which China has a comparative advantage. The net exports of land intensive bulk commodities, such as grains and oilseeds, have fallen, while exports of higher valued, more labor intensive products, such as horticultural and animal (including aquaculture) products, have risen (Table 2). The proportion of grain exports, which was only around 20 percent of total agricultural exports in the 1990s, is about half of what it was in the early 1980s; by 1997 horticultural products and animal and aquatic products accounted for around 80 percent of agricultural exports (Table 2). These trends are even more evident when reorganizing the trade data and grouping them on the basis of factor intensity (Table 3), namely land intensive agricultural products,[1] labor intensive agricultural products,[2] and labor/capital intensive agricultural products.[3]

Taken as a whole, we believe the trends in China's agricultural trade over the past two decades reveals that the changes expected to occur as a result of WTO are not new. Changes in the level and patterns of agricultural trade suggest that China was already moving towards a situation that was more consistent with its domestic resource endowments. To the extent that the new trade agreements reduce barriers to allow more land intensive products into the domestic market and the reduction in restrictions overseas stimulates the export of labor intensive crops, WTO's main impact will be to push forward trends that were already underway. In short, we believe the nature of the changes in agriculture that will be caused by WTO is a continuation of past trends rather than a radical policy change.

III. Impacts of Trade Liberalization on China's Agriculture

To evaluate the impacts of trade liberalization on China's agriculture, we applied an existing CCAP's Agricultural Policy Simulation and Projection Model (CAPSiM). CAPSiM is a partial equilibrium model, or sector-wide general equilibrium model (considering all cross price impacts for both demand and supply equations). A description of the model can be found in Huang and Chen (1999).

Defining Projection Scenarios

Three scenarios are defined for simulation of China's future agriculture. They are a baseline scenario, a free-trade scenario, and a free trade with rapidly increasing agricultural research expenditure scenario. The baseline scenario assumes that agricultural commodity prices are determined through the balance of supply and demand forces in the domestic market. The annual level of research expenditure is assumed to be 4.0 percent in the future. The free trade scenario assumes that China will continue liberalizing its agricultural sector and reach a free trade environment for most agricultural commodities by the year of 2005. Specifically, the free trade scenario assumes all agricultural products will gradually reduce its tariff level, export subsidies, and trade barriers after 2000, and will reach a zero tariff and completely phase out non-tariff trade barriers by the year 2005. This represents the maximum impact of trade liberalization on China's agriculture. The actual impact of trade liberalization and China's joining WTO will locate somewhere between the simulation results of the baseline scenario and the free trade scenario.

In order to provide a long term estimate of China's food security under a free trade regime, we project China's food supply, demand and trade toward 2020 under a free trade scenario without and with progressive improvement in agricultural productivity enhancement investment. The latter assumes that the annual level of agricultural research expenditure will rise from 4 percent (baseline assumption) to 6 percent.

Impacts of Trade Liberalization on Production, Demand and Trade

Baseline

According to our analysis, per capita food grain consumption in China hit its zenith in the late 1990s and declines over the forecast period. The average rural resident will increase food grain consumption slightly through 2005, and urban resident food grain consumption will level off in the projection period. In contrast, per capita demand for red meat is forecast to rise sharply throughout the projection period. Rural demand will grow more slowly than overall demand, but urbanization trends will shift more people into the higher-consuming urban areas (in latter 1990s an urban resident consumed about 60 percent more red meat than his/her rural counterpart). While starting from a lower level, per capita demand for poultry increases proportionally more. The projected rise in red meat and poultry demand will stimulate aggregate feed grain demand.

Baseline projections of the supply of grain show that China's domestic total grain production will increase to 464 mmt in 2005 with an annual growth rate of 1.44% in 2000-2005 (Table 4). The production growth rate falls below the domestic grain consumption growth rate (1.60%), indicating a widening gap between domestic supply of and demand for grains. The growth rate of grain production in 2000-2005 will be much lower than the growth rates obtained in 1980s and 1990s; evidence of the impacts of declining public investment intensity in agricultural R&D since the mid-1980s (Huang et. al., 1998). Net grain imports will rise to 20 mmt in 2005 (Table 4). Despite the increase in grain imports in the period of 2000-2005, grain self-sufficieny level will remain as high as 95-96% in the early 21st century.

In the livestock and aquatic sector, increases in domestic production nearly match the increases in demand. Annual production growth rates of various animal products will range from 3% to 7% in the period of 2000-2005, the growth rates are equivalent to the growth rates of the demand for these products in the same period (Table 5). The sector will continue to export, but the quantities of exported livestock products and fish are very small relative to the size of the total domestic market.

The demand for pork, which accounts for about 70% of meat or nearly 90% of red meat consumption, will rise from 23 mmt in 2000 to 27 mmt in 2005 with an annual growth rate of 3.43% in 2000-2005 (Table 5). Under the baseline scenario, pork production is projected to grow at 3.39% annually, a growth rate close to the demand growth.

Free Trade Scenario

Under the free trade scenario, domestic grain prices (except for rice) will fall. The decline in the domestic price of grain raises grain consumption and reduces production. Our projection shows that China's domestic grain production will fall below domestic grain consumption under the free trade scenario. Compared to the baseline scenario, the grain deficit will increase. China's net grain imports will increase to 60 mmt in 2005 (Table 4), a level representing about 12% of total grain consumption in China. In comparison with the baseline scenario, China's domestic grain production will decline by 11 mmt (or 2.3%), while China's domestic grain consumption will increase by 29 mmt (or 6.0%) in 2005.

Rice is the only major grain that will benefit from trade liberalization. The most serious impacts of trade liberalization on grains occur for maize followed by wheat and soybean. Under the free trade scenario, China's domestic maize production will fall far below maize consumption. Production will grow annually by only 0.69%, while consumption will grow by 5.91% as a result of the decline in maize price and surging feed demand for livestock production expansion after trade liberalization. Consequently, imports of maize will increase dramatically to 39 mmt in 2005. China would likely become the world's largest importer of maize if the sector were to be completely liberalized. Compared to the baseline projections shown in Table 4, net impacts of trade liberalization on annual maize production, consumption, and trade will be –5 mmt, 11 mmt, and 17 mmt, respectively, for the average of 2000-2005. In 2005 when complete trade liberalization is reached, net impacts of trade liberalization (relative to baseline) on maize production, consumption, and trade will reach levels of –10 mmt, 20 mmt, and 31 mmt, respectively.

Although wheat is food grain and food grain consumption response to price change is weaker than that of feed grains, the impact of trade liberalization on wheat is also substantial. Wheat imports will rise to 22 mmt in 2005. The net impacts of the free trade versus baseline scenarios on wheat imports will be as high as 12 mmt in 2005. Soybean is the other grain crop that will be affected significantly by trade liberalization.

The impacts of trade liberalization on China's animal sector are significant. But, in contrast to the grain sector, the increase in prices of major animal products and a decrease in feed prices resulting from trade liberalization will stimulate domestic livestock production on the one hand, and dampen consumption on the other hand. Livestock and fish product exports will expand considerably (Table 5).

For example, under the free trade scenario, China's annual growth rate of pork production will reach 6.33% (3.39% under the baseline scenario). At the same time pork consumption annual growth rate will decline from 2.43% in the baseline to 2.16% in 2000-2005. The impacts on pork exports will reach 6.0 mmt in 2005.

A similar large impact of trade liberalization will occur for the production, consumption and trade of both poultry and fish simply because of the changes in poultry prices. The only product that will be significantly adversely affected by trade liberalization is milk. About one quarter of milk consumption will be imported from the world market after 2005, compared to about 3% in the baseline scenario.

Several other interesting points were derived from this study (for detail, see Huang and Chen, 1999). Under the baseline scenario, while grain self-sufficiency level will decline over time, China will be able to achieve one of the major components of its food security (grain self-sufficiency) target in the future. The only grain that will fall below its 95% self-sufficiency level in the long term is maize. Maize self-sufficiency will decline significantly from more than 100% currently to about 94% in 2005 and to less than 90% in 2020.

Although the baseline scenario or the policies embodied in the baseline assumptions would ensure a high level of grain self-sufficiency, the costs related to this scenario should not be underestimated. All grain prices, except rice, in domestic markets will considerably exceed international prices. For example, maize, wheat and soybean domestic prices will exceed international prices by about 26%, 20% and 21% in 2005, respectively, and the gap between domestic and international prices will increase notably after 2005, particularly for maize. The price of maize will be as high as the price of wheat by 2020.

Complete trade liberalization will obviously challenge the current food security goal defined by the government. China's grain self-sufficiency level will decline rapidly from 98% in the mid-1990s to 88.4% in 2005 (Table 4), a level that is likely unacceptable by the current government. Although grain self-sufficiency will rise gradually after 2005, about 8% of domestic grain demand will need to be imported in 2020. It should be also noted that the shocks of trade liberalization on China's grains differ largely between food and feed grains.

The most effective policy to improve China's food security and raise the grain self-sufficiency level in the long term is to increase agricultural productivity enhancement investment such as agricultural R&D, rural infrastructure and water control (i.e., irrigation). For example, Table 4 shows that China could achieve its grain self-sufficiency target in the long term even under the free trade regime if the annual growth rate in agricultural research investment raises from 4% to 6%.

IV. WTO Impacts: Large, Modest, or Little

Should China worry much about the impacts of China joining WTO on its agriculture, farmers' income and national food security? Given the results on the impacts of free trade on China's agriculture presented in the last section, it seems that China's accession to WTO will have a modest rather than a large effect on its agriculture. We believe that there are many reasons to conclude that the net negative impact will be substantially less than that predicted by many scholars. First, and most obvious, while the rural population may lose in net terms as agricultural producers due to net price reductions in key commodities, it will gain as consumers of these same agricultural products. Also, rural workers gain if they are able to find more employment opportunities in sectors that thrive as a result of lower restrictions on China's export goods.

Beyond these more familiar general equilibrium effects, the nature of China's rural economy will insulate many producers from striking changes. In rural economies similar to those found in China and in economies in which markets are still underdeveloped buyers and sellers face high transaction costs. Producers in underdeveloped regions are unlikely to be greatly affected by changes in border prices of farm commodities. In fact, according to theoretical and empirical findings, it is actually possible to have income effects and changes in the shadow values of land and labor that induce agricultural households to increase output when market prices fall. Models that do not account for the semi-subsistence nature of these households tend to overestimate their price responsiveness.

There are other forces that will also help guard against the most severe long-run effects. Even in an economy dominated by small farmers, it is possible that there could be a fairly large, short-run impact; prices could fall further and domestic output and incomes could decline more than expected. However, this does not mean that China's agriculture will wither. The continued ideological commitment of China's leadership to self-sufficiency would almost assuredly elicit a sharp policy response in terms of investment in agricultural R&D, irrigation, and rural infrastructure. Alternatively, if the investment programs were not successful, there are other actions that China's government could take under the existing agreement. Under the current agreement, when imports exceed the nation's TRQ commitment, China can still legally raise tariffs up to a pre-determined binding rate, which currently averages about 60 percent for most major farm commodities.

More fundamentally, it is easy to overlook the fact that China's accession to WTO affects protection policies not only at home but also in countries to which China is currently exporting and potentially could export even more. Undoubtedly, wheat, maize and soybean producers are the most vulnerable to changes that will follow China's entry into WTO. In a post-WTO world, however, China's horticultural and livestock producers could find themselves with greater market opportunities and become more profitable and more competitive on international markets.

Finally, in a post-WTO environment, farmers could benefit from access to more and cheaper imported technologies. WTO will not only subject China's farmers to greater competition on the output side, it can increase their competitiveness around the world by increasing access to the world's input markets.

V. Concluding Remarks

While at first glance China's accession to WTO seems to represent a great leap forward in liberalization, we show that the nature of the changes in agriculture caused by WTO is a continuation of past trends rather than a radical policy change. Besides this, there are still many factors that stand between the current situation and a significantly freer trade regime. Pessimism aside, however, perhaps the best way to characterize China's accession to WTO is that it is not a radical departure from the past, but is most aptly described as yet another step—yes, a significant one--on China's road to a more market-oriented agricultural sector. But even though it is not new and it will not lead to complete liberalization, China's accession to WTO will hold many new challenges and opportunities for reformers, producers, and consumers.

Will farmers lose or gain from China's accession to the WTO? If one considers China's accession to the WTO as the middle way between the baseline and free trade regime scenarios, we can conclude that the impacts of WTO on farmers' income are very modest. One of our main contributions in this paper is to demonstrate that even the upper limit impacts (free trade regime) are not enormous. The other contribution is to have demonstrated that understanding future benefits and costs hinges not only on the fact that China produces many products in many regions of the nation that will be in competition with the rest of the world. In addition, there is a whole set of more fundamental factors that will ultimately determine how well China's farmers fare in the post-WTO world: farmer decision making in an environment of imperfect markets; the policy and investment response of the Chinese leadership; and the ability of China's farmers to enter overseas markets and to access new sources of investment and imported technology. In the long run, the final accounting of WTO's impact on Chinese agriculture will depend on how leaders, producers, and consumers respond to the new opportunities offered by WTO and how they deal with the new challenges.

References

Anderson, K. 1997. "On the Complexities of China's WTO Accession," the World Economy, 20(6):749-72.

Development Research Center (DRC), 1998. The Global and Domestic Impact of China Joining the World Trade Organization, A Project Report, Development Research Center, the State Council, China

Huang, J. (1998), "The Impact of Joining the WTO on China's Grain Market," International Trade, no.20(1998):10-13..

Huang, J. and C. Chen,1999. Effects of Trade Liberalization on Agriculture in China: Commodity and Local Agricultural Studies, United Nations ESCAP CGPRT Centre, Bogor, Indonesia.

Huang, J., S. Rozelle, and M. Rosegrant. 1999. "China's Food Economy to the 21st Century: Supply, Demand and Trade," Economic Development and Cultural Change,.47(1999):737-766.

Huang, J., S. Rozelle, and L. Zhang. 2001. "WTO and Agriculture: Radical Reforms or the Continuation of Gradual Transition," China Economic Review, 11(2000):397-401.

State Statistical Bureau, various issues of China Statistical Yearbook, Beijing.

Wang, Z. 1997, "The Impact of China and Taiwan joining the World Trade Organization on U.S. and World Agricultural Trade: A Computable General Equilibrium Analysis", Technical Bulletin Number 1858, Department of Agriculture, the United States.

Table 1. Annual agricultural trade indicators in China, 1980-97.

Period

Agri. trade

(million

US$)

Agri. share in total

trade

(%)

Agri. export

(million US$)

Agri. share in total export

(%)

Agri. import

(million US$)

Agri. share in total import

(%)

Agri.

trade balance

(million US$)

80-84

9113

21.0

4368

19.8

4745

22.4

-378

85-89

11906

13.4

7664

19.7

4243

8.5

3421

90-94

17048

10.4

11625

13.7

5423

7.0

6201

95-97

25772

8.7

14908

9.3

10864

7.9

4044

Annual growth rate (%)

6.0

8.0

3.9

Sources: State Statistic Bureau, China Foreign Economic Statistical Yearbook, various issues; China' Customs Statistics, various issues; China Statistical Yearbook, various issues.

Table 2. China's agricultural trade (million US$) by commodity grouping, 1985-97.

Grains and vegetable oils

Horticultural products

Animal

products

Other agricultural products

Year

Value

($ million)

Share

(%)

Value

($ million)

Share

(%)

Value

($ million)

Share

(%)

Value

($ million)

Share

(%)

Agricultural exports

1985

1927

33.1

2004

34.5

1302

22.4

582

10.0

1990

2020

21.2

3785

39.7

2947

30.9

789

8.3

1995

1860

12.7

5924

40.4

6218

42.4

672

4.6

1997

3178

20.7

5294

34.5

6203

40.4

663

4.3

Agricultural imports

1985

1154

47.2

398

16.3

642

26.2

253

10.3

1990

3503

62.5

373

6.7

552

9.8

1181

21.1

1995

6879

57.0

895

7.4

1982

16.4

2313

19.2

1997

5419

55.2

870

8.9

1873

19.1

1648

16.8

Table 3. China's agricultural trade (US$ million) by factor intensity, 1985-97.

Year

Land intensive

products

Labor intensive products

Labor/capital intensive products

Value

(US$ million)

Share

(%)

Value

(US$ million)

Share

(%)

Value

(US$ million)

Share

(%)

Agricultural exports

1985

2119

36.4

2199

37.8

1497

25.7

1990

1689

17.7

4971

52.1

2881

30.2

1995

875

6.0

7095

48.4

6704

45.7

1997

2158

14.1

6538

42.6

6642

43.3

Agricultural imports

1985

1072

43.8

680

27.8

695

28.4

1990

4032

71.9

642

11.5

935

16.7

1995

6575

54.5

3278

27.2

2216

18.4

1997

4644

47.3

2179

22.2

2987

30.5

Table 4. Projections of grain production, demand, and net imports under various scenario, 2010-2020

2005

2010

2020

Baseline:

Production (mmt)

464

499

560

Net import (mmt)

20

20

18

Demand (mmt)

484

519

578

Food (mmt)

257

266

279

Feed (mmt)

151

175

217

Others (mmt)

76

78

83

Grain self-sufficiency (%)

96

96

97

Free trade regime

Grain net import (mmt)

60

55

48

Maize (mmt)

39

47

64

Grain self-sufficiency (%)

88

89

92

Free trade regime + increase agri research expenditure (annual growth rate 4% à 6%)

Grain net import (mmt)

60

52

17

Maize (mmt)

39

46

51

Grain self-sufficiency (%)

88

90

97

Source: Authors' projection.

Table 5. Impacts of the trade liberalization (free trade) on livestock products and fish production, consumption, and trade, 2000-2005.

Baseline

Free trade scenario

Commodity

In the year

of 2005

(000 tons)

Annual growth rate in

2000-05 (%)

In the year

of 2005

(000 tons)

Annual growth rate in 2000-05

(%)

Pork

Production

27703

3.39

31984

6.33

Consumption

27462

3.43

25727

2.16

Net import

-241

-6257

Beef

Production

3015

4.49

3090

4.94

Consumption

2998

4.54

3119

5.49

Net import

-17

29

Poultry

Production

7595

4.66

8683

7.42

Consumption

7885

4.61

7502

3.66

Net import

290

-1181

Milk

Production

9364

6.86

8888

5.68

Consumption

9697

6.67

11716

10.90

Net import

333

2828

Fish

Production

15081

5.89

15721

6.72

Consumption

14909

5.73

14581

5.37

Net import

-172

-1140

Note: the production and consumption data used in CAPSiM model are significantly different from the data published by the State Statistical Bureau. The database in CAPSiM on the livestock and aquatic production and consumption correct for the problems on over-reporting productions and under-estimating consumption of these products.

ANNEX 2

Biotechnology: Prospects and Consequences

Brian Morrissey

Agricultural Consultant, Canada

Background:

Last year, Council suggested three subjects for further study by the SAWG working group. Biotechnology was one of these subjects. This paper was prepared as a consequence.

Introduction:

The policy issues surrounding Biotechnology at have been at the forefront of public policy debate in many countries in recent years. At issue is the desire of each nation to maximize the benefits from new technology while minimizing the risks associated with such a new technology.

Definition:

Before discussing Biotechnology., it may be worthwhile to define the aspect of Biotechnology we wish to discuss. Three definitions of Biotechnology are proposed and discussed in order to ensure that we each have the same understanding of the term for the purpose of this discussion:

1. Biotechnology - The application of technology to Biology. This definition is so broad that it covers everything from cutting the grass to molecular biology. It will not be used in this discussion.

2. Biotechnology - The use of technology to derive "human desired" products from Biology. Again, this definition is too broad for the purpose at hand. It covers such "old" technologies as making yogurt and beer. It will not be used in this discussion.

3. Biotechnology - The use of molecular techniques developed post Crick & Watson. This definition limits our discussion to those techniques developed using the knowledge placed at our disposal by Crick and Watson's seminal work on the structure of DNA. These are the techniques in molecular biology developed over the last fifty years. The use of some of these techniques has generated debate in the public policy domain, for example, concepts such as "transgenic", "across species", "genetically modified organism - GMO".

Topics of Discussion

The use of Biotechnology has generated public policy debate and raised scientific, social, & economic questions. The issues raised can, arguably, be grouped under three headings:

Issue One - NO GENES moved between cells

Example: diagnostic test for:

l e.g.. Predisposition to a Disease

l e.g.. Presence of a Disease

l e.g.. Resistance to a Disease

The press, as a reflector of public opinion, has not been critical of the use of Biotechnology for diagnostic purposes in humans, animals, or plants. Indeed the press, generally, has described such usage in a neutral to positive tone, reflecting the augmented diagnostic capacity provided by such techniques. The "point of differentiation" which makes this technique acceptable in the public forum appears to be the non-invasive nature of the tests, and the fact that genes are not moved between cells. It is seen as having benefits without associated risks.

The "Scientific Implication" is Accurate, Fast Disease Identification. The "Social Implication", arguably, is nil in Human, and Plant Science.

Issue Two - genes moved WITHIN SPECIES

Example: Disease resistance gene moved from a wild to a commercial potato.

The media has generally been silent on this issue. The fact that genes are only moved "within the same species" appears to be the critical factor. Whether the genes are moved by classical breeding – crossing a male and female – or by a "new" technique appears to have been irrelevant to the public. In such a case there is no "Fear of the Unknown".

The "Scientific Implication" is, for example, more accurate, and faster development of disease-resistant plants. The "Social Implication" is, arguably, nil in the domains of Plant and Animal Science.

Issue Three - genes moved ACROSS SPECIES (transgenic)

Example: The 'Antifreeze' gene moved from a fish to a plant.

In this case, public debate has been engaged. The "point of differentiation " appears to be the moving of genes across species. This is something, which is not readily done in nature. Arguments have thus been made that this is an un-natural act. It is suggested that combinations of genes hitherto unknown could occur. "Fear of the Unknown" is an issue.

The "Economic Implication" raises the following policy questions at the national level:

l Do the potential benefits to the nation exceed the potential risks?

l Is the practice acceptable in Export Markets?

The "Social Implication" raises an additional policy question.

l Is the practice acceptable to the nation's citizens?

Decision-Making Context at the national level – Problems to be solved.

Problems existed in most national contexts which might lend themselves to a Biotechnology-based solution.

For example, impurities in diagnostic reagents, caused problems of lack of sensitivity and specificity – in a word a loss of accuracy – in test procedures. Purer reagents would have conveyed a benefit. Thus:

n Diagnostics: a need for purer reagents.

l More Rapid, Sensitive, Specific Tests.

Similarly, problems associated with impurities existed which presented safety concerns. For example, products derived from animal species could be transmitters of zoonotic disease.

Purer products would have a tangible benefit. Thus:

n Product Safety: a need for safer products

l Purer Human Growth Hormone: Dwarfism

l Purer Insulin: Diabetes

l Toxin Reduction: high-quality rape-seed (Canola).

Finally, problems existed associated with disease control – for example, in crops, which might be alleviated by a Biotechnology solution. Examples would be virtually any of the stresses which challenge crops. Thus, if one uses the medical definition of disease – a deviation from health - problems associated with excess heat, excess cold, drought, bacterial attack etc. might be addressed. Thus:

Disease Control: Heat, Cold, Drought, Bacteria, Virus, Fungus, Insect.

u Heat/Drought Resistance: e.g. Canola-Quality Mustard.

Decision-Making Context –Solutions

From a national decision-making point of view, the problems listed above were known to exist. Biotechnology offered the potential to make progress towards solving them. Taking plant breeding as an example, the following options, for example for crops, were made available to national policy-makers:

u Do nothing: Consequence - reduced or lost crop.

u Use:

u Physical Change - prune affected tissue.

u Chemical Change - spray with pesticide.

u Biological Change - introduce resistance into the plant using Biotechnology.

Doing nothing is not an attractive option, since it involved humans eating the residual crop, which nature's diseases, pests, and predators leave for us.

All three of the specific actions listed above involve some degree of interference with nature. The choice is consequently to pick the least intrusive solution, which gives us the most benefit and the least risk. In a word, there is "no free lunch". If we wish to have an acceptable crop at year-end, we have to take action to ensure we get "lunch" at harvest time.

Real Life - Current Practice

The public reaction and consequent political decision on the use of Biotechnology in many countries appears to have precipitated out as follows:

n DIAGNOSTICS: Biotechnology now used with no controversy.

n WITHIN SPECIES: Biotechnology now used with little or no controversy in plants.

n ACROSS SPECIES: Controversial in the plant world, and even more controversial in the animal world. Empirically, it would appear that decisions taken on a nation-by-nation & crop-by-crop basis. The key factor appears to be the mix of potential risks and benefits for the crop and nation in question.

What This Means – I

Countries, which urgently need the benefits of transgenic Biotechnology, tend to use the technique, but take steps to minimize the risk.

e.g.. countries that feel they need to use the technique to help feed their people. In these cases transgenic crops are usually pre-tested in a manner similar to that used to test exotic imports for risk to the nation's:

i) Environment - e.g. plant out-crossing

ii) Agriculture - e.g. development of plant weediness

iii) Human Health - nutrition, safety

Note: Despite such testing, there is always a residual risk, as the future outcome is inherently unknown. Modeling is, after all, only a simplification of reality – not reality itself.

What This Means – II

Countries which:

u do not urgently need the benefits of transgenic Biotechnology

e.g.. countries whose citizens have sufficient food , and whose citizens who do not like transgenic Biotechnology take steps to eliminate the political risk - they do not use it. For example, BST is not used in certain countries with excess milk – e.g. EU.

What This Means – III

Countries which:

u do not urgently need the benefits of transgenic Biotechnology - whose citizens have sufficient food, and,

u have citizens who are at least neutral to transgenic Biotechnology, and

u rely on domestic markets

take steps to control scientific risk e.g. US

What This Means – IV

Countries which:

u do not urgently need the benefits of transgenic Biotechnology -whose citizens have enough food, but

u rely on export markets

take steps to control economic risk e.g. New Zealand.

Evidence vs. Emotion

Science vs. Superstition

In matters related to Human Health, Animal Health, and Plant Health the WTO:

u allows trade restrictions based on scientific evidence of a "danger to health".

u bans trade restrictions based on Emotion e.g.. citizens "likes or dislikes".

While the WTO does not accept the public's "likes and dislikes" as grounds for a trade restriction, the public's preferences are nonetheless a potent force .The public's "Fear of the Unknown" has played a role in delaying the market acceptance of innovations for generations. Examples are as follows:

u Appert's discovery of food canning,

u railway locomotive – the slight tremors in the ground caused by the rumbling engine were thought to cause abortions in cattle,

u food irradiation – approved by the World Health Organization, but questioned by citizens.

Note: "Fear of the Unknown" is reduced when the "Unknown" is made known, and the public given decision-making power over use of this knowledge:

- Knowledge (registration of BST for use in milk in the US was made known to the public )

- Control (labeling of BST milk in the US allowed the public to accept/reject the product)

Suggested Conclusions

The following public policy position is suggested at the national level on the use of Biotechnology techniques in Agriculture:

1. Biotechnology be used where NO GENES are moved between cells e.g.. diagnostics

Biotechnology be used where genes are moved WITHIN SPECIES with appropriate controls e.g.. within species plant breeding.

3. Each country make its own decision on a case by case basis depending on its own mix of perceived risks and benefits where genes moved ACROSS SPECIES.

For example:

i) a country with an urgent need to feed its people might pre-test and utilize transgenic crops,

ii) a country with less urgent needs might restrict the use of transgenics to crops where protein components are not used as food for humans e.g. consume canola oil, but not canola protein.

iii) A third country might allow the use of transgenic crops for the production of human medication – but only in a high containment greenhouse e.g. production of blood anticoagulant in a plant species.

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[1] Land intensive agricultural products include: cereals; vegetable oil seeds and oleaginous fruits; edible vegetable oils; raw cotton; and other vegetable textile fibres.

[2] Labor intensive agricultural products include: live animals; fish and crustaceans, and other aquatic invertebrates; dairy produce, bird's eggs, natural honey, edible products of animal origin; live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage; edible vegetables and certain roots and tubers; edible fruits and nuts, peel of citrus fruits or melons; coffee, tea, mate and spices; products of the milling industry, malt, starches and wheat gluten; plants for industrial and medicinal use; rice straw and forage; lac, gums, resins and other vegetable saps and extracts; vegetable plaiting materials; vegetable products not elsewhere specifies or included; animal fats and waxes; raw silk; and raw wool.

[3] Labor/Capital intensive agricultural products include: meat and edible meat offal; preparations of meat, fish and crustaceans, and other aquatic invertebrates; sugars and sugar confectionery; cocoa and cocoa preparations; preparations of cereals, flour, starch or milk, and pastry products; preparations of vegetables, fruits, nuts or other parts of plants; miscellaneous edible preparations; beverages, spirits and vinegar; residues and waste from the food industries; prepared animal feeds; tobacco and manufactured tobacco substitutes; raw hides and raw furs.