Alternative scenario for China s grain policy: Impact assessment based on OECD PEM Model

Transcription

1 Alternative scenario for China s grain policy: Impact assessment based on OECD PEM Model ATPC Workshop, Beijing, 26 October 2017 Shingo Kimura, Agriculture Policy Analyst, OECD Wusheng Yu, Associate Professor, University of Copenhagen

2 2 What is OECD s Policy Evaluation Model (PEM)?

3 3 OECD s Policy Evaluation Model (PEM) as a tool to measure impacts of policies in the PSE database OECD PSE database records the transfer between consumer, taxpayer and producers, but does not show the policy impact PEM is a partial equilibrium model based on the PSE database, developed to connect PSE database and its economic outcome This analytical tool has been used intensively for country studies, Monitoring and Evaluation report and thematic work such as decoupling The model covers US, Canada, Mexico, EU, Switzerland, Japan and Korea China module is developed with an expert input

4 4 PEM quantified the impacts of policy change Market impacts Welfare impacts Environmental impacts Production Tax payers cost Fertilizer use Consumption Consumer welfare Chemical use Net Trade Producer welfare Animal number (cattle) Self-sufficiency rate Land use change

5 5 What is the reform scenario of agricultural policy in China?

6 6 Level of producer support is increasing in China % of gross farm receipts 20 Other payments Input use Commodity output Percentage PSE Source OECD (2017), "Producer and Consumer Support Estimates"

7 CNY per tonne Million tonnes 7 High grain price led to high level of production and stock Wheat market development in China 3,000 2,500 2,000 1,500 1,000,500,0 Producer price Reference price Minimum price (white wheat),140,120,100,80,60,40,20,0 Production Import Ending stock Source 2017 OECD PSE/CSE database Source OECD-FAO Agricultural Outlook

8 8 Overall direction of China s agricultural policy reform Price support Payment based on input use/price Payment based on output Payment based on area of production Commodity-wide payment Agri-environmental payment

9 9 Main questions in designing policy reform scenarios Domestic price support policy Direct payment system What is the impact of on-going reform in soybean and maize to replace domestic price support to target price system? What would the difference in impacts depending on the way direct payments are implemented (output, land area, historical area)? What if this reform is extended to rice and wheat?

10 10 Definition of on-going and future reform scenarios Replacing with payment based on Market price support Scenario 1 Scenario 2 Scenario 3 Scenario 4 Output Current area of production Current area of production Historical area of production On-going reform Future reform CNY billion Soybean Maize Rice Wheat

11 11 What is the market and welfare impact of reform scenarios?

12 12 On-going reform: Transformation of public procurement to direct payment for soybean and maize Impact on commodity market Input use Production (% change) Self sufficiency (change in % points) Domestic price (% change) World price (% change) Chemical (%change) Fertilizer (% change) Reduction in market price support complemented by.. S1.Payment based on output or S2. Payment based on production area Soybean Maize Soybean Maize

13 13 On-going reform: Transformation of public procurement to direct payment for soybean and maize Producer Input supplier Consumer Tax payer Reduction in market price support complemented by.. Scenario 1.Payment based on output (CNY 33 billion) Change in CNY billion Scenario 2. Payment based on current area of production (CNY 33 billion) Source OECD PEM

14 14 Future reform scenario: Transformation of public procurement to direct payment extended to rice and wheat Impact on commodity market Input use Production (% change) Self sufficiency (change in % points) Domestic price (% change) World price (% change) Chemical (%change) Fertilizer (% change) Reduction in market price support complemented by.. S3. Payment based on production area or S4. Payment based on noncurrent area Source OECD PEM Rice Wheat Rice Wheat

15 15 Future reform scenario: Transformation of public procurement to direct payment extended to rice and wheat Producer Input supplier Reduction in market price support complemented by.. S3. Payment based on production area (CNY 107 billion) or S4. Payment based on noncurrent area (CNY 107 billion) Source OECD PEM Consumer Change in CNY billion Tax payer

16 16 Impacts of on-going reform Current price support policy is boosting production at the cost of intensive input use. A large part of welfare is captured by input suppliers. On-going reform is in a right direction to address these issues. The level of self-sufficiency drops as the payments are more decoupled. Policy change in China could have a considerable impact on world markets, but it depends on the type of payment and the change in public stockholding regime

17 17 Implication for future reform Even if price support is replaced with decoupled area payment, rice production does not reduce much due to 1) difficulty to convert paddy land use and 2) impact on world rice market is high. For wheat, domestic production reduces much more and the impacts on world market is smaller. Converting to decoupled area payment has a larger impact on farm income and reducing environmental pressure. The reform is WTO compatible.

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