Inspiration of Direct Grain Production Subsidy System in Typical Countries and Regions

ShunqiangSUN，LuCHEN，YaLI

College of Economics and Management，Southwest University，Chongqing 400715，China

According to benefit degree of farmers，the subsidy for grain production includes direct subsidy and indirect subsidy.To adapt to WTO rules，the center of grain production subsidy in all countries has been shifted to field of the direct grain production subsidy.The direct grain production subsidy is the chief and commonly used policy tool in agricultural support and protection policy systems，and the transfer payment provided by government for domestic grain production activities or agricultural grain producersby financial means.Thus，to conform to this development trend，

American-European countries constantly expand ranges of direct grain production subsidy and increase subsidy amount through revising new agricultural act.These have exerted huge impact on world grain production pattern and China's grain industry.Therefore，drawing on the experience of typical countries and learning their merits will be of great realistic significance to promoting increase in China's grain farmers'income，stabilizing effective supply of grain，and increasing the competitive power of China's grain industry.

1 Direct grain production subsidy system in typical countries and regions

1.1 TheUnitedStates

1.1.1 Direct grain production subsidy system.In the United States，the direct grain production subsidy system mainly includes income（direct payment and deficiency payment），support（subsidy for farmland protection），service，and emergency subsidies.（1）Direct payment system.The direct payment system was initiated in 1996 to meet requirements of Uruguay Round Agreement on Agriculture，to reduce financial expenditure［1-2］.From 1996，government provided fixed subsidies for7 consecutive years for farms that signing flexible production contract.The calculation method is as follows：The amount of subsidies for certain crop type of certain farm＝The subsidy area approved by the government for the crop type of the farm×The unit yield specified for subsidy of the crop type×The subsidy amount for unit yield of the crop type.

where the sum of subsidy amount for all crop types in the farm is the total subsidy amount of the farm.Fixed Direct Payments，or'decoupled payments'，provide farmers with direct income unrelated to the market.In other words，the subsidy amount is related to crop type，area and unit yield of the base period.Once the area and unit yield are determined，they keep unchanged.It is unrelated to production price no matter the farm produces and unit yield.

（2）Deficiency payments.In the United States，deficiency payments are direct government payments made in 1973 to farmers who participated in annual commodity programs for wheat，feed grains，rice，or cotton，to ensure farmers receive reasonable price not lower than actual price［1-2］.Specifically，government firstly sets a reasonable price that can ensure income of farmers as the target price，if the market price is lower than the target price，government provides deficiency payments，at the rate of target price to market price and the loan ratio whichever is higher.In Farm Security and Rural Investment Act of 2002，the deficiency payments were renamed as＂target price and counter-cyclical payments＂，and the deficiency payments became the difference between target price and effective price.The effective price is equal to the sum of market price and loan ratio（whichever is higher）and the direct payment rate.The new practice deducts direct payments from deficiency payments，avoiding repetitive subsidy.In addition，the new act also reduced the target price of some crops to increase subsidy for farmers.

（3）Farmland protection measures.The Farmland Protection Program of the United States is a protection plan integrating adjusting grain yield and protecting land resource，to encourage farmers to lie fallow of certain farmland in short or long term［1-2］.Short term lying fallow is to solve surplus production of agricultural products，while long term lying fallow is to conserve water and soil resources.From 1961，American government stated that at least 20%farmland should lie fallow，and farmers can obtain compensation in cash or in kind equivalent to 50%of the yield in normal year.For farmland with fallow part exceeding 20%，the compensation percentage can be increased to60%.From 1965，the fallow policy was divided into fallow without compensation and fallow with compensation.

（4）Agricultural insurance and disaster subsidy.In the United States，agricultural insurance includes crop yield insurance and crop income insurance.In the event that the yield decreases due to climate changes or other factors or farmers'income is reduced due to price fluctuation，the insurance company will make compensation［1］.To promote development of agricultural insurance，government took two measures.The first is to encourage commercial insurance companies to participate in agricultural insurance.In 1938，the United States founded Federal Crop Insurance Corporation（FCIC）to provide reinsurance for commercial insurance institutions and reduce risk of their participation in agricultural insurance.The second is to provide subsidy at amount of50-80%of premium for farmers applying the insurance.At the same time，the American govern mental so attachesgreat importance to disaster subsidy for agriculture.It provides subsidy for losses resulted from natural disaster through special disaster assistance program，to help farmers suffered from disaster stabilize their income and restore production.

1.1.2 Performance of American direct grain production subsidy system.The United States has the most developed agriculture，and its agriculture has basically realized modernization，regional ization and specialization.The United States is also a large grain production country，its total grain yield and per capita yield rank the first，and its grain export takes the leading position in total volume of world grain export.Through the direct grain production subsidy，it canmaintain a cheap grain production system，solve survival problem of farmers，basically realizemain objectives of American grain subsidy policy，provide sufficient healthy grain foods with reasonable price，and provide prosperous economic environment for commercial farms.

1.2 TheEU

1.2.1 Direct grain production subsidy system.The direct grain production subsidy system of EU includes income（direct income subsidy）and support（infrastructure construction，environmental protection，and fallow）subsidies.

（1）Direct income subsidy.Tomake up for losses of farmers due to drop of price，EU implements direct income subsidy policy for farmers，provides crop area subsidy for grain producers，and the crop area subsidy is unrelated to the crop yield［1，3，4］.Grain crops in the range of subsidy of EU include Soft wheat，durum wheat，barley，oat，rye，triticum，Chinese sorghum，millet，buckwheat，and corn.

（2）Environmental protection subsidy.After surplus grain appears in EU，they started attaching greater importance to environmental protection.Since 1992，EU implemented the subsidy policy to encourage farmers to conduct extensive operation and provided subsidy up to250 hm2for farmers suffered from economic losses due to reduction in application of chemical fertilizer，herbicide，and insecticide［1，4］.Subsidy for environmental protection plays a great role in protecting and maintaining comprehensive production capacity of grain.

（3）Fallow subsidy.The fallow subsidy is mainly to ensure surplus problem on the condition of ensuring agricultural income［1，4，5］.The EU specifies that farms enjoying fallow subsidy includes compulsory and voluntary fallow farms.The former refers to farms with total grain yield greater than 92 tons，at least10%part is fallow，but the overall fallow area should not exceed 33%of subsidy area；the latter refers to farmswith total grain yield up to 92 tons，for these farms，the fallow area should notexceed 33%.

（4）Infrastructure construction subsidy.Apart from the above measures，EU also supports grain and agricultural development through infrastructure construction（25%subsidy for land improvement and water conservancy projects），tax preference（reducing agricultural taxes and tax rate），and credit support（low interest short，medium and long term loan）［1，4，5］.

1.2.2 Performance of EU direct grain production subsidy system.These policies basically realize overall objectives of direct grain production subsidy：ensuring and increasing competitive power of export of EU grain products，ensuring increase in farmers'income，and ensuring reasonable income and living level of farmers through promoting comprehensive development of rural economy.

1.3 Japan

1.3.1 Japanese direct grain production subsidy system.Japanese agricultural protection policy plays an important role in the grain production subsidy policy.To ensure farmers'income and increase the subsidy efficiency，Japan changed support for farmers from price support to direct subsidy，and the direct grain production subsidy ismainly income subsidy.

（1）Rice Farming Income Stabilization Program.This program was developed to prevent impactof drop of rice price to farmers，and set up emergency fund to provide subsidy for income loss resulted from price drop［1，6］.The subsidy objects of this program are farmers who complete task of production adjustment specified by Japanese government.Firstly calculate the base price according to average value of rice price in previous three years，then provide 80%of the difference between base price and current year price from the fund for rice farming income stabilization.

（2）Direct subsidy to farmers.Direct subsidy to farmers is a system issued for farmers in mountainous and hilly areas in 2000［1，6］.Subsidy object of this policy requires that at least1 hm2land parcel is adjacent，the slope is large（1／20 for paddy field and above 8°for dry land），land parcel should be regular（most parcels are less than 0.3 hm2，and average area of land parcel is less than 0.2 hm2），grass area takes up a large portion（more than 70%），and there is slope artificial grass land；other special conditions include high proportion of aged farmers and land lying idle.In addition，there are some special requirements for production activities，including favorable for reducing or avoiding idle land，promoting comprehensive development of rural areas，preventing water loss and soil erosion，and protecting living beings.The theoretical criterion of subsidy is 80%of the difference in production costs bet ween mountainous areas，hilly areas and plain areas，and each household can obtain annual subsidy not higher than one million Japanese yen.Japanese government provided a total of70 billion yen with the subsidy area up to0.9million hm2，i.e.0.08million yen（about630 USD）every hm2.

1.3.2 Performance of Japanese direct grain production subsidy system.Japanese direct grain production subsidy policy basically realized requirements of Basic Law on Food Agriculture and Rural Areas passed in 1999，to ensure overall objectives of food security，sustainable development of agriculture and revitalization of rural areas.Through the direct grain production subsidy，Japanese surplus rice production was improved at certain stage，income of rice farmers was increased，competitive power of rice export was improved，and balance of supply and demand of domestic rice was basically realized.

1.4 SouthKorea

1.4.1 South Korean direct grain production subsidy system.After the Uruguay Round，South Korea enhanced the direct payment system，and took the direct payment system as major policy for income support.From 1998，the direct payment becamemajor agricultural support policy of South Korea.The direct grain production subsidy of South Korea includes income（direct income subsidy），support（environmental protection subsidy），and service subsidy.

（1）Direct payment of new environment agriculture.From 1999，South Korea started implementing the new environ mentagri cultural direct payment policy and the payment includes new environment producers such as rice and vegetable farmers［1，7］.As long as pesticide and chemical fertilizer not exceeding requirement of standard agricultural production，farmers can obtain subsidy.From 2002，it changed to no use of pesticideoragri cultural products with green certification.The subsidy is to make compensation for losses resulted from reduction of yield due to no use of chemical fertilizer and pesticide，and the range of subsidy area is0.1-5 hm2.

（2）Implementing direct payment program for early retirement of farmers.The objects of this program are farmersolder than 60（the retirement age is 65），and the period of direct payments is 5 years.This program was implemented to stabilize farmers'income and expand operation scale of agricultural land［1，7］.

（3）Direct payment program for paddy field.In 2001，South Korea launched the direct payment program for paddy field，with main objectives of reducing government purchase and developing new agricultural environment［1，7］.Payment conditions：① it must plant rice；② application of chemical fertilizer and pesticide meets specified provisions；③ water in paddy field should be able to maintain 2 months.The payment basis is area of cultivated land，and the range of direct subsidy is0.1-2 hm2.The subsidy criterion is0.4-0.5 million South Korean won every hm2（0.5 million South Korean won every hm2for paddy field converted to agricultural use，and 0.4 million South Korean won every hm2for paddy field converted nonagricultural use）.

（4）Supporting Agricultural Cooperative Federation.The Agricultural Cooperative Federation of South Korea is a bridge connecting government，scientific research institutions and nongovernmental organizations，a carrier and tool of government implementing favorable policies for farmers，and also the only financial institution for agricultural policy loan［1，7］.Its funds come from two parts：service charges collected from government and deposit of the Agricultural Cooperative Federation bank.For example，policy loan implemented in 2001 was 840 million South Korea won，48%from Agricultural Cooperative Federation itself.Support of the Agricultural Cooperative Federation for farmers is in fact the benefit of government transfer payment，namely，providing low-interest loan for farmers and providing subsidy for difference from market interest.In addition，the profit of Agricultural Cooperative Federation is returned to farmers in the form of operation expense，to subsidy farmers.The rate of return is 5-10%of sales income.In 2001，the total subsidy amount was 144.8 billion South Korea won，including 57.6 billion South Korea won for farmers and 77.2 billion South Korea won formember organizations.

1.4.2 Performance of South Korean direct grain production subsidy system.In South Korea，traditional consumption is mainly rice，accounting for85%of total yield of grain.Therefore，the direct grain production subsidy policy of South Korea is all the time manifested as rice policy to a certain extent.Through implementation of these policies，South Korea has reached 100%self-sufficiency of rice，increased grain production efficiency，ensured stable and safe supply of grain，laid solid foundation for grain production，increased far mers'in come，and promoted adjustment of grain structure.

2 Inspiration of direct grain production subsidy system in typical countries and regions

Through analyzing experience of typical countries and regions in the direct grain production subsidy system，it can be found that the direct grain production subsidy involves income，support，service and emergency subsidies.However，most subsidies are direct income subsidies for farmers and pay attention to evading WTO rules.Direct grain production subsidies of all typical countries pay more and more attention to requirement of environmental protection；in implementation，they adopt the method of ruling by law，so the subsidies are relatively standard［8］.Certainly，we should consider differences in domestic economic background and take different subsidy methods and standards according to surplus or short supply of grain production.From overview of experience and performance of typical countries and regions in the direct grain production subsidy，we can obtain following inspiration，to provide reference for China to take effective measures to improve the grain subsidy system.

2.1 Greatpromotionofthedirectgrainproductionsubsidy fordevelopmentofgrainindustryThe promotion function of the directgra in production subsidy for developmentof grain industry is reflected in following aspects.（1）The subsidy for construction of grain production promotes improvement in infrastructure of grain production and promotes modern development of domestic agriculture.（2）The subsidy for purchase of grain production means and tools increases input level of agricultural producers，improves mechanization level of grain industry，and pushes forward high quality of grain.（3）The subsidy for grain production services evades risks of grain production and improves social environment of grain production.（4）The direct subsidy for supply of grain production increases income of grain producers，stimulates production enthusiasm of grain producers，and ensures grain supply.These subsidies have fulfilled considerable function in grain security.

2.2 Greatadjustingfunctionofthedirectgrainproduction subsidyforbalanceofgrainsupplyanddemandThe direct grain production subsidy has greatad justing function for balance of grain supply and demand.Grain industry is an industry that has high dependence on natural conditions，which brings natural risks to grain production.In mark eteco no my，due to asymmetry of market information of grain production and demand，lagging of market information to supply of grain production and long period of grain production，grain production faces many market risks.In the field of grain supply，the flexibility of grain supply is greater than its demand flexibility，and the demand flexibility is relatively low，so it is difficult to keep balance in supply and demand.Therefore，different functions and forms of direct grain production subsidies can affect and control yield and price of grain production.In addition to other macro adjustment methods and market mechanism，it is able to realize the objective of balance of grain supply and demand.

2.3 Significantenhancementofthedirectgrainproduction subsidyforcompetitivepowerofgrainindustryAsamember of WTO，the direct grain production subsidy policy should be formulated and adjusted within the framework of WTO rules.From situations of the above typical countries and regions，to meet requirements of development of new trade system，at the time of formulating agricultural policies，China should fully consider how to bring into play advantages and avoid disadvantages in the framework of WTO，and make necessary adjustment of domestic policies according to WTO requirements.Although there are great changes in ways of grain subsidy，many countries have reduced＂Amber Box policy＂such as price subsidy and export subsidy.However，a large portion of this reduction falls into the range of Green Box policy in the form of income subsidy.In the constraint of WTO agricultural rules，changes are only ways of grain subsidy.For example，the uncoupled direct payments of the United States belong to Green Box policies，will not distort grain price and trade，and conform to requirements of WTO negotiation，but such subsidymethod greatly increases competitive power of American grain products.

2.4 Directgrainproductionsubsidycanensureincomeof grainfarmers In policy objectives，the direct grain production subsidy of these typical countries and regions mainly lie in offsetting unfavorable influence of price adjustment on farmers'income and stabilizing and increasing income of grain farmers；in subsidy effort，the subsidy amount of the United States has increase，and EU and Japan keep certain level in total amount of subsidies，to ensure stable income of grain farmers［1，10］.Besides，subsidy amount of EU and the United States is related to basic area and unit yield，butunrelated to currentprice.Also the subsidy range is not limited to grain，but includes various cereals，oil crops，protein crops，and fiber crops，and each crop type has corresponding subsidy standard（subsidy rate）.These prove that the direct grain production subsidy can ensure grain farmers obtain reasonable income.

3 Countermeasures and recommendations for improving the direct grain production subsidy system in China

3.1 Optimizingthestructureofgrainproductionsubsidy andsettingupenvironmentalprotectionsubsidysystemfor grainproductionIn the long run，current direct grain production subsidy policy of China should adapt to requirements ofWTO rules，and learn experience of foreign countries to transform to Green Box policy.It should be specially noted that it is required to optimize the structure of grain production subsidy，increase subsidy for＂pro-environment＂grain production，and prevent degrade of grain quality due to pursuit of increase in grain yield.One important approach is to set up environmental protection subsidy system for grain production，strengthen farmers training，promote transformation of production and operation modes，push forward effective combination and benign complementation of conventional agriculture，organic agriculture and biological technological agriculture，increase resource utilization efficiency of agriculture and input and output benefit，and promote coordinated and sustained advance in high quality of agricultural products and construction of comprehensive grain production capacity.

3.2 Comp lying WTO rules and actively pushing forward diversified direct grain production subsidy systemIn combination of WTO Green Box policy，it is recommended to set up and improve general agricultural services for grain production，such as agricultural scientific research，control of plant diseases and insect pests，training service，extension and advisory service，inspection service，agricultural product marketing service，and agricultural infrastructure construction.Meanwhile，it is proposed to actively push forward diversified subsidy system，such as subsidy for reserve of grain security，subsidy for grain aid，subsidy for income unrelated to production，subsidy for natural disaster relief，agricultural insurance program，subsidy for retire mentor change of occupation of agricultural producers，subsidy for reserve of agricultural resources，subsidy for agricultural environment protection，and subsidy for aid of backward regions.

3.3 Increasing financial input subsidy for agricultural infrastructure constructionAt present，China's agricultural infrastructure is weak，agricultural comprehensive production capacity is low，the utilization rate of national irrigation water is only 45%（in developed countries，this figure is 70%）；more than 50%farmland has no water conservancy project；the intactness rate of key engineering buildings of large irrigated areas is less than 40%，26%projects lose efficiency or become scrapped，and the irrigated area of some regions decreases about 50%；the whole country has 5333.33 hm2irrigated field that has complete irrigation facilities，only accounting for 45%of the total farmland，many reservoirs and pools are not maintained for many years，and small farm irrigation facilities are weaker.On the basis of these situations，it should further strengthen supporting subsidy，bring along diversified investment of small farmland water conservancy projects，and further increase comprehensive grain production capacity.

3.4 Increasing range of direct grain subsidy and steadily raise the level of direct grain subsidyLearning experience of typical countries and regions in the direct grain production subsidy，China should increase range of directgrain production subsidy to all crop types and all grain producers，and increase the direct grain production subsidy to proper level.Due to differences in regional climate and soil environment conditions，grain production types are varied in all regions of China.Thus，it should fully realize reasonableness of such difference.The subsidy should not be limited to cereal，rice，wheat，and corn，but should set up large grain concept，provide subsidy for beans and tuber crops.Only through this，may it be able to stimulate enthusiasm of all grain producers，develop grain production in a diversified way，and effectively promote grain production and security.According to estimation of related experts，current agricultural subsidy level of China accounts only 3%of total agricultural output value.Even in the framework of WTO，there is a 5.5%subsidy margin.Therefore，China should increase the level of direct grain production subsidy，to better ensure grain production and security.

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