China - Country assistance evaluation : agriculture sector

32896 THE WORLD BANK OPERATIONS EVALUATION DEPARTMENT CHINA COUNTRY ASSISTANCE EVALUATION AGRICULTURE SECTOR Christopher Findlay Director-General, Operations Evaluation: Gregory K. Ingram Director: Ajay Chhibber Manager: R. Kyle Peters Task Manager: Gene Tidrick This paper is available upon request from OED. It was prepared in 2003 2005 as a background paper for the China Country Assistance Evaluation. The World Bank Washington, D.C.  ENHANCING DEVELOPMENT EFFECTIVENESS THROUGH EXCELLENCE AND INDEPENDENCE IN EVALUATION The Operations Evaluation Department (OED) is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. OED assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings. OED Working Papers are an informal series to disseminate the findings of work in progress to encourage the exchange of ideas about development effectiveness through evaluation. The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Contact: Operations Evaluation Department Knowledge and Evaluation Capacity Development (OEDKE) e-mail: eline@worldbank.org Telephone: 202-458-4497 Facsimile: 202-522-3125 http:/www.worldbank.org/oed  ACRONYMS CAS Country Assistance Strategy ESW Economic Sector Work FDI Foreign Direct Investment GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IDA International Development Agency TVEs Township and Village Enterprises WTO World Trade Organisation   CONTENTS 1. Introduction .........................................................................................................................1 2. Sectoral Changes.................................................................................................................1 3. Challenges for Rural China .................................................................................................5 Protection for Agriculture and WTO Accession .................................................................5 Constraints on Rural Enterprise Development....................................................................8 Domestic Grain Marketing Reform.....................................................................................9 Markets for Inputs into Agricultural Production...............................................................11 Access to Markets .............................................................................................................12 Distribution of Income and Poverty ..................................................................................13 Labour Market Developments...........................................................................................15 Environmental Constraints................................................................................................16 Inter-govenmental Financial Relations..............................................................................17 Review...............................................................................................................................17 4. Bank Assistance Strategy ..................................................................................................19 Volumes.............................................................................................................................19 Strategy..............................................................................................................................20 Mix of Projects..................................................................................................................21 Ratings...............................................................................................................................21 Current Themes and Benchmarks .....................................................................................22 Benchmarks.......................................................................................................................24 5. Issues in Implementation...................................................................................................26 Rural Development............................................................................................................26 The Retention of a Production Focus? ..............................................................................27 Other Implementation Issues.............................................................................................27 Project evaluation too narrow..............................................................................27 Project risks in timing and personnel...................................................................28 Institutional development lacking.........................................................................28 Cross-sectoral impacts add to complexities.........................................................29 Design of strategy for influencing policy .............................................................30 6. Review and Further Questions ..........................................................................................32 Tables 2.1 Growth rates of China's economy (1970-2000)..................................................................2 2.2 Income and its distribution, rural and urban China (1980-1999) ........................................2 2.3 Growth rates of main economic indicators of TVEs (1985-2000) ......................................2 2.4 Main economic indicators of TVEs in China (1985-2000).................................................3 2.5 The changing structure of China's economy (1970-2000)..................................................4 3.1 Grain production and sale in China (1987-2000)................................................................6 4.1 Summary of rating of agriculture projects by Exit FY......................................................22 Figures 3.1 Nominal protection rates, selected agricultural products ....................................................7 4.1 Funds committed to lending for agriculture ......................................................................19 References ......................................................................................................................................34   1 1. Introduction 1.1 This paper is prepared as a background document for the China Country Assistance Evaluation. While the brief refers to agriculture, the interpretation here is that the focus should be upon the people who tend to specialise in agricultural production. One of the questions is the degree to which their welfare and the economies of the regions in which they live grow as a result of projects with a focus on agricultural production. 1.2 The next section reviews some changes in the composition of agriculture. The following section identifies some challenges for rural China from which a suggestion of a list of priorities in rural development projects is derived. Some features of the Bank's assistance strategy in China are then noted and its impacts discussed, then some issues in its implementation identified. 2. Sectoral Changes 2.1 The mid 1980s marked a turning point in the growth of the agriculture sector in China (Table 2.1). By that time, the early returns to reform through the changes in prices paid to farmers and from the household responsibility system had been exhausted. From that time onwards, growth depended to a greater degree on the volumes of inputs available for production, on the mix of output, and on technological change. The main policy issues affecting the sector then became those affecting these parameters. 2.2 Per capita incomes grew rapidly over the whole period on average (Table 2.1) but faster in urban areas than in rural areas (Table 2.2). 2.3 The rural enterprise share of output began to expand about the same time that the catch-up factors in agricultural growth were exhausted (Table 2.3). By 1990, these enterprises accounted for over a fifth of the rural labour force and reaching a peak of 30 percent in 1996. Their share of total GDP rose to 31 percent in 2000 (Table 2.4).  2 Table 2.1: Growth rates of China's economy (1970-2000) (percent per year) Pre-reform Reform Period 1970-78 1979-84 1985-95 1996-00 Gross domestic product 4.9 8.5 9.7 8.2 Agriculture 2.7 7.1 4.0 3.4 Industry 6.8 8.2 12.8 9.6 Service Na 11.6 9.7 8.2 Per capita GDP 3.1 7.1 8.3 7.1 Note: Figures for GDP in 1970-78 are the growth rates of national income in real terms. Growth rates are computed using the regression method. Growth rates of individual and groups of commodities are based on volume of production data, while sectoral growth rates refer to value added in real terms. Source: SSB, Statistical Yearbook of China, various issues; MOA, Agricultural Yearbook of China, various issues extracted from Anderson, Huang and Ianchovichina (2002) Table 2.2: Income and its distribution, rural and urban China (1980-1999) Real per capita index Real per capita net income Gini (in 1999 yuan) Year Rural Poorest coefficient Rural Urban Urban/ 20% rural ratio 1980 100 100 0.24 616 2062 3.4 1985 189 165 0.26 1193 2605 2.2 1990 218 177 0.31 1380 3217 2.3 1995 272 193 0.33 1702 4713 2.8 1999 349 252 0.35 2210 5854 2.7 Note: The exchange rate was 8.28 yuan/US$ in 1999. Source: Anderson, Huang and Ianchovichina (2002) 2.4 The growth of township and village enterprises (TVEs) facilitated a very important change in the mix of income in farm households. The non-farm income share rose from 17 percent in 1980, to 26 percent in 1990 then 47 percent in 1999 (Anderson, Huang and Ianchovichina, 2002). Table 2.3: Growth rates of main economic indicators of TVEs (1985-2000) 1985-1990 1991-1995 1996-2000 Average growth rate of employment (%) 6.05 6.97 -0.01 Average growth rate of value-added (%) NA* 27.27 11.25 Average growth rate of total profits (%) 16.80 25.62 10.67 Average growth rate of total wages (%) 19.44 16.48 8.09 Average growth rate of total value of exports (%) 49.53 44.31 8.17 Sources: Calculated from various issues of State Statistical Bureau, China Statistical Yearbook, China Statistics Press; various issues of the Editorial Board of the Almanac of China's Township and Village Enterprises, The Almanac of China's Township and Village Enterprises, China Agricultural Press. Notes: The calculation of all values is based on 1990 constant RMB prices; * Data for value-added are available only after 1990 before which time only total output value was reported.  3 Table 2.4: Main economic indicators of TVEs in China (1985-2000) 1985-1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 average Total number (million units) 16.83 19.08 20.91 24.53 24.95 22.03 23.36 20.15 20.04 20.71 20.85 Total employment (million persons) 84.83 96.09 106.24 123.45 120.17 128.61 135.08 130.50 125.37 127.04 128.20 Share in rural labour force (%) 21.43 22.30 24.25 27.89 26.91 28.55 29.83 28.39 27.00 27.09 26.73 Total value-added (billion yuan) NA* 287.46 404.77 634.72 698.11 796.27 889.68 1016.4 1096.1 1246.8 1355.3 Share in national GDP (%) NA* 13.72 16.83 23.17 23.42 25.38 26.42 28.36 28.83 30.88 30.79 Total net profits (billion yuan) 45.68 70.32 95.27 155.85 164.31 177.37 195.78 213.45 229.00 270.16 293.59 Total wages (billion yuan) 82.36 126.22 158.84 185.73 191.84 239.02 269.29 285.56 308.86 330.54 352.36 Total value of exports (billion yuan) 33.87 64.79 108.45 173.84 217.07 294.34 302.69 340.42 338.58 388.00 432.68 Sources: Calculated from various issues of State Statistical Bureau, China Statistical Yearbook, China Statistics Press; various issues of the Editorial Board of the Almanac of China's Township and Village Enterprises, The Almanac of China's Township and Village Enterprises, China Agricultural Press. Notes: All values are at 1990 constant RMB prices; * Data for value-added are available only after 1990. Before 1990 only total output value was reported. 3  4 2.5 Meanwhile, the rural output mix had also been changing (Table 2.5). Far more rapid growth occurred in those sectors in which prices were not regulated, such as oilseeds, fruit, meat and fish. Consequently the share of these products in agricultural output rose rapidly, while the share of crop output fell from 76 percent in 1980 to 56 percent in 2000. Table 2.5 provides additional information on the share of agriculture in total relative to other sectors in output and employment. Agriculture now accounts for 16 percent of GDP and 50 percent of employment. Since 1980, the share of the population which is rural has fallen from over 80 percent to 64 percent. 2.6 These shifts are driven by changes in demand, as well as by policy. Demand for direct consumption of grain has stagnated recently in rural areas and at an earlier time in urban areas. Demand for feed grain however continues to grow. Table 2.5.:The changing structure of China's economy (1970-2000) (percent, based on current prices) 1970 1980 1985 1990 1995 2000 Share of GDP Agriculture 40 30 28 27 20 16 Industry 46 49 43 42 49 51 Services 13 21 29 31 31 33 Share of employment Agriculture 81 69 62 60 52 50 Industry 10 18 21 21 23 23 Services 9 13 17 19 25 27 Share of agricultural output Crops 82 76 69 65 58 56 Livestock 14 18 22 26 30 30 Fish 2 2 3 5 8 10 Forestry 2 4 5 4 3 4 Share of population that is rural 83 81 76 72 71 64 Source: State Statistical Bureau, China Statistical Yearbook, various issues; and China Rural Statistical Yearbook, various issues as presented in Huang and Rozelle (2002).  5 3. Challenges for Rural China 3.1 Shifts in the mix of agricultural output and in its shares in national output and employment are typical of the structural changes that occur with growth in an economy at China's stage of development. However, the process of change has been made more challenging by a number of conditions special to China and by China's policy choices to date, some of which themselves are now undergoing further reform. These conditions and policy choices are the basis of the challenges now ahead in agriculture and they provide a guide to the priorities in the Bank's program of assistance to China. Discussion of these issues begins with the most significant policy shift affecting agriculture since the original reforms, that is, China's accession to the WTO. Protection for Agriculture and WTO Accession1 3.2 At the earliest stages of industrialisation in China, in terms of resource flows, the gross fiscal contributions to the sector were more than outweighed by implicit taxation. This taxation took place through the regulation of prices for agricultural products, the neglect of public infrastructure and the transfer of funds through the financial system from agriculture to urban areas. The reform process however changed the role of markets in setting prices, so that 83 percent of all agriculture products were sold at market prices by 1999. 3.3 Grain marketing, a key crop in income and therefore political economy terms, has seen similar trends, but there has been a reversal in the last few years for which data are available. 3.4 Since late 1980s grain marketing in China has been liberalised at a slow rate. Farmers can sell their grains at free markets after fulfilling government quota procurement obligations and delivering above quota sales to the government at negotiated prices. Therefore, the share of grain not consumed on the farm which is sold in markets has been increasing since the late 1980s. The share of grain sold in markets reached the highest level in 1997 and 1998 at 54 percent and 56 percent respectively of the total grain sold in China (Table 3.1). But in 1998 the Chinese government implemented new grain marketing policies which allow only the state-owned grain enterprises to buy grains directly from farmers. Consequently, the share of grain sold in markets declined to 46 percent in 1999 and 2000. 3.5 In terms of the share output, the grain sold in markets accounted for less than 10 percent in the late 1980s and rose to a peak of 24 percent then fell to less than 20 percent in 1999 and 2000. 1 This section draws on Anderson, Huang and Ianchovichina (2002).  6 Table 3.1: Grain production and sale in China (1987-2000) Total grain Total grain Share of Total Grain sold Share of Proportion output sold production government in markets grain sold of output (million (million sold (%) grain (million in markets sold in tonnes) tonnes) procurement tonnes) (%) markets (million (%) tonnes)* 1987 404.73 131.53 32.5 95.40 31.13 27.5 8.9 1988 394.08 121.23 30.8 92.97 28.26 23.3 7.2 1989 407.55 133.32 32.7 99.57 33.76 25.3 8.3 1990 446.24 142.89 32.0 123.65 19.24 13.5 4.3 1991 435.29 155.34 35.7 95.28 60.06 38.7 13.8 1992 442.66 146.08 33.0 94.81 51.26 35.1 11.6 1993 456.49 152.21 33.3 95.00 57.21 37.6 12.5 1994 445.10 151.33 34.0 89.60 61.73 40.8 13.9 1995 466.62 174.26 37.3 92.44 81.82 47.0 17.5 1996 504.54 179.23 35.5 97.70 81.53 45.5 16.2 1997 494.17 195.47 39.6 90.00 105.47 54.0 21.3 1998 512.30 219.48 42.8 96.00 123.48 56.3 24.1 1999 508.39 211.19 41.5 114.00 97.19 46.0 19.1 2000 462.18 194.11 42.0 103.86 90.25 46.5 19.5 *Note: Total government procurement includes government contract procurement at contract prices and government procurement in markets at negotiated prices (at protection prices form 1998 to 2000). The above table is calculated from the following sources: Various issues of State Statistical Bureau, China Statistical Yearbook, China Statistics Press; Various issues of The Editorial Board of the Almanac of China's Domestic Trade, Almanac of China's Domestic Trade, Almanac of China's Domestic Trade Press; Office of Rural Fixed Survey Spots of the Policy Research Department of the Central Committee and the Chinese Communist Party and the Ministry of Agriculture (2001), National Rural Social-Economic Survey Data Collection (1986-1999), China Agricultural Press; Various issues of The Rural Social-Economic Survey Team of the State Statistical Bureau, China Rural Statistical Yearbook, China Statistics Press. 3.6 The relevant benchmark however is not the share sold outside the farm but the price of these products relative to those in world markets. Domestic marketing reforms alone without liberalisation could produce outcomes that continue to tax agriculture or which favour domestic producers, because of the denial of access to world markets. 3.7 Huang and Rozelle (2002) report that in October 2001 the following outcomes are observed in terms of the ratio of domestic to border prices (Figure 3.1):  7 Figure 3.1: Nominal protection rates, selected agricultural products 50 2001 40 30 October 20 10 0 (%)-10 protection, -20 of -30 rate -40 Sugar ze on t f Mai Cott Wheat Rice Bee Pork Nominal ybeans Poultry So Fresh frui Source: Huang and Rozelle (2002) The levels of and variations in the rates of nominal protection are significant, with extremes of +40 percent for sugar and