Institutional reforms and dynamics of agricultural growth in China

Abstract

The collective farming system, the state-monopolized procurement and marketing system, and the grain self-sufficient policy, formed in the early 1950s, made the rapid development of heavy industries possible in China. However, they were detrimental to farmers' incentives and resulted in a serious misallocation of resources. Consequently, despite sharp improvements in technology and increases in the use of modern inputs, grain production in China barely kept up with population growth before the 1979 reform. The shift from the collective farming system to the household-based farming system in 1979 greatly improved farmers' incentive and resulted in a sharp increase of grain output in the early 1980s. In the late 1980s, grain production stagnated again because the incompleteness of procurement system reform made the production of grain unprofitable. For producing enough grain to feed China's ever-increasing popualation. it is imperative for the Chinese government to liberalize the grain procurement and marketing system and to invest in yield-improvement research. It is also desirable for China to adjust her trade policy and to import more grain for meeting domestic grain demands.