Global Policy Forum

By Peter S. Goodman

From the half-acre plot where his family has grown wheat for two centuries, Liu Shubing watches the construction of a superhighway with equal parts concern and calculation. The price of his crop is falling, and those six concrete lanes are part of the reason. They will link this village on China's central plain to the port of Shanghai, then to the enormous farms of the United States, where grain is cheap and abundant.

But the road will also tie his village to processing plants churning out french fries for McDonald's Corp., giving local farmers a chance to supply the potatoes. It will cut the time needed to truck vegetables to the east coast for export. Liu is taking tentative steps toward those new markets. A corner of his land now sprouts spearmint destined for a toothpaste factory. If the experiment works, his family will have a little less wheat and a little more money.

"We farmers think about filling our bellies first, and if our bellies are full we're reluctant to change," Liu said. "When you grow something you've never grown before, there's risk. But we know change is unavoidable. We have to adjust."

As China continues its wrenching transformation from a walled-off, centrally planned economy into one defined by market forces and global trade, its stability will likely depend on how its 500 million farmers navigate the complex mix of new threats and opportunities that confront them.

Throughout China's history, the country's fate has been linked to the fortunes of its farmers. When the Communist Party took power half a century ago, farmers provided crucial support for the revolution. Now China's senior officials and policy advisers are increasingly worried about the state of the country's farmers.

Their incomes are stagnating in many areas and falling in some. Their taxes have increased significantly, prompting scattered protests. The gap in income between China's fast-growing cities and its rural areas -- where 900 million people still live -- is larger today than when the Communists took power. In a speech this spring at the National People's Congress, Prime Minister Zhu Rongji called raising farmers' incomes his "biggest headache."

China's leaders worry that economic reforms could be placing more burdens on farmers than they can bear. Farmers are on the receiving end of the earliest and sharpest changes from the new policies that China agreed to implement to gain entry to the World Trade Organization, the body that sets the rules for most global trade. Protective tariffs must be lowered. Foreign foods must be allowed into the country to compete with local produce.

China's leaders see those concessions as worth it, to make it easier to export products. They also see greater competition from abroad improving the efficiency of China's companies. But such changes are likely to be devastating in some areas, particularly in China's northeastern grain belt.

The breakup of agricultural collectives in the 1980s unleashed a wave of increased production, as households responded to the incentive of having their incomes tied directly to their harvests. But it also chopped land into plots so small that they cannot compete with farms covering thousands of acres in North America and Australia. China's wheat, corn and cotton prices are generally between one-tenth and one-third higher than world market prices. Moreover, the United States subsidizes grain production. As more imports arrive in China, prices will drop, and farmers' incomes will fall.

According to a report by China's State Council, the equivalent of the U.S. Cabinet, the country's WTO commitments are likely to wipe out the livelihoods of 13 million farmers who grow wheat, rice and cotton, while creating new ones in non-grain crops for only about 1.5 million. Some economists reckon that China will eventually need to find jobs for about 200 million farmers as its market reforms continue.

"The Chinese farmer is in a very unenviable position," said Ke Bingsheng, director general of the Research Center for Rural Economy, which is part of China's Ministry of Agriculture. "The impact of reforms on agriculture is profound."

Still, Ke and other policymakers stress that the situation is sufficiently complex to mitigate fears, with new opportunities being created alongside new pressures. China's WTO obligations continue reforms begun two decades ago that brought great change. From 1992 to 2001, China dropped its agricultural tariffs from 42.5 percent to 21 percent. They are now set to drop to 17 percent by 2004 under the WTO. Only limited quantities of foreign goods must be admitted under the lowest tariffs.

"Compared to our reforms in the past, it's not that dramatic," said Huang Jikun, director of the Center for Chinese Agricultural Policy, a government-affiliated research institution in Beijing.

The government is hoping the WTO will provide further momentum toward shifting farmers engaged in uncompetitive crops into those with which China has a clear global advantage: fruits, vegetables, nuts and livestock, as well as fish and shrimp farming. Those areas are labor-intensive. In China, labor is cheap and plentiful.

In Shandong province on the east coast, grain farmers have moved into vegetables for export. China supplies more than 40 percent of Japan's vegetables, according to various estimates. Overall, China exported more than $8 billion worth of agricultural products during the first half of this year, according to the Ministry of Agriculture.

The pain of some enables gain for others. A drop in corn prices may hurt corn farmers, but it boosts the livestock business by cutting costs because most corn is fed to animals. Still, two-thirds of China's farmers grow grain.

Taihe, a town of 150,000 in northern Anhui province, amounts to a laboratory for the changes at work, a place that could go either way. It is still dominated by wheat and corn, but its climate is warm enough to grow vegetables. Unlike the northeast, it is within reach of ports.

Anhui has a tradition as a pioneer in economic change: It was the first place the state formally broke up the old collective system. Now, the federal government is staging a taxation experiment here that has eliminated a series of fees levied on farmers.

Not least, the town has the new superhighway. "It's delivering the outside world to Taihe," said Jim Lambert, who is producing a film documentary about roads in rural China. "Life has been irrevocably altered."

The town and the villages around Taihe seem to be straddling eras. Its main shopping street sports a Giordano clothing outlet and stalls selling pirated DVD versions of Hollywood movies. The grounds of a former center for Confucian studies, where scholars once took tests needed to gain entry to the bureaucracy, have been leased to an entrepreneur who has set up a roller-skating rink and pool hall.

But news about the rest of the world is scarce. Some farmers said they had never heard of the WTO. Most were unaware of how it works and what it could mean. They do know that their incomes have not kept pace with increases in the cost of living, as health care and school systems that were once free for all now force many to pay for services.

He Hui, a wheat and bean farmer, said he and the four others in his family live on the same income they had five years ago -- about $120 a year. Like many here, he abandons his village for six months a year to supplement his earnings with construction jobs in cities.

He has thought about planting something with greater potential for profit. But, like millions of rural Chinese, he remembers days of famine. His wheat may decline in price, but it will sustain him. "I've never grown anything else," he said. "I have no experience. I don't know how to sell anything else but grain."

Fan Heng has heard that refrain. It prompts him to proselytize for his vision of the future, one in which local farmers stop planting wheat and start planting potato seeds -- seeds that he produces.

Twenty years ago, Fan, now 36, traveled to neighboring Henan province and came back with the knowledge that Taihe's agricultural practices were backward. Little attention was being paid to matching seeds with local soils. Everyone was growing grain in accordance with China's national policy, which aimed to make the country self-sufficient. "Our farms were tiny and our living standards were lousy," he said. His family survived on about $35 per year.

In 1984, Fan sold his family's wheat crop for about $28. He spent $17 on a bicycle and the rest on high-quality vegetable seeds. He pedaled through the villages of Taihe selling seeds. The business blossomed. Then, four years ago, Fan researched the crop now at the center of his empire. "I figured out that potato chips, french fries and snack foods are a huge market, but China's producers were importing potatoes from the United States," he said.

Alongside his family's three-quarter-acre plot, Fan now farms another 40 acres via leases. Farmers working under contract to him plant them over 660 more acres. Today, his Hengjin Seed Co. employs 28 people in a three-story office building. A laboratory upstairs holds racks of seedlings for new stock. A wall shows photos of Fan shaking hands with the provincial governor and of Fan and dozens of other "model farmers" mugging with President Jiang Zemin. Nine greenhouses in the fields in back hold young potato plants. Fan said his company earned more than $800,000 last year.

At harvest time, trucks come from Beijing and Shanghai to take the potatoes to a Lay's factory and to processors for fast-food chains. But the road is long, and parts of it are still rough. In summer, the potatoes spoil along the way, lowering what the processors will pay. "Sometimes loads are rejected," Fan said.

From his office, he can see an overpass for the partially completed highway spanning the fields. He can see the future. "Before, it took me 24 hours to get to the factory," he said. "Now I can get there in 15 or 16 hours. That road will make us accessible to any market. It also opens up our thinking."

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