Price Responsiveness of Rice Farmers and the Effectiveness of Grain Support Policies in China

Declining arable land and yield stagnation challenges China to feed its growing population. To increase national food security and farmers’ incomes, China has introduced various grain support policies since 2004. This paper evaluates the effectiveness of price supporting policies on the Chinese rice acreage. To investigate whether these policies were effective given that global rice prices increased after 2004, we perform our empirical analysis in two phases. First, using data on rice prices and acreages, we test whether supply responses of rice farmers have changed since 2004 because price responsiveness is required for the policy to be effective. Second, we perform Monte Carlo simulations to construct counterfactual acreages to assess the impact of the policy. The results show that acreages respond positively to farmers’ expected price for early, middle, and late indica rice. For early and late indica rice, there is a statistically significant positive change in acreage response to expected prices after the policy intervention in 2004 than before. Monte Carlo simulations show that the probability of effective policy for early, middle and late indica is 75.60%, 72.68% and 53.32%, respectively. Therefore, although there is heterogeneity in different rice varieties, the policy is in general effective in increasing rice acreages given that global rice prices increased after 2004.