Paulo Barreiro Sanjines Yale School of Forestry and the environment MEM 12

Sloping Land Conversion program: Chinas green-box policy to stop deforestation

'China will face a great challenge in protecting incomes of the huge number of farmers in the poorer central and western provinces that are still heavily dependent on agriculture.' - Fang et al., 2002 What was the underlying rationale for the policy? During 1998, China suffered a major flood at the middle and lower parts of the Yangtze Rivers. Economic losses amount to 38 billion USD (China.org.cn, 2010), and approximately 4 million households were impacted. The government answered by implementing the Sloping Land Conversion program (SLCP) in 1999. The policy aims to convert 14.67 million has sloping croplands and degraded grassland in the Yellow and Yangtze river basins back to forest or pasture (Xu et al, 2006). This enormous undertaking has been lauded and critiqued by environmentalist and economists alike. This post aims to synthesize the discussion pertaining SLCP as an ecological restoration policy tool. Furthermore, the paper discusses the policy's potential role as an efficient market tool, which may prepare China for activity within the WTO.

Understanding the Problem

Flooding: Chinas demographic expansion and its national food self-sufficiency strategy The relationship between major floods and deforestation, or poor forest management, has been debated for many decades. In most recent studies, recommendations from their results have instead begun to target disaster assessment and preparedness in policies and other arenas. According to studies conducted in major rivers such as the Amazon and the Ganges, increased anthropogenic pressure, on the forest cover and soils nearby river headwaters and basins, is correlated with a higher chance of flooding (Nordin et al., 1982; Hamilton, 1987). These studies also point to the poor regulations imposed in agricultural and forest management, and the demographic expansion in areas such as the Ganges, Brahmaputra and the Yangtze and Yellow river basins. (Mirza et al., 2001). A common conclusion and recommendation for policy advancement is to allow mitigation and adaptation methods that prepare regions for subsequent floods. These methods not need to be merely focused on reforestation, as we now acknowledge that many factors play in events such as flooding. As early as 1949, following the establishment of the Peoples Republic of China, forests at the Yangtze and Yellow river were used for fuel-wood, construction, and land for agricultural purposes. A set of well-oriented but scattered policies and projects to drive people to reforest were put in place since 1980. Although some successes were had, the drought of 1997 and the flood of 1998 in both Yellow and Yangtze river basins put the

Paulo Barreiro Sanjines Yale School of Forestry and the environment MEM 12 Chinese government in the position to think at the entire basin level. (Xu et al., 2006)

The 1998 Flood in numbers The 1998 Yangtze River flood left a toll of 4100 people dead, 14 million people left homeless, and 11.31 million hectares of cropland inundated, of which 1.56 million hectares of crops have been destroyed. Of this area, approximately 38% was growing rice (USDA, 2010), total economic loss was USD 277 million. % share of Approx. Economic loss land for Production based on Affected Rice of lost rice Approx Government Provinces production production Kg prices Hunan 13% 202800 596232000 620081280 Hubei 8% 124800 366912000 381588480 1560000 Jiangsu 10% 156000 458640000 476985600 Anhui 7% 109200 321048000 333889920 38% 1812545280 Table 1. Share of land rice production at the affected sites and their economic loss. China has spent 7.2bn dollars in flood-control measures (BBC, 1999), and put in place a series of Six Priority Forestry Programmes, have been launched. But the SLCP has 53.3% investment of the total expenditure. (Liu & Wu, 2010) Total amount of land affected (has)

The Actors in the System

China's topography: A rigid policy on a changing landscape Across China, soil quality, rainfall patterns, and hence, production levels vary with altitude and latitude (Jingwei et al., 2010). Chinas grain self-sufficiency policies have gradually decentralized grain production responsibility from the government to the province and municipality level. Inter regional and provincial trade in China is important to assure that demand for grain is fulfilled. Nevertheless, Chinas grain trade is still run under a monopoly system. The Chinese government controls all trade in commodities through system of State Trading Enterprises (STEs), such as the Cereal, Oils, and Foodstuffs importing and Exporting Coorporation (COFCO), and other institutions involved in administration, procurement and selling of the grains and other agricultural products.

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Poverty reduction through Reforestation?

SLCP Policy Explained: Nanfeng Case study Studies estimate that 65% of the 2 to 4 billion tons of silt dumped into the Yangtze and Yellow Rivers come from sloping cropland (WWF). The SLCP aims to retire 14.67 million hectares of degraded land and steep sloping cropland to turn it into forest and pastures. The logic behind it is that reforestation of erosion-prone land will decrease the siltation of the riverbed at the Yangtze and Yellow river, decreasing the chance of flooding (SFA). Given that this program is incentive driven, it also aims to reduce poverty and assist farm households to shift to more sustainable modes of production (SFA, 2003). Choosing the beneficiaries The central government provides SLCP quotas to each region. The established criterion to select farmers is based on the degree of the slope of their cropland: - At 15 degrees or more if in the Northwest Region - At 25 degrees or more if in the Southwest region Nevertheless, administration of quotas along with their requirements, do change from region to region. Reports show that some regions also give priority to sites close to a road in order to facilitate inspections and monitoring (Xu, 2004), while others stress ecosystem services such as water and forest corridors for increase biodiversity (Zuo, 2001). The incentives come in 3 different ways: Payment in-kind of 1500 and 2250 kg of grain/ha/yr for the Yellow River and the Yangtze River basins respectively. A payment of 300 yuan/ha/yr and free seedlings for reforestation, which cost around 750 yuan/ha (Uchida, 2004). Production rate in Nanfeng Production of rice in Nanfeng during 1999 was of 76,000 tones in 25,866 hectares. The average production yield in Nanfeng is of 2940 kg/ha/year (Hongyu & Jianwen, 2004) If we assume that average production is kept constant every year from 1999, under the SLPC the government would pay Nanfeng farmers a total of 641.64 USD/ha/yr (4,197.6 Yuans/ha/yr). This result is a summation of takes the payment in-kind, the cash payment and the value of the seedlings. If the same rice were bought at the price of March 2011 (indexmundi.com) the revenue would be of 1,520 USD/ha/yr. Although there is an evident loss to the farmers due to Chinas procurement and trade policy, the farmers net income due to the fixed incentive fee is still higher than the profit gained from their cultivation.

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Fig. Comparison of the profits of grain production and GFG subsidy (Liu & Wu, 2010) Effectiveness of the policy: Long-term Sustainability and incentives The policy, following results from 1999 to 2008, has been effective in its goal to increase reforestation in degraded and steep slope croplands of the Yangtze and Yellow river basins (Uchida et. Al, 2004). Agricultural income increased in some localities due to more intensive agricultural production or non-program plots (Xu et al., 2005). Nevertheless, case studies assessing the implementation and administration of the policy and incentives also point to adverse results where cropland of medium harvest suitability is also being afforested, this could threaten Chinas food self-sufficiency strategy (Jinwei, 2010). Concerning the long-term sustainability of this program, case studies point to the need for a policy reformulation, where other biophysical factors, as well as socio-economic factors are taken into consideration when selecting croplands for the SLCP. Fang and Beghin, also suggest the government to adjust the policy to increase its scope and strength by implementing: Off-farm labour increase, sustaining of animal husbandry, adjust to market expansion and contraction at the smaller regional level. A study directed by Xu and Cao in 2001 found that in a group of 1026 households, 49.5% received only partial compensation, 8.5% only grain and 17.6% had received no compensation. This trend is observed in subsequent studies in different provinces. Shortfalls in compensations would disincentivize participation from the farmers. Bennet, 2005, argues that these shortfalls are a symptom of poor program budgeting. The program deals with millions of individual plots, making it costly for local governments to deal with the monitoring. The top-down approach followed by the government has also created discontent amongst the participants. A household survey done by the Center for Chinese Agricultural Policy, Chinese Academy of Sciences in 2003 and analyzed by Xu et al. in 2005 shows that only 53% of the surveyed households felt that they could choose whether or not to participate.

Paulo Barreiro Sanjines Yale School of Forestry and the environment MEM 12 Although these range differently from province to province, the principal of volunteerism boasted by the government does not seem to be there. Another concern is the impact of SLCP on Chinas food security. By 2003, sown area dropped to 99 million hectares, a drop of 12% when compared to 1999. By giving the subsidies to their farmers, the Chinese government is encouraging farmers set-aside their croplands and to turn into other uses for their land, or to migrate into urban areas. This may seem to be very counter-productive for China, but in reality SLCP is responsible for about 30-40 million tons of the 78 million tons lost to cropland conversion. SLCP has actually led to a decrease of land under poor harvesting conditions. (Xu et. Al, 2005) Cropland Suitability Evaluation Conversion areas were allocated subjectively by the administrators, could potentially lead to unnecessary expenditure. Jinwei et al provides an analysis of cropland suitability and recommends following a more rational spatial allocation decision of the cropland, which should be converted gradually in the sequence of suitability levels. Wang et al. further argues that adequate scientific involvement for decision-making could make cropland suitability for every region to be fully implemented, increasing programs efficiency. The Food security question: Facing a WTO world? The SLCP has the potential to act as a land-use management tool by selecting marginally suitable production areas. In this manner SLCP could prepare the farmers for an economic shock if/when they enter the WTO under their rules of the products, select highly suitable areas for agriculture and protect soil from erosion, thus decreasing further siltation and the repetition of large flooding in the area. Furthermore, SLCP is a greenbox type subsidy, which is allowed by the Uruguay Round Agreement on Agriculture (URAA) (Fang et al., 2002). Results show that a reduction in the size of the cropland has led to production intensification. Xu has showed that food shortage due to SLCP is not happening. Fang & Beghin, argues that following self-sufficiency policies is inefficient in a country with Abundant Labor force + Limited arable land = comparative advantage in laborintensive goods for the world market. Introduction of different, more market advantageous, types of rice (i.e. japonica rice) (Fang & Beghin, 2000 ; Wang et al., 2006) Loess Plateu, central China, middle reaches of Yangtze River and Yellow River: Dong jingle et al, support early research observations that the SLCP program's lack of objectivity monitoring led to moderately suitable cropland to be turned into forest land by farmers who wanted to acquire more subsidies. While conversion of suitable cropland occurred, unsuitable land conversion was very low. Results from this study demonstrate a lack of rational/objective administration of this land. The priorities set by the local governments are clearly different. 5

Paulo Barreiro Sanjines Yale School of Forestry and the environment MEM 12 Going Forward Results from the SLC program and their analysis show that the policy has succeeded in its reforestation goal and that it has rapidly become a popular policy due to its incentives. Yet, it still lacks direction and a more efficient investment by the part of the government. A prioritization of unsuitable and marginally suitable lands as participants of the SLCP must be done; this will help both the economy and the long term purpose of the ecological restoration in terms of biodiversity corridors and erosion control. Central government needs to increase administrative fees for local governments to be able to fully implement and monitor the SLCP. Index farmers on the basis of their slopes and yield history, having the possibility to target those farmers with the lowest opportunity cost will also improve the chances of the program to continue over time, as chances for them to revert to their old practices is low. The incentives, in this case, must be accompanied by a selection of timber trees, agroforestry plantations and other sources of income that the farmer can use. This will require a higher participation by the farmer. For this to occur, given the high transaction costs higher participation entails, the government will have to increase the amount of money given to province administrators for the purpose of implementing and monitoring the program.

Paulo Barreiro Sanjines Yale School of Forestry and the environment MEM 12 REFERENCES: Zhang Hongyu, Liu Jianwen.2004. A case study of a major paddy production county in southern China; Chapter 6. China's domestic grain marketing reform and integration. Asia Pacific Press. Xiuhong Wang_, Changhe Lu, Jinfu Fang, Yuancun Shen. 2006. Implications for development of grain-for-green policy based on cropland suitability evaluation in desertification-affected north China. Institute of Geographic Sciences and Natural Resources Research, Chinese Academy of Sciences (CAS) What Are The Impacts Of Himalayan Deforestation On The Ganges-Brahmaputra Lowlands And Delta? Assumptions And Facts Lawrence S. Hamilton East-West Environment And Policy Institute East-West Center Honolulu, Hawaii 96848, U.S.A. M. Monirul Qader Mirza, R.A. Warrick, N.J. Ericksen and G.J. Kenny. 2001. Are floods getting worse in the Ganges, Brahmaputra and Meghna basins?. Elsevier Science China.org.cn. 2010. Yangtze River flow set to exceed level of 1998 floods. http://www.china.org.cn/environment/2010-07/19/content_20529997.htm Emi Uchida, Jintao Xu, Scott Rozelle, 2004. Grain for Green: Cost-effectiveness and Sustainability of Chinas Conservation Set-aside Program. UC Davis Jintao Xu, Runsheng Yin, Zhou Li, Can Liu. 2006. Chinas ecological rehabilitation: Unprecedented efforts, dramatic impacts, and requisite policies. Ecological Economics. Can Liu and Bin Wu. 2010. Grain for green program, in china: policy making and implementation. China policy institute. University of Nottingham Dong Jinwei, Liu Jiyuan and Shi Wenjiao.2010. Chinas Sloping Land Conversion Program at the Beginning of21st Century and Its Habitat Suitability in Typical Region of Loess Plateau. J. Resour. Ecol. Michael T. Bennett. 2005. Chinas Sloping Land Conversion Program: Institutional Innovation or Business as Usual?. CIFOR Jintao Xu, Ran Tao, Zhigang Xu, and Michael T. Bennett.2005.Chinas Sloping Land Conversion Program:Does Expansion Equal Success? Cheng Fang and John C. Beghin. 2000. Food Self-Sufficiency, Comparative Advantage, and Agricultural Trade: A Policy Analysis Matrix for Chinese Agriculture. Cheng Fang, Francis Tuan, and Funing Zhong. 2002. How might China Protect its Agricultural Sector? Chinas Food and Agriculture: Issues for the 21st Century.