By staff reporter Chang Hongxiao and intern reporter Zhang Yanling

(Caijing.com.cn) China has recently altered its subsidy program for agricultural production materials in response to the 2009 price plunge for chemical fertilizers and diesel oil. According to the new plan, subsidies for each farmer are a function of the fluctuating market prices of agricultural equipment and grain, as well as cultivated land area. They will not be lowered by a fall in the price of equipment, providing an incentive for farmers to grow grain.

An official at the Ministry of Commerce explained that subsidies for farmers are intended to offset a rise in the cost of agricultural production materials from the previous year. Presently, these kinds of subsidies account for over 50 percent of China's agricultural subsidies. In 2008, the proportion was nearly 70 percent.

China launched the subsidy program for agricultural production materials in 2006. The central government made additional investments several times in 2008 in reaction to surging prices of chemical fertilizers and diesel. After the reform is adopted, farmers will be subsidized only once a year, which is expected to stabilize the level of subsidies. The prices of agricultural equipment and grain for a certain year will be established as a benchmark price to determine the level of agricultural materials subsidies, with the current point of reference, the year 2008.

Yearly market prices of grain play another role in preventing subsidies from fluctuating. When the grain prices experience a mild increase, agricultural subsidies will play the dominant role in counterbalancing a rise in material prices. If a large increase occurs, then the additional income brought by grain sales will automatically compensate for growing material prices.

Agricultural experts predicted that 2010 will witness a marginal increase in material subsidies owing to a price plunge of chemical fertilizers and diesels.

Full article in Chinese: http://www.caijing.com.cn/2009-09-18/110254138.html