The Role of Agribusiness Firms in Agricultural Research: The Case of China

Despite the efforts of various economists and agricultural scientists in calling for more investments, funding for agricultural R&D has been stagnated for the last two decades in China. This will pose a great challenge for the China's agricultural sector. Productivity has leveled off, and farmers' income has been flat. As a result, poverty reduction in recent years has also not shown any significant progress. On the other hand, agribusiness firms have emerged rapidly since the rural reforms initiated in 1978. Emerging of these firms has fundamentally changed the landscape of Chinese agricultural production. In 2003, they account for a significant share in agricultural GDP (7%), and agricultural employment. More importantly, it is their role in agricultural research and technology adoption that will drastically affect the Chinese agricultural research system, and as a result the structure of the Chinese agricultural economy. In 2003, these firms invested more than 10% equivalence of public spending in agricultural research. If their spending on technology-intensive capital is included, the percentage rose to 30%. Back in the middle of the 1990s, these shares are minimal. It is obvious that these firms will play an even larger role in investing in agricultural research in China. But this increase didn't come automatically. It is the change in the investment environment and government policies that can be attributed to. The objective of the proposed paper is to investigate the structure of these agribusiness firms by sector, location and ownership, and their performance in agricultural research, and to analyze the determinants of growth of these firms and their investment in agricultural research. The data used for the proposed study will be based on a survey conducted by the Ministry of Science and Technology in 2003. The authors provided substantial inputs in the design of questionnaire. More than 500 leading firms (based on their sales) were surveyed. They are located in different parts of China: coastal, central and western. They also represent different sectors, for example, crop production, livestock, feed processing and supply, vegetables/fruits/tree, tea, fishery, seed development/sales and biotechnology/medicine. There firms also vary by their ownership, for example state-, private-, and collective-owned, shareholding, and multinational companies. The proposed study will develop a conceptual framework and to empirically analyze how different factors have affected the performance of these firms. The performance indicators may include profitability, productivity, and more importantly their behavior in investing agricultural R&D. The factors may include their size, ownership (state, private, shareholding, or foreign), location (coastal, central or western), different types of businesses (crop production, livestock, fishery, processing, feed supply, seed breeding and supply, or biotechnology), credit/capital constraint, intellectual property rights regime, tax concession policy, and public investment in agricultural R&D. Many variables are province-specific as many government policies such as those on credit/capital, tax are made at this level of government. These variables will have to be treated carefully as they are potentially endogenous by themselves. Special econometric techniques will be used to minimize the potential bias. In addition, some firm-specific variables such as sectors they involve, ownership, and even locations are self-selected. Again, certain econometric techniques have to be used to test and to minimize the potential selection bias. The expected results will not only have potential contribution to the policy debate on how to mobilize private resources to support to agricultural research in China, but also have strong policy implications for many other developing countries. For the last decade, many developing countries have experienced stagnation or contraction in their public support to agricultural research. How government policies and public investment in agricultural research can build a productive partnership is a very much needed research topic. We hope that our research will shed light on this issue