Effects of direct grain subsidies on food consumption of rural residents in China

The agricultural subsidy is an important policy instrument that aims to maintain food security and promote agricultural development in several countries. China introduced its first nationwide agricultural subsidy (i.e., the direct grain subsidy) for farmers in 2004. This study examines the impacts of direct grain subsidies on rural residents' food consumption patterns and nutritional intake on an individual basis. Based on a nationally representative sample of rural households from the National Rural Fixed Observation Points Survey data collected by the Ministry of Agriculture and Rural Affairs of China between 2003 and 2015, high-dimensional fixed-effects estimates show that the direct grain subsidy has boosted rural residents' grain consumption but reduced aquatic products, eggs, and dairy consumption in China. Specifically, an increase of 100 Chinese Yuan in per capita subsidies is associated with a rise of 14.94 g in daily grain consumption but a decrease of 0.57, 0.46, and 0.90 g in aquatic products, eggs, and dairy consumption, respectively. Furthermore, direct grain subsidies intensified rural residents' dietary imbalance and declined their dietary diversity. Observed dietary imbalance can be primarily attributed to the subsidy encouraging households' self-sufficient grain consumption, leading to excessive cereal consumption and relatively lower consumption of meat, eggs, and milk. Our findings suggest that direct grain subsidies emphasizing the production of staple grains may inadvertently skew farmers' food consumption and nutritional intake, which may require consideration when evaluating the overall costs and benefits of agricultural subsidy policies. [EconLit Citations: D12, H20, I12, Q18].