Some mainland grain farmers will have their income boosted by a direct cash subsidy for the first time this year, government sources say. The farmers will receive a subsidy of seven to eight fen (6.5 HK cents to 7.5 cents) for every 500 grams of grain they sell to state companies. The market price for grain this year is 48 fen for 500 grams and the government will pay a protected price of 55 fen, including the seven fen margin. 'In the past, the government would give the difference to state grain purchasing firms, which were expected to pay farmers the protected price,' said an official who attended the two-day Central Rural Work Conference that ended on Wednesday. 'But the money ended up being embezzled by state firms and farmers sometimes were paid even below the market price.' This year all main grain-producing provinces will select one or two counties where officials will give the cash subsidy equivalent to the seven fen margin directly to the farmers. An experimental subsidy scheme secretly launched in two Anhui counties last year found that farmers received an average subsidy of 30 to 40 yuan. 'The amount seems insignificant to urban people, but if the scheme is fully launched in the coming years, such direct subsidies would cost the treasury more than 27 billion yuan,' the official said. He said that the amount of cash subsidies would be increased gradually. The officials in charge of the reform said the subsidies were consistent with the country's commitments to the World Trade Organisation (WTO). 'Under WTO restrictions, China has to limit its subsidies to 8.5 per cent of the value of agricultural output,' another rural expert said. 'Many subsidies are called 'yellow subsidies' under WTO regulations. The level of yellow subsidies can be renegotiated or scrapped after the transition period [after entering the WTO]. 'But WTO membership allows 'green subsidies' which are aimed at directly boosting farmers' income.' There is also a proposal to give grain subsidies to farmers who volunteer to turn their land into forest or grassland. 'Under the proposal they would receive up to two tonnes of subsidised grain, which is 15 to 20 times their previous harvest output,' the official said. 'They could sell the grain to get cash.' In another less direct subsidy, farmers who are affected by natural disasters would be exempt from paying taxes. In 2001, authorities waived five billion yuan in taxes for farmers who were plagued by natural disasters. New policies will also encourage private investment in grain purchasing firms, an area which is now dominated by state-owned companies. Officials said 200 to 300 billion yuan would be needed during the next few years to overhaul the over-staffed, stagnant grain distribution system. Observers say that the scope of the reforms is the largest in a decade and the initiatives are expected to cost the state close to 100 billion yuan annually.