More than 20 years ago, the Chinese government instituted the Scientific Outlook on Development (SOD) program, tying local leaders' job performance evaluations to environmental quality improvements. More than 350 river monitoring stations measured their success.
However, the stations only identified pollution from upstream agricultural sources, placing the burden of compliance on those farms and individuals.
Those upstream counties saw "agricultural value added" - the net economic output from farming, forestry, livestock and fisheries - drop by 58%, Cornell researchers found. Upstream counties hired fewer agricultural workers, cultivated less land and applied less fertilizer - all signs of a weakened agricultural economy. Downstream farms were not affected.
"If you're just looking at the core objectives of China's environmental policy, it's remarkably successful," said Wendong Zhang, associate professor in the Dyson School of Applied Economics and Management in the Cornell SC Johnson College of Business, noting major improvements in both air and water quality over the past two decades. "But underlying these very significant successes, there are also important, nuanced trade-offs that got affected by these regulations."
Zhang is senior author of "Impact of Water Quality Regulation on the Agricultural Economy in China," which published June 19 in the Journal of Environmental Economics and Management. The corresponding author is Ziran Li, associate professor at Southwestern University of Finance and Economics in Chengdu, China. Other contributors are from Tongji University in Shanghai.
The key takeaway? Regulatory pressures can differ based on location - "Borders matter," Zhang said, referring to the sharp divide in regulatory enforcement between counties just upstream versus just downstream of monitoring stations - and those pressures can create upheaval. Trade-offs between environmental concerns and the agricultural economy have to be considered, Zhang said.
Zhang, associate editor of the Journal of Soil and Water Conservation and a faculty fellow of the Cornell Atkinson Center for Sustainability, began to think about the effects of government programs on the agricultural economy in 2018, when African swine fever wiped out approximately 40% of China's hog inventory. China is home to approximately half the world's pigs.
"That was really globally consequential," Zhang said. "Even though the loss was due to swine fever, people were starting to think about whether some of the restriction coming from water quality regulations actually contributed to the lack of available pigs before the outbreak."
Even though agriculture constitutes only a small percentage of China's domestic GDP, the tightened restrictions due to pollution-mitigation efforts harmed farmers. Many small farms were shut down by local government leaders, who needed to hit SOD-related environmental targets in order to keep their jobs.
China's surface-water monitoring network methodology created a natural experiment condition, because it impacted upstream but not downstream counties. Zhang and his team used a spatial regression discontinuity design - treating the upstream/downstream boundary as a natural dividing line - to calculate the effects of government environmental policies on all counties following the 2003 introduction of the SOD.
Their dataset covered 462 counties across China's major river basins over two decades. The study established that the policies caused a significant decline in agricultural value added in upstream counties; the team also found that the further from the monitoring station, the weaker the effect.
Zhang said the Chinese government values relative GDP growth most in terms of local officials' job performance, but environmental gains are not far behind.
"The government wields a lot of power," he said, "so in order to achieve the water quality goals, sometimes the smaller farms are told to cease production. So small farms will close or be consolidated, and you will no longer have your enterprise."
The burden fell disproportionately on rural residents. The study found that people with rural household registration - known as "hukou" - were significantly more likely to migrate out of upstream counties following the reform, suggesting farming families bore the highest costs of the regulatory squeeze. The research also found that the policy yielded an environmental upside: Upstream counties saw measurable reductions in nitrous oxide emissions from both farmland soils and livestock manure, a meaningful climate benefit.
Support for this work, for Zhang's co-authors, came from the National Natural Science Foundation of China; the National Social Science Foundation of China; and China's Fundamental Research Funds for the Central Universities.
