The OECD said China's restrictions on its labour and land markets had resulted in a significant mis-allocation of resources and contributed to the large disparity in urban and rural incomes, and between regions.

"The administrative barriers to rural-urban migration, permanent residence (rights), land markets and tenure security should be removed or at least relaxed," it recommended as part of its first review of China's agricultural policies.

China's household registration system has stopped farmers from legally migrating to cities and while the government has extended land-lease contracts to farmers to 30 years, their lack of ownership rights are limiting growth in land rental transactions, the report said.

Using the World Bank measure of poverty of earnings of one dollar a day, the number of rural poor in China was estimated at about 88 million at the beginning of this decade.

According to the National Bureau of Statistics, the nation's richest 10 percent control 45 percent of the country's wealth while its poorest 10 percent has only 1.4 percent.

To ease the problem, the OECD recommended better access to education, healthcare services and social security for its 800-million strong rural population.

The report also said China's agricultural policy measures should be consistent with the country's overall goal of integrating the rural economy into the national development process.

It recommended integrating small-scale farmers into domestic and international markets.

More public services, such as better rural education, an agricultural price information network and improved healthcare facilities would help this transition, the OECD said.

To further the integration process, the OECD advised the government to help create autonomous large-scale peasant organisations among farmers to market their own products.

The Chinese government, which remains worried about any independent groups growing too strong and threatening its rule, has strict regulations on the operation of non-government organisations.

On the environment, the OECD recommended China find a balance between its drive to expand food production, opening up the domestic market to international trade and protecting the environment to maintain sustainability.

"The evidence suggests that the environmental and resource depletion problems caused by agriculture are serious and are likely to become more severe unless more effective efforts are made," it said.

It recommends policy makers implement a combination of taxes, payments and regulations to ensure a 'polluter pays system' and that the provider of environmental benefits is rewarded.

On improving efficiency in the agricultural sector, the OECD said the government should minimise its role in the market to encourage competition so as to foster growth.

"The interventions that still exist, weak enforcement of contracts, lack of transparent information and open bargaining among several buyers and sellers indicate that more is required to foster a climate for competitiveness," it said.

Transparency and accountability in the government should also be improved to diminish corruption, the OECD said.

The OECD groups 30 of the world's most developed countries, including from the Asian region, Japan, Australia and New Zealand. China is not a member.

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