* China's 2014 farming subsidies up 10 pct from $261 bln last yr
* Agriculture minister says Beijing to continue raising subsidies
* Subsidies account for about 3 percent of Chinese farmers' income (Adds quotes, details)
BEIJING, March 6 (Reuters) - China will increase its 2014 budget for farming subsidies by 10 percent from last year's 1.6 trillion yuan ($261.09 billion), a top government official said on Thursday, even as critics argue that subsidies play a limited role in boosting food production.
Maintaining food security is one of China's top priorities for this year, as rapid urbanisation and pollution threaten to swallow up arable farmland.
Beijing aims to step up its annual grain output by providing subsidies to farmers and investing in rural infrastructure, after more than 200 million migrant workers moved to cities, slashing the rural workforce and boosting food demand.
The government has increased direct subsidies paid to farmers who plant crops from 11.41 yuan ($1.86) per mu in 2004 to more than 90 yuan per mu in 2012.
However, many farmers have switched to more profitable cash crops such as fruit or vegetables, or simply abandoned their land to earn higher incomes in the city.
"It's very hard to check whether a household is planting grain or vegetables, and planting eight or ten mu," Agriculture Minister Han Changfu told reporters at the annual parliament session in Beijing.
"I have also heard talk that after getting the subsidies, farmers don't plant the land and go to work in cities."
The direct subsidies, typically paid out to villages before being directly transferred to farmers' bank accounts, also do little to boost yields, added experts.
"The way they pay out the subsidies is really not tied to production," said Kevin Chen, China programme leader at the International Food Policy Research Institute.
"Money spent on subsidies is less effective than that spent on research and development," he added.
But Han indicated that China could continue to substantially increase its farming subsidies, which currently make up about 3 percent of farmers' income compared with around 40 percent in Western economies.
"We have limited agricultural resources and our farmers' incomes are low ... whether we are looking at our farmers' conditions or WTO requirements, we still have room for more subsidies," he said.
Pan Chenjun, senior analyst at Rabobank in Beijing, said the subsidies generally achieve their main aim of generating a stable supply of crops or pork.
"When the sector reaches a new level of development, the government may adjust it to focus on more efficient production, for consolidation of the supply chain, for example."
Besides paying direct subsidies to farmers, China also has an annual stockpiling programme in which the government sets a minimum purchase price of commodities, such as corn, rice and cotton, to safeguard farmers' income.
China also said it would work over the rest of the year to deepen reforms to allow the transfer of land to increase farmers' property earnings.
China's regulations give farmers the right to use, but not directly sell or mortgage land. Land must first be acquired by a local government before being used for development.
China, which produced 602 million tonnes of grain last year, has set a target to raise grain production capacity by 50 million tonnes each year. ($1=6.1282 Chinese yuan) (Reporting by Dominique Patton; Editing by Himani Sarkar and Clarence Fernandez)