A prediction about Chinese agriculture

My favorite part of How Asia Works, the book about Asian development by my old colleague Joe Studwell, is the opening section on agriculture. He emphasizes just how productive small, labor-intensive family farms are–much more productive than big businesses and government planners tend to give them credit for. This high productivity (in terms of output per hectare rather than output per worker) underpins Joe’s argument that successful Asian countries are precisely those that had land reform programs that broke up large landholdings and created a class of entrepreneurial small farmers. Nonetheless, labor-intensive small farms are only the best option when there is a lot of available farm labor; once urbanization takes off and the supply of farm labor shrinks, farms do have to become larger and more mechanized. This shift allows higher output per worker, but does not necessarily mean an increase in output per hectare.

For the last several years, China’s policymakers have been preoccupied with trying to accelerate this process, encouraging family farms to rent their land to larger, more commercial operations. Policies that subsidize large farms and glorify agricultural “modernization” are everywhere. While Joe’s book is mostly history, he does offer an interesting prediction about how this process might play out:

So long as there is no large-scale civil unrest as a result of land redevelopment and conversion, the main concern for central government in the next few years will be that the rise of commercial farming is leading to reduced output of staple foodstuffs. Aside from the fact that scale agriculture substitutes profit for yield, commercial farming in China also does not cultivate core foods like rice and wheat. Instead it concentrates on more value-added, high-margin, specialist crops, such as vegetables, herbs and flowers – sometimes for export. China’s imports of staple foodstuffs are beginning to increase quickly (albeit from a low base) as household farmland disappears. At some point, this will start alarm bells ringing in Beijing about food security – the Chinese Communist Party has a longstanding, and sensible, fear of the country being at the mercy of substantial food imports. There will likely be a clamp-down on household farm land conversions to commercial agriculture.

I thought of Joe’s prediction when I recently came across some interesting research on how farm consolidation is playing out. The passage below is from a long report by the eminent agricultural economist Liu Shouying, which includes a lot of data on the changing patterns of farmland ownership and use (because Chinese farmland cannot legally be sold, his discussion of land consolidation repeatedly refers to the “transfer” of farmers’ land-use rights; this usually means one farmer subletting his land to another, but can also include, for instance, the contribution of land-use rights to a company in exchange for equity). I’ve skipped most of the crunchy bits and gone straight for the closing summary (my translation):

One issue is that land transfers are irregular. The market for land transfers is not yet fully established, and most land transfers are done spontaneously between rural households. Oral agreements are still the majority, so the process of land transfer is not standardized. There is no appropriate and scientific standard for appraising the value of land, so it is difficult for the agreed-upon price to accurately reflect the value of the land. Some land transfers have no written contract, only an oral agreement. And for land transfers that do have a contract, the main party is often the village or a cooperative–but the individual farmers who actually have the land-use rights have not given any written authorization. As a result it is not clear whether the parties to the transfer are qualified to make it. In 2014 there were 91,700 cases of disputes over land transfers, an increase of 42.39% from 2010. …

A second issue is that after being transferred some land is no longer used for producing staple crops. In recent years, as the scale of transfers of land management rights has expanded and accelerated, the objectives and interests in land transfers have become more complex. Gradually there has emerged the phenomenon of the “de-staple-ization” of farmland. This tendency is more obvious in the developed eastern provinces [here the author cities statistics showing that of all farmland that had been leased or otherwise transferred in 2014, 56.82% was used to grow staple crops; the share was only 25.33% in Guangdong]. Looking at the profitability of agricultural operations, staple crops are relatively less profitable products. And because those who have land transfer contracts have to pay rent on the land, they choose high-profit products in order to realize the benefits of the land transfer. Therefore, the shift away from staple crops has become the basic trend and motive for land transfers.

The gist seems pretty clear: the consolidation of farmland has produced an increasing number of social disputes, and the new operators tend to stop producing grain and grow cash crops instead. In other words, the precise issues of “civil unrest” and “reduced output of staple foodstuffs” that Joe warned about are appearing (with the important caveat that nationwide grain output is still rising not falling, as increases in productivity have so far outweighed changes in land use).

While you still see a lot of dramatic rhetoric from the government about overhauling small family farms into larger, more “modern” operations, it is also the case that Xi’s administration seems to be pretty conservative in practice about food security. So I would say that Joe’s prediction–that the natural consequences of farm consolidation will at some point force a rethink of the policy to promote it–is looking pretty good right now.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.