Why China Has The Worst Farms In The World
Even as China has emerged to be the second largest economy in the world, its agriculture sector continues to be one of the most inefficient in the world. South Korean farmers are 40 times more productive than the Chinese, according to Deutsche Bank’s Michael Spencer.
This is largely because all land in China is still owned by the government.
Farmland in China was collectivized — in which property and resources are owned by the community not individuals — under Mao.
Post-Mao reformers have implemented reforms to boost productivity. But the lack of credit, and the inability to own and mortgage land has deterred farmers from turning small-scale farming into more industrialized farms.
In fact, land grabs continue to be a problem and have sparked massive protests in Wukan and Guangdong, and have even driven corrupt officials out of the villages.
Farmers can’t own land in China. They are leased land for a period of time.
The collectivization of agriculture began under Mao. By 1962, nearly all farmland had been collectivized.
Land was given to village collectives. Farmers were grouped together in communes and earned points.
Despite what propaganda posters suggested, agricultural production fell 30% between 1959 and 1961 and 45 million people died in the famine.
Reformers returned agriculture to a family oriented management structure in the post-Mao era.
Households were given land contracts for 15-year periods but the land was still owned and allocated by a collective in the form of a village administration.
Until 1985 households were given production quotas but were allowed to keep surplus for themselves or sell it to the government at higher prices.
This move was important not just because responsibility turned to the household, but because it meant higher pricing.
At the same time, the price of fertilizers and other agricultural inputs rose at a slower pace, meaning higher profits for farmers.
In 1988, farmers were finally allowed to lease their land, but if they took up non-farm employment they risked having the land handed over to someone else.
Village heads reallocated land through “big” re-allocations, in which all of the land in the collective was leased to others. This discouraged farmers from investing in the land.
Big re-allocations were banned in 2003 and this allowed farmers to lease the land to locals and non-locals, and was a step in the right direction for property rights.
Such a rental market significantly improved productivity and allowed less productive farm workers to relocate to cities.
But land grabs have caused social unrest and protests in Wukan and Guangdong, with villagers demanding they be returned their farm land.
In 2006, China abolished its agricultural tax to help ease the financial burden on farmers.
But to this day, land is owned at the village level and can not be mortgaged.
The inability to mortgage land could cost China big, since it deters farmers from growing their business from a smaller family level operation to industrial farming.
Moreover, formal credit to farmers is limited and they rely mostly on informal credit by taking loans from family and friends.
Chinese farm workers tend to use formal credit to invest in their farm, and informal credit for other expenses like education, weddings, funerals and so on.
All of this has made farming very unproductive.
In fact, South Korean farmers have less water and land but are 40 times more productive than Chinese farmers.
This is because Chinese farming is very labor intensive and far less mechanized than South Korean farming.
Today there are about 266 million workers in the primary sector, i.e. agriculture, forestry and fishing.
Workers in the primary sector account for 35 percent of all employment, down from 71 percent in 1978.
But expectations are that as the Chinese economy develops that its agricultural workforce will account for less than 10 percent of its total workforce.
China’s economic growth has been driven by the migration of labor from the countryside.
For that to continue, output per farmer needs to more than double over the next three decades, and China needs to mechanize its farms.
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