Dilemma in China’s agricultural land transfer to enterprises: good or bad?

Citation

Xin, X. (2012), "Dilemma in China’s agricultural land transfer to enterprises: good or bad?", China Agricultural Economic Review, Vol. 4 No. 3. https://doi.org/10.1108/caer.2012.40604caa.001

Dilemma in China’s agricultural land transfer to enterprises: good or bad?

Article Type: Editorial From: China Agricultural Economic Review, Volume 4, Issue 3

China is facing a dilemma of transferring agricultural land to enterprises for large-scale production. This follows growing challenges facing small-scale household farmers. That is, although small-scale household production often cultivates more intensively than large-scale production, China’s small-scale household agricultural production has been encountering challenges such as aging labor force, limited access to credit markets, limited application of new technologies, and difficulties in product marketing. Historically characterized by small-scale agricultural production with less than one-third hectare of land per rural household, China’s cultivated land area has been declining over time while the population has been increasing. The growing population and subsequent decline in per capita farm land has been accompanied by small-scale production, which has given rise to worries about future food security and rural development in China. To increase agricultural production scale has thus become an urgent policy priority.

However, increasing production scale by allowing enterprises rent farmers’ contract land further exacerbate worries about food security and social instability. In China, there are two major ways agricultural production scale could be increased. One is to support farmers to increase their production scale by acquiring other farmers’ contracted land through lease agreement. The second way, which has drawn heated debates in China, is allowing enterprises rent farmers’ land to cultivate the land on large-scale. The first means of increasing farm scale is more preferred by the central government since this type of scale increase usually will not lead to decrease in agricultural output, and encourage social instability. The second means of scale increase is seemingly more preferred by local governments and farmers. However, it often gives rise to worries about non-agricultural use of agricultural land and thus endangers China’s food security and social stability. Thus, whether enterprises should be encouraged or discouraged to rent agricultural land is currently a policy debate in China.

The trend that the transfer of China’s agricultural land-use rights has taken intensifies the policy debate. Since the start of 1984, the Chinese Central Government consistently encourages agricultural land-use rights transfer among farmers. The central government in no.1 document of 1984 adapted China’s household responsibility system reforms and supported farmers to transfer their contract land among village farmers. However, the scale of land-use rights transfer has been very small, though rural labor migration to participate in non-agricultural work has been rising. Agricultural land turnover rate has been merely around 1 percent of total contracted agricultural land area in 1996, and rose to 5 percent in 2007 (Zhao, 2011). The rapid increase in agricultural land transfer started in 2008 when the central government document reemphasized its support for land transfer, and discouraged agricultural land transfer for non-agricultural use. During this year, agricultural land turnover rate reached 9 percent, and reached 12 percent in 2009, 14.6 percent in 2010, and 16.2 percent in 2011 (Huang et al., 2011; Han, 2012). Agricultural land transfer is more prominent in China’s more economically developed provinces, as the turnover rate amounted to 40 percent in Jiangsu and Zhejiang provinces in 2010 (Huang et al., 2011).

China’s policies restrict the transfer of agricultural land to non-agricultural use without permissions from government. A large number of enterprises, however, rent an increasing number of agricultural land to produce agricultural products. Official data suggests that the transferred agricultural land to enterprises accounted for 9.2 percent of all transferred agricultural land in 2011, and the rate was only 4 percent in 2009 (Han, 2012). However, the underground transfer of agricultural land from farmers to enterprises may be much larger than the official statistics.

The central government of China does not encourage enterprises to rent farmland for long-term use, and this was emphasized repeatedly in recent years. There have also been repeated reports in the media that agricultural land was being illegally used for non-agricultural purposes, and that land conflicts have risen sharply in recent years. Most of the worries among media institutions and public officials come from fears that enterprises may use transferred land for non-agricultural purposes. These fears are sometimes validated by evidence suggesting that agricultural lands already transferred to enterprises for agricultural production are usually used for the production of non-grain products. This gives rising worries about China’s food security. There is also evidence that enterprises face difficulties in monitoring farmers that they employed to work on agricultural land transferred to those enterprises. This has caused many enterprises to quit agriculture due to large financial losses incurred from their agricultural activities. The last but not the least worry is that after transferring their contracted land to enterprises, farmers may have nothing to do, and thus leads to social instability if they do not find non-agricultural working opportunities.

While many against the agricultural land grasp by enterprises, voices supporting the entry of enterprises into agricultural production are also loud. The advocates argue that agricultural production involves sophisticated technology, and the traditional view that agricultural production is a simple work is outdated now. For instance, the advocates hold the opinion that seed selection, fertilizer application, pest and diseases control, irrigation, storage, and sales of agricultural products involve techniques that ordinary farmers are incapable of handling. They further think that small scale of farmland per household fails to produce attractive profits, and thus provides disincentives for farmers to invest the optimal fixed inputs into agriculture. Fixed inputs usually cannot be fully utilized in small-scale production, and thus are usually underinvested. This entails lower production output than optimal output with optimal fixed inputs investment. Because enterprises have the capability and incentive to invest optimal fixed inputs, they are capable of increasing agricultural outputs as well as making profits. For instance, large-scale farmers in China’s northeast region cultivate about 20 hectares of grain land and earn annual income of 120,000. Larger-scale farmers make even much more. These instances of profitability of large-scale farmers attract enterprises to enter agricultural production. The entry of some of these enterprises has led to many very successful stories. Quite a number of these enterprises show their success in renting farmers’ land for agricultural production by making profits, while farmer benefit through increased income from employment opportunities provided by these enterprises. For example, the local governments in Sichuan, Chongqing, and other regions encourage enterprises to rent farmers’ land as well as employ the farmers as professional workers. Farmers thus could earn two types of payments and their incomes are significantly higher compared to that prior to the transfer. Thus, local officials have been welcoming enterprises to rent farmers’ land to produce agricultural products since doing so helps to promote farmers’ income through employment creation, and enhance local development.

China’s recently adopted 2012 policies encourage agricultural enterprises to play leading roles in overcoming the disadvantages brought by small-scale farmland per household (The State Council, 2012). It is further expected that the central and local governments will provide increasing financial support to key agricultural enterprises to improve agricultural land quality and animal husbandry. So, agricultural enterprises will possibly take advantage of these new policies to enter the rural land market. However, the central government still does not support enterprises’ direct rent of farmers’ land for large-scale production. These seemingly contradictory polices thus create confusion for enterprises intending to engage in large-scale agricultural production. Therefore, research on whether the net impacts both – in economic and social terms – of allowing enterprises entering the rural market for direct large-scale agricultural production is good or bad is urgently needed to enable policymakers make clear decision on the acquisition of farmland by enterprises. In the meantime, however, the most important thing that the government should do is to ensure that agricultural land transferred to enterprises is not shifted to non-agricultural use.

Xian Xin