China's land policy an issue for grain
Jan. 15, 2015
by Morton I. Sosland
At this time when debating governmental agricultural programs in Europe and the United States has taken a backseat to economic, regulatory and immigration issues, it becomes tempting to turn to China to watch how significant policy shifts affect something as important as grain production. It has been with hardly any notice that the government of China at the Third Plenum of the Communist Party approved implementation of steps that many respected observers describe as revolutionary for their potential impact. Little question exists as to the importance of what is happening. This is so not just in Chinese agriculture and grain farming, but also on the way it might influence the trade flows where China has been a hugely important factor.
In simplest terms, which like many, if not most, Chinese regulations require intense examination, the government has begun cautiously moving to allow farmers to transfer operation of their land in return for rental payments. Essential to understanding the significance of this move is that previously, except for a few early experiments, land ownership changes such as simple transfers were forbidden by the Communist Party concept of collective ownership. It was Chairman Mao Zedong, China’s first Communist leader, who declared collective ownership of all land on first seizing power in 1949.
As the result of strict collective ownership, the average farm size in China has been only a trifle more than a single acre (in America the average is above 400 acres). Such small farms operated by struggling families were blamed for limiting steps to improve yield and marketing. It has often been argued, but not implemented until this year, that allowing the sale and acquisition of land to build large acreages was the surest way to secure grain production at levels meant to assure domestic production equal to demand. At the same time, the willingness to apply intensive farming practices to land depends greatly on the rental levels. In one early experiment where rents were high, the comment was made that “the more grain you plant, the poorer you get.”
China’s hard-nosed president, Xi Jinping, described as China’s most powerful leader since Deng Xiaoping, has been given the major credit for implementing the new agricultural land policies. It is believed that he was influenced not by the need for such a change to strengthen the grain production sector, as he was by the widening gap between farmer income and urban dwellers. The gap, according to recent estimates, has urban incomes three times rural levels. Of considerable influence is the continuing flight of younger rural residents to seek city employment, which has slashed the share of China’s huge population working on farms in the past 25 years from 80% to less than 50% currently.
That President Xi has endorsed such a significant change is considered particularly significant since he has shown a willingness to dismiss economic advances that might weaken his political control. The new land policy does not allow real estate developers to acquire control of agricultural land. That new authority is limited to other farmers as well as newly-formed cooperative organizations, with the stated aim of preventing “land grabs.” In adopting this change, the Third Plenum of China’s Communist Party said “circulation of the right to operate on contracted land cannot change the collective ownership of the land.”
Just how such a significant change in China’s agricultural policy will ultimately affect levels of grain production and thus the country’s trade position depends on future crop sizes. Obviously aimed at boosting production, this new policy, if it works as Chinese officials believe, should certainly affect the direction of China’s imports of wheat, maize and soybeans. Coming at a time when China’s global ambitions and its relations with the United States, Europe and Russia are far from certain, such a fundamental shifts and its many unknown consequences might also affect the willingness of western companies, whether trading grain or processing and marketing food, to enter into sizable investments in the Chinese economy.