Sunday, July 19, 2009

Pooling land as investment capital in Chongqing

A pilot program in Chongqing municipality in southwest China combines two new directions in restructuring Chinese agriculture: land transfers and cooperatives.

Last October, a big meeting of China’s communist party encouraged leaders to explore new ways of transferring land between farmers. China is also emphasizing farmer cooperatives as a way to expand the scale of farm production while maintaining the collective ownership of farmland. Chongqing municipality has been singled out as a pilot area to try out innovative arrangements for forming cooperatives using land use rights as investment capital.

In 2007, authorities in Chongqing began allowing farmers’ land use rights to be pooled and used as investment capital in an agricultural company (cash, physical assets, intellectual property, and other assets could also be used.) Now the emphasis is on forming “farmer professional cooperatives” in this manner and changing companies already established in this manner into cooperatives. A 2007 document from Chongqing announced that companies could by formed by the new mode of using land use rights as investment, but regulations on cooperative registration issued by Chongqing this month say companies, partnerships, or other non-cooperative entities cannot be formed.

A Farmers Daily article reports that 36 cooperatives in the pilot program using land use rights as investment capital have been formed in 10 districts of Chongqing since last year. The coops have put together 65,000 mu of land (about 10,700 acres) with a value of 50 million yuan, roughly $7.3 million. That comes to about $685 per acre. The land use rights account for a third of the cooperatives’ assets.

Farmers have long-term contractual rights to use rural land for agricultural production, but they don’t have individual ownership rights. The land is owned by the village “collective.” New land transfer schemes have to stay within tight boundaries: farmers have to participate voluntarily, land cannot be changed from agricultural to other uses, only use rights are used, collective ownership is unchanged, and farmers cannot lose access to their land. When a cooperative is dissolved, the use rights must be returned to the contract household. If a cooperative wants to put up a factory, warehouse or other building it has to find some land that has already been designated as nonagricultural; it can’t build on farmland.

China’s cooperatives are small. An example is the “pollution free” (wu gong hai) vegetable cooperative of Little Rock village in the Wanzhou District. It has 110 members who have pooled 1200 mu (198 acres) of land that is under unified management. The value of the land is based on 3 years “benefits” (gross revenues?). The first batch of vegetables from the cooperative is now going to market.

China is taking tentative steps toward expanding an ownership society. Making urban households property owners through housing reforms in the 1990s gave the economy a huge boost and created huge wealth in the cities. This program operates within tight strictures, but it looks like a positive step for farmers.

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