Pitfalls of Land Transfer Schemes

Several days ago, the dimsums blog posted news about a scheme to mortgage land rights in Chongqing. Today's post describes a critique of these land transfer and mortgage schemes by Chen Baifeng, a young professor at South Central University of Finance and Politics. The issues are fundamental to the social and economic system of rural China. Who owns the land in rural China? Who will farm and how will the profits be distributed? Can traditional village society adapt to commercial farming?

The critique is aimed at another model region, Zaozhuang Municipality in southern Shandong Province. Zaozhuang has launched a number of innovative schemes in the last several years that include township land transfer systems, mortgage loans secured by property rights and land cooperatives. Delegations from rural areas all over China have come to inspect Zaozhuang's system and many have gone home to imitate it. Such schemes are widely used in Shandong. Chen notes that such schemes get a lot of attention from local governments and the news media, but they have many pitfalls.

Professor Chen is critical of land cooperative schemes in which villagers are encouraged to pool their land in a cooperative. The land is consolidated and rented out to a company or large-scale farmer. The villagers receive shares that entitle them to dividends and land rent. They also may be employed as laborers on the farm and receive wages. One such scheme was reported in the media as paying villagers 900 yuan in rent and 600 yuan in dividends for each mu of land placed in the cooperative, double what the villagers had earned from cultivating the land themselves.

Professor Chen criticizes these media reports of 1500 yuan in easy money for hyping cooperatives as unrealistic get-rich-quick schemes. He says "property rights clarification" propaganda is spread blindly without understanding the real principles. The media never reports on the failures. For example, he says many local officials have sought to duplicate the success of Shouguang, a county in Shandong known for specializing in vegetables, but Chen says there have been more failures than successes. He says many officials give subsidies to set up such projects but are ignorant of the realities of the market and many end up bankrupt.

Chen argues that large-scale agriculture and mechanization is unsuited to rural China with its large labor force. These companies and cooperatives must pay high rent and wages, and have a hard time covering costs. Surplus production frequently leads to low prices when many farmers and companies rush into growing a certain commodity. Most of these schemes involve growing crops or livestock that are inherently risky.

Chen asserts that these schemes are a "market mechanism for bankrupting peasants" that ultimately cheat farmers out of their land when the cooperative or company fails. Chen warns of disputes and social unrest when schemes go sour. (In his defense, the mayor of Zaozhuang has given at least one speech where he made a point of emphasizing that the cooperative form of organization gurantees that farmers can't lose their land in the event of a bankruptcy.)

Professor Chen's core critique is similar to the sociological "Goldschmidt hypothesis" critique of large-scale farming in the United States advanced in the 1960s. Chen argues that rural villages need to cultivate a class of "middle peasants" who farm a "suitable scale" of 20-to-30 mu (about 3-to-5 acres) in order to maintain a viable rural social structure. He says farmers can earn a good living of 20,000 yuan from an operation of this size, more than a migrant worker. Chen argues that consolidating land into cooperatives and large operations crowds out these middle class peasants, hollowing out villages and leaving them composed of elderly people,  little interest in public affairs, declining public services and erosion of morality and harmony.

Chen explains that in past years villagers who migrated to work in cities would let neighbors cultivate their land for little or no rent, thus allowing some farmers to achieve "suitable scale." However, Chen argues that large-scale farming schemes raise land rents and push these middle class peasants out of farming. Chen claims that "middle class" peasants are often pushed into putting their land into cooperatives through pressure from village officials, persuasion from their adult children, gossip or implied threats such as loss of welfare payments if the villager refuses to join. After joining, Chen argues, they risk being plunged into bankruptcy.

Chen asserts that middle class peasants live a comfortable life of leisure. It is said that rural people spend three months celebrating holidays, three months doing farm work, and 6 months playing cards, mahjong and going from house to house passing the time. Especially middle-aged and elderly people are unable to engage in heavy labor in factories, construction sites, or agricultural companies, so part-time farming is ideal to keep them occupied and earn enough money to live well.

Chen recounts the unpleasant experience of a village in Anhui Province where he has done research. He identified the village's core "middle class" as a group of 50-to-60-year-olds who farmed and took care of the 70-to-80-year-olds. After the village set up a land cooperative in 2008, the middle class peasants drifted away from the village. Chen cites a series of suicides among the elderly that followed since there was no one to look after them.

Professor Chen suggests that cooperatives are a "stage prop" for capitalists to siphon off agricultural profits from the countryside. Many of the land transfer schemes involve companies coming from outside the village to operate farms. Chen argues that what farmers need is not land-transfer cooperative schemes. Rather, what farmers need is cooperatives that help them farm more efficiently and earn more profits for themselves.