Wednesday, July 11, 2012

Cooperatives and Land Rental Constraints

The Chinese news media seems to be laying down a propaganda barrage about professional farmers, land rentals, cooperatives and large-scale farming. Could this be preparing the way for a change in rural land policy?

On July 10, the Chinese central broadcasting service reported on the difficulties agricultural cooperatives encounter in renting land--land holders will only rent land short-term, which means cooperatives are at risk of losing access to the land they rent.

The article focuses on a district in Taizhou, Zhejiang Province, a region where many villages have rented most of their land to large-scale farmers or cooperatives. The leader of one cooperative points to a hillside which he says used to be covered with grass but the cooperative has "put a lot of thought" into building infrastructure and roads to transform it into a productive farm. However, the cooperative's rental agreement is about to expire and the villagers plan to rent the land to someone else.

A machinery cooperative leader leased 500 mu (82 acres) to plant rice, but their agreement also expired this year. Some land "owners" wanted to rent to a watermelon farm and others wanted to take their land back. The cooperative now is forced to farm a patchwork of fields that are hard to plough using their tractors.

According to local officials, some farmers have a "traditional concept" of land and don't want to rent their land long-term. Some worry that the village's land use plan may change and they will lose their land.

According to statistics from the Yellow Rock district in Taizhou, 34 percent of land rental agreements are for one year or less and 45 percent are for 1 to 5 years. Less than 2 percent are for 20 years or more.

Given the land rental problems in Zhejiang, some of the cooperatives have been looking elsewhere to find land. One cooperative leased 2000 mu of rice paddy in Hubei Province. Other cooperatives have expanded to far-flung areas like Hainan, Guangdong, and Shanghai.

The article says cooperatives need to learn the rules of the market. The director of a local research institute explains that a cooperative may have to produce highly profitable products to justify paying high rents. If you don't pay high rent, you risk losing access to the land if someone else is willing to pay higher rent.

Land is not like other commodities. Each tract of land has its own unique characteristics that influences the final product. Therefore, cooperatives can't move around from one piece of land to another.

This article crystallizes the problems involved in China's giant property rights experiment of separating ownership rights from use rights. It's not that simple to consolidate and rent land while keeping it collectively owned. If rents are going up 15 percent every year, why would you agree to rent out land long-term at a fixed rent? If you turn your land over to a cooperative to farm in China's dicey legal environment, what guarantee do you have that you will ever get your land back?

If you are renting a tract of land a year at a time, why would you bother investing in structures and improvements if you might lose the land next year?

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