Sunday, March 17, 2013

China's Complicated "Family Farm" Campaign

There is a lot of discussion of how to consolidate Chinese farms, and many view "family farms" as the main model for the future. Chinese officials have been including this term in a lot of their strategy statements--including this year's "Number 1 Document"--but there is no definition of what a "family farm" is.

Like many things in China, confusion abounds since there are conceptual and legal ambiguities regarding the "family farm." The concept in China is similar to the American concept but has to be understood in context of China's existing system. Moreover, a commercially-oriented "family farm" business is in a legal gray area since it does not fit into China's communist administrative structure that has separate lines of authority for peasants and industrial enterprises.

The usual Chinese word for "farm" is nonghu (农户) but this actually means "rural household." "Nong" (农) can mean either "rural" or "agricultural" (since the two were traditionally synonymous). "Hu" (户) means household or family. These households (农户) are composed of "nong min" (农民), literally "agricultural people," usually translated as "farmer."

"Family farm" refers to a farm operated mainly with the labor of adult family members, typically a husband and wife. It is a literal translation of jiating nongchang (家庭农场). "Jiating" (家庭), like "hu" (农), means "family." "Nongchang" (农场) means "farm" but has the connotation of an agricultural business operation larger than a household ("nongchang" traditionally was usually a state-operated farm, but an American "farm" is also called a "nongchang"). The important distinction is that a "family farm" is a larger-scale operation but there isn't any specified threshold size.

Equating "households" (nonghu) to "farms" arises from the "household responsibility system" that divided up all collectively-owned rural village land among village households (nonghu). Thus these households with tiny allocations of land became the main farming units in China in the 1980s. Initially, "nongmin" was often translated "peasant" but in the 1990s the translation was increasingly switched to "farmer." Now that many rural residents have abandoned farming as their main activity, "farmer" is no longer an accurate translation of "nongmin" ("peasant' is arguably more accurate) and "farm" is no longer an accurate translation of "nonghu".

To make things more confusing, there are also other types of large farms: specialized large households (专业大户) and large grain-planting households (种粮大户). The distinction from a family farm seems to be that these operations rely on hired workers instead of just family labor.

Even more confusing, the third type of farm operation, "farmer cooperatives"  (农民合作社), is a complicated concept that takes several different forms which is not quite what people in other countries think of as a cooperative.

There are also agricultural enterprises (农业企业). These are usually farms operated by companies, but many individual farmers have registered their hog farms, for example, as enterprises in recent years.

The discussion of "family farms" is propelled by the rising tide of rural-urban migration. With large numbers of rural people now working in cities, it makes sense to consolidate their land into a larger-scale farming operation.

In a March 10, 2013 interview, Chen Xiwen--China's senior advisor on rural policy--surmised that family farms would be the main unit of agricultural operations in China's future. Chen noted that academics and policymakers were still in the process of defining what a family farm is, but he said the main idea is that production is carried out by family members with large amounts of hired labor only used during peak periods like the harvest.

Chen noted that the idea of consolidating land is not new. He recalls that back in the 1980s policy officials were trying to find strategies to concentrate land in the hands of the most capable farmers. As migrants began leaving villages, the sub-leasing and consolidation of land began in the 1990s.

In his endorsement of family farms, Chen noted that the pipeline of rural laborers is drying up. Moreover, he contrasted the nature of farming with factories. Farming is seasonal and generally doesn't employ laborers year-round. Hired workers come and go and have no vested interest in the farm operation, creating principal-agent problems. Chen worries that the shirking of effort that was widespread on agricultural communes in the past will reappear on company-operated farms that rely on hired workers. The farm operator is at risk of low productivity, quality or safety problems or regulatory violations if hired workers don't follow procedures.

Another high-profile endorsement of family farms was given by Liu Yonghao, head of China's biggest animal feed company. Liu claimed that he found in many places 10%-to-20% of land is left idle because so many migrants have left the countryside and couldn't find anyone to sub-contract their land-holding. Liu thinks that forming family farms can solve the problem. He says farmers who contract with his company to raise 300 pigs a year earn 30,000 yuan annually, earnings high enough to compete with off-farm jobs and keep them on the land. He called on the government to set up a standardized system for trading land rights to promote formation of "family farms."

Liu observed that a number of provinces have already been experimenting with family farms but there is no standardized policy. Chen Xiwen noted that production conditions, weather, etc vary from place to place and there is no one-size-fits-all solution. Like everything in China, developing family farms is more complicated than one would imagine.

An article publicizing family farms reveals that there are widely-varying types and sizes of family farms. Jiaozhou, Shandong--an area designated to experiment with land transfer and family farms--has a "model" family farm of 5030 mu (830 acres) operated by 48-year-old Wang Xingqian who raises corn and potatoes. He rents land from 2000 families in 12 villages. He began in 2007 by renting 500 mu from a neighboring village, paying the rent in wheat. He has 30 pieces of advanced machinery. He also raises some pigs and chickens. Last year he earned RMB1.5 million ($238,000) and expects to earn 2 million this year.

While Wang Xingqian's farm is identified as a "family farm" it seems to violate Chen Xiwen's concept. The article reveals that Wang has 20 hired workers. Indeed, it seems impossible that a single family could cultivate 5030 mu located in 12 different villages. How does Mr. Wang ensure that all parts of his far-flung operation are being managed efficiently?
Combine harvesting corn on Mr. Wang's farm.

In Songjiang, an outlying satellite district of Shanghai, most of the land is held in more modest-sized family farms averaging 114 mu (19 acres). They claim to earn RMB100,000 per farm annually. In Songjiang only about 500 farmers are needed to grow all the rice. Some people say these modest-sized family farms are the wave of the future, but one local official says they calculated that two people could operate as much as 600 mu by themselves (about 100 acres). An Academy of Social Sciences researcher surmises that family farms could be 300 mu in areas with flat land and 30 mu for growing vegetables.

The director of the Jiaozhou agriculture bureau says Mr. Wang's megafarm was made possible because most of the land-holders had quit farming years ago to work in the local hat-manufacturing industry. He says "family farms" wouldn't be possible in Shouguang, a Shandong district where farmers want to hold on to their land because they earn high profits from growing vegetables.

While local officials have been ordered to promote family farms, specialized big farmers, and cooperatives, "family farms" have unclear legal status, and ambiguous land rights leave renters at risk of land disputes.

Mr. Wang says that his success making money from farming has attracted some of the land-holders to return to their village and demand their land back so they can take up farming again. Most of the land rental arrangements are short-term, so making long-term land improvements is risky.

Farm households are governed by their village, but a farm business--including a family farm and a farmer cooperative--must be registered as a legal business entity to get bank loans, issue receipts and conduct other formal business transactions. Family farms are in a legal gray area--they are not just rural households and not really business enterprises. Officials have started registering some family farms with local industrial and commercial bureaus. However, registration makes them subject to business taxes. If they process their products they are liable for value added taxes. Farm households and cooperatives are exempt from these taxes but not family farms.

Policy officials are trying to figure these things out. There is a campaign to legally register family farms with industrial-commercial bureaus, clarify the standards and criteria for family farms, and set financial, tax, insurance, land and subsidy support policies for them.

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