Saturday, July 25, 2015

Premier Li Endorses Factory Farming

At a July 22, 2015 executive meeting of the State Council, Premier Li Keqiang emphasized the necessity of transforming China's agricultural model. Instead of viewing "agriculture" as a compartmentalized activity for peasants, Li wants officials to treat agriculture as an industry that operates like a factory and is linked with processing and marketing sectors.

Premier Li told a story that reveals the medieval view of agriculture that still prevails among many Chinese officials. Li recalled being confused during a visit to Canada ten years ago when his Canadian hosts spoke of "agricultural industry" (directly translated  "农业工业" according to the article, which is not a common Chinese term). Li wondered, "How can 'agriculture' also be 'industry'?" In China, "agriculture" and "industry" have always been two separate and compartmentalized parts of the economy.

When the Canadians took Li on an agricultural tour, he understood what they were talking about. He saw that Canadian farms were linked into a complete chain from choosing seeds, to planting, cultivation and harvest, processing, and marketing of crops. Li--an economist by profession--was enthused over this discovery: "Farm products move through a series of links in the industry chain and are eventually sold all over the world!"

This concept of agriculture as one of many links in an industry chain (产业链) is what Chinese officials call "agricultural industrialization" (农业产业化). This is part of the broader--and older--concept of "agricultural modernization" (农业现代化). This year Premier Li is making a renewed push to consolidate farms, develop value-added processing of farm products, and improve technical and financial services to farms.

Premier Li put the Canadian agricultural industry concept into practice when he was governor of Henan Province a decade ago. He observed that rural people could not easily boost their income by growing grain, so he formulated a plan to add value to products by developing grain processing industries like flour-milling and frozen dumpling manufacturing. (Although it's not mentioned here, the Shuanghui meat company based in Henan was also a beneficiary of the Province's food-processing industry strategy.) Grain processing in farming regions is getting a big push nationwide this year (even though these industries suffer from excess capacity).

Most of Li's discourse emphasized the importance of consolidating farmland into "appropriate scale" operations while "respecting the wishes of farmers." The appropriate scale farms include multiple forms, such as specialized grain farmers, "family farms" that cultivate a farm large enough to utilize a husband and wife's labor, share-holding cooperatives that pool village land and give villagers dividend-paying shares, and "land trusts."

Li emphasizes that consolidating land is the best way to increase incomes for rural people. Villagers can earn rent or dividends from new-style farms that cultivate their land, plus they can earn wages from working as hired hands on these new farms. Implictly, this institutional change intends to let rural people (农民) continue to receive the returns to land and labor while a set of new entrepreneurs will orchestrate all this and enjoy profits (i.e. the return to capital or entrepreneurship).

Li also emphasized the importance of raising the productivity of sub-standard fields. The northeastern region is losing its valuable black topsoil, soil is becoming acidified, and industrial pollution has contaminated farmland. An easy way to raise the productivity of land is to eliminate ridges between fragmented plots, said Li. He claimed to be heartbroken when he saw the amount of land wasted in a recent tour of Yunnan and Guizhou where "palm-sized" plots are common.

While he doesn't drill down to explain incentives for investment, presumably it's up to the government to raise soil productivity. Peasants (农民) with insecure rights to their land skimped on investing in it, instead mining the soil to extract as much production as possible--with encouragement from a government obsessed with "food security." These new-type farms have even less-secure rights to the land they farm--Li insists that villagers must be assured that they can get their land back if they want after the land has been rented out. Why would they be good stewards and make long-term investments to maintain the land's productivity if they might have to give it back to the peasants next year?

So China is embracing an approach to agriculture that views farms as production units akin to factories. This embrace of "factory farming" is happening at the same time many in developed countries have romantic notions of returning to the subsistence-type farming and heritage breeds that China is leaving behind.

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