Uprooting China's Traditional Farms in the 13th Five-year Plan

China's 13th five-year plan (2016-2020) calls for an ambitious makeover of the countryside which involves moving more small-scale peasant farmers into cities, fostering new types of scaled-up farmers to replace them, and modernizing agriculture by consolidating small plots of land, mechanization, improving advisory services, and upgrading unproductive fields.

Sounding like a millenarian cult, Xi Jinping and his acolytes promise that the long-awaited "relatively well-off society" is in sight and the 13th five-year plan period will be a "decisive" period for attaining it. The plan contains a number of objectives to ensure that everyone is wealthy, healthy and happy by 2020. Addressing rural poverty is one of the core objectives.

An essay in Peoples Daily last month by Minister of Agriculture Han Changfu emphasized the need to accelerate the transformation of agriculture from traditional to modern modes of production. This entails moving to larger-scale operations, treating agriculture like a business rather than a lifestyle, transitioning from relying on inputs to produce output to relying on technology, and paying more attention to environmental impacts of production.

Minister Han's essay alternates between optimism about progress in "agricultural modernization" and gloom about atrophy of Chinese farming, environmental degradation, and massive disequilibrium in agricultural markets. Minister Han cites three prominent problems: environmental and resource constraints; serious imbalances in agriculture, and the low quality of agricultural output. Han says environmental resources have "flashed the red light" in the form of serious pollution of soil and water, shrinking aquifers, and declining soil fertility. Water is being moved from the south to produce crops in the north which are used to supply food and feed demand in the south. Chinese prices are out of alignment with world prices, prompting big domestic surpluses while imports flood in. Manure produced by livestock is unutilized. Farms, processing, and distribution are out of sync. Farming has become a stagnant part-time activity and the farming population is aging. While the overall rate for compliance with food safety standards is 96%, Han worries there are "hidden dangers" in some areas.

Han estimates that China will a grain deficit of 100 mmt by 2020--so it is urgent to raise production capacity. Achieving food security is another objective attributed personally to Xi Jinping--"Chinese bowls must remain firmly in their own hands at all times and bowls must be filled mainly with Chinese food."

Officials plan a sort of enclosure movement with capitalist Chinese characteristics. The vision is to move villagers into cities and give them shares in village farmland, houses, and collective businesses that will pay them dividends in perpetuity. That will free up village land to be consolidated into farms that are commercially-viable. Those who stay behind in the village will become specialized farmers, and their income will go up as they farm on a commercially-viable scale. Calculations typically assume that farmers can net about 200 yuan per mu which would give them a decent income of 40,000 yuan on a holding of 200 mu.

Minister Han reports that 30% of contracted land had been transferred to new-type farm operators nationwide (at the end of 2014). There are 870,000 "family farms" and 1.28 million farmer cooperatives.

An anecdote in the Ministry of Agriculture's October 2015 situation and outlook report reveals that the large farms are not faring well because they are paying big rents while farm prices are falling. In Handan, Hebei Province, it was reported that common farmers earned a net profit of 300 yuan per mu from growing corn in 2015. However, large-scale farmers lost money after deducting the expense of renting land. In Henan, the return from corn is 133 yuan per mu, but it flips to a net loss of 500-yuan-per-mu after deducting rental expense. The MOA analysts recommend that the government give out subsidies in combination with initiatives to transfer land to large farmers. In one area, farmers have been selling their corn to traders at 1460 yuan per metric ton, 640 yuan less than last year. Concerned that land rents are set without consideration of grain prices, the MOA analysts also suggested that the government announce its support price for corn in the fall (a year ahead of the harvest?), when rental agreements are made for the following year.

Minister Han calls new-type farm operators the "leading force" in agricultural modernization and he calls for establishing a support system for them that includes advisory services, stable land-transfer relations, expanding methods of cooperation, exploring contract production, and management services.

Authorities are working on overhauling the grain subsidy system to consolidate the blizzard of subsidy into fewer payments. The direct payment for grain producers, seed subsidy, and general input subsidy will be combined into a single payment. Twenty percent of the general input subsidy funds will be designated for subsidies for scaled-up farms.

The low rate of fixed asset investment is an obstacle to agricultural growth in China. The plan calls for continued increases in investment but offers only the same tired solutions of government-financed irrigation ditch construction and "model" high-yielding farms. These programs only reach a fraction of all farms. They are expected to inspire other farmers to make similar investments but the investments aren't viable for farmers who don't get subsidies given to the "model" farms. Farmers are not inclined to invest in land they don't own and bankers won't make loans to farmers with no land to use as collateral.

The plan calls for more external openness in agriculture, but this means foreign trade that is controlled by Chinese entities. It calls for strengthening control of imports and exports and getting a grip on the scale and rhythm of imports and exports of agricultural commodities. The plan advocates "seizing the opportunity" of the one belt, one road strategy and fostering development of large, internationally competitive agricultural business conglomerates.