Sunday, February 21, 2021

Land Transfer Regulations Point to Troubles Scaling Up Farms

In January 2020, China's Ministry of Agriculture and Rural Affairs published new regulations on the transfer of rural land operation rights that take effect March 1. The regulations are the latest in a series of decrees and notices attempting to meld socialism and capitalism in the Chinese countryside by creating a market for rights to use land while retaining an opaque form of collective ownership of the land. A close reading of the regulations and the problems they are aimed at suggests that the farm scaling-up process is not going smoothly. This "reform" piles on more layers of audits and approvals to address the worries of Chinese leaders obsessed with "risks" to "food security" and rural stability.  

Chinese officials are alarmed by the phenomenon of abandoned weed-covered plots of rural land. A Peoples Daily explanation of the regulations leads off with headings "Enliven [land] use rights" and "More effectively and rationally utilize land resources." This blog previously has reported on the abandonment of farmland.

A videoconference on utilization of abandoned land held by the Ministry of Ag last month warned provincial officials that "we must resolutely curb the abandonment of cultivated land" to maintain national food security. Local officials were ordered to assess their local land-abandonment situation and draw up plans to ensure that cropland in their province/prefecture/county/town/village is fully utilized. The land utilization campaign is not unrelated to the land transfer initiative. The first task given officials in the videoconference was to "standardize/regulate" (规范) land transfer systems (other measures included subsidies to motivate farmers, spending on land improvements and infrastructure, better agricultural services, and propaganda). 

The land regulations taking effect next month are focused on mechanisms to transfer land use rights to commercial enterprises, "family farms," cooperatives, and trusts through rentals, long-term leases and reassignments--without selling the ownership of the land. Propaganda articles explain the necessity of the strategy by giving examples of poor villages where weed-covered plots of wasteland were consolidated and rented out to large-scale farmers to grow wheat and medicinal crops, with profits paid out to villagers as dividends and wages.

Several years ago, a Red Flag essay putting Xi Jinping's stamp of approval on the land policy explained that agriculture had become stuck in the "mud" of fragmented, scattered plots of land. The essay explained that the first phase of rural land reform was to dismantle communes and contract land to village households in the 1970s and '80s. Now, with rural people flocking back and forth "like migratory birds" between city and countryside and with villages hollowed out and emptied, the second phase is to re-consolidate the farmland to achieve "modern" agriculture while maintaining collective ownership as the "bottom line"--which means making villagers nominal shareholders in scaled-up farming ventures and hiring them as laborers. 

The main thrust of the new land transfer regulations is to step up scrutiny of land transfer projects to weed out projects that go bust and to prevent investors from shifting farmland to nonagricultural ventures. Peoples Daily explained that, "...some commercial investors moved in a non-grain direction, and some renters changed the land's agricultural use after [acquiring the land]." In 2018, Chinese news media uncovered the widespread construction of vacation homes, tea houses, and hotels inside greenhouses to circumvent bans on using farmland for such ventures.

The villager-shareholder-dividend model breaks down when there are no profits. Peoples Daily fretted that declining relative profitability of grain production caused some business ventures to collapse, and businessmen broke land rental contracts and "ran away"--presumably leaving behind unpaid rent, worthless shares...and seething villagers. This blog previously discussed the link between failures of scaled-up farms and falling grain prices.

The major emphasis of the new regulations is enforcement of Xi Jinping's decrees calling for strict bans on conversion of farmland to nonagricultural use (非农化) or conversion to production of nongrain crops (非粮化). Peoples Daily explained that the new regulations proscribe: "Building kilns, tombs, or houses on cultivated land; digging sand, quarrying, mining, or taking soil without authorization; and use of 'permanent basic agricultural land' for fruit trees or fish ponds." Interestingly, the explanation of regulations does not mention building pig farms on farmland, probably because restoring pork production capacity is another major government priority for 2021. In fact, local authorities were ordered to make land available for building pig farms as part of the campaign to restore pork supplies.

The new regulations require rural governments to establish commissions and organizations to scrutinize viability and legality of proposed land transfer projects, track their progress, and audit them to ensure they are not changing the use of land and ensure they pay out funds as promised. Local authorities are encouraged to set up rural land exchanges or rural property rights markets, issue standardized land transfer contracts, offer legal advisory services, and set up record-keeping and auditing systems. Local governments are advised to set up "risk funds" and monetary guarantees that compensate villagers when projects fail. Regulators call for insurance companies to offer services and insurance products that indemnify village collectives hit by failed projects.

A Q&A on the new regulations issued by the Ministry of Agriculture and Rural Affairs asked whether the new regulations may act as a barrier that discourages business operators from pursuing land transactions. The response dodged the question, explaining that the regulations are not intended to limit land transactions. The regulations will surely discourage formation of businesses by adding layers of cost to the start-up of new farming operations. Arranging land transfers already demands onerous negotiations with county, town and village officials and agreement of villagers to consolidate hundreds of small plots of land.

In addition to the burden on businesses, every local government will have to set up teams to audit, supervise and keep records on land transfer projects. How will such auditing teams be staffed? Persons with accounting and financial skills are scarce in the countryside and lack of such personnel is one of the chief bottlenecks for China's farmer cooperatives. These committees and record systems will be set up in a flurry of activity and then quickly fall into dormancy and atrophy. 

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