China Likes Big Techno-Farms

Chinese officials view scaled-up techno-farms as their farms of the future. Small-scale peasant farmers still blanket the countryside, but subsidies are gradually tilting toward big farms. 

business propaganda outlet Yicai proclaimed recently that scaling up farming operations is the key to addressing a crisis of chronic low earnings from grain production that undermine incentives. Yicai insisted further that small-scale farms of 10 mu could never improve rural living standards. The Yicai article featured the head of a "cooperative" who had acquired 19,200 mu of land through "land transfer" as a technologically adept farmer superior to the small-holder peasants who still dot China's countryside. The cooperative had boosted wheat yields and quality, linked up with a flour manufacturer, and had plans to expand his business even more.

Yicai cited a 5-year-old Farmers Daily article that found 60 percent of China's cropland is farmed by small-scale farmers with holdings of 10 mu or less, while only 20 percent was farmed by scaled-up farms (the other 20% was not accounted for).

A recent Economic Daily discourse on "Rationally Maintaining Farmers' Net Returns to Growing Grain" pointed out that crop yields are highest for farmers cultivating 500 mu of land--about 10 times the typical holdings of small-scale farmers. The article's China Agricultural University authors gave examples of efficient farm producers: a "specialized rice cooperative" in Heilongjiang's Jiamusi City and an "agricultural services" company in Shandong's Gaomi City that cultivate the cropland of entire villages, bring in new seed varieties, mechanize the entire process, and fly drones over the fields to spray pesticides.

The fragmented nature of China's grain farms is cemented in place by its outmoded land policy that distributed plots of land to every rural family based on the number mouths to feed and number of laborers. Land can be temporarily transferred to other farmers but it can't be sold to other farmers. 

In contrast, pig farms are mostly independent of land-holdings and have consequently scaled up at a furious pace. Chinese officials love big pig farms with high-rise barns, automated feeding and temperature control equipment, data collection and artificial intelligence. They also love that they can call company executives to Beijing to lecture them about policy priorities, trot them out on stages, and feature them as models loyal to the leadership. 

After dead pigs floated into Shanghai in 2013, officials were ready with a plan to shut down small pig farms and replace them with big ones. During years that followed aggressive environmental measures eliminated millions of pig farms. In 2019, a long list of subsidies and loans to restore pork supplies after the African swine fever epidemic were given mainly to scaled-up farms. Muyuan Foods--now the world's biggest pig farmer--got big tracts of farmland to build giant pig barns despite a crackdown on diverting farmland from grain production. China had 21 million pig farms in 2020, less than half the 50 million in 2014 and a fifth of the 105 million pig farms China had in 2002. 

Source: China livestock industry yearbooks.

Priority initiatives to reduce soybean imports show how China is marginalizing small-scale farms by featuring complex techno-farming initiatives that are beyond the grasp of peasants.

A corn-soybean strip-cropping pilot program--one of China's top farming initiatives in 2022--is meant to increase soybean output without sacrificing corn by planting fields that alternate 2-4 rows of corn with 2-6 rows of soybeans. The technique has complicated requirements for row spacing, varieties that can tolerate dense planting and are resistant to lodging and shade-tolerant, special herbicides and different application times are needed for the two crops in the same field. Specialized machinery (which doesn't seem to be even available now) is needed for seeding, chemical application and harvesting. 

Last month, Economic Daily reported that production costs for the corn-soybean strip-cropping technique are extraordinarily high due to complex field management, specialized inputs and machinery required. High subsidies of 200 yuan per mu (about $170 per acre, plus additional subsidies for equipment purchase costs) are available only to large-scale farmers, cooperatives, and companies engaged in strip-cropping. Small-scale farmers are ineligible. 

This week China's agriculture ministry held a seminar to demonstrate progress on low-protein soybean meal diets for livestock, another measure to reduce soybean imports. The seminar featured presentations from giant companies like New Hope Group and Muyuan Foods. Official talking points on this initiative scold small and medium-scale farmers for judging feed quality based solely on its soybean meal content rather than designing feed rations based on diets that set minimum amounts for a half-dozen unpronounceable amino acids, fermentation processes, and distinctions between metabolizable versus digestible protein. 

The problem is that big farms have high capital requirements, high costs, and cannot operate on a shoestring as small-scale peasant farmers have done for decades. The giant pig farms are losing billions of dollars. One promising pig farming company went bust in 2018, and the number-2 pig-farming company now appears on the brink of bankruptcy.

According to Economic Daily, farmers are not able to cover the costs for soy-corn strip-cropping even with the high subsidies.

The Economic Daily and Yicai articles pointed out that land rental costs are an obstacle to profitability for scaled-up farmers. Economic Daily authors said they learned that Heilongjiang Province land rental rates went up from 500-600 yuan per mu in 2020 to 700-800 yuan per mu in 2021, while rent in Henan Province on land used for wheat-corn crops is 800 yuan. 

The cooperative head interviewed by Yicai said the 800 yuan land rent currently paid was "reasonable" but claimed that he would not be able to make money if rent was boosted to 850 yuan. Another farmer in Inner Mongolia interviewed by Yicai rented 6000 mu of "sandy" land from animal herders to plant soybeans and sorghum. He complained about the high expenses of 900-950 yuan per mu for land rent plus inputs and services and the land's vulnerability to windstorms. He complained that the rent exceeds the cost of inputs for the crops and he only nets 170 yuan per mu. 

An Anhui farmer interviewed by Yicai warned that many entrepreneurs who ran restaurants, bathhouses and other businesses think they can easily make money in farming. He recalled a wave of such farmers 10 years ago who quickly went bust. The farmer commented that a new wave of 1000-mu and 10,000-mu farms has recently appeared, lured by rising corn prices and subsidies, loans and financial awards from local governments. The article warns that these farmers could encounter big losses if corn prices don't keep rising and if subsidies are not sustained permanently.

Yicai concluded that more subsidies are necessary. China will get around World Trade Organization limits on subsidies by using insurance programs that guarantee farmers a minimum income. Provincial and central governments will subsidize 70 percent of the premiums in most farming counties and 60 percent in rich eastern provinces. Agricultural insurance is considered a "green box" support measure that is exempt from WTO limits, so there is plenty of room for growth, Yicai said. The program is supposed to cover all major grain-producing counties this year.

China has been experimenting with subsidies for large-scale farms over the past decade. The "land fertility subsidy" created in 2016 by consolidating other subsidies has a chunk reserved for scaled-up farms. Some provinces have subsidies specifically for scaled-up farmers or "awards" to offset the expense of land rent. 

A new income insurance scheme, "insurance plus futures," is touted as China's new approach to subsidizing grain farmers. The mechanism involves subsidized premiums for insurance that pays farmers if crop prices fall below a certain target. It involves complex hedging in futures and options markets that are beyond the comprehension of nearly all Chinese farmers.