Why China Has The Worst Farms In The World

chiense farming rice paddy

Photo: Majid/Getty Images

Even as China has emerged to be the second largest economy in the world, its agriculture sector continues to be one of the most inefficient in the world.South Korean farmers are 40 times more productive than the Chinese, according to Deutsche Bank’s Michael Spencer.

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This is largely because all land in China is still owned by the government.

Farmland in China was collectivized — in which property and resources are owned by the community not individuals — under Mao.

Post-Mao reformers have implemented reforms to boost productivity. But the lack of credit, and the inability to own and mortgage land has deterred farmers from turning small-scale farming into more industrialized farms.

In fact, land grabs continue to be a problem and have sparked massive protests in Wukan and Guangdong, and have even driven corrupt officials out of the villages.

Farmers can't own land in China. They are leased land for a period of time.

The collectivization of agriculture began under Mao. By 1962, nearly all farmland had been collectivized.

Land was given to village collectives. Farmers were grouped together in communes and earned points.

Despite what propaganda posters suggested, agricultural production fell 30% between 1959 and 1961 and 45 million people died in the famine.

Reformers returned agriculture to a family oriented management structure in the post-Mao era.

Source: Deutsche Bank

Households were given land contracts for 15-year periods but the land was still owned and allocated by a collective in the form of a village administration.

Source: Deutsche Bank

Until 1985 households were given production quotas but were allowed to keep surplus for themselves or sell it to the government at higher prices.

Source: Deutsche Bank

This move was important not just because responsibility turned to the household, but because it meant higher pricing.

Source: Deutsche Bank

At the same time, the price of fertilizers and other agricultural inputs rose at a slower pace, meaning higher profits for farmers.

Source: Deutsche Bank

In 1988, farmers were finally allowed to lease their land, but if they took up non-farm employment they risked having the land handed over to someone else.

Source: Deutsche Bank

Source: Deutsche Bank

Big re-allocations were banned in 2003 and this allowed farmers to lease the land to locals and non-locals, and was a step in the right direction for property rights.

Source: Deutsche Bank

Such a rental market significantly improved productivity and allowed less productive farm workers to relocate to cities.

Source: Deutsche Bank

But land grabs have caused social unrest and protests in Wukan and Guangdong, with villagers demanding they be returned their farm land.

Source: The Hindu

In 2006, China abolished its agricultural tax to help ease the financial burden on farmers.

But to this day, land is owned at the village level and can not be mortgaged.

Source: Deutsche Bank

The inability to mortgage land could cost China big, since it deters farmers from growing their business from a smaller family level operation to industrial farming.

Source: Deutsche Bank

Moreover, formal credit to farmers is limited and they rely mostly on informal credit by taking loans from family and friends.

Source: Deutsche Bank

Chinese farm workers tend to use formal credit to invest in their farm, and informal credit for other expenses like education, weddings, funerals and so on.

Source: Deutsche Bank

All of this has made farming very unproductive.

Source: Deutsche Bank

In fact, South Korean farmers have less water and land but are 40 times more productive than Chinese farmers.

Source: Deutsche Bank

This is because Chinese farming is very labour intensive and far less mechanised than South Korean farming.

Source: Deutsche Bank

Today there are about 266 million workers in the primary sector, i.e. agriculture, forestry and fishing.

Source: Deutsche Bank

Workers in the primary sector account for 35 per cent of all employment, down from 71 per cent in 1978.

Source: Deutsche Bank

But expectations are that as the Chinese economy develops that its agricultural workforce will account for less than 10 per cent of its total workforce.

Source: Deutsche Bank

China's economic growth has been driven by the migration of labour from the countryside.

Source: Deutsche Bank

For that to continue, output per farmer needs to more than double over the next three decades, and China needs to mechanize its farms.

Source: Deutsche Bank

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