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Xiaozhong Li, China Agricultural University: China promotes large farm development to improve agricultural productivity

15 August 2019

Characterized by presence of state-owned and family farms, the structure of agricultural production in China is currently undergoing substantial transformation. In 2013, a family farm was officially recognized as a new type of agricultural production in the No. 1 Central Document of Chinese government. The term ‘family farm’ refers in today’s China to a new farming agent, whose objectives are to expand, intensify and commodify agricultural production on farms of relatively large sizes based mainly on family labor. As compared to the traditional farms that had evolved from the previous agricultural policy setting called household responsibility system, family farms are managed in a more professional way, their sizes are larger while the central government subsidizes them. Alongside family farms, there are state-owned farms where all business processes are run by appointed farm managers while employees of such farms pay rent and management fees. In an interview to, Dr. Xiaozhong Li from China Agricultural University explains the recent developments in the structure of agricultural production in China.

Dr. Li, do government policies promote large-scale farming in China?

Yes, the Chinese governments have been promoting the development of large-scale farming in the past few decades to improve agricultural productivity. The main focus is on the expansion of small or medium-size farms while large-scale state-owned farms, mainly concentrated in Northeast and Northwest of China, are encouraged to become joint-stock companies in order to transform into large-scale market-oriented enterprises.

As for small and medium-size farms, land transfers are encouraged. Within the new land reform, farmers are allowed to transfer land to other farms to expand the scale of farm operations. Family farms, as new types of medium-size farms managed by professional farmers, are supported via subsidies and training services. In general, the minimum size a farm has to operate to be recognized as a ‘family farm’ and be eligible to receiving a government subsidy is 3.3 hectares for cropping farms, 2 hectares for vegetable and fruit farms and 500 cattle heads for livestock farms. To boost the development of family farms, in 2012, the Ministry of Agriculture launched the national pilot project for the training of new professional farmers, which greatly stimulated the enthusiasm of farmers for entrepreneurship. The average operating scale of family farms was about 13.3 hectares while the average farm size in China equaled to 0.65 hectares in 2018. Besides the medium-size family farms, farm cooperatives are also seen as one of the major factors in agricultural production and are greatly promoted.

To what extent does the state participate in ownership of farms?

The state owns stakes in state-owned farms, but not in family farms. China's state farm system is undergoing significant changes. Most state-owned farms have been transformed to market-oriented agricultural enterprises. The government still owns parts of the stake, but is not involved in enterprise management. For instance, the state enterprise Heilongjiang Land Reclamation Bureau has been transformed into Beidahuang Group, which has subsequently undergone listing on a stock exchange as a state-owned enterprise.

Where else does the capital for farming in China come from?

It depends. Some large publicly listed enterprises raise funds from stock market and commercial banks. State-owned farms rely on land rents from farm workers who lease land parcels from them. Family farms are partially supported through government subsidies, which are generally not high. Many large-scale farms have access to bank loans, especially with the support of government. The Chinese government also encourages farms to get loans using land as collateral. Although farmland is collective-owned, farmers can still use the land contract rights to get bank loans.

How has farm structure changed over the last decades in China? Has large-scale farming become more widespread?

The structure of state-owned farms is mostly fixed while their size did not change much in the last decades. At the same time, some of the farms and agribusinesses based on former fully state-owned farms can be quite large. For example, Beidahuang Group is one of the largest agroholdings in the world today. It operates 5.4 million hectares of land and 110 subsidiaries including crop farms, milk, meal and rice producing capacities as well as fat and oil facilities while its total annual grain output is about 22.5 million tonnes. Besides China, the company’s production capacities are located in South America and Australia.

At the same time, the number and size of family farms are growing. According to official statistics, a total of 343,000 family farms accounted for a farmland area of 346.09 million hectares in 2015, with an average farmland area of 10.1 hectares per farm. For comparison, in 2017, the number of family farms equaled to 877,000 and the average farmland area per farm was about 11.3 hectares. In 2018, the average operating size of family farms further increased to 13.3 hectares, as I said before. However, the scale of family farms varies significantly from province to province: farms in the north are generally larger than farms in the south. The largest average size of 40.61 hectares is observed in the Qinghai province, followed by average family farm sizes of 24.92 hectares and 21.47 hectares in the Ningxia and Heilongjiang provinces, respectively. With these sizes, family farms are already considered large or medium-size in China. However, they remain small compared to large farms in North America, Australia or Eastern Europe.

The size of traditional, household-based farms, on the other hand, has not changed much over time. However, with the emergence of medium-size family farms, farm cooperatives and agribusinesses, one should expect that the average operating farm size across all types of farms will be increasing. Still, there is no reliable data on the operating size of family farms across the whole country while the data on state farms or the enterprises grown out of the state farms show that there is no consistent trend in this regard.

How well are farms in China equipped with machinery and technologies?

The level of farm mechanization of both state-owned and family farms is quite high. Today Chinese farms operate a wide range of machinery, including tillers, cultivators, sprayers, seeders and harvesters. In addition, farms usually obtain government subsidies for machinery purchase. Regarding technology implementation, there are agricultural technology centers operating at the farms and developing, for instance, soil and plant protection solutions. Also, there are professional technical departments developing farming and management techniques. According to the latest monitoring of the Ministry of Agriculture and Rural Affairs of China, 72 % of the family farms operate their own tractors, 29 % of the farms have combine harvesters, and 17 % of the farms own rice transplanters, whereas the average worth of each agricultural machinery unit is $ 32,400.

A recent study has revealed that small farms in China are less efficient in terms of input use than larger farms, i.e. they tend to overuse fertilizers and agrochemicals. Will this situation change in the future?

Indeed, the ultra-small household farms in China do apply fertilizers and agrochemicals excessively. Numerous studies have confirmed this and revealed various reasons behind the over-usage. Larger farms tend to be economically cautious and technically viable in applying a proper level of agrochemicals although their input use is still relatively high as compared to e.g. Europe. The monitoring data of the Ministry of Agriculture and Rural Affairs of China show that 84 % of family farms, which are larger than the traditional household farms, use less fertilizer per hectare than those smaller farms in the same region. At least 40 % of the family farms have adopted the new technical schemes which allow decreasing the usage of chemical fertilizers while many of them use organic fertilizers to replace part of the chemical fertilizers. Thus, I expect the increase of farm size to have a positive impact on the usage of agrochemicals, including efficiency growth and decrease of environmental pollution.

You mentioned that Chinese agricultural companies are also actively engaged in internationalization of their activities. Do they have any common model of investing abroad?

Chinese agricultural companies usually lease farmland and local production capacities in South American and African countries, as well as in Russia, to produce agricultural commodities such as soybeans. For instance, Chongqing Grain Group is located in South America while a lot of agricultural enterprises registered in Heilongjiang Province of China operate in the Russian Far East. The produced commodities are then shipped back to China. However, the land leasing practice faces backslashes internationally and locally, e.g., there were reports accusing Chinese companies of land grabbing. In reality, China mainly relies on direct imports of agricultural products, such as livestock products, seafood and crops, while various and flexible business models are adopted in different regions.

How does the government support Chinese overseas investments?

Due to the lack of agricultural products, in particular soybeans, the government supports the lease of land in South American countries and Russia. Also, the Chinese government provides agricultural assistance to African countries.

What benefits and threats do you think large-scale farming can bring to Chinese agriculture?

On the one hand, large-scale farming can stabilize domestic agricultural supply and promote agricultural scale, standardization and commercialization of production. On the other hand, there are a lot of obstacles. For example, state-owned farms have to bear many social functions that may be in opposition to higher efficiency objectives.

Thank you for your time!