An agricultural revolution might be coming to China as the country’s new president, Xi Jinping, presses for wide ranging economic reform.
The path of this reform is important for Canadian farmers because it could affect corn price trends, and corn has a major influence on all grain prices.
The central committee of China’s Communist Party met recently, and the official statement from the gathering emphasized the need for a decisive role for markets and greater rights for rural people.
If rural land ownership reform is adopted, and that is far from guaranteed, it would likely lead to a more rapid rationalization of agricultural production and increased investment.
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This could raise productivity and reduce the possibility that the country would fail to meet its grain self-sufficiency goal of producing 95 percent of its needs for corn, wheat and rice.
Farms in China now tend to be tiny. The state, not the farmer, owns the land.
The local council receives the money when farmland is sold for residential or industrial manufacturing needs and decides how much to compensate the farmer who leases it.
Without land as collateral, farmers have trouble obtaining loans to improve their operations.
Schooling, welfare and other social benefits are tied to a person’s home location, so rural migrants who travel to cities for better opportunities lose their benefits.
The government would like to see more rural people move to cities because worker shortages are causing factory labour costs to rise and a larger labour pool would cap wage increases.
However, urban factory workers still make more than rural peasants. A larger urban workforce would spend more and increase the domestic market, reducing the country’s reliance on overseas exports.
Rural people who owned their land could borrow to improve production or get the full value when they sell it to move to urban jobs.
Reforming residency rights would allow rural people more confidence to migrate to cities and retain their government-funded social benefits.
Rural land reform could lead the way to consolidation into larger holdings, which would allow the application of modern mechanized farm production and better economies of scale.
On the other hand, China’s authorities are also cautious, fearing land ownership reform could cause even more rapid sale of rural land, leaving farmers homeless and causing more rural unrest.
Pilot projects in land ownership reform have sprung up in some provinces, but observers say local governments don’t want the reform because they rely on the proceeds of land sales.
Previous Chinese leaders have talked about rural reform, but progress has been mixed.
However, it is important. China will have to become a major grain importer to meet its rising need for feed grain if it fails to raise its crop productivity.
The Chinese have differing opinions about their self sufficiency goals.
Yang Weilu of the China National Grain and Oilseed Information Centre told a Winnipeg meeting earlier this month that his country will not become a major grain importer. However, Xu Xiaoqing, head of the rural department at the State Council’s Development and Research Centre, said in September he sees corn imports growing to 20 to 30 million tonnes, which are three to four times current imports.
China is the world’s second largest corn producer after the United States.
Its average yields over the past three years were 93 bushels per acre, which is fairly good by international standards but still well behind the U.S.’s three year average of 144 bu. per acre, which includes last year’s severe drought.
Rural reforms could help accelerate China’s yield gains, but a story in Corn and Soybean Digest suggests there might be more to the story.
It said some corn land now under hand cultivation is hilly and not suitable for mechanized farming. As well, expanding cities constantly reduces farmland acreage.
The government allows genetically modified corn, but there are obstacles to its rapid adoption.
Rising labour costs are also a farm issue. As costs increase, there is a tendency to shift to higher valued crops such as vegetables and fruit.
China’s food demand will help determine world grain fundamentals.
Some analysts warn that we are headed back to a period of surpluses and weak prices after several years of grain shortages and high prices.
China would give weight to the weak price scenario. If it can substantially increase grain yields, but if it can’t, then the outlook for grain exporters such as Canadian farmers is more upbeat.
