October 24, 2008
China's new farm policy to help boost grain output

China's new farm policy will speed up the consolidation of land holdings through leasing arrangements, encourage more efficient use of land and increase the country's overall grain output, an industry representative has said.

In policy changes unveiled over the weekend, China said it will liberalize land transfer rules in the country's rural areas.

"The policy is like a pill that is capable of setting my mind at ease," said Hou Anjie, a big farmer in China's Hubei province, a major grain producing area.

Hou farms 1,353 hectares of land in Hubei, out of which 1,124 hectares are devoted to rice cultivation.

Hou has been ahead of the curve in a sense, expanding his land holding by 13 times since 2006 by leasing land from those moving to cities in search of better opportunities.

Although Chinese farmers have been subletting land for many years, land transfer policies have been obscure and often complicated, with China's rural land primarily owned by village collectives which distributes it among farmers in small plots, under long-term leasing contracts.

The latest government move is aimed at making agriculture more sustainable while making sure farming helps improve the lives of its more than 700 million farmers.

Agriculture currently has an image of being a less profitable option in the rapidly industrializing China.

But the new policy allows farmers to become shareholders of companies through the transfer of their land ownership rights.

Experts said this is the first time the government has clarified its position on land ownership, indicating it is serious about improving efficiency in land usage.

The policy also encourages farmers to seek employment outside their land by easing restrictions on the movement of people in search of jobs.

For decades, China has restricted rural migration to cities through a household-registration system called "hukou." The system ties Chinese to their place of birth by restricting the availability of education, health care and other services to the place where they are registered.

Experts said a more liberal "hukou" system will help make the rural folk more mobile and flexible, helping the industrialization of China's rural economy.

Meanwhile, the consolidation of land holdings is expected to increase grain output through economies of scale and a reduction in input costs.

Hou said under the new policy, he can expand his land holding more confidently, and he would definitely do so as more rural farmers shift to cities.

In the early 1990s, transfers involved only 2 percent to 3 percent of China's total land, but that had gone up to 7 percent to 10 percent by 2003 as many rural workers migrated to cities.

Hou said he was able to mechanize more of his farming operations as the size of his land holding went up.

Input costs in mechanized farming are around RMB450 per hectare, while the cost of using farm animals was as high as RMB1,500/hectare, he said.

Larger farm size also allows him to buy raw materials such as fertilizers at wholesale prices and employ agricultural experts to help improve output.

Total grain output from Hou's farmland, for example, increased to 748 tonnes in 2006 from 198 tonnes in 2005, due to a 30 percent increase in unit yield.

Hou's annual household income rose above RMB1 million in 2006, nearly quadrupling from 2005.

Hou said he plans to switch to green grains that don't require pesticides or weed killers next year to make higher profits.

He also plans to start a grain processing plant later this year to pack and brand his produce, so he doesn't have to sell the grain in bulk to traders.

If that is not done, the big profits are mostly grabbed by intermediate traders, Hou said.

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