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China’s Agricultural Policy and the Urban Labor Shortage

Mar 16 , 2016

The recent announcement of China’s 13th Five Year Plan has generated widespread interest in some proposed reforms, such as the end of the one child policy. However, the new Five Year Plan contains an important proposal that has largely been overlooked: the ‘professionalization and modernization’ of agriculture. Despite its apparent modesty, this goal is actually a critical component of the Chinese government’s economic development plans. Chinese policymakers likely see agricultural modernization as a means to address labor pressures in urban areas. Despite this, the history of agricultural development in countries like the United States suggests that a transition to American-style agribusiness may have destabilizing consequences in the Chinese countryside.

Chinese agriculture is still relatively traditional. Many farmers work small plots, often around the size of an American football field, and have a limited ability to invest in farm machinery and new seed varieties. Chinese farmers do not own their land. Instead, they are granted usage rights as part of a collective ownership system guaranteed by the state. These are legacies of the Chinese Communist Party’s land reform efforts, which purged the country of large landholders. In addition to these conditions, Chinese farmers have to contend with a shortage of arable land, rampant pollution, and over-usage of chemical fertilizers. As a result of the factors listed above, farm productivity in China is very low. For example, the per-hectare yield of U.S. soybeans and corn is double that of Chinese farms.

Chinese policymakers thus perceive a serious need to boost farm output and productivity. China still cannot produce enough food to feed its own population. It appears that China is looking to American agribusiness as a source of inspiration for agricultural modernization. American-style agriculture is virtually the opposite of current Chinese practice. Farms are very large, often focusing on growing a few cash crops. Most farms use extremely little labor and invest heavily in highly-automated machinery. The remaining farmers have little autonomy, as contracts with large agricultural processing companies and GMO seed providers precisely stipulate what they can and cannot do with their land. This style of agriculture is good at one thing: producing large amounts of staple crops at an extremely low cost of production.

China’s new Five Year Plan proposes creating “new-style professional farmers” and reforming the land ownership system. A new land ownership system will make it easier to consolidate small plots, eventually reaching a size that can support industrial-scale agribusiness. These proposals are consistent with China’s desire to boost its agricultural productivity and build an independent capacity to grow its own food. However, there are reasons to suspect that other issues may be involved.

In recent years, many firms in manufacturing and other industries in China’s urban areas have reported labor shortages. The stream of both skilled and unskilled workers appears to be drying up, and frequent strikes and other industrial actions by brave Chinese workers continue to drive wage increases. China’s productivity-adjusted labor costs are now $14.60 an hour on the coast, as compared to $22.68 an hour in the United States. Compare this to 2002, when Chinese labor costs were as low as 60 cents an hour in some cases. It then seemed that an endless supply of cheap labor could be found, as many Chinese workers migrated from the farms to the cities in search of work.

The rate of growth in China’s urban labor force has been falling with relative consistency since 2007. In 2015, that rate reached its lowest point in over twenty years. The demand for labor is rising faster than its supply. When one cannot easily be replaced by competing unemployed workers – as is currently the case in Europe and the United States – it is much easier for workers to demand wage increases. As Chinese workers continue to claim a higher share of their total product, firms have a greater difficulty competing with other firms operating in low-wage areas. In response, firms attempt to automate production, move facilities to low-wage areas, or find a new source of workers.

Some commentators argue that China’s one child policy and the antiquated household registration system – which restricts access to basic services for many rural migrants – are to blame for the present labor shortage. Reforming the hukuo system will certainly help to incentivize farmers to move to the cities, but it will also strain China’s social infrastructure. Ending the one child policy may promote population growth, but the effects of this change will take at least two decades to be felt. If Chinese policymakers want to address the labor shortage, the obvious place to look is the same as it has been for decades: farmers in the countryside.

If the history of agriculture throughout the world is any clue, China’s agricultural modernization plans will create a lot of dislocation. In the United States, the growing use of mechanization and the consolidation of smaller farms made it nearly impossible for family farms to compete with agribusiness. Farmers went into debt as they attempted to keep up, often going bankrupt during periods of low crop prices. Their farms would then be sold to larger farmers, furthering the process of consolidation. Now-landless farmers moved to the cities to find work and make a living. This process – which is why American agriculture is what it is today – created serious unrest among farmers throughout the late 19th century, and even into the Great Depression.

Modernizing Chinese agriculture in line with American-style agribusiness will ultimately force smallholders off of their land and into the cities. Combined with other parts of the 13th Five Year Plan – including increased vocational education – this could help to alleviate the urban labor shortage. It is hard to imagine that small Chinese farmers will quietly accept the gradual loss of their land to industrial-scale competitors. Rural unrest and resistance, often spurred by land sales orchestrated by corrupt local officials, is already relatively widespread and common. A large-scale plan to modernize agriculture will likely add fuel to this fire.

There may be an emerging tension between the perceived need to address the urban labor shortage and the need to maintain social stability in the countryside. There are ways to address China’s food production problems without following the model of American agribusiness. Bio-intensive agriculture and permaculture techniques, pioneered by farmers like John Jeavons, can produce more food than conventional industrial agriculture with less land, water, fertilizer, and energy. These methods are labor-intensive and are optimal for farmers with small plots, but China still has a large rural labor force. If Chinese policymakers were to pursue this alternative, they could likely solve China’s food supply problem with a moderate investment in education and farm equipment.

This would require policymakers to look for solutions other than cheap migrant labor to address the labor shortage. China is already the world’s largest market for industrial robotics, but enlightened policies could speed up the pace of automation. Chinese firms could be encouraged to adapt to a world of high wages and decent working conditions, rather than hoping that the era of cheap labor will continue without end. These shifts would be consistent with China’s development goals, including its stated commitment to environmental sustainability and improving the standard of living. If China follows the American example, it will trade short-term benefits for long-term costs in ecological and social stability. If China wants a sustainable, productive agricultural system, there are certainly better places to look than American agribusiness.

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