Analysis of the Reasons Behind the Lack of Competitiveness in Chinese Agriculture

Recently, the news of China's grain harvest turning into a crisis has become the focus of media attention, the so-called “can't be moved, can't be sold, can't be stored.” For a country with a large agricultural population, a bumper harvest should be a good thing, especially since the hearts of many of us are still shrouded in the hellish memory of three years of starvation. But the current grain situation is indeed creating risks. In modern society, when it comes to how to understand agriculture, most people's thinking simply cannot keep up with the trends of world development.

The Current Grain Situation

China's temporary corn reserve surplus has already reached 150 million tons, and this year China's new-season corn output has increased again, expected to reach 219.7 million tons. Policy-based wheat reserves stand at about 40 million tons, while at the same time, in 2014 China's grain imports exceeded 100 million tons for the first time.

Under such a grain situation, grain prices have naturally fallen sharply. The government's market-support purchasing price has dropped for the first time in eleven years, with corn prices falling by more than 20%. Growing grain is clearly a loss-making endeavor, and all enterprises in the grain industry chain will be harmed. The author has already written several articles discussing this matter.

Regarding this situation, Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of its office, believes that the main reason for this problem is that domestic grain prices are not competitive, and the deeper reason is that China's agricultural structure is irrational.

The root cause given by Director Chen is rather technical, but we can think about it using common sense.

Nowadays everyone has just one child, with five or six adults around taking care of that child. But people today have made considerable progress in their ideas about educating children. For example, I see many such scenes in my residential compound: a circle of adults surrounds a child who is learning to walk. The child falls down, and an elderly person wants to help him up, but the daughter-in-law beside them stops the mother-in-law: “Mom, leave him alone, let him get up by himself.” So I watch the child cry and slowly get up, then continue walking again. Around him there is a round of applause, and a smile appears on the child's face.

Agriculture That Cannot Walk on Its Own

China's agriculture is being propped up by the “elderly.” After decades of reform and opening up, it has simply never learned to walk on its own. China's agriculture has not grown up, and this is the sorrow of Chinese farmers.

There are several aspects of Chinese agriculture that are tightly controlled: First, land. Land is collectively owned, but in fact it is state-owned, not the farmers' own. So some people say that Chinese farmers are not even as well off as serfs. That sounds harsh, but it describes the reality. A person is born with the right to basic property. Chinese farmers have no property rights. With your own land, you could use financial leverage, such as mortgage credit. This is the most basic logic of agriculture and economic development, and this is how world financial history grew. It is also a basic condition for a person's life and development. Chinese farmers have no land, so they cannot mortgage it for financing. They can only sell their hard labor on rented land.

Second, there is no freedom of migration. When houses in the city were cheap, farmers could not go into the city to buy homes. Now housing prices have soared to the sky, and farmers are allowed to enter the city, but not only can they not afford homes, they also face heavy discrimination in social security, schooling, and other issues.

Third, grain. The government takes great care of farmers, for example through market-support purchasing. Its purpose is to keep grain prices from falling too low and to encourage farmers to grow grain, otherwise farmers would abandon planting. But this policy is not a long-term solution. Your reserves are limited, your fiscal funds are limited, and the grain market is connected to the international market. If you prop grain prices up to the sky, grain will always come in to fill the gap, and that means massive imports.

Introducing Capital to Develop Agriculture

The objective fact is indeed that China's agriculture is not competitive. The grain produced by large American farms equals the output of several Chinese counties. But protection is not the way. The experience of more than thirty years of reform and opening up shows that every protected industry is weak, and every industry that has been opened up is strong, for example home appliances, and for example agriculture. For China's agriculture to develop, capital must be introduced. Capital is all in the cities, and only with capital is it possible to produce agricultural goods with sustained competitiveness. You see urban capital going to build villas, but you do not think that villas too can become overproduced and unsellable. Agricultural products may become an investment target for urban capital. This is the invisible hand. Capital is smarter than anyone, at least smarter than you and me, the researchers and decision-makers sitting in offices.

If China's agriculture does not use common-sense thinking, market thinking, modern thinking, and international thinking, and instead still relies on traditional thinking, regulatory thinking, paternalistic thinking, and elitist thinking, then China's agriculture will create enormous social harms and risks.