Who exactly is responsible for the agricultural predicament?

A Judgment of the Current Macroeconomic Situation

Through analysis of economic data since 1978, we can observe a phenomenon: since the reform and opening up, almost every “Third Plenary Session” has encountered an economic crisis: Deng Xiaoping in the 1970s encountered a crisis triggered by accumulated foreign debt converting into fiscal deficits, causing large numbers of enterprises to shut down and tens of millions of people to be unemployed; Jiang Zemin and Zhu Rongji encountered three major crises: the financial storm, overproduction and deflation; and Hu and Wen also encountered a systemic crisis triggered by the global financial tsunami at the beginning of the century. It seems that our economic cycle and political cycle can, to a certain extent, coincide. So why do crises appear cyclically? Because up to now, the way we respond to crises has been to stimulate the economy by issuing government bonds, but stimulating the economy by increasing the issuance of government bonds will lead to inflation, and once inflation appears, the internal driving force for economic growth formed by increasing the issuance of government bonds will be exhausted, thereby falling into the next round of recession.

This way of resolving crises was born out of the strategies adopted by countries around the world in response to the Great Depression of 1929-1933. For example, the “Roosevelt New Deal” by which the United States resolved the Great Depression of 1929-1933 was to redirect excess productive capacity toward inland economic construction by increasing the issuance of government bonds; the way Germany resolved the Great Depression of 1929-1933 was also to absorb excess production capacity through inland infrastructure construction such as road building.

Our approach to resolving crises is also like this. During the Zhu Rongji period, 5 trillion in investment was used for the Western Development and the Northeast old industrial revitalization plan; during the Wen Jiabao period, 15 trillion in investment was used to stimulate domestic demand and resist the global financial tsunami. Both were based on the above-mentioned method of making huge state-level investments by increasing the issuance of government bonds, to ease excess capacity and reduce the pressure of the economic crisis.

But what are the consequences of this strategy?

Whether it is 5 trillion or 15 trillion, it is impossible to invest it in small and medium-sized enterprises, because the cost of such investment is too high. Of this investment at the national strategic level, 90% was invested in large and medium-sized state-owned enterprises. Once large and medium-sized state-owned enterprises obtain this huge investment, they will squeeze the market space of small and medium-sized enterprises. This is what we often call “the state advances while the private sector retreats,” and it also intensifies the crisis of non-performing assets and debt risks. At present we are facing the predicament caused by the previous two imported crises.

The intensification of the “deindustrialization” trend

Looking across China and the world economy, since 2009 a “deindustrialization” trend has appeared, that is, industry has shown a downward trend. One prominent manifestation is that those enterprises that use industrialized models to transform agriculture are currently all in a rather bad situation. The international strategy for responding to the “deindustrialization” problem is “cost transfer,” that is, transferring domestic economic contradictions abroad. For example, since the 1990s, Western mainstream countries that entered the financial era have shifted from overproduction to production shortages and financial excess, and can only maintain their old order by transferring contradictions to countries such as Afghanistan, Iraq and Libya through strong-power suppression and inciting ideological revolution.

So what kind of problem are we facing? It is likewise the problem of excess in the world's three major capitals: financial capital, industrial capital and commercial capital.

Excess financial capital manifests as financial capital transferring the crisis to agricultural producers and consumers by intensifying price fluctuations through futures investment in raw materials and agricultural products. Excess industrial capital manifests as the widespread adoption of lengthening the industrial chain to absorb excess capacity, leading to excess supply of global food output and food calories, while the share of producers' returns in food expenditure gradually decreases, meaning that it is increasingly difficult for farmers to make money. And excess commercial capital manifests as multiple circulation links thinning profits, further intensifying vicious competition in the circulation links.

These three excesses together lead to a series of severe problems: low farmer incomes, unsafe food quality, lack of credit, ineffective regulation, and the coexistence of food waste and hunger among the poor.

An analysis of the causes of China's agricultural predicament

From the above analysis, we can already see exactly what has caused the predicament of Chinese agriculture.

First, agriculture does not have pricing power over the factors of production it needs. In a unified market, the prices of land, labor, capital, means of production and tools needed by agriculture are all determined by the external market. How can traditional agriculture, whose profits have already been diluted to the extreme, afford these prices pushed up by excess capital? The consequence is inevitably a large outflow of land, population and capital, and agriculture's competitiveness is increasingly lost entirely. Population aging intensifies the decline of the industry. This is a common predicament currently faced by agriculture in the countries of East Asia.

Second, developing agriculture by means of capital concentration, that is, relying on large-scale, “secondary-industry-style” specialized production by industrial capital, certainly greatly increases output, but the larger the production scale of a single category, the greater the market risk. This manifests as, on the one hand, “dumping milk” and “vegetables rotting in the fields,” and on the other hand, even large-scale leading enterprises in agricultural industrialization still cannot make a profit, let alone small and medium-sized enterprises.

Third, an agricultural production model whose sole goal is the pursuit of capital returns will disregard the water, soil and environmental pollution it causes, and will even more disregard food quality and safety issues. The unrestrained use of pesticides, chemical fertilizers, feed and veterinary drugs leads to a crisis in food safety, and society's trust in food quality falls to a low point.

Finally, agriculture “going global” is not a cure-all either. If one goes global without fully understanding and studying the political, social and cultural characteristics of the place where agricultural capital is invested, one will inevitably end up facing repeated obstacles and failed investments.

How to escape the predicament

In summary, to reverse the agricultural predicament caused by the macroeconomic situation, the excess of the three major capitals and the mistaken agricultural production model, we must change our concepts, take ecologization as our guiding idea, build sustainable goals that integrate multiple functions such as social, economic and cultural ones, develop resource-saving and environment-friendly “two-oriented agriculture,” combine traditional agricultural techniques, natural farming techniques and permaculture techniques, and enter a new stage of “socialized ecological agriculture” and “urban-rural cooperative agriculture” characterized by low capital, low energy consumption, low “technology,” low cost, simple methods and a focus on solving practical problems.