Large-scale farming profits rely entirely on subsidies and rewards, with hidden traps

Does large-scale agriculture necessarily bring economies of scale? In many people's understanding, this is hardly even a question, but the facts are not so. While too small a planting scale certainly makes it hard to earn much profit, too large a planting scale may also yield “false profits”. So-called “false profits” refer to profits that do not come from farming itself, but from government subsidies or rewards.

For grain production, expansion of scale often does not increase the per-unit yield of the land, and in many cases actually reduces it. China needs to develop appropriately scaled agriculture, which means that bigger is not necessarily better. Some people are keen on enlarging scale, including some industrial and commercial capital that goes to the countryside to enclose land, simply in order to obtain more resources from the government. Our magazine's reporters' grassroots research also confirms this.

Large-scale farmers who voluntarily reduced their scale

Xia Zhipeng is a large grain farmer in Heshan District, Yiyang City, Hunan Province. In 2010, he took out all his savings and partnered with others to transfer 1300 mu of land to plant rice. “As a result, I lost 300,000 yuan in the first year.” Xia Zhipeng said.

Xia Zhipeng told reporters that before deciding to expand grain farming, he simply believed that “the bigger the scale, the higher the benefit”. In his initial understanding, “large-scale farming” was no different from the way his parents' generation farmed, “just with a bit more area”.

“At the time I also thought that the more area I had, the more related subsidies I could get.” Xia Zhipeng admitted that relevant departments at the time also encouraged everyone to move toward large-scale operations, “starting at 200 mu, with no upper limit”; as long as this standard was met, there was a good chance of receiving rewards.

Xia Zhipeng still remembers that at the time, the reward for large farmers was 3000 yuan per household from the district, 10,000 yuan from the city, and as much as 50,000 yuan from the province. Because he had transferred 1300 mu of land all at once, he not only became an inspection target for leaders at all levels, but also a darling of the local media, appearing on local television from time to time.

Against this background, several large grain farmers with more than 1000 mu appeared in Heshan District. “It sounds funny, but the large farmers were all very famous, yet they all lost terribly.” Xia Zhipeng said, and he was one of them. Reflecting on the reasons for failure, they boil down to the following.

First, supporting equipment and facilities were severely inadequate. Not to mention dryers, even rotary tillers and harvesters numbered only one or two, and there were no granaries or tractor roads either.

Second, because the area was too large, field management was a complete mess. By the end of July that year, while others' fields had already been planted with late rice, large tracts of his fields still had early rice that had not been harvested.

Third, he could not be in several places at once, and management was chaotic. Workers “slacking off” was very common. “At meals they filled several tables, but when it came to work, who knew whether they were putting in effort?” Xia Zhipeng said.

Now, Xia Zhipeng has begun to take the path of intensive cultivation and voluntarily reduced his planting scale to 500 mu. He plans to spend two to three years improving soil fertility, retaining a group of skilled laborers, establishing financial and management systems, expanding sales channels, and ultimately registering a brand for the rice he produces.

“False profits” trigger the impulse to expand

Xia Zhipeng is not the only one who voluntarily reduced his planting area. In Taiping Village, Xiuhui Town, Zhangqiu, Shandong, 64-year-old large grain farmer Zhang Baohua did the same. “Although my 182 mu of wheat this year was threatened by powdery mildew, I still harvested 1004 jin of wheat per mu on average, one or two hundred jin more than when I contracted more land in the previous two years.” Zhang Baohua said.

Zhang Baohua's peak land transfer was in 2013, reaching 670 mu. He told reporters: “When the area was small before, management was timely, and I could keep an eye on it myself. Later, when it reached 670 mu, I had to hire a lot of labor. Without subsidies, I could not make much money.”

Zhang Baohua said that when he farmed less land, he practiced intensive cultivation, the per-unit yield was high, and he could make 500 yuan of profit per mu; when he farmed more, there was only two or three hundred yuan of profit per mu, or even less. Many large farmers have had the same experience. So where did their motivation to expand planting scale come from? From government subsidies or rewards.

After the 2013 No. 1 Central Document encouraged the development of new types of entities, Shandong provided subsidies to large grain farmers. The rules at the time were that anyone planting more than 150 mu and less than 4000 mu of rice or wheat would receive a subsidy of 230 yuan per mu; those with more than 4000 mu would receive a fixed subsidy of 1 million yuan.

In Hunan, some places also issued support and reward measures for large farmers. For example, in some economically more developed districts and counties around Changsha, local governments would give qualifying large grain farmers bonuses ranging from tens of thousands to more than 100,000 yuan depending on area size. Some counties and cities also used local finances to subsidize large farmers' purchases of agricultural machinery and materials.

In addition, because agriculture-related projects also tended to target large farmers as implementation subjects, many people believed that as long as their area was large enough, they had a chance to squeeze into various “project cages” and get a share of the benefits. Xia Zhipeng told reporters that he and his partners had argued many times over whether to farm grain steadily or to “cultivate connections and chase projects”.

“Subsidy and reward money is a piece of ‘false profit’. It looks as if large-scale operations make more money, but in fact it is built on government support, not profit obtained from production itself.” said Professor Wang Wei of the Agricultural and Rural Economic Research Center at Shandong University of Finance and Economics.

In fact, there are quite a few large-scale operators who obtain “false profits”. In a village not far from Zhang Baohua, a villager surnamed Wang contracted 400 mu of land in 2013 to develop planting and that year smoothly obtained Shandong's large grain farmer subsidy. However, in 2014, due to poor management, he lost 70 yuan per mu.

Appropriate scale and intensive cultivation should be encouraged

Experts such as Wang Wei say that in China, where there are many people and little land, especially in areas such as the North China Plain, the benefit generated by a given scale of land should be measured by land output rate rather than labor productivity. Having scale does not equal having efficiency, and large-scale operations do not necessarily produce economies of scale.

Experience shows that the per-unit yield of large-scale grain farming is often lower than that of appropriately scaled, intensive cultivation. Without subsidies or rewards, the benefits are not good. In fact, in view of this situation, Shandong, Hunan and other places have already adjusted their subsidy policies for large farmers, either reducing the intensity of subsidies or directing them more toward appropriately scaled family farms.

This is undoubtedly an encouraging trend, but at the same time, quite a few places have still not shaken off the inertial thinking of “the bigger the better” and are still taking various measures to encourage super-large scale, as if only in this way could the achievements of local agricultural development be demonstrated.

Professor He Xuefeng of Huazhong University of Science and Technology said that large-scale agricultural operators or enterprises, because of high rents and large scale, correspondingly have thin profits and high risks. In order to keep large-scale operators from going bankrupt, the government has no choice but to provide them with policy support and financial support. This increases the government's burden, yet may not achieve the expected results.

Several experts said in interviews with reporters that China's traditional agricultural areas are densely populated, with little cultivated land per capita, and the level of urbanization is not high either. The transfer of labor to the secondary and tertiary industries is not stable. In order to preserve opportunities for farmers to return home for employment and avoid triggering problems such as social stability, large-scale concentrated land management is not suitable.

Liu Tongli, former deputy director of the Rural Work Office of the Shandong Provincial Party Committee, said that China should vigorously develop family farms that hire few or even no workers, with planting areas ranging from a dozen mu or several dozen mu to 100 mu. This is more in line with national conditions, allowing farm households to obtain grain-growing returns slightly higher than or equal to the “opportunity cost” of going out to work. This is conducive both to grain production and to increasing farmers' incomes.

Several experts said that among current agricultural support policies, new subsidies are tilted toward new types of entities, but the operating area of such new entities should not be too large. Operating areas of hundreds or thousands of mu at every turn can hardly produce a demonstration effect, and subsidizing such groups is not conducive to producing more grain either; in the end it only increases the fiscal burden.

At the same time, many grassroots cadres and masses suggested that in China, where small farmers are still the main body of grain production, the government should focus its main energy on improving agricultural production conditions and promoting the convenience of grain farming, for example by increasing investment in infrastructure and socialized services, rather than one-sidedly pursuing planting scale and land transfer rates.