As Chinese leaders attempt to counter slowing GDP growth, Premier Li Keqiang emphasizes the importance of agricultural modernization. In the most recent issue of the Chinese Communist Party’s journal Qiushi, Li points out that by increasing income of rural farmers through the promotion of larger family farms, consumption could be increased. However, it remains to be seen if this is possible and what other effects this will have on the economy.
Currently, farmland in China is owned by the State and farmers are required to attain a lease to farm the land. In order to increase output, it will become necessary for the State to increase transfer of land rights as Beijing has done. Even still, farmers with limited income have difficulty receiving financing for the expansion of their land. This results in diminishing marginal returns to capital.
Despite this, farmers continue to increase capital inputs, such as the use of fertilizer in production. This can have damaging effects on the environment, especially when one half of Chinese regions have nitrogen content in the soil that exceeds the internationally accepted limit. As a result, downstream fishermen are affected because fertilizers increases algal content in lakes and rivers, starving fish of vital oxygen.
Thus, China’s focus on agricultural modernization has the potential to boost GDP growth by increasing rural consumption. These incentives may result in increased fertilizer use in pursuit of bigger harvests, which will cause negative environmental and economic effects. Such overuse will not only diminish water quality across China, but will also diminish the output of downstream fishermen. Therefore, it will be necessary for the State to make private farm expansion easier to counter slowing growth without augmenting the damaging effects of fertilizers.
One Response to Potentially Harmful Effects of Agricultural Modernization
While “owned by the State” is accurate, the State is decentralized and real estate is in fact it is controlled by local governments, not the central government in Beijing. We likewise have to be careful when referring to SOEs (state-owned enterprises) because governments at all levels controlled enterprises of many shapes and forms. At the truly local level, the jargon TVEs (town and village enterprises) makes that distinction clear, but there’s often a muddling of SOEs controlled at the city, provincial and national levels.
Now is the analysis accurate? I suspect not. Higher farm incomes must come from fewer farmers working larger pieces of land. That implies a drop in the total number of rural households reflecting continued migration to towns and cities. I claim the latter effect will dominate the former, so that total rural consumption falls even though average rural household consumption rises.