The Coming Transformation of Chinese Agriculture

My past three commentaries in April and May this year related to recent global trends in food consumption. I noted that the eating habits of the Asian people had changed, as their standard of living rose, causing occasional shortages in several commodities and higher prices for many foodstuffs. You may have already seen some price increases at your local grocer.

Until very recently, most of China’s food was grown and harvested on small plots of land. The average farm size was less than two acres. This created a serious bottleneck in agriculture where economies of scale by mechanized farming methods could not be employed. As a consequence, most peasant families continue to live on small plots of land at subsistence levels.

In recent months, a Chinese company has initiated a possible solution to this ancient problem.

Chaoda Modern Agriculture is a listed company on the Hong Kong stock exchange, that has a simple and compelling method of creating large tracts out of dozens of small individual farm plots.

The Company contracts with local leaders in villages offering to rent the local farms it desires on a long-term basis. The village elders, realizing the advantage to the community, readily persuade the local farmers to pool their lands. The farm families receive lease payments roughly equal to the amount they would have received if they toiled to grow their own crops. Some of the more ambitious ones are hired by Chaoda to work on the enlarged plot of land at attractive wage rates.
Thus everyone is pleased.

The PRC is very supportive of the concept because it eliminates a bottleneck that has held back food production in China through much of its history. Tax exemption has been provided to Chaoda Modern Agriculture for an indefinite period. The cost advantages of applying modern cultivation and marketing practices to China’s archaic farm industry on enlarged farm tracts is an economically sound concept that seems to be catching on.

This development, promises to transform Chinese peasant life by reducing the number of small farms and raising food production to new heights. The transformation will evolve more rapidly than was experienced in the United States, because modern technological improvements in farm practices are already available, including better seeds, better organic fertilizers, better management controls as well as efficient planting and harvesting tools.

The U.S. now employs less than 2% of its population in agriculture, whereas in China, the figure is 42%. As small farms merge and become part of larger farming units, as is currently taking place under Chaoda's leadership, China will increase its food production hopefully eliminating the historic threat of occasional bouts of famine.

Economies of scale on the larger farms will bring low cost food to market as Mainland communities adapt to larger scale farm operating procedures.

Neither grain production nor cattle raising will be involved initially in this transformation. Most of the initial efforts will be devoted to the raising of fresh vegetables, because vegetable production is the most efficient and profitable use of the land at the present time. Production will triple on large tracts as modern methods of cultivation, packing and marketing are brought into practice.

The surrounding nations in Asia, including India and Japan, where two thirds of the world’s population live, will benefit in time from the availability of cheaper low cost vegetables.
Gathering large tracts under one coordinated ownership will soon be standardized. It has already proven an easily repeatable practice to follow.
As a consequence, the most backward and largest of Chinese industries will become the fastest growth sector of the economy.
The magnitude of this transformation will dwarf the cell phone revolution currently in progress on the Mainland as well as the dramatic rise of jet air travel.

The standard of living of eight hundred million Chinese peasants over time, will be affected. Some will be displaced and become urban workers, and some will remain farmers but at higher pay, but everyone will benefit. The Chaoda concept is an idea whose time has come. This government approved concept is yet another example of progress taking place in a nation that continues to be viewed with skepticism by the western world.
A lot of what is happening today may then begin to make sense to you.
For the citizen of modest means, I recommend a Taser stun gun.
Richard E. McConnell June 30, 2004