(Reprinted from HKCER Letters, Vol. 86, 2008)
"Towards the Ultimate Agarian Reform in China"
Dengxiaopeng's agrarian reform undertaken in 1978 by way of replacing collectivism by a system of household responsibilities was a great but short-lived success. Since the 90's, the situation has fast deteriorated due to a host of factors. As the economy moved towards a freer system, China's agriculture lost the benefits once brought about by collective and infrastructural investments, while still being burdened by the monopolistic elements remaining in the system, especially in the realms of factor input and output distribution. These structural factors, along with misconceived policies pursued in the meantime, had altogether contributed to a rapid degeneration of the well-being of the farmer and the countryside. The decline has recently been arrested with the new advent of policies introduced by Hu and Wen several years ago, but the fundamental problems remain staggering.
In brief, China's problems in agriculture today consist of the following:
On the part of the farmers
the gap between rural and urban income is still widening;
the farmers have been suffering from a deteriorating "terms of trade" (i.e. a decreasing purchasing power of their agricultural output) especially with respect to medical and educational services;
in spite of the fact that food prices are rising, the cost of production is also on the increase due largely to the increase of input prices, especially chemical fertilizers.
On the part of food supply
the negative impacts brought about by climate change and global warming e.g. water shortage, volatile and more extreme weather conditions, far outweigh the benefits e.g. longer growing season. This will in the longer run pose great threat to food security;
decreasing arable land supply due to urbanization and industrialization;
the emergence of a more meat-based dietary pattern as a result of urban affluence, putting competitive pressure on the demand for staple food.
Constraints to reform
There are two major obstacles to reform, i.e.,
Since upholding a generally equitable distribution of farmland constitutes a founding principle of present-day China, it is not likely that the central government will permit rural land to be privatized, let alone to be consolidated into large-size farms needed to realize economies of scale in production.
The existing belief among the bureaucracy and much of the intelligentsia is that the future of China lies in industrialization, urbanization and hi-tech and that return to agricultural investment is too moderate to be of great worth.
Give Agriculture the Priority it Deserves
The chief task is to convince the central government that the future of China does not lie merely in the urban cities or in manufacturing or modern services and that it lies also in the countryside and in modern farming.
Deploy Extensively Biotechnology and Information Technology
If we are to name a single and ultimate solution to China's agriculture, the straightforward answer is technology, in particular biotechnology and information technology. Only advances and applications in these realms can overcome the problem of rural productivity and the challenges of global warming and decreasing land and water supply. The strategy to pursue is, therefore, to introduce both state-of-the-art biotechnologies into China and to foster researches in their application nation-wide. If necessary, the government can consider extending subsidies to obtain royalties and patents in order to realize extensive adoption.
To enable rapid increases in farming productivity and to anticipate and offset the negative impacts of global wanning, "precision" or "more precision" agriculture need to be encouraged. Extensive deployment of information technology is essential to attaining this objective.
Create a Free Marketplace of Solutions
Institutional and mechanism designs are crucial to effective changes. The problem is that if we allow only one set of institution to dominate, we may not only incur the opportunity cost of not being able to test out another idea, but also lose the right kind of time window for other sets of institution to flower. The meta-design to be adopted is the creation of a free marketplace of solutions, whereby different solutions can compete among themselves on a more or less equal footing and the less feasible ones eventually got eliminated.
Build a Critical Mass of BeneFIciaries
For any reform to have lasting effect, one important precondition is to build a momentum generated by an increasing mass of beneficiaries. The reason is that any reform necessarily encroaches on the vested interests of certain groups, mostly the ruling bureaucracy. To overcome their continued assistance, it is important for the reform to build up an ever enlarging group of beneficiaries who would fight to defend their newly earned interest. Better still, the reform should try to convert the established groups to the belief that it would pay them to join the new game rather than sticking to the old one.
Erect Markets for the Entire Production Chain by Applying a 3-Dimensional Voucher System
Deng's liberation of peasants represented chiefly the middle stream of the production chain in agriculture, i.e. the farming process. The upper stream, i.e. the circulation and production of agricultural inputs and the lower stream represented by the distribution system of the final products, chiefly the staple food, are still being very much controlled by state monopolies or quasi-state monopolies. To create an entirely free-market agricultural sector is therefore of imperative importance. To create this sector with minimum financial resources and subsidies, a 3-dimensional voucher system is recommended, with the government shouldering largely the financial responsibilities but enabling choices to be made at the level of the individual or the enterprise. Vouchers are also to be used to empower new groups and enterprises with resources to join the game of invigorating the sector. This 3-dimensional vouchers system is highly cost-saving as the voucher can cancel out each other within the input-output matrix and therefore real or monetary FInancial investments can be kept at a minimum.
Foster a more Rational Land Reform and Land Production Programme
Despite the liberating effects of Deng's reform, expediency did not permit it to take into full account the more detailed mechanisms of the transfer, inheritance, forfeiture etc. of arable land, nor has it dealt with the needs of the newly born generations who might choose to work on the land but are lacking the necessary allocation. To remedy the situation, we recommend the adoption of a full-fledged scheme of Land Ownership, whereby the state is to ensure that whoever that wants to work on the farm is entitled to receiving his lot. To facilitate this, an ambitious land production programme has to be pursued and for flexibility, a Land Exchange to be erected.
Inculcate Agents of Change
To initiate the reform on a massive scale, to give it a big push and to consolidate its fruits, we require a large group of agents, whether they be individuals, groups, enterprises, or non-profit organizations.
We recommend to this end the creation, in particular, of a class of "agro-managers", who can come from a diverse array of backgrounds. This class, backed by government subsidy on a sliding and declining basis, will form the backbone of the reform agency, to be supplemented by agricultural cooperative groups, and even university students, who we believe should join the reform programme on a limited scope and on a compulsory basis.
Build an Effective Matrix of Macro and Micro Management System
Certain aspects of the reform require the setting up of macro-management systems both to ensure system efficiency and fairness. These include the land bank system, dessemination of technology, nation-wide research programmes and infrastructural building. Professional central organs and by extension, a mode of vertical management radiating from the centre is needed to discharge these duties. But for effective execution and to ensure continuing success, a horizontal local grassroot system vested with the right kind of incentives is essential. In other words from the management point of view, a matrix of interacting vertical and horizontal management system should prove to be the ideal combination.
For any reform to be effective, it is important to have a clear idea of how much resources are available. It is also useful to know how much resources can be legitimately raised and through which channels. Ascertaining the extent of the availability of resources would then enable the reformers to arrive at a more feasible plan both in the near term and the longer term.
Testing out Cost-effective Medical and Educational Services in the Rural Sector
As has been pointed out, the rural sector has been suffering from a deteriorating terms of trade, especially in respect of medical and educational provision. As such, there exists good opportunities to introduce low-cost but highly effective services in these areas. The book makes a number of proposals in this regard. As a matter of fact, these proposals and results of such experiments can also be transplanted to the cities which too suffer in different degrees from the same problem.
The book also recommends a number of other proposals in relation to reform in the rural sector, including managing the present mammoth deficit of the rural regions, improving the availability financial resources and services, among others.
As can be expected, the proposed reform is a daunting task and it will take a long gestation period before it will yield positive results. But if well implemented, the reformed sector will not only provide great commercial opportunities to the farmers and other outside investors but will also improve greatly the living conditions of our countryside.
Shortage in food supply and rises in food prices will affect not only China in the years to come. The world at large will experience similar hazards. Experiences to gain from China's reform will provide valuable lessons to many other countries, in particular the developing nations.
Experiences in the developed world show clearly that the "biotechnology revolution" will not only help go a long way in solving the world's food and environment problem but will also provide huge commercial opportunities for those willing to take up the challenge.