Caixin
Sep 05, 2016 02:15 PM
FINANCE

Shandong Rural Co-ops Help Ag Sector Grow

China's fragmented farm sector — characterized by tiny family plots and a declining number of farmers — has long resisted modernization.

However, at least in Shandong province, a once-lumbering rural co-op is reinventing itself — trying to help farmers increase yields and incomes in what historically has been a highly inefficient agricultural sector.

Small farms confront problems

China is a nation of micro-farms. In Shandong, farmers on average own only 2 mus (0.13 hectare) of farmland, according to the Ministry of Agriculture. In 2013, 86 percent of Chinese rural families operated on less than 10 mus (0.67 hectare) of land.

At the same time, the country's rural labor force has been shrinking as more young people head to cities for higher-paying jobs. Nearly 60 percent of Shandong's farm labor force has migrated to cities, leaving mainly the elderly to work on the land, said Xiao Xizhang, director of the cooperation supervision office of the Shandong Supply and Marketing Cooperative (Shandong SMC). Xiao said that more than 20 percent of villages in Shandong have seen more than 70 percent of their labor force leave, often for construction or restaurant jobs in neighboring cities.

Meanwhile, not only are many farmers too old to work their own land, but the income from their small farms has never been enough to buy modern equipment.

Co-op begins offering solutions

Back in 2010, Xu Feng, director of the Wenshang county rural Service and Marketing Cooperative in Jining, took the first step to address some of the issues besetting farmers. The co-op began by offering machinery harvesting services to local farmers for a small fee.

Since then, hundreds of such organizations have cropped up throughout Shandong, and the range of services they provide has expanded.

Over in Kangzhuang township in southwest Gaomi, an agricultural county in eastern Shandong, mechanical harvesting of mostly corn and wheat was recently completed on over 800 hectares of farmland in seven days.

Huge barns and grain dryers have been installed in the courtyard of the Kangzhuang service center, with tractors and other equipment parked outside. The center also has built labs for testing soil and making fertilizer.

The local SMCs and agricultural service centers can offer other services that are more efficiently done on a larger scale, such as getting better prices by buying seeds in bulk, plus spraying for pests, storing grain and selling crops.

Yue Mengxi, whose farm operates over 65 hectares of land in Gaomi, said that with help from the agricultural service center's large harvesters and other machines, her farm now needs a much-smaller labor force, which has reduced production costs by 200 yuan per mu, or 3,000 yuan per hectare. Even after purchasing services from the local co-op — less than 150 yuan per mu — her profits have increased.

Some farmers have fully entrusted their land to service centers for about 150 yuan a year per mu, and then leave for jobs in city.

According to the Shangdong SMC, farmers have seen grain production rise 20 to 30 percent after being managed by service centers.

"There is great potential for developing large-scale services," said

Liu Shouying, an agricultural policy expert at Renming University.

To be sure, these supply and marketing co-ops don't solve all of China's farm problems. For one thing, even when the co-ops take over all the management of farms, they provide little in the way of infrastructure investment such as irrigation systems and land consolidation, said Yang Bingping, deputy director of the agricultural and industrial affairs office of the Shandong government.

The program works best when the farms are already in good condition, he said. Also, mountainous regions, where getting from one small farm to another can be difficult, pose a whole new set of problems.

Another limitation in Shandong is that agriculture service centers focus on large family farms, ag companies and land cooperative set up by villages. The centers don't accept land directly from individual farmers. Instead, small farmers need to gather their land together to form land cooperatives with help of local co-op and village authorities and then entrust the land as a package to the service center.

SMCs rebound from spotty history

The resurgence of the rural SMCs is noteworthy, given their checkered past.

Initially formed in 1949, they were once stalwarts in the era of the planned economy. They reached their height in the 1950s as important distributors for farm crops, when agricultural trade was strictly controlled by the state.

But for the next several decades, their policies, affected by the politics of the time, shifted dramatically, sometimes benefiting farmers and at other times stifling them with top-down bureaucracy.

During the Cultural Revolution, SMCs' businesses were largely stalled due to the turmoil of the times. In the following decades, their dominance weakened due to the gradual opening of the agricultural market.

"For a long time, people didn't know clearly what SMCs were doing. Some said they are just fertilizer sellers. But that business has also declined as the farming population has dropped," said Xiao, director of the cooperation supervision office of the Shandong SMC.

The SMCs had long suffered from declining business and the burden of paying its 300,000 employees. Many local branches mainly relied on leasing property and equipment to the farmers for income.

Transformation gains steam

About three years after the Wenshang county SMC started offering machinery harvesting services to local farmers, it opened its first agricultural service center.

In 2013, it gathered 4 million yuan (US$ 600,000) in investments from several local SMCs and expanded from harvesting to fertilizing, pest control, grain marketing and other services. By the end of that year, Shandong's SMC system earned 160 million yuan net income by offering agricultural services to farmers.

Figures weren't available for net income for 2012, but revenue increased to 5.8 billion yuan in 2013, up from 5.4 billion yuan in 2012.

By August, Shangdong rural SMCs had set up 750 agricultural service centers across the province to manage 1.1 million hectares of land for farmers, about 20 percent of the province's total farmland, according to the Shandong SMC. The goal is 1,500 agricultural service centers by 2020 to manage more than 1.3 million hectares.

Service centers gain farmers' trust

Beijing in recent years has encouraged rural residents, especially those who have left rural areas, to sell their land-use rights to others. Rural land in China is under collective ownership, and farmers control only the land-use right.

But such pilot programs have had only limited success, as many farmers are reluctant to give up their land rights. Yang Bingping, deputy director of the agricultural and industrial affairs office of the Shandong government, said that entrusting service centers that manage farmers' land offers an alternative way to keep their land thriving.

As a result, while some farmers pay service fees for the SMCs to help with seeds, harvesting selling and other chores, others fully entrust their land to service centers and then leave for jobs in cities.

Kangzhuang and other 14 similar agricultural service centers in Gaomi have been entrusted by local farmers to cultivate 30 percent of the city's 86,600 hectares of farmland.

Farmers can earn more from grain sales after entrusting their land to local service centers for farming compared to simply selling the land rights, even after paying the centers' service fee, said Yu Qingfeng, deputy director of the Shandong SMC.

"When farmers leave for jobs, we take care of their land," he said.

SMC system expected to expand

By offering large-scale farming services, SMCs' service centers offer a way to realize massive, modernized agricultural production on land that previously was overseen by hundreds of scattered family farmers, said Chen Xiwen, former deputy director of the Rural Affairs Leading Group, a top party decision-making body in Beijing.

Some scholars expect the stronger SMC system to player a larger role in China's rural community, expanding from agricultural production to other aspects of rural life.

"I've seen some promising signs in Shandong. It is possible to develop a comprehensive network to offer lifelong services to farmers under the SMC system," said Xu Xianglin, deputy director of the rural research center of the Party School of the Communist Party's central committee. He expects the SMCs to grow into a network that links different services for rural residents from production to everyday life.

Yu, deputy director of the Shandong SMC, said it has already started to offer financial, logistics and some community services such as elderly care and education services to rural residents.

However, an employee of the Shandong SMC said that more challenges are expected as SMCs expand further into rural life due to the complex land ownership in rural China and entangled interests among different parties. For SMCs to play a greater role in China's rural reform efforts, more policy support and better coordination among agricultural departments will be needed, the employee said.

Contact reporter Han Wei at weihan@caixin.com; editor Ken Howe at kennethhowe@caixin.com

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