Policy change needed to rationalize farming sector and increase output

China's agricultural sector is struggling to keep up with the demand for food from its increasingly urbanized population, a situation that experts say could be addressed by government reforms.

The countryside is rife with small plots owned by half-empty villages, where rural farming is based on traditional means passed down through the generations.

One plausible solution could include large-scale farms, advanced technologies and unified land markets, which will likely be introduced at the forthcoming Third Plenum of the Communist Party of China's 18th Central Committee, scheduled for Nov 9 to 12.

Currently, the Land Administration Law allows farmers only to lease their land without changing how it is used or managed. It strictly prohibits farmers from selling their land.

After China exempted farmers from agricultural taxes in 2006, many farmers left their land and went to work in the cities. Most didn't bother to lease their land because of the absence of a unified land lease market.

But the law grants the government the power to acquire a farmer's land for public use after compensating landowners. The government might then legally change the land use and transfer the land to real estate developers for exorbitant profits.

Compensation for the land is paid to a village committee and redistributed to the farmers. This distribution process has allowed many village leaders in recent years to illegally claim part or all of the compensation as a negotiation fee for representing the farmers, which in turn has created conflicts between real estate developers and farmers during the demolishing of the farmers' homes.

While China's rapid economic growth since 1978 has reshaped the nation, the collective rural land ownership and land acquisition systems have been left unchanged.

This has resulted in an exodus of young villagers, leaving the elderly to take over the farming. It is clearly necessary to find a balance between urbanization and agricultural modernization, as stated by central government think tank the Development Research Center of the State Council in its report published on Oct 26.

Individual farmers should have the right to sell, lease or transfer their land, according to the research paper. Today, a village owns the farmland and while farmers are the owners of their own plot, they are not entitled to sell or manage it.

To ensure that farmers can exercise these individual rights, the central government must establish unified land markets throughout the country. They should also directly supervise the markets, which would measure each farmer's plot of land, issue deeds, register the land and affix real estate values to the land, the report said.

Tong Zhihui, a professor of agricultural development at Renmin University in Beijing, told China Business News: "Farmers should certainly share the rise in the value of land. But once the farmers' land is traded in a unified market, the government should levy taxes on transactions to make up for not previously imposing land transfer fees."

One reason land reforms were not implemented earlier is because of the financial crisis that began in 2008. In fact, the Third Plenum of the 17th Central Committee of CPC claimed that year that it had implemented all of its land reforms. Reforms weren't put into effect until late 2011 when several ministries jointly issued guidelines in issuing deeds to farmers. A pilot land reform program was carried out in Chengdu soon after.

There has also been little progress because of "the resistance and difficulty in measuring the land and negotiating with farmers", said a researcher of the pilot land reform led by Professor Zhou Qiren at Peking University.

Resistance has mainly come from local governments, which rely on land transfer fees to pay for the rising demand in public services and to pay off debts.

The Ministry of Finance said land transfer fees in the first three quarters of 2013 amounted to more than 2 trillion yuan (about $323 billion), an increase of 49.6 percent from the previous year. According to Caijing magazine, the overall debt of provincial, city, county and town governments hit 14 trillion yuan by the third quarter of this year.

It is expected that this year's Third Plenum will make greater strides in fine-tuning land reforms and implementing them on a broader scale.

It is expected to authorize local governments to issue bonds and to focus on property taxes, consumption taxes, resource taxes and environment taxes as primary contributors to local revenue before the unified land markets can generate enough in the way of transaction taxes. All of these tax categories depend on a series of adjustments, which need to be clarified by the third plenum.

Another concern is the central government's redline, or minimum, of 120 million hectares of land that it said must remain arable to make sure the country would be able to feed its large population. China feeds one-fifth of the world's population with about 7 percent of the world's arable land. The proposed unified land markets should not reduce the overall size of that minimum.

The leasing, entrusting, mortgaging and transferring of rural land rights also must not change the use of the arable land. Mechanized farming will only become possible after contractors combine small plots of land into large farms.

Chen Xiwen, director of the rural work team of the CPC Central Committee, warned in a recent interview about the mortgaging of farmers' land rights.

"The Guarantee Law states that the farmland contracted by the farmers from the village committee cannot be directly mortgaged because the farmland is a farmer's life and basic means of production," he said.

Successful land reforms can improve China's agricultural production, create new streams of revenue for local governments and ease tension among farmers when their land is acquired.