In the flurry of news about plans to reform land use in China, much of the coverage focuses on the new potential for Chinese farmers to either pay to farm the land of others, or to indeed expand their own plots by renting more land, thus building scale and offering the greater potential for profit. I think a lot of people noted this, and after checking to ensure that neither Monsanto (MON), John Deere (NYSE:DE), nor DuPont (NYSE:DD) was in their stock portfolio, dutifully forgot it.
There is, however, more to this story.
Not Your Father's Land Reform
While the idea of land reform gets folks in the agriculture business dreaming about China's vast farmlands changing from a patchwork of tiny plots to a more orderly quilt of massive farms, that dream is both unlikely and overrated. The omnivorous Tom Barnett notes an important point Callum MacLeod makes in his article in USA Today:
"China is the opposite of the USA, which has an abundance of capital and land. In China, labor is abundant, but it is short of land and rural capital, [said Li PIng, of the Seattle-based Rural Development Institute.]
In short, don't count on Hebei starting to look like the upper San Joaquin Valley anytime soon.
But let's take a closer look at Li's point.
- China has abundant labor. Yes, and that is not likely to go away soon, massive urbanization notwithstanding. America has under 6 million people living and working on farms. China has around 700 million. You could literally cut China's farm population by 90% and still have too many farmers to replicate the efficiencies of U.S. farms.
- China is short of land. Yes, and that is not likely to change anytime soon, either, unless China plans to invade and cultivate the Siberian steppes. Whether taken as a ratio of land under cultivation to the total national land mass, or as a ration of arable land to population, Chinese agriculture is land-deficient.
- China is short of rural capital. Yes, it is now. This, however, unlike the previous two conditions, can change. And therein lies the real opportunity behind China's land reform.
AgriBusiness with Chinese Characteristics
Regardless of how much you change China's agricultural land use rights, you're always going to have too many people cultivating too little land, which means that the future of Chinese agriculture is not about vast wheat fields or free-range beef ranching. You have to find another model.
At the most basic level, this means that China's farms will find prosperity with crops that demand a great deal of human attention, and that will capture market prices that will allow farmers to compensate their workers accordingly. But more labor working fewer valuable plants is only half of the answer. There is a shortage of water available to farmers in a growing proportion of the country. Air pollution, soil degraded by poor irrigation practices, and lousy infrastructure still hamper the industry.
At the same time, consumer demand for higher value farm products means that for most farmers their real opportunities lie with crops they are not accustomed to cultivating. With some exceptions, China's successful farmer of the future will be a small- or medium-sized agribusiness focusing on high-value cash crops or horticulture (flowers and foliage.)
So when Li Ping talks about rural capital, we need to think beyond cash: China's farmers also need equipment to address environmental and infrastructure challenges, as well as the know-how to get the most out of whatever size plots of land they can cobble together under land reform. Which, in turn, means that land reform is the first step to liberating the value of Chinese farmland, rather than the last.
I would love to say that technology is a panacea that will clear up all of these challenges, but if I did, I'd be wrong. Nonetheless, there is a growing range of opportunities for technology to help turn the more entrepreneurial of China's farmers into agribusinessmen. Just a few of these include:
* Drip irrigation: China's shortage of fresh water is already bad, and it is going to get worse. Chinese farms will only be sustainable if they use exactly as much water (and fertilizer, and nutrients) as they need, and no more. Drip irrigation is the best, most practical solution today. As aeroponic techniques develop beyond space travel and dorm-room cultivation of cannabis sattiva, they may eventually supplement drip irrigation, but likely only for specialized applications.
* Greenhouses and Nurseries: Beyond the vagaries of pests and weather, the challenges of China's environment are likely to drive the production of cash crops - not just flowers - into greenhouses. We see a lot of this around major cities and in centers like Kunming, but expect this to expand. This involves more than just covered farmlands: it also means temperature monitors and controls, irrigation systems, air-quality management systems, and harvesting.
* mAgriculture: Few Chinese farmers can afford laptops, but many more can afford mobile phones to monitor their crops, the weather, and market prices, as well as to take orders, capture opportunities to sell at higher prices, and make payments on supplies and micro-loans. Farmers will need inexpensive yet rugged and waterproof handsets with large buttons, long battery life, and possibly even solar charging capability. They will also need easy-to-use service bundles to include information access and mobile banking.
* Training: There is just no way to get millions of farmers into schools. Raising skill levels in new crops, new tools, and agricultural economics is going to involve a combination of traditional low-tech methods and some experimental efforts in using remote training via satellite TV and possibly the Internet.
* Finance: Once you have the land, you need the cash to develop it and to finance your first crop. Traditional methods of agricultural banking in China, including banks and farm co-operatives, won't be enough. Micro-finance, in all of its forms, can be most economically administered using technology. That doesn't mean a computer on every farm, but it does mean loan officers in rural areas equipped with at least hand-helds to help manage payments and collections.
These only touch the surface, and there will be specific opportunities around specialized crops, but you get the point. As we slide gently into global recession, technology firms have an opportunity with Chinese land reform to begin developing - or at least researching - how to deliver products to help solve some of the challenges implicit in China's next green revolution.