China’s Agricultural Modernization and Economies of Scale: Barriers and Solutions*

Abstract:

This paper identifies three stages in China’s agricultural development with reference to macroeconomic development and international experience. While the first two stages focused on ensuring food security and raising farmer’s income, the current stage must give priority to modernizing agricultural production. The lack of progress in this area is due to the following reasons: diminishing return to capital as a result of small and scattered farming operation which has compromised agricultural competitiveness; agriculture is overdependent on subsidy and protection under the conventional wisdom of the uniqueness of agriculture. This paper attempts to reveal the barriers to China’s agricultural modernization and proposes recommendations on reforming the land and household registration systems to increase the economies of scale and productivity.

Keywords:

蔡昉 王美艳

stages of agricultural development, mode of agricultural production, economy of scale, agricultural production function

JEL Classification Code: Q10, Q18

Correctly identifying the problem is the first step in developing an appropriate theory to guide policymaking. Misled by American scholar Lester Russell Brown, discussions on China’s agricultural prospects over the years have been focused on “who will feed China” (Brown, 1995) while neglecting another more important question of “how China should feed its own population.” While the former explores whether China has the ability to achieve self-sufficiency of food and its significance to the rest of the world, the latter is more concerned with the path of China’s agricultural development and mode of production. It is fair to say that obsession with the first problem has derailed the answer of academia and the policy research community to the second question.

Since reform and opening up in 1978, China’s agriculture has been developing along a correct path. It delivered food security, enhanced production, released agricultural surplus labor and raised the income of farmers. However, the shift of development stage entails different objectives and requirements. Previously effective strategies may not work with the change of times. Sparing no effort in “feeding” itself, China finds the cost of the previous approach to be increasingly unsustainable. Hence, it is imperative for China to transform the pattern of its agricultural development in the new stage with shifting priorities.

This paper divides agricultural development into three stages with the following priorities, including (1) solving food shortage problem, (2)