Mechanization in smallholder farming and its impact on Chinese food economy

Xiaobo Zhang, Peking University & IFPRI

Eurasian Food Economy Forum, IAMO, June 22, 2017

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Headwind Facing Chinese Agriculture

• Aging

• Rising wages

• Small farm size

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Number of Agricultural Labor

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25.000

27.000

29.000

31.000

33.000

35.000

37.000

39.000

41.000

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78

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79

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80

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81

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82

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83

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84

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85

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86

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87

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91

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92

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93

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94

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95

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96

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97

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98

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99

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00

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01

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02

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06

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08

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09

20

10

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5

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Economist, May 12, 2015

Wages in five Asian counties

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Farm Size in Australia and China

Lowder, Skoet, and Raney (World Development, 2016)

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Farm Size from 1960 to 2000

Lowder, Skoet, and Raney (World Development, 2016)

Yet, China’s Agriculture has performed quite well

• Yields (tons per hectare) went up from about 2.5 in 1978 to 4.3 in 2000 to 5.3 in 2012 (China Statistical Yearbook 2013, NBS).

• According to Jin, Huang and Rozelle (2009), the TFP for staples has grown at an annual rate of more than 2% since 1978; the annual growth rate of TFP for horticulture and livestock lies between 3% and 5%.

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How to Reconcile the Conundrum?

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May, 2009, Sichuan Province

Distance from Peixian to Zizhong County: 1,079 miles (about San

Francesco to Denver)

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Peixian

Zhizhong county

A Rice Harvesting Route

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From the mid July to the end of November: Hunan →Hubei → Sichuan→ Shannxi→Jiangsu → Shanghai→Inner Mongolia → Northeastern provinces→Jiangsu→Guangdong→Guangxi

A Wheat Harvesting Route

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Early April to early July： Sichuan→Shannxi → Hunan→ Hubei→ Jiangsu→ Shandong→ Tianjin

Answers to the Conundrum

• Agricultural production is divisible.

• Some steps of production, such as ploughing and harvesting, can be outsourced to others.

• Even in the US, migratory harvesting and pollination service are popular. – Steven Chang “The Fable of Bees: An Economics

Investigation” JLE (1973)

– Muth, Mary K., Randal R. Ruckers, Walker N. Thurman, and Ching-Ta Chuang. “The Fable of Bees Revisited: Causes and Consequences of the U.S. Honey Program.” JLE (2003).

– Nordhaus “The Beekeeper’s Lament”

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Machinery Power and Draft Animal

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25

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45

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55

60

65

1.500

2.500

3.500

4.500

5.500

6.500

7.500

8.500

9.500

10.500

Conditions for Outsourcing

• Market size: The division of labor is limited by the extent of the market (Stigler, JPE 1951).

• Machinery cost: combines are much more expensive than attached disc ploughs.

• Asset specificity: tractors have multi-functionality, while combines don’t have.

• High labor cost.

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Rice Production Steps

Economics text book: Cobb-Douglas or CES production function Labor+capital+land+other inputs → Rice Traditional rice production: Land preparation → planting → weeding → irrigation (draft animals or labor) (labor) (labor) (pumps or rain-fed)

→harvesting → threshing → drying (labor) (labor, animal, or threshers) (labor)

Current practice in China: Land preparation→ planting → weeding → irrigation →harvesting+threshing (Tractors) (most by hand) (herbside+labor) (pumps) (combine harvester)

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Rice Harvesting: National Market

• Rice is planted in many parts of China, mostly in flat areas. Thereby migratory labor-cum-machine service providers can travel up to 8 months to recoup the high cost of combines, which have no other uses.

• In a small country, such as Japan, migratory harvesting is not feasible because of low regional variations in seasons.

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Use of Mechanization in Rice Production

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Based on authors’ complementary survey attached to RCRE survey in 2013. Zhang et al. (2017)

Year Variable Using machinery Hiring mechanization service

2012

Plow 86 82

Plant 10 91

Harvest 74 99

2008

Plow 72 80

Plant 6 96

Harvest 52 98

Ploughing market is mostly local because the ploughs attached to tractors are much cheaper and tractors can be used for other purposes in the slack seasons.

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Maize

• Unlike in the US, maize is widely planted on the marginal land in China.

• In some areas, it is impossible to use machinery due to steep slopes.

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Guizhou Province

Maize Harvesting

• The traditional maize combines used in the US are not applicable in China because of high heterogeneity in heights and spacing across farms.

• Indigenous maize combines have been developed in the past several years. But the repairing cost is still very high.

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Maize Harvesting

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Combine harvesting for maize is still quite low

Year Variable Using machinery Hiring mechanization service

2012

Plow 62 74

Plant 48 63

Harvest 28 99

2008

Plow 55 70

Plant 41 67

Harvest 14 94

Zhang, Yang, and Reardon (2017)

China’s Import of Corn

• 2013: 7 million metric tons

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Degree of Mechanization by Crop

Land preparation Planting Harvest

Wheat High High High

Rice High Low High

Maize High in plain area; Low in hilly area

High in plain area; Low in hilly area

Still low

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Local Local Cross-region

Cross-Regional Mechanization Harvest Service

• Often clustered;

• 3-4 operators per team; Traveling in flocks (average 10 trucks) with combines on the top;

• Chasing production seasons for up to 8 months (average half year);

• Charging fee only half of the cost of hiring labors (about US$200 per hectare).

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Peixian Cluster

• 36 rural mechanization cooperatives;

• 2,100 combine harvesters (mainly for wheat and rice);

• 1,100 are engaged in cross-province harvest service.

• Cross-regional harvest service started in 1998 with 50 combines largely supported by the county agricultural mechanization bureau.

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The Scale Economy of Cross-Regional Mechanization Service

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5010

015

020

025

030

0

cost

per

hec

tare

(dol

lar)

100 200 300 400 500the area of across-mechanization(hactare)

Advantage of Traveling in Groups

• Better coping with harassment and extortions from local gangs;

• Greater bargaining power with local agents thanks to large scale of harvesting;

• Pooling spare parts for repairing (even bringing a service truck);

• Sharing the search cost (like scout bees)

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Income and Cost Per Team (RMB)

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About six times of rural per capita income in Jiangsu Province.

Variable Median

1. Net income ($) 14,286

2. Total costs ($) 22,540

a) Repair and maintenance 3,175

b) Employee wages 7,937

c) Telephone 317

d) Food/lodging while traveling 4,762

e) Gasoline/diesel 6,349

3. Area served (hectares) 133

4. Days working away from home 179

Role of Government

• Central level: – Machinery purchase subsidy;

– Waive highway tolls.

• Local level: – Distributing harvest calendars;

– Training, inspection;

– Conflict resolution for those on the road;

– Setting up cell phone group message platform

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Conclusions and Implications

• Lack of production scale has been regarded as a major constraints of smallholder farmers in developing countries, particularly in Asia.

• We show that agricultural production is divisible and some steps of production can be sourced to specialized service providers, such harvesting service, which run at a much larger scale.

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Share of Households Using Machinery for Land Preparation And Harvesting in Myanmar, by Farm Size Group (2015/16)

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78

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50

83

7

60

75

13

61

0

10

20

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2WT (Land Preparation) 4WT (Land Preparation) Combine (Harvesting)

% o

f h

ou

seh

old

s u

sin

g

<5 acres >5 & <10 acres >10 acres

The use of machinery has little to do with farm size thanks to the active ploughing and harvesting service market.

Implications

• Collier and Dercon (2009) argue that African agriculture's future lies in large farms because smallholder farmers lack sale of production.

• Is there a future for smallholder farmers in Africa?

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Teff threshing in Ethiopia

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Migratory plowing service: The driver drives tractors for three months and combines for three months.

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Second ploughing after mechanized ploughing in Ethiopia