Authorities won't find it easy to turn China into a completely self-sufficient grain producer, especially as large swathes of rural land get gobbled up for commercial development in the country's sweeping urbanization campaign. Even now, China is said to be perilously close to the 120 million hectare "red line" calculated to leave the country with enough arable land to keep its citizens adequately fed. Amid the current push toward agricultural reforms, the government should focus on adjusting its policies related to the economics of food production.

 

On the surface, of course, it seems that China's agricultural sector is still doing fairly well. Domestic grain output is expected to hit 601.94 million tons in 2013, up 2.1 percent over the previous year, according to recent information from the National Bureau of Statistics.

 

Yet, in 2012, State grain traders imported over 70 million tons of wheat, corn, rice and other commodities. For 2013, as well as the coming year, import volumes are only expected to rise as the country's grain appetite grows and farmland becomes scarcer.

 

According to reports from the Ministry of Agriculture, by the end of 2012, nearly 180 million hectares of rural land had been transferred in China, of which 1.87 million hectares of arable land was transferred to commercial enterprises. But in some areas, only 6 percent of these enterprises were using their newly acquired land for agricultural production.

 

Based on our investigations in eastern China, most farmers are signing over their land use rights to manufacturers or property developers rather than agribusinesses because the former are usually willing to offer higher levels of financial compensation.

 

Farmers who retain their land can typically earn between 6,000 yuan ($989) and 7,500 yuan per hectare per year by growing grain themselves. Under price guide policies introduced by local authorities in Anhui, Jiangsu and Zhejiang provinces, farmers must be compensated at least 12,000 yuan annually for every hectare of land they transfer. In other places, such as rural areas of Shanghai, transfer prices could run as much as 30,000 yuan per hectare. Such hefty transfer costs, when multiplied across thousands of hectares and hundreds of rural homesteads, have deterred many lightly funded agricultural companies from acquiring land.

 

This situation leaves many local governments in a bind. On the one hand, officials depend on land transfer and industrial output levies for the bulk of their fiscal revenues. This means that authorities have few incentives to block lucrative land deals initiated by big-spending developers or factory bosses--who themselves can generate hundreds of thousands of yuan in profit from every hectare of rural land they acquire.

 

At the same time though, such transactions mean that China's croplands are getting rapidly paved over to make way for apartment buildings or industrial sites.

 

If the government wants to maintain the integrity of its red line, a series of reforms are needed to make agricultural activity more commercially viable.

 

Authorities should first study the impact of rising upstream costs on farm production. As fertilizers, pesticides and related agents become more expensive, farmers and growers are seeing their budgets stretched ever thinner. Meanwhile, measures designed to protect China's environment, while certainly laudable, are also creating new cost pressures of their own for players in the agricultural industry.

 

Since 2009, the government has been offering annual subsidies of at least 150 yuan per hectare to farmers in order to encourage growing. Such incentives should be increased in order to support agricultural production. If farmers and agribusinesses can strengthen their bottom lines, less arable land will fall into the hands of property firms or manufacturers.