Rental markets for cultivated land and agricultural investments in China

Abstract

The purpose of this paper is to empirically track the progress and consequences of the emergence of cultivated land markets in China since 2000. We draw on a set of nationwide, household-level panel data (for 2000 and 2008) and find that the markets for cultivated land rental have emerged robustly. According to our data, 19 of China's cultivated land was rented in farm operators in 2008. We also find that the nature of China's cultivated land rental contracts has become more formal and lengthened the period of time that the tenant is able to cultivate the rented-in plots. While there may be benefits for lessors and tenants, our data show that there are falling rates of investment in organic manure. The farmers in our sample have reduced organic manure use from 13 tons/ha in 2000 to 5 tons/ha in 2008. Part of this fall is due to the rise of cultivated land rental markets. The analysis, however, does not find that improved property rights in cultivated land rental affect investment largely because property rights have largely been established by 2000, the first year of our sample. Our results, however, also show that there are forces that appear to be mitigating the negative consequences of rising cultivated land rental. After holding constant initial rental rates and other factors, we find that the gap between investment in organic manure in own land and rented-in land is narrowing. One interpretation of our findings is that if policymakers can find ways to even further strengthen the rights of lessors and tenants as well as lengthen contract periods, farmers-even those that rent-will invest more in their land, because they will be able to capture the returns to their investments. JEL classification: Q15, Q18, P14

Farmland Rental and Productivity of Wheat and Maize: An Empirical Study in Gansu, China

“…The study by Reda et al [19] indicated that grain yield declined with farmland consolidation. Gao et al [33] found that farmland rental contributed to the falling rates of investment in organic manure, and it might have negative impacts on agricultural productivity. A study on China and India showed a positive relationship between plot size and land yields in China, while a negative relationship between plot size and agricultural productivity in India [17].…”

“…In addition, the booming off-farm labor markets have also accelerated the development of farmland rental markets [21][22][23]. China's farmland rental policy gained rapid support, while only 5.2% of contracted farmland was leased in 2007, 33.3% had been leased by the end of 2015 [24,25].…”

“…Some studies explored the influences of farmland rental and consolidation. For instance, a series of studies focused on the impacts of farmland rental and consolidation on agricultural efficiency and productivity, agricultural investments to land of rural households, occupational diversification, income inequality and household welfare [9,19,[31][32][33].…”

China’s 40 years of agricultural development and reform

“…These changes have, of course, affected the nature of farming. As more households began to work full-time off the farm, they also began to rent out their land (Gao et al 2012). Those who stayed are the ones renting this land, which is behind a steady increase in farm size and increasing pressure to mechanise Huang and Ding 2016;Wang et al 2016).…”

Agricultural reforms and bridging the gap for rural China

“…This may lower the incentive to undertake farming practices that ensure the long-term fertility of the plot. For example, farm level analysis suggests that there is a significant decrease in the use of organic manure when farmers rent in land (Gao et al, 2012). In general, contract duration for farmland is lower than for urban land which is 70 years for residential land, 50 years for industrial land and 40 years for commercial, tourism or recreational land (World Bank and DRC, 2014).…”