One of the big dilemmas of Chinese agriculture is the issue of scale. Traditional farming was mostly carried out by individual households on very small plots of land. After the Communists took power in 1949, there was land reform and a popular mutual aid and cooperative movement, but the Mao gradually moved rural China toward a system that organized all agricultural production into large communes and state farms. Politically, communes were a radically egalitarian form of social organization, but they also followed a logic of economies of scale, permitting more mechanization, larger-scale irrigation, etc.
Following Mao's death in 1976, Deng Xiaoping dismantled the collective system and returned to household farming. By allowing farmers to market an increasing share of their harvest and keep the profits instead of handing it all over to the state, the new system spurred a rapid growth in productivity and rural incomes. Over time, however, farm profits have dwindled, and now China's 700 million farmers have more and more in common with their great-grandparents: they are economically weak, disorganized, lack technical support, have little access to credit, and don't even own the land they farm. (The state is now their landlord.) The issue of scale is once again a concern, but China's particular combination of authoritarian and neo-liberal ideology preclude either bottom-up or top-down collectivization. Instead, the government has promoted the "Company Plus Household" model of contract farming.
I had a chance this week to learn firsthand about the new role of private agribusiness firms in rural China when I was invited to visit Chennong, one of the biggest growers and exporters of vegetables in Southwestern Yunnan Province. (I own a small apartment in Kunming, the provincial capital, and came to town partly for work and partly to visit friends and take a break from a climate-change-defying Minnesota winter.)
Chennong's headquarters is located outside of Chenggong, a town about 25 kilometers south of Kunming. I went with a friend, Ms. Wu Yusong, who runs the World Wildlife Fund Yunnan program. We were greeted by a Ms. Liu, who showed us around the company's facilities and gave us some pamphlets describing the company's history and operations. The pamphlets had nice pictures, but no financial information, so I was left trying to piece things together by triangulating their info and what Ms. Liu told us with what I could find on the web, with somewhat confusing results. According to their own materials, Chennong now produces over 100,000 tons of vegetables a year, and according to a quote of the founder, Mr. Li Yunsuo, that I found on the web they export over 40% of their production. But the Chinese-language Business Yellow Pages says they only do USD4-7 million a year in export business, which would make them very cheap veggies! (it also lists McDonalds and KFC among their custonmers)
Let's just say that within Yunnan, Chennong is considered a well-known medium to large agribusiness. Li Yunsuo, a local agricultural technician, started the company in 1992,with a 5000 RMB loan from the local bank, and they now employ over 1,200 staff and grow crops on over 60,000 mu (about 10,000 acres) of land.
I asked Ms. Liu about the whole Company Plus Household system, and whether this is how Chennong gets its vegetables. She explained that they don’t have their own farms, nor for the most part do they contract with individual farmers. Their original approach was to work with farmers directly. The company provided free seeds and inputs for the first crop, to guarantee a profit for the farmers and overcome any doubts they might have about converting from grain or tobacco to vegetable farming. In return, the farmers signed contracts committing them to sell their crops to Chennong. The contract sets a floor price: if the market price at harvest time is higher then the company pays 80 percent of the higher price, and if the market price is lower then the company still pays the agreed-upon floor price. Ms. Liu explained that whereas the government used to promote this type of “company plus rural household” contract farming, Chennong found that farmers would often break their contract with the company when the market price of their crops rose above the guaranteed price. They also found that it was hard to guarantee supply and quality, especially for meeting the demands of export markets.
To deal with these problems, they have established “bases” around the province where they grow vegetables on large, contiguous areas covering the fields of many farmers under a single contract signed with the local government. “Large” is of course a relative term. Ms. Liu told us that a base must cover at least 100 mu, (1 acre = 6 mu) but most are much larger, a thousand mu or more. In a country where the average farm is only a half an acre in size, this counts as large. And keep in mind, too, that this is highly intensive horticulture, producing four or five crops per year on a given piece of land. Because the base is a single area instead of a large number of scattered holdings, it is easier to provide technical support and supervision. And because the local government is the contractee, it takes responsibility for making sure the farmers do what they’re supposed to. The production base system reduces the company’s risk and increases its control to such a degree that Chennong has fewer and fewer contracts with individual farmers outside of this system.
Because land costs are high in the areas around Kunming, Chennong's bases are farther afield, and we weren't able to visit any of them, but our host took us to see they company's processing facility and nursery.
The processing facility includes cooling, quick-freezing, clean, sorting and packaging. Workers earn anything from a few hundred up to a thousand RMB per month, not a great wage by urban standards but far more than most farmers. They live in a shiny new dormitory which we also saw (from the outside).
We also visited the food safety lab. The lab is staffed by three people; two are university graduates and the third has a master’s degree in food science. They focus on testing for biological contaminants, since the government’s export product inspection station will test for pesticide residues. They showed us their equipment, which to a layperson’s eyes looked very impressive and included an Agilent gas chromatography machine. Outside the lab a sign proclaimed that the company had successfully been granted ISO9000 and HACCP food safety certification.
I couldn't help but wonder, though, if these three people could do all the necessary testing for a company producing 100,000 tons of vegetables a year!
Chennong produces all of its own seedlings, selling many to local farmers in Chenggong and shipping the rest to its bases around the province.
The company got Green Food certification for some if its products, but found it too expensive (about 12,000 RMB to get certified) to be cost effective. This greenhouse worker was ladling chemical fertilizers into the floating beds in which they grow their seedlings.
After our tour was finished, we took Ms. Liu to lunch, which was excellent. She confessed that although she likes their products, she doesn’t eat them: too expensive. And she said that even though their bases are far away, many local farmers buy their seeds or sell their vegetables to Chennong.
Tomorrow: What did the farmers have to say?
