Sometime in late October 2020, I was with my business partner Tony Chen somewhere around Kunming, in China’s southwestern Yunnan province. We were on the city’s edge in a noodle shop when the chili started to hit. The first bite told me I was in for a ride — the second confirmed it. I can barely remember anything past the third, but I can clearly remember how the lunch ended. As sweat was beading off my forehead, Tony’s phone began to ring. It was one of his assistants in Ruili, a county 700 kilometers (435 miles) west of us near the Burma-China border.
After a loud and rushed discussion, Tony slurped the last bit of his lunch and said he had to go. His assistant had finally managed to secure land to plant their blueberries, and he needed to get there as soon as possible to meet with government officials and get the deal signed. If he didn’t secure it by the end of the month, the deal would be off.
Back then, just about every other person I knew working on development projects was in the same situation. It was an all-out race against time and one another to get the land for their projects secured before the end of the month, or they wouldn’t be allowed to move forward. The figurative hammer was about to fall from Beijing, effectively stopping any new projects other than the planting of rice, beans, corn, and vegetables from being allowed.
We should probably step back to understand some history and put this all into context. China holds almost 19% of the world’s population and needs to feed those people on less than 8.5% of the world’s arable land.
When I first arrived in China in 2006, agriculture was very different. While there had been significant technological developments in the last half-century, many of these could not be implemented due to the land reform policies enacted in 1949.
After the communist revolution and the establishment of the new government, one of the key areas of reform was the redistribution of farmland, taking it out of the hands of the “landlords” and putting it back in the hands of farmers and their families. Families were now in control of their destinies and managing their farms. Each family was allotted around 5-6 mu (a little less than one acre) that were delineated by berms or mounds of dirt that gave each parcel its border.
What made things complicated was that the policies around the use of this land were quite strict. Families and farmers were not allowed to transfer the rights from their land to others outside their immediate family. If a farmer wanted to take on another job or move to another city and look for work that offers greater economic rewards, only their direct family would be allowed to use that land.
While plenty of government-invested and sponsored projects broke this norm, the vast majority of farmland was strictly controlled in this way.
These policies don’t allow much room for growers to expand or invest in efficiency. Such small sizes make things like purchasing equipment and investments in infrastructure — which reduce the amount of labor or increase output — very difficult. As a result, farming practices changed very little over 50 years. In the meantime, China’s population grew from a little more than 550 million in 1950 to over 1.4 billion in 2020.
Around 2010, policies began to change. The first baby step was to allow farmers to contract their land to others, and they could start to expand their operations beyond their own land. The policy, however, did not yet allow the land to be combined, and the borders were required to remain intact. It wasn’t until around 2013 or 2014 that policies were again changed to allow land to be incorporated into larger, single farms. This opened the doors to the development of modern, more corporate-style agriculture. From that point forward, agriculture in some regions of China has been developing at lightning speed.
Benefiting from these updated policies and due to its unique climate, Yunnan province has quickly become the focal point for development. Its subtropical climate and geography allow for projects to be developed at amazing speed and for fruits like blueberries and grapes to see significant commercial volumes produced in the first or second year, and therefore able to pay back the considerable investment into the project in a short period of time.
Fast forward to 2020. Amid an increasingly nationalistic political climate, local and provincial governments began receiving pressure from Beijing to get back in line with one of their key concerns: food security. This meant shifting focus back to the production of more staple crops like rice, corn and soybeans.
According to policy, land classified or zoned as “Basic Farmland” cannot have any permanent structures built on it, and the crops produced on this land are supposed to be restricted to those key major crops. However, almost all these massive, often multi-million-dollar projects developing over the past five-to-eight years are on Basic Farmland and technically not allowed. This situation was even more complicated because these projects were often with direct support from the local (county and city) governments.
Luckily for Tony, he is in a good position. His project is well-funded, with a significant amount of investment from a foreign entity, making it even more attractive to garner the support of local governments. While this doesn’t even come close to guaranteeing final approval to be allowed to move forward, it certainly is a significant help.
The key takeaway from what has been happening over the past few years is that local production of produce that is not considered “important” to feeding the population will be a challenge. Most of the land best suited for larger farms is classified as Basic Farmland and not readily available. The available land is not nearly as ideal, and it is more on the outskirts and in the hills, where the cost of production will be significantly higher.
Long story short, the barriers to entry have been and are continuing to be a more significant challenge. It remains to be seen just how significant these will be, but it is sure to have an impact on the competitive advantage that production in these areas once had.
•David Smith is a produce industry consultant from Washington State who has been living in China for much of the past two decades.
