China Tells

(WSJ) A bigger market for rural land is emerging in China, a new survey shows, as farmers take advantage of stronger legal protections to rent out their plots. The trend could help boost farm incomes and productivity, top priorities for what is still a heavily rural nation.

China’s market remains highly restricted compared to other countries. Farmland is owned by village collectives — essentially, the local representatives of Communist Party leadership — and the outright buying and selling of farmland is formally illegal. But individual farmers have been allowed to lease or transfer their right to farm a piece of land since 1984. The practice was encouraged by new legislation in 2002 and last year received a further endorsement from top leaders, who are trying to raise rural incomes to address persistent poverty and inequality.

The result is that farmers can now get much higher rents for their land, and are signing contracts for longer periods of time, according to a survey by the Rural Development Institute released in Beijing Wednesday. The Seattle-based nonprofit has been doing independent surveys of farmers in China since 1999, one of the few outside organizations able to do so. Its latest survey interviewed 1,879 farmers in 17 provinces during mid-2008.

The median annual rent for farmland rose to the equivalent of $267 an acre in the 2008 survey, more than doubling from the equivalent of $125 an acre in the 2005 survey. That’s comparable to the rents paid for irrigated cropland on the U.S. West Coast. The rise in world prices for farm produce certainly accounts for some of that increase, the RDI says. But so does the increasing perception that a farmer’s land rights are solid and therefore valuable. More than 15% of land transfers were for periods of more than three years, up from about 6% in 2001.

“It suggests people are thinking for the medium term,” Roy Prosterman, founder of RDI, said in an interview. “If you can enforce farmers’ long-term land rights, this is a tremendous element of what’s needed to jump-start the world economy,” he said

The formation of a market for farmland means it is possible to place a value on it: The RDI says the average rent over the standard 30-year tenure implies that the combined market value of all China’s farmland could be around $1.2 trillion. Tapping into that can help farmers become more prosperous: About 15% of farmers surveyed are transferring their land in some way. Most rural households now earn much of their income from something besides working their own land.

“By renting out our land, we have more options: We can go to factories to work, or work in a field planted by someone else,” says Zhang Deping, a 48-year-old farmer in the village of Shaban in Fujian province. He rents out his family’s plot from September to March each year, and grows rice for himself the rest of the year.

“It’s really a good deal to rent out the land for half of each year,” Mr. Zhang said, since he gets the rent on top of the wages he makes working for someone else. “We can make more money than planting on our own.”

On the other side of the deal, the farmers who rent those plots to plant their own crops can be more productive. The RDI survey found that 36% of farmers who rent others’ land make capital investments. “The pace of such investments has picked up markedly,” Mr. Prosterman said.

Shen Weifeng, who leases Mr. Zhang’s land along with that of nearly 500 other farming families in the area, raises higher-value crops like kohlrabi, tomatoes and green peppers, and exports to Russia and Mongolia. He started the business in the mid-1990s, but found few other farmers willing to rent their fields to him.

“Now things have changed. Most of the villagers are willing to rent their land out, and are even afraid that they might not be able to rent their land,” Mr. Shen says. The land he plants has expanded from about 40 acres originally to more than 100 acres today.

Such transactions have been able to spread thanks to increasingly solid legal foundations. The RDI survey found that 58% of farmers now have a formal written contract or certificate for their land rights. And the main threat to those rights — the forced reshuffling of land holdings by village authorities — has lessened. The survey found that the incidence of such changes had fallen to about 1% of farmers per year, from 3% in earlier surveys. The challenge now, Mr. Prosterman says, is for China to expand those legal protections to the rest of its 200 million farming households.