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Reducing China’s fertilizer use by increasing farm size
Global Environmental Change 41 (2016) 26–32
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Reducing China’s fertilizer use by increasing farm size Xiaotang Jua , Baojing Gub,c,* , Yiyun Wuc, James N. Gallowayd a
College of Resources and Environmental Sciences, China Agricultural University, Beijing 100193, PR China Department of Land Management, Zhejiang University, Hangzhou 310058, PR China c Policy Simulation Laboratory, Zhejiang University, Hangzhou 310058, PR China d Department of Environmental Sciences, University of Virginia, Charlottesville 22904, United States b
A R T I C L E I N F O
Article history: Received 8 February 2016 Received in revised form 6 June 2016 Accepted 19 August 2016 Available online xxx Keywords: Cost effective Food security Fertilizer subsidy Labor input Smallholder Zero increase plan
A B S T R A C T
The excessive use of fertilizer has resulted in serious environmental degradation and a high health cost in China. Much research has focused on the technological innovation to improve fertilizer use efficiency in crop production, but the socioeconomic constraints are at present poorly understood. Here, we find that fertilizer use on a per-area basis sharply decreased with the increase of farm size; surprisingly, the crop yield is higher in large-scale farms compared to that in smallholder farms in China. High labor cost suggests a low machinery level in smallholder farms, which inhibit the application of precise fertilization technologies and management based on scientific knowledge. Meanwhile, the dependence of income from cropland is lower for smallholder farmers who have part-time jobs in urban areas compared to the professional farmers in large-scale farms. Therefore, compared to smallholder farms, large-scale farms are generally more sensitive to the increase of fertilizer price and would reduce their fertilizer use if withdrawing fertilizer subsidies that used to be considered as the key driver of fertilizer overuse. Considering the dominance of smallholder farms in China, increasing farm size should be integrated into the actions such as improving technological innovation and providing better information transfer to achieve the goal of no increase in Chinese fertilizer use. ã 2016 Elsevier Ltd. All rights reserved.
1. Introduction To meet the food, fiber and feed demands of an increasing and gradually wealthier population, a series of policies were implemented to encourage synthetic fertilizer (SF, fertilizer produced in factories) production and use in China during the last three decades (Li et al., 2013). However, synthetic fertilizers are substantially overused and misused in Chinese cropland (Ju et al., 2009; Chen et al., 2014). In 2010, over 55 million tonnes of SF, accounting for over 30% of global fertilizer use, was applied to Chinese cropland, which only accounts for 7% of the global cropland area (FAO, 2016). Nevertheless, this overuse of SF still cannot meet the grain demand in China, leaving a gap that is filled by importing corn and soybeans, mainly for animal feed (Gu et al., 2015). More seriously, overusing SF in China has heavily polluted the environment including not only water bodies (Chen et al., 2014), but also the atmosphere (Gu et al., 2014). Unfortunately, SF
* Corresponding author at: Department of Land Management, Zhejiang University, 866 Yuhangtang Road, Hangzhou 310058, PR China. E-mail address: [email protected] (B. Gu). http://dx.doi.org/10.1016/j.gloenvcha.2016.08.005 0959-3780/ã 2016 Elsevier Ltd. All rights reserved.
use is still increasing with an average annual increase rate of 3% over the last decade (2003–2013) (NBSC, 2015). Given that SF overuse is already causing many negative impacts (Gu et al., 2012, 2014), the production of sufficient food with less fertilizer and less pollution in the near future is imperative and urgent for China. The challenge is also quite relevant to countries around the world far beyond China that struggle to address agricultural productivity while also mitigating environmental impacts related to fertilizer use. Therefore, to address this issue, the central government of China officially launched the ‘Action Plan for the Zero Increase of Fertilizer Use’ (APZIFU) in 2015 (See Supporting information (SI) text for details of this plan). The goal of this plan is to stop the increase of SF use by 2020 without reducing food production. However, it focuses largely on fertilization technologies but only minimally on the social and economic aspects, and how to realize the goals in the face of social-economic barriers remains unclear. In this paper, we explore how proper fertilization technologies can be utilized by farmers, via policy improvements, to overcome social and economic barriers and realize the goal of zero percent increase in SF use, with a focus on N fertilizer.
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2. Methodology
2.2. Data on farm size, subsidy and cost-benefit analysis
2.1. Scenario analysis
The data on average farm size and the fertilizer use for smallholders and collectives are from China’s second agricultural census (data year, 2006) (CSAC, 2009). The census includes all the smallholders (over 200 million households) and collectives (over 395,000 collectives). The underreporting rate is lower than 0.2%, and the error rate of original data was 0.14% (CSAC, 2009). The total area of smallholder farm accounted to 98% of the total farm area in China. Data sources for fertilizer price and subsidy are from governmental departments, including Ministry of Agriculture, Ministry of Finance, National Development and Reform Commission, etc. These data include the changes of price formation in China’s fertilizer market, and the establishment and withdraw of fertilizer subsidies from 1978 to 2015. The data on cost-benefit agricultural production has two parts. The first part is about the overall cost-benefit of agricultural production calculated based on the average situation of rice, wheat and corn in Chinese croplands (PNRC, 2014). The input costs of agricultural production include several items such as labor, land, fertilizer, pesticides, seeds, machinery, etc. The second part is about the comparison of smallholder and large-scale farms for wheat and rice (RCS, 2013; Liu et al., 2014). One case was in Henan province, where has a cropland area around 7.9 million hectares (mainly wheat). Wheat production in Henan province accounted to 25% of national production, which could be the typical case to analyze the cost-benefit. In 2013, the wheat-cultivated farmlands in Henan were surveyed to analyze how farm size affects the costbenefit of wheat cultivation (Liu et al., 2014). 150 large-scale farms were investigated, while for the smallholder farms, the average data for the whole Henan province were used, over 15 million rural households. The survey included several groupings, based on farm sizes. To make the comparison simple, we combined these groups into two groups: one group represents large-scale farms with an average farm size at 36.6 ha and the other group represents smallholder farms with an average farms size at 0.3 ha. The other case was in Jiangsu province with a cropland area at 4.7 million hectares and rice production accounting to 10% of overall national production (RCS, 2013). The survey was conducted in Suining County, where has cropland around 100,000 ha, about half of which is large-scale farms because of migration of rural labors to urban areas during the urbanization process.
We used the Urban Rural Complex N Cycling (URCNC) model to predict N fertilizer use in China (Gu et al., 2015). Human population and the per capita gross domestic product (PGDP) are two important parameters that affect future N fertilizer use (Table S1). Human population and per capita consumption level determine the total demands for food in the future, and PGDP is generally related to the per capita consumption level and N fertilizer management ability (Tilman et al., 2011). We adopted a middle-of-the-road scenario for business as usual (BAU), that assumes a Chinese population of 1.38 billion people (Xiang and Zhong, 2013) with an urbanization level of 55% in 2020 and a PGDP US$17,500 at 2005 prices and adjusted for purchasing power parity (PPP) (Table S1). The PGDP in China will increase substantially as a consequence of economic development, leading to an overall increase in food demand in the BAU scenario. Human food consumption would increase based on the PGDP growth. Per capita food demand would increase to 6.2 kg N yr 1 with 51% of the N being in animal products in 2020 (Gu et al., 2015). The NUEs and nutrient recycling rates of different subsystems (e.g., cropland, livestock, grassland, etc.) remain constant and no policy measures are implemented to reduce N fertilizer use under BAU. Under this context, we ran two suits of scenarios, one with grain imports remaining at the 2010 level, and one with no grain imports. Although China is unlikely to have trade limitations for grain imports in 2020, the second suit of scenarios with no grain imports represents the upper limit of grain import pressure. The intervals between these two suits of scenarios should cover the majority situations of future N fertilizer use in China. Under each suit of scenarios, we have another five sub-scenarios: diet change, NUE improvement, nutrient recycling improvement, all the above three combined, and half increase of NUE and nutrient recycling rates. Scenario S1 described a change in diet. We assumed that the per capita total food consumption would not change because 6.2 kg N yr 1 (including food waste) is a common value in most of the developed countries – even in Hong Kong and Taiwan which share a similar dietary habit with mainland China (FAO, 2016); however, the animal food share would decrease from 51 to 40% following ‘Chinese Dietary Guidelines’ (CNS, 2012). Scenario S2 suggested an improved NUE. We assumed the NUEs in agricultural subsystems would reach the current best level worldwide (Table S1). In fact, these NUEs have already reached levels of 60% for cropland and 20% for livestock systems in some provinces of China owing to the larger farm size and better management (Ma et al., 2013). Scenario S3 suggested a higher nutrient recycling rate. We assumed waste-recycling rates in agricultural subsystems reached the current best level worldwide (Table S1). Currently, the nutrient recycling rates are about half those in developed countries. These differences are largely due to the airdry process to produce manure for application in China compared to the closed system to produce liquid manure in developed countries (Oenema, 2006). Therefore, with an increase of livestock farm size, the applications of new waste treatment systems can significantly increase waste recycling in China. Scenario S4 is a combination of S1, S2 and S3, representing the best N management in China in 2020. This assumption seems unrealistic but it does represent the maximum likelihood. Therefore, we also ran another scenario (S5) with NUE and nutrient recycling only increasing to 50% of the best levels in developed countries (Table S1); we believed this to be more realistic.
3. Results and discussion 3.1. Biophysical potentials to reduce fertilizer use The N fertilizer use is projected to increase from 29 Tg N yr 1 in 2010 to 42 Tg N yr 1 by 2020 with imported grain remaining at the 2010 level, and to 53 Tg N yr 1 in 2020 with no grains imported in 2020 under the BAU (Fig. 1). The diet change scenario (S1) reduces N fertilizer use from 42 Tg yr 1 (BAU) to 34 Tg yr 1 in 2020 with grain imports at the 2010 level. If no grains were imported in 2020, N fertilizer use would be 46 Tg yr 1 in 2020. The NUE scenario (S2) reduces N fertilizer use to 18 Tg yr 1 in 2020 with grain imports at the 2010 level and to 25 Tg yr 1 in 2020 with no grains imported in 2020. The nutrient recycling scenario (S3) reduces the N fertilizer use to 33 Tg yr 1 in 2020 with grain import at the 2010 level and to 42 Tg yr 1 in 2020 with no grains imported in 2020. Therefore, NUE improvement seems essential to substantially reduce the N fertilizer use in 2020 to be equal or below 2010 level. N fertilizer use in 2020 projected by the other two scenarios (i.e., S1 and S3), is approximately 15% higher than the 2010 level. Combining these three scenarios (S4) would further reduce the N fertilizer use to 10 Tg yr 1 in 2020 with grain imports at the 2010 level and to 13 Tg yr 1 in 2020 with no grains imported.
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However, increasing the NUE to the level in developed countries in such a short term seems difficult to achieve. So we suggest a maximum likelihood roadmap, which is a half increase of the NUE (50% for cropland and 17.5% for livestock) and of the nutrient recycling (60% for livestock excreta, 37% for human excreta used as fertilizer and 55% for straw) to the best attainable value in 2020 (Table S1) to maintain N fertilizer use at about the 2010 level, without the need for grain imports (N/2 + R/2, Fig. 1). Overall, this analysis shows that increasing the NUE and nutrient recycling has the potential to decrease N fertilizer use to attain the 2020 goal set by the APZIFU. 3.2. Fertilizer use and farm size
Fig. 1. Projections of cropland N fertilizer use under different scenarios to 2020 in China. (a) N fertilizer use under 6 scenarios without food import; (b) N fertilizer use under 6 scenarios with food import on the 2010 level. BAU (S0), business as usual; Diet (S1) reduces the animal food share of the human diet at 40%; NUE (N use efficiency) (S2) increases the NUEs of cropland, livestock, and grassland from 40, 15 and 6% at present to 60, 20 and 10%, respectively; Rec (S3) increases the recycling rates of N from livestock and humans to cropland from 43 and 23% to 80 and 50%, respectively; All (S4), combining Rec, Diet and NUE; N/2 + R/2 (S5) refers to half increase of NUE and nutrient recycling. Units are in Tg N yr 1.
Now, knowing that the potential is there, we further discussed and explored how that potential could be realized with social, economic and political measures in the future. To increase the NUE or nutrient recycling, technological innovation and improved management are usually considered as the key measures (Ju et al., 2009; Chen et al., 2014). For instance, 4R fertilization technology (applying fertilizer with the right type, the right amount, at the right time, by using the right method, Bruulsema et al., 2009) and the integrated soil–crop system management (ISSM, Chen et al., 2014). Based on the plot scale experiments and modelling, these improvements on technologies and management indeed can benefit the increase of NUE and reduction of N fertilizer use (Zhang et al., 2013). However, the implementation of these measures by farmers requires knowledge-transfer and incentives to farmers on the socioeconomic perspective. There should be many approaches to transfer knowledge and incentivize farmers to adopt these new technologies and reduce the fertilizer use. In this study, we focus on two aspects: i.e., enlarging farm size and decreasing fertilizer subsidies. Then we analyzed the interactions between these two approaches though cost benefit analysis. These two aspects are applicable to not only N fertilizer, but also the use of phosphorus (P) and potassium (K) fertilizers (Fig. 2, Table S2,
Fig. 2. Relationship between farm size and fertilizer use for all the smallholder and collective farms in China in 2006. The average farm size (calculated as the weighted mean) of the smallholder farms was 0.43 ha, while the average farm size of the collective farms was 26.6 ha in China. The total area of smallholder farm accounted to 98% of the total farm area in China. Data were from China’s second agricultural census (CSAC, 2009), which included all the smallholders (over 200 million households) and collectives (over 395,000 collectives). The underreporting rate is estimated to be lower than 0.2%, and the error of the original data was 0.14%. Data in Fig. 2d were adopted from Chen et al. (2014) to show the temporal variations of rice yield between small and large farms.
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Li et al., 2013). Thus, hereafter we will discuss how the socioeconomic measures affect the overall SF use towards 2020. The household contract responsibility system (HCRS) allocated 98% of Chinese cropland to over 200 million rural households since 1978. HCRS results in a typical farm size around 0.4 ha for each household in 2006 across China, based on the results from China’s second agricultural census (Fig. 2). Despite the HCRS, the average farm size may increase in recent years with urbanization and land transfer system. This possibility will be tested once the third agricultural census is completed. The average 0.4 ha is further divided into 4–5 pieces (about 0.1 ha each) to make sure that both high and low quality lands are allocated to each household fairly. Per hectare SF use sharply decreased with the increase of farm size on the national scale, and the collective farms run by professional farmers use less fertilizer even they have the same farm size with that of smallholder farms (Fig. 2). Although the situation is variable in each province given many factors affecting the relationship (Zhang et al., 2015), the national average data we used could help to eliminate the effects from other influencing factors (e.g. soil conditions). Surprisingly, the crop yields of small farms are lower than those of large-scale farms after 1990 in China (Fig. 2d), indicating a larger loss of fertilizer to the environment from small farms. However, the reverse was true before 1990, i.e., smallholder farms have a higher yield than that of large-scale farms. Small farm size and the smallholder management have been considered as key causes of the low agricultural productivities worldwide (Adamopoulos and Restuccia, 2014). Farmers with more and smaller plots tend to use more labor and fewer modern technologies as compared to farmers with fewer and larger plots (Tan et al., 2008). This also limits the use of manure due to lack of transportation and fertilization machines for smallholder farms usually. Increasing farm sizes and using professional management could greatly contribute to the more efficient use of fertilizer. Before 1990, the overall agricultural technological level was low in China, and the intensive management in smallholder farms can benefit the yield increase compared to that of large-scale farms that usually short of labors for intensive management. However, with technological improvements, larger scale farms are facilitated and operated by more knowledgeable farmers accompanying urbanization in China. On the contrary, smallholder farms lost their advantage on intensive management because of the part-time jobs and increase of labor opportunity costs. In addition, knowledgetransfer to smallholder farmers becomes a big problem with their low education level and less willingness to learn the knowledge for their small piece of cropland. 3.3. Fertilizer prices and subsidies The fertilizer industry changed rapidly in recent years with the continued increase of their productivity and significant technological innovations (Li et al., 2013, 2014). N and P fertilizer production is at overcapacity (i.e., fertilizer industries have the abilities to produce more fertilizer than the domestic demand), while the self-sufficiency rate of K fertilizer is still low (Table S3). The central government has issued policy priorities to control the expansion of N fertilizer production and adjust the structure of fertilizer industries (reducing the N and P fertilizer production, while increasing K fertilizer production). The increase of fertilizer prices is closely related to the price change in raw materials (mainly coal, electricity, natural gas, etc.). The fertilizer industry has begun to consolidate small enterprises to build larger enterprises that have advantages on mining resources and competition. The abolition of subsidies increases the pressure on the survival of low-end enterprises, but is conducive to largescale enterprises to expand market integration.
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Since 2008, Chinese governments have started to partially withdraw fertilizer subsidies, including subsidies to fertilizer transportation and electricity and natural gas use in fertilizer industry (Fig. 3). Owing to the price increase of raw materials such as coal and natural gas, it is difficult to attribute the price change of fertilizer to the cancellation of subsidies or price change of raw materials. However, the total fertilizer use amount still increased 2.4% annually from 2008 to 2013 (NBSC, 2015), even though the average fertilizer price increased 2.3% annually over the same period (PDNC, 2014). Currently, fertilizer subsidies have been abolished except for the value-added tax (VAT) and the subsidy for off-season commercial reserves (Fig. 3). Subsidy for off-season commercial reserves is to alleviate price fluctuation between onseason and off-season, not to limit price; this subsidy only accounts for 0.1% of total subsides. The tax rate is 13% of VAT (Fig. 3). After removing the input tax credited of raw materials and transport services, the price increase is around 1.5–2.5% (Table S3). It means that withdrawing the VAT would increase the fertilizer price by 1.5–2.5%. However, it would preferentially knock out small enterprises with outdated production technologies and low energy efficiency, and benefit the upgrade of the whole fertilizer industry (Li et al., 2014). Nevertheless, on the other side, to implement the policy of grain self-sufficiency, the central government established the comprehensive agricultural subsidies directly to farmers to buy agricultural production materials (Fig. 3). Similar subsidies are also found in other countries worldwide, not only in developing countries, but also in developed countries, which are unlikely to be abolished soon (Adamopoulos and Restuccia, 2014). By using these subsidies, farmers could buy fertilizers, diesel fuel, pesticides, plastic sheeting, etc. Although subsidy to buy fertilizer may only account for a small proportion of the comprehensive agricultural subsidies, it still can offset part of the effects derived from fertilizer price increase because of abolishing the VAT. 3.4. Interactions between farm size and subsidy Currently, fertilizer subsidies are thought to be the main cause of SF overuse in China (e.g., Li et al., 2013, 2014). Withdrawing fertilizer subsidies would likely result in a reduction of fertilizer use due to the increase in fertilizer price. However, based on our analysis of price change through withdrawing the VAT, the fertilizer use for main crops would be reduced only by 0.3-0.7% in smallholder farms considering their elasticity of demand for fertilizer (Li et al., 2013). Subsidies are mostly being given to the land contractor, not the tiller (Huang et al., 2011). Thus, direct subsidies seem to act more as income transfers rather than incentives to directly affect fertilizer use (Huang et al., 2011). Therefore, fertilizer use should be not associated with input or withdrawing subsidies in smallholder farms in China. Smallholder farmers are less sensitive to the fertilizer price increase because the majority of their income is not from cropland but from off-farm activities (i.e., part-time jobs in urban areas or other business, NBSC, 2015). But for the poorest smallholder farmers who rely only on cropland, the increase of fertilizer prices may substantially reduce their fertilizer use (Zhang et al., 2015). However, these farmers only account to a very small proportion of China’s over 200 million smallholder households (NBSC, 2015). In contrast, professional farmers run large-scale farms, their main incomes are from cropland, and fertilizer cost accounts for a large share of the total costs (Fig. 4). Thus, large-scale farmers have more incentive to reduce SF use if its price further increases. In fact, large-scale farms have already used less fertilizer per hectare than smallholder farms under current fertilizer price (Fig. 2, Fig. 4), but large-scale farms only take less than 2% of China’s total cropland area. We believed that future increase of the proportion of large-
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Fig. 3. The chronology of subsidies policies and prices of synthetic fertilizer in China. Dashed line with a stop sign represents parts of the subsidy that have been gradually canceled and all the subsidies have been canceled at the stop sign; the dashed line without a stop sign represents parts of the subsidy that has been gradually canceled but other parts are still in implementation; the solid line without a stop sign represents the subsidy that is still in implementation. ①Changes of price formation in China’s fertilizer market. Before 1985, state monopoly in purchase and sale (planned purchase and supply) was carried out in China’s fertilizer industry, which means both raw materials and manufactured goods were controlled by the government and fertilizer ration was implemented during the planned economy period. Then, economic reform introduced double-track price system into fertilizer market (from 1986 to 1998), where price of planned fertilizer supply was determined by the government and price of unplanned supply was decided according to market demand. From 1998 to 2008, exfactory price of fertilizer was affected by government-suggested-price instead of government-determined-price. After year 2009, price of fertilizer is marketoriented. ②Compound fertilizer (N and P) has been exempted from VAT since 1994., and mono-ammonium phosphate has been exempted from VAT since 1998. For urea, during 2001–2004, 50%–100% of VAT was refunded after collection. This refund policy was planned to cancel in 2003 but soon re-enabled in 2004. Since 2005, urea and other fertilizer products have been 100% exempted from VAT. ③Compared to other large industrial manufacturers, fertilizer firms (mainly small and medium enterprises, SMEs) had enjoyed favorable electricity price since 1993. In 2009 electricity price for fertilizer firm increased as for other industries, and since 2011, price gap narrowed gradually in many provinces. ④Favorable railway fee for transporting fertilizer is implemented from 1998. However, since 2004 the railway transportation fee increased gradually. And in Jan 2015, it is formally canceled for the first time, but railway promotion fee is still exempted (0.033 Chinese yuan/ton*kilo) since 1998. ⑤Off-season commercial fertilizer reserve system was established in 2004, and each region has successively established provincial fertilizer reserve system. The main aim of this policy was to alleviate price fluctuation between on-season and off-season, not to limit price. ⑥The agricultural comprehensive direct subsidy started in 2004. It is a direct subsidy that transferred to farmers to assist purchasing for agricultural production, including fertilizer, diesel fuel, pesticides, plastic sheeting, machinery and so on. ⑦Favorable gas pricing for fertilizer firms was started in 2005. However, with market-oriented reform on gas pricing began in 2012, gas supply at a favorable price for fertilizer production phased out. In early 2015, double-tracked price system for gas market formally merged, and as a result at the end of 2015 no more rationed favorable gas supply for fertilizer firms. But currently market share of gas based fertilizer firms is only around 20%, there would be a limit effect on fertilizer price as a whole due to reduction of favorable gas price.
scale farms, and together with withdrawing fertilizer subsidies would be the crucial for realizing the APZIFU goal. 3.5. Cost-benefit analysis Taking the three main crops, i.e., wheat, rice and corn, in consideration, we found that the labor input accounted to about 33% from 1998 to 2009, after which increasing to 42% in 2013 on the national scale (Fig. 5, PDNC, 2014). Owing to the smallholder farms accounting to 98% of Chinese overall farmland, the cost ratios in Fig. 5 can be considered to represent smallholder farms. The large labor input ratio suggests a low machinery level in smallholder farms. On the other side, the cost of fertilizer to total cost remained around 18% from 1998 to 2009, after which reduced to less than 15% in China. A similar change was also found in the cost of land. These changes are consistent with the urbanization process that attracts labor from rural areas to urban areas, accompanying with a rapid increase of labor cost. The large
variations of cost-profit ratios (ratio of profit to total cost) of agricultural production further push the rural labors to urban areas (Fig. 5). Even with a high cost-profit ratio, the small total area of cropland in each rural household (usually less than 0.5 ha) cannot feed the rural population. Therefore, part-time jobs for rural residents are common, both in agricultural production and services in urban areas such as constructions. With urbanization process, the proportion of income from agricultural production decreases for smallholder farmers, and majority of their incomes are from employment in urban areas (NBSC, 2015). Thus, the low fertilizer input ratio and low fertilizer cost to their total income make the smallholder farmers less sensitive to the fertilizer price changes. For wheat cultivation, the overall input cost per hectare of large-scale farms was much lower than that of the smallholder farms, especially for the labor input, and 3 times higher input was found in smallholder farms (Fig. 4). Except for pesticides, all the other input costs were about 11% higher in smallholder farms. However, the crop yields in smallholder farms were 5% lower than
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3.6. Policy implication
Fig. 4. Comparison of input costs and yield for wheat and rice between large-scale and stallholder farms. The average farm sizes of large-scale and smallholder farms are >30 and <0.5 ha, respectively. The wheat data are from Northern China (in Henan province in the year 2013) and the rice data are from Southern China (in Jiangsu province in the year 2011). Service costs are mainly tillage and irrigation. Data sources are Henan Economic Blue Book (Liu et al., 2014) and the survey on farmland hosting in Jiangsu Province (RCS, 2013).
that found in large-scale farms, resulting in the cost-profit ratio in larger-scale farms was 5 times that in smallholder farms. Similar to the findings in wheat cultivation, the smallholder farms also have higher input costs and lower crop yields in rice cultivation (Fig. 4). Generally, the total input cost and each sub-cost terms for cultivating one hectare of rice was close to that of wheat, with high input from labor. We did not have data on the sub-costs in large-scale farms, but the overall cost was lower than that in smallholder farms. These findings further confirm that the largescale farms have better performance than smallholder farms, not only on the input cost savings, but also on yield increases. The relative lager ratio of fertilizer cost to total cost in large-scale farms suggested which should be sensitive to the changes in fertilizer cost. That means that by withdrawing fertilizer subsidies, largescale farms would further optimize their fertilizer input, achieving an increase in both grain yield and profit.
The cropland transferring system (CTS) is designed to increase the farm size and accelerate the agricultural professionalism in China. This encourages the transfer of land management rights to companies or other farmers who are willing to manage larger farms, while maintaining the land contract rights within each rural household to protect their basic equity. The “Cropland Transferring Procedures of Management Rights” was launched in 2005 by the Ministry of Agriculture in China (Hong, 2008). However, little progress has been achieved under this top-town policy. On one hand, since there is low social security coverage, smallholder farms provide a basic livelihood protection, thus, rural households generally prefer to keep their own cropland despite gaining low income. On the other hand, the poor agricultural infrastructure, farmland fragmentation, high income uncertainty (large variations in cost-profit ratio from 0.9% to 49.7% during 1998–2013, Fig. 5), and high uncertainty with the persistence of land management rights make these procedures not much effects in practices. But things are changing. With rapid urbanization, over 120 million of the rural population moved to urban areas between 2004 and 2013 (NBSC, 2015). This forced a proportion of rural immigrants to transfer their croplands to others, and largely promoted the CTS from the bottom-up. A survey of farm size and cost-benefit of wheat cultivation in Henan Province found many large farms with an area >50 ha in 2013 (Liu et al., 2014). To standardize and accelerate the CTS, the Chinese central government issued “Opinions on Guiding Orderly Transferring of Rural Land Management Rights, and Developing Appropriate Scale of Agricultural Operations” in 2014. This policy aims at building a pathway for the CTS from multiple aspects including policy persistence, land market, rural social security, credit and insurance supports etc. Although we still cannot assess the results of such measures in this transition stage, the strong activities under the CTS in practices nowadays suggest that the large-scale farms with professional management will become a main economic operating entity in near future in China (XNA, 2015). Nevertheless, to achieve this, policymakers working on APZIFU should pay more attention to the CTS, not just to the fertilization technologies. In summary, to achieve the zero increase goal in SF use, the increase in farm size via both top-down policy regulations and bottom-up market exchange should be integrated. Withdrawing fertilizer subsides will help to achieve this goal when combined with increasing farm size. The continuing urbanization process will also transfer more of the rural population to urban areas, which would accelerate the implementation of CTS to increase farm size and finally benefit the more efficient use of fertilizer in China. Acknowledgments This study was supported by the “973”Program (2014CB953803) of the Chinese Ministry of Science and Technology, National Key Research and Development Project of China (2016YFC0207906), the National Natural Science Foundation of China (Grant No. 41201502, 41471190, 71503232) and the Natural Science Foundation of Zhejiang Province (No. LR15G030001, LQ14G 030011). The work contributes to the UK-China Virtual Joint Centre on Nitrogen “N-Circle” funded by the Newton Fund via UK BBSRC/ NERC (BB/N013484/1). We would like to thank S. Yang for the collating of data on fertilizer subsidies. Appendix A. Supplementary data
Fig. 5. Cost-benefit ratios of an average hectare of cropland with main crops (wheat, corn, rice) cultivation in China from 1998 to 2013. For labor, land and fertilizer, the data are the cost of these inputs to overall cost; cost-profit ratio is the ratio of net profit divided by overall cost. Data source is Compilation of National Agricultural Costs and Returns (PNRC, 2014).
Supplementary data associated with this article can be found, in the online version, at http://dx.doi.org/10.1016/j. gloenvcha.2016.08.005.
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Global Environmental Change journal homepage: www.elsevier.com/locate/gloenvcha
Reducing China’s fertilizer use by increasing farm size Xiaotang Jua , Baojing Gub,c,* , Yiyun Wuc, James N. Gallowayd a
College of Resources and Environmental Sciences, China Agricultural University, Beijing 100193, PR China Department of Land Management, Zhejiang University, Hangzhou 310058, PR China c Policy Simulation Laboratory, Zhejiang University, Hangzhou 310058, PR China d Department of Environmental Sciences, University of Virginia, Charlottesville 22904, United States b
A R T I C L E I N F O
Article history: Received 8 February 2016 Received in revised form 6 June 2016 Accepted 19 August 2016 Available online xxx Keywords: Cost effective Food security Fertilizer subsidy Labor input Smallholder Zero increase plan
A B S T R A C T
The excessive use of fertilizer has resulted in serious environmental degradation and a high health cost in China. Much research has focused on the technological innovation to improve fertilizer use efficiency in crop production, but the socioeconomic constraints are at present poorly understood. Here, we find that fertilizer use on a per-area basis sharply decreased with the increase of farm size; surprisingly, the crop yield is higher in large-scale farms compared to that in smallholder farms in China. High labor cost suggests a low machinery level in smallholder farms, which inhibit the application of precise fertilization technologies and management based on scientific knowledge. Meanwhile, the dependence of income from cropland is lower for smallholder farmers who have part-time jobs in urban areas compared to the professional farmers in large-scale farms. Therefore, compared to smallholder farms, large-scale farms are generally more sensitive to the increase of fertilizer price and would reduce their fertilizer use if withdrawing fertilizer subsidies that used to be considered as the key driver of fertilizer overuse. Considering the dominance of smallholder farms in China, increasing farm size should be integrated into the actions such as improving technological innovation and providing better information transfer to achieve the goal of no increase in Chinese fertilizer use. ã 2016 Elsevier Ltd. All rights reserved.
1. Introduction To meet the food, fiber and feed demands of an increasing and gradually wealthier population, a series of policies were implemented to encourage synthetic fertilizer (SF, fertilizer produced in factories) production and use in China during the last three decades (Li et al., 2013). However, synthetic fertilizers are substantially overused and misused in Chinese cropland (Ju et al., 2009; Chen et al., 2014). In 2010, over 55 million tonnes of SF, accounting for over 30% of global fertilizer use, was applied to Chinese cropland, which only accounts for 7% of the global cropland area (FAO, 2016). Nevertheless, this overuse of SF still cannot meet the grain demand in China, leaving a gap that is filled by importing corn and soybeans, mainly for animal feed (Gu et al., 2015). More seriously, overusing SF in China has heavily polluted the environment including not only water bodies (Chen et al., 2014), but also the atmosphere (Gu et al., 2014). Unfortunately, SF
* Corresponding author at: Department of Land Management, Zhejiang University, 866 Yuhangtang Road, Hangzhou 310058, PR China. E-mail address: [email protected] (B. Gu). http://dx.doi.org/10.1016/j.gloenvcha.2016.08.005 0959-3780/ã 2016 Elsevier Ltd. All rights reserved.
use is still increasing with an average annual increase rate of 3% over the last decade (2003–2013) (NBSC, 2015). Given that SF overuse is already causing many negative impacts (Gu et al., 2012, 2014), the production of sufficient food with less fertilizer and less pollution in the near future is imperative and urgent for China. The challenge is also quite relevant to countries around the world far beyond China that struggle to address agricultural productivity while also mitigating environmental impacts related to fertilizer use. Therefore, to address this issue, the central government of China officially launched the ‘Action Plan for the Zero Increase of Fertilizer Use’ (APZIFU) in 2015 (See Supporting information (SI) text for details of this plan). The goal of this plan is to stop the increase of SF use by 2020 without reducing food production. However, it focuses largely on fertilization technologies but only minimally on the social and economic aspects, and how to realize the goals in the face of social-economic barriers remains unclear. In this paper, we explore how proper fertilization technologies can be utilized by farmers, via policy improvements, to overcome social and economic barriers and realize the goal of zero percent increase in SF use, with a focus on N fertilizer.
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2. Methodology
2.2. Data on farm size, subsidy and cost-benefit analysis
2.1. Scenario analysis
The data on average farm size and the fertilizer use for smallholders and collectives are from China’s second agricultural census (data year, 2006) (CSAC, 2009). The census includes all the smallholders (over 200 million households) and collectives (over 395,000 collectives). The underreporting rate is lower than 0.2%, and the error rate of original data was 0.14% (CSAC, 2009). The total area of smallholder farm accounted to 98% of the total farm area in China. Data sources for fertilizer price and subsidy are from governmental departments, including Ministry of Agriculture, Ministry of Finance, National Development and Reform Commission, etc. These data include the changes of price formation in China’s fertilizer market, and the establishment and withdraw of fertilizer subsidies from 1978 to 2015. The data on cost-benefit agricultural production has two parts. The first part is about the overall cost-benefit of agricultural production calculated based on the average situation of rice, wheat and corn in Chinese croplands (PNRC, 2014). The input costs of agricultural production include several items such as labor, land, fertilizer, pesticides, seeds, machinery, etc. The second part is about the comparison of smallholder and large-scale farms for wheat and rice (RCS, 2013; Liu et al., 2014). One case was in Henan province, where has a cropland area around 7.9 million hectares (mainly wheat). Wheat production in Henan province accounted to 25% of national production, which could be the typical case to analyze the cost-benefit. In 2013, the wheat-cultivated farmlands in Henan were surveyed to analyze how farm size affects the costbenefit of wheat cultivation (Liu et al., 2014). 150 large-scale farms were investigated, while for the smallholder farms, the average data for the whole Henan province were used, over 15 million rural households. The survey included several groupings, based on farm sizes. To make the comparison simple, we combined these groups into two groups: one group represents large-scale farms with an average farm size at 36.6 ha and the other group represents smallholder farms with an average farms size at 0.3 ha. The other case was in Jiangsu province with a cropland area at 4.7 million hectares and rice production accounting to 10% of overall national production (RCS, 2013). The survey was conducted in Suining County, where has cropland around 100,000 ha, about half of which is large-scale farms because of migration of rural labors to urban areas during the urbanization process.
We used the Urban Rural Complex N Cycling (URCNC) model to predict N fertilizer use in China (Gu et al., 2015). Human population and the per capita gross domestic product (PGDP) are two important parameters that affect future N fertilizer use (Table S1). Human population and per capita consumption level determine the total demands for food in the future, and PGDP is generally related to the per capita consumption level and N fertilizer management ability (Tilman et al., 2011). We adopted a middle-of-the-road scenario for business as usual (BAU), that assumes a Chinese population of 1.38 billion people (Xiang and Zhong, 2013) with an urbanization level of 55% in 2020 and a PGDP US$17,500 at 2005 prices and adjusted for purchasing power parity (PPP) (Table S1). The PGDP in China will increase substantially as a consequence of economic development, leading to an overall increase in food demand in the BAU scenario. Human food consumption would increase based on the PGDP growth. Per capita food demand would increase to 6.2 kg N yr 1 with 51% of the N being in animal products in 2020 (Gu et al., 2015). The NUEs and nutrient recycling rates of different subsystems (e.g., cropland, livestock, grassland, etc.) remain constant and no policy measures are implemented to reduce N fertilizer use under BAU. Under this context, we ran two suits of scenarios, one with grain imports remaining at the 2010 level, and one with no grain imports. Although China is unlikely to have trade limitations for grain imports in 2020, the second suit of scenarios with no grain imports represents the upper limit of grain import pressure. The intervals between these two suits of scenarios should cover the majority situations of future N fertilizer use in China. Under each suit of scenarios, we have another five sub-scenarios: diet change, NUE improvement, nutrient recycling improvement, all the above three combined, and half increase of NUE and nutrient recycling rates. Scenario S1 described a change in diet. We assumed that the per capita total food consumption would not change because 6.2 kg N yr 1 (including food waste) is a common value in most of the developed countries – even in Hong Kong and Taiwan which share a similar dietary habit with mainland China (FAO, 2016); however, the animal food share would decrease from 51 to 40% following ‘Chinese Dietary Guidelines’ (CNS, 2012). Scenario S2 suggested an improved NUE. We assumed the NUEs in agricultural subsystems would reach the current best level worldwide (Table S1). In fact, these NUEs have already reached levels of 60% for cropland and 20% for livestock systems in some provinces of China owing to the larger farm size and better management (Ma et al., 2013). Scenario S3 suggested a higher nutrient recycling rate. We assumed waste-recycling rates in agricultural subsystems reached the current best level worldwide (Table S1). Currently, the nutrient recycling rates are about half those in developed countries. These differences are largely due to the airdry process to produce manure for application in China compared to the closed system to produce liquid manure in developed countries (Oenema, 2006). Therefore, with an increase of livestock farm size, the applications of new waste treatment systems can significantly increase waste recycling in China. Scenario S4 is a combination of S1, S2 and S3, representing the best N management in China in 2020. This assumption seems unrealistic but it does represent the maximum likelihood. Therefore, we also ran another scenario (S5) with NUE and nutrient recycling only increasing to 50% of the best levels in developed countries (Table S1); we believed this to be more realistic.
3. Results and discussion 3.1. Biophysical potentials to reduce fertilizer use The N fertilizer use is projected to increase from 29 Tg N yr 1 in 2010 to 42 Tg N yr 1 by 2020 with imported grain remaining at the 2010 level, and to 53 Tg N yr 1 in 2020 with no grains imported in 2020 under the BAU (Fig. 1). The diet change scenario (S1) reduces N fertilizer use from 42 Tg yr 1 (BAU) to 34 Tg yr 1 in 2020 with grain imports at the 2010 level. If no grains were imported in 2020, N fertilizer use would be 46 Tg yr 1 in 2020. The NUE scenario (S2) reduces N fertilizer use to 18 Tg yr 1 in 2020 with grain imports at the 2010 level and to 25 Tg yr 1 in 2020 with no grains imported in 2020. The nutrient recycling scenario (S3) reduces the N fertilizer use to 33 Tg yr 1 in 2020 with grain import at the 2010 level and to 42 Tg yr 1 in 2020 with no grains imported in 2020. Therefore, NUE improvement seems essential to substantially reduce the N fertilizer use in 2020 to be equal or below 2010 level. N fertilizer use in 2020 projected by the other two scenarios (i.e., S1 and S3), is approximately 15% higher than the 2010 level. Combining these three scenarios (S4) would further reduce the N fertilizer use to 10 Tg yr 1 in 2020 with grain imports at the 2010 level and to 13 Tg yr 1 in 2020 with no grains imported.
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However, increasing the NUE to the level in developed countries in such a short term seems difficult to achieve. So we suggest a maximum likelihood roadmap, which is a half increase of the NUE (50% for cropland and 17.5% for livestock) and of the nutrient recycling (60% for livestock excreta, 37% for human excreta used as fertilizer and 55% for straw) to the best attainable value in 2020 (Table S1) to maintain N fertilizer use at about the 2010 level, without the need for grain imports (N/2 + R/2, Fig. 1). Overall, this analysis shows that increasing the NUE and nutrient recycling has the potential to decrease N fertilizer use to attain the 2020 goal set by the APZIFU. 3.2. Fertilizer use and farm size
Fig. 1. Projections of cropland N fertilizer use under different scenarios to 2020 in China. (a) N fertilizer use under 6 scenarios without food import; (b) N fertilizer use under 6 scenarios with food import on the 2010 level. BAU (S0), business as usual; Diet (S1) reduces the animal food share of the human diet at 40%; NUE (N use efficiency) (S2) increases the NUEs of cropland, livestock, and grassland from 40, 15 and 6% at present to 60, 20 and 10%, respectively; Rec (S3) increases the recycling rates of N from livestock and humans to cropland from 43 and 23% to 80 and 50%, respectively; All (S4), combining Rec, Diet and NUE; N/2 + R/2 (S5) refers to half increase of NUE and nutrient recycling. Units are in Tg N yr 1.
Now, knowing that the potential is there, we further discussed and explored how that potential could be realized with social, economic and political measures in the future. To increase the NUE or nutrient recycling, technological innovation and improved management are usually considered as the key measures (Ju et al., 2009; Chen et al., 2014). For instance, 4R fertilization technology (applying fertilizer with the right type, the right amount, at the right time, by using the right method, Bruulsema et al., 2009) and the integrated soil–crop system management (ISSM, Chen et al., 2014). Based on the plot scale experiments and modelling, these improvements on technologies and management indeed can benefit the increase of NUE and reduction of N fertilizer use (Zhang et al., 2013). However, the implementation of these measures by farmers requires knowledge-transfer and incentives to farmers on the socioeconomic perspective. There should be many approaches to transfer knowledge and incentivize farmers to adopt these new technologies and reduce the fertilizer use. In this study, we focus on two aspects: i.e., enlarging farm size and decreasing fertilizer subsidies. Then we analyzed the interactions between these two approaches though cost benefit analysis. These two aspects are applicable to not only N fertilizer, but also the use of phosphorus (P) and potassium (K) fertilizers (Fig. 2, Table S2,
Fig. 2. Relationship between farm size and fertilizer use for all the smallholder and collective farms in China in 2006. The average farm size (calculated as the weighted mean) of the smallholder farms was 0.43 ha, while the average farm size of the collective farms was 26.6 ha in China. The total area of smallholder farm accounted to 98% of the total farm area in China. Data were from China’s second agricultural census (CSAC, 2009), which included all the smallholders (over 200 million households) and collectives (over 395,000 collectives). The underreporting rate is estimated to be lower than 0.2%, and the error of the original data was 0.14%. Data in Fig. 2d were adopted from Chen et al. (2014) to show the temporal variations of rice yield between small and large farms.
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Li et al., 2013). Thus, hereafter we will discuss how the socioeconomic measures affect the overall SF use towards 2020. The household contract responsibility system (HCRS) allocated 98% of Chinese cropland to over 200 million rural households since 1978. HCRS results in a typical farm size around 0.4 ha for each household in 2006 across China, based on the results from China’s second agricultural census (Fig. 2). Despite the HCRS, the average farm size may increase in recent years with urbanization and land transfer system. This possibility will be tested once the third agricultural census is completed. The average 0.4 ha is further divided into 4–5 pieces (about 0.1 ha each) to make sure that both high and low quality lands are allocated to each household fairly. Per hectare SF use sharply decreased with the increase of farm size on the national scale, and the collective farms run by professional farmers use less fertilizer even they have the same farm size with that of smallholder farms (Fig. 2). Although the situation is variable in each province given many factors affecting the relationship (Zhang et al., 2015), the national average data we used could help to eliminate the effects from other influencing factors (e.g. soil conditions). Surprisingly, the crop yields of small farms are lower than those of large-scale farms after 1990 in China (Fig. 2d), indicating a larger loss of fertilizer to the environment from small farms. However, the reverse was true before 1990, i.e., smallholder farms have a higher yield than that of large-scale farms. Small farm size and the smallholder management have been considered as key causes of the low agricultural productivities worldwide (Adamopoulos and Restuccia, 2014). Farmers with more and smaller plots tend to use more labor and fewer modern technologies as compared to farmers with fewer and larger plots (Tan et al., 2008). This also limits the use of manure due to lack of transportation and fertilization machines for smallholder farms usually. Increasing farm sizes and using professional management could greatly contribute to the more efficient use of fertilizer. Before 1990, the overall agricultural technological level was low in China, and the intensive management in smallholder farms can benefit the yield increase compared to that of large-scale farms that usually short of labors for intensive management. However, with technological improvements, larger scale farms are facilitated and operated by more knowledgeable farmers accompanying urbanization in China. On the contrary, smallholder farms lost their advantage on intensive management because of the part-time jobs and increase of labor opportunity costs. In addition, knowledgetransfer to smallholder farmers becomes a big problem with their low education level and less willingness to learn the knowledge for their small piece of cropland. 3.3. Fertilizer prices and subsidies The fertilizer industry changed rapidly in recent years with the continued increase of their productivity and significant technological innovations (Li et al., 2013, 2014). N and P fertilizer production is at overcapacity (i.e., fertilizer industries have the abilities to produce more fertilizer than the domestic demand), while the self-sufficiency rate of K fertilizer is still low (Table S3). The central government has issued policy priorities to control the expansion of N fertilizer production and adjust the structure of fertilizer industries (reducing the N and P fertilizer production, while increasing K fertilizer production). The increase of fertilizer prices is closely related to the price change in raw materials (mainly coal, electricity, natural gas, etc.). The fertilizer industry has begun to consolidate small enterprises to build larger enterprises that have advantages on mining resources and competition. The abolition of subsidies increases the pressure on the survival of low-end enterprises, but is conducive to largescale enterprises to expand market integration.
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Since 2008, Chinese governments have started to partially withdraw fertilizer subsidies, including subsidies to fertilizer transportation and electricity and natural gas use in fertilizer industry (Fig. 3). Owing to the price increase of raw materials such as coal and natural gas, it is difficult to attribute the price change of fertilizer to the cancellation of subsidies or price change of raw materials. However, the total fertilizer use amount still increased 2.4% annually from 2008 to 2013 (NBSC, 2015), even though the average fertilizer price increased 2.3% annually over the same period (PDNC, 2014). Currently, fertilizer subsidies have been abolished except for the value-added tax (VAT) and the subsidy for off-season commercial reserves (Fig. 3). Subsidy for off-season commercial reserves is to alleviate price fluctuation between onseason and off-season, not to limit price; this subsidy only accounts for 0.1% of total subsides. The tax rate is 13% of VAT (Fig. 3). After removing the input tax credited of raw materials and transport services, the price increase is around 1.5–2.5% (Table S3). It means that withdrawing the VAT would increase the fertilizer price by 1.5–2.5%. However, it would preferentially knock out small enterprises with outdated production technologies and low energy efficiency, and benefit the upgrade of the whole fertilizer industry (Li et al., 2014). Nevertheless, on the other side, to implement the policy of grain self-sufficiency, the central government established the comprehensive agricultural subsidies directly to farmers to buy agricultural production materials (Fig. 3). Similar subsidies are also found in other countries worldwide, not only in developing countries, but also in developed countries, which are unlikely to be abolished soon (Adamopoulos and Restuccia, 2014). By using these subsidies, farmers could buy fertilizers, diesel fuel, pesticides, plastic sheeting, etc. Although subsidy to buy fertilizer may only account for a small proportion of the comprehensive agricultural subsidies, it still can offset part of the effects derived from fertilizer price increase because of abolishing the VAT. 3.4. Interactions between farm size and subsidy Currently, fertilizer subsidies are thought to be the main cause of SF overuse in China (e.g., Li et al., 2013, 2014). Withdrawing fertilizer subsidies would likely result in a reduction of fertilizer use due to the increase in fertilizer price. However, based on our analysis of price change through withdrawing the VAT, the fertilizer use for main crops would be reduced only by 0.3-0.7% in smallholder farms considering their elasticity of demand for fertilizer (Li et al., 2013). Subsidies are mostly being given to the land contractor, not the tiller (Huang et al., 2011). Thus, direct subsidies seem to act more as income transfers rather than incentives to directly affect fertilizer use (Huang et al., 2011). Therefore, fertilizer use should be not associated with input or withdrawing subsidies in smallholder farms in China. Smallholder farmers are less sensitive to the fertilizer price increase because the majority of their income is not from cropland but from off-farm activities (i.e., part-time jobs in urban areas or other business, NBSC, 2015). But for the poorest smallholder farmers who rely only on cropland, the increase of fertilizer prices may substantially reduce their fertilizer use (Zhang et al., 2015). However, these farmers only account to a very small proportion of China’s over 200 million smallholder households (NBSC, 2015). In contrast, professional farmers run large-scale farms, their main incomes are from cropland, and fertilizer cost accounts for a large share of the total costs (Fig. 4). Thus, large-scale farmers have more incentive to reduce SF use if its price further increases. In fact, large-scale farms have already used less fertilizer per hectare than smallholder farms under current fertilizer price (Fig. 2, Fig. 4), but large-scale farms only take less than 2% of China’s total cropland area. We believed that future increase of the proportion of large-
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Fig. 3. The chronology of subsidies policies and prices of synthetic fertilizer in China. Dashed line with a stop sign represents parts of the subsidy that have been gradually canceled and all the subsidies have been canceled at the stop sign; the dashed line without a stop sign represents parts of the subsidy that has been gradually canceled but other parts are still in implementation; the solid line without a stop sign represents the subsidy that is still in implementation. ①Changes of price formation in China’s fertilizer market. Before 1985, state monopoly in purchase and sale (planned purchase and supply) was carried out in China’s fertilizer industry, which means both raw materials and manufactured goods were controlled by the government and fertilizer ration was implemented during the planned economy period. Then, economic reform introduced double-track price system into fertilizer market (from 1986 to 1998), where price of planned fertilizer supply was determined by the government and price of unplanned supply was decided according to market demand. From 1998 to 2008, exfactory price of fertilizer was affected by government-suggested-price instead of government-determined-price. After year 2009, price of fertilizer is marketoriented. ②Compound fertilizer (N and P) has been exempted from VAT since 1994., and mono-ammonium phosphate has been exempted from VAT since 1998. For urea, during 2001–2004, 50%–100% of VAT was refunded after collection. This refund policy was planned to cancel in 2003 but soon re-enabled in 2004. Since 2005, urea and other fertilizer products have been 100% exempted from VAT. ③Compared to other large industrial manufacturers, fertilizer firms (mainly small and medium enterprises, SMEs) had enjoyed favorable electricity price since 1993. In 2009 electricity price for fertilizer firm increased as for other industries, and since 2011, price gap narrowed gradually in many provinces. ④Favorable railway fee for transporting fertilizer is implemented from 1998. However, since 2004 the railway transportation fee increased gradually. And in Jan 2015, it is formally canceled for the first time, but railway promotion fee is still exempted (0.033 Chinese yuan/ton*kilo) since 1998. ⑤Off-season commercial fertilizer reserve system was established in 2004, and each region has successively established provincial fertilizer reserve system. The main aim of this policy was to alleviate price fluctuation between on-season and off-season, not to limit price. ⑥The agricultural comprehensive direct subsidy started in 2004. It is a direct subsidy that transferred to farmers to assist purchasing for agricultural production, including fertilizer, diesel fuel, pesticides, plastic sheeting, machinery and so on. ⑦Favorable gas pricing for fertilizer firms was started in 2005. However, with market-oriented reform on gas pricing began in 2012, gas supply at a favorable price for fertilizer production phased out. In early 2015, double-tracked price system for gas market formally merged, and as a result at the end of 2015 no more rationed favorable gas supply for fertilizer firms. But currently market share of gas based fertilizer firms is only around 20%, there would be a limit effect on fertilizer price as a whole due to reduction of favorable gas price.
scale farms, and together with withdrawing fertilizer subsidies would be the crucial for realizing the APZIFU goal. 3.5. Cost-benefit analysis Taking the three main crops, i.e., wheat, rice and corn, in consideration, we found that the labor input accounted to about 33% from 1998 to 2009, after which increasing to 42% in 2013 on the national scale (Fig. 5, PDNC, 2014). Owing to the smallholder farms accounting to 98% of Chinese overall farmland, the cost ratios in Fig. 5 can be considered to represent smallholder farms. The large labor input ratio suggests a low machinery level in smallholder farms. On the other side, the cost of fertilizer to total cost remained around 18% from 1998 to 2009, after which reduced to less than 15% in China. A similar change was also found in the cost of land. These changes are consistent with the urbanization process that attracts labor from rural areas to urban areas, accompanying with a rapid increase of labor cost. The large
variations of cost-profit ratios (ratio of profit to total cost) of agricultural production further push the rural labors to urban areas (Fig. 5). Even with a high cost-profit ratio, the small total area of cropland in each rural household (usually less than 0.5 ha) cannot feed the rural population. Therefore, part-time jobs for rural residents are common, both in agricultural production and services in urban areas such as constructions. With urbanization process, the proportion of income from agricultural production decreases for smallholder farmers, and majority of their incomes are from employment in urban areas (NBSC, 2015). Thus, the low fertilizer input ratio and low fertilizer cost to their total income make the smallholder farmers less sensitive to the fertilizer price changes. For wheat cultivation, the overall input cost per hectare of large-scale farms was much lower than that of the smallholder farms, especially for the labor input, and 3 times higher input was found in smallholder farms (Fig. 4). Except for pesticides, all the other input costs were about 11% higher in smallholder farms. However, the crop yields in smallholder farms were 5% lower than
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3.6. Policy implication
Fig. 4. Comparison of input costs and yield for wheat and rice between large-scale and stallholder farms. The average farm sizes of large-scale and smallholder farms are >30 and <0.5 ha, respectively. The wheat data are from Northern China (in Henan province in the year 2013) and the rice data are from Southern China (in Jiangsu province in the year 2011). Service costs are mainly tillage and irrigation. Data sources are Henan Economic Blue Book (Liu et al., 2014) and the survey on farmland hosting in Jiangsu Province (RCS, 2013).
that found in large-scale farms, resulting in the cost-profit ratio in larger-scale farms was 5 times that in smallholder farms. Similar to the findings in wheat cultivation, the smallholder farms also have higher input costs and lower crop yields in rice cultivation (Fig. 4). Generally, the total input cost and each sub-cost terms for cultivating one hectare of rice was close to that of wheat, with high input from labor. We did not have data on the sub-costs in large-scale farms, but the overall cost was lower than that in smallholder farms. These findings further confirm that the largescale farms have better performance than smallholder farms, not only on the input cost savings, but also on yield increases. The relative lager ratio of fertilizer cost to total cost in large-scale farms suggested which should be sensitive to the changes in fertilizer cost. That means that by withdrawing fertilizer subsidies, largescale farms would further optimize their fertilizer input, achieving an increase in both grain yield and profit.
The cropland transferring system (CTS) is designed to increase the farm size and accelerate the agricultural professionalism in China. This encourages the transfer of land management rights to companies or other farmers who are willing to manage larger farms, while maintaining the land contract rights within each rural household to protect their basic equity. The “Cropland Transferring Procedures of Management Rights” was launched in 2005 by the Ministry of Agriculture in China (Hong, 2008). However, little progress has been achieved under this top-town policy. On one hand, since there is low social security coverage, smallholder farms provide a basic livelihood protection, thus, rural households generally prefer to keep their own cropland despite gaining low income. On the other hand, the poor agricultural infrastructure, farmland fragmentation, high income uncertainty (large variations in cost-profit ratio from 0.9% to 49.7% during 1998–2013, Fig. 5), and high uncertainty with the persistence of land management rights make these procedures not much effects in practices. But things are changing. With rapid urbanization, over 120 million of the rural population moved to urban areas between 2004 and 2013 (NBSC, 2015). This forced a proportion of rural immigrants to transfer their croplands to others, and largely promoted the CTS from the bottom-up. A survey of farm size and cost-benefit of wheat cultivation in Henan Province found many large farms with an area >50 ha in 2013 (Liu et al., 2014). To standardize and accelerate the CTS, the Chinese central government issued “Opinions on Guiding Orderly Transferring of Rural Land Management Rights, and Developing Appropriate Scale of Agricultural Operations” in 2014. This policy aims at building a pathway for the CTS from multiple aspects including policy persistence, land market, rural social security, credit and insurance supports etc. Although we still cannot assess the results of such measures in this transition stage, the strong activities under the CTS in practices nowadays suggest that the large-scale farms with professional management will become a main economic operating entity in near future in China (XNA, 2015). Nevertheless, to achieve this, policymakers working on APZIFU should pay more attention to the CTS, not just to the fertilization technologies. In summary, to achieve the zero increase goal in SF use, the increase in farm size via both top-down policy regulations and bottom-up market exchange should be integrated. Withdrawing fertilizer subsides will help to achieve this goal when combined with increasing farm size. The continuing urbanization process will also transfer more of the rural population to urban areas, which would accelerate the implementation of CTS to increase farm size and finally benefit the more efficient use of fertilizer in China. Acknowledgments This study was supported by the “973”Program (2014CB953803) of the Chinese Ministry of Science and Technology, National Key Research and Development Project of China (2016YFC0207906), the National Natural Science Foundation of China (Grant No. 41201502, 41471190, 71503232) and the Natural Science Foundation of Zhejiang Province (No. LR15G030001, LQ14G 030011). The work contributes to the UK-China Virtual Joint Centre on Nitrogen “N-Circle” funded by the Newton Fund via UK BBSRC/ NERC (BB/N013484/1). We would like to thank S. Yang for the collating of data on fertilizer subsidies. Appendix A. Supplementary data
Fig. 5. Cost-benefit ratios of an average hectare of cropland with main crops (wheat, corn, rice) cultivation in China from 1998 to 2013. For labor, land and fertilizer, the data are the cost of these inputs to overall cost; cost-profit ratio is the ratio of net profit divided by overall cost. Data source is Compilation of National Agricultural Costs and Returns (PNRC, 2014).
Supplementary data associated with this article can be found, in the online version, at http://dx.doi.org/10.1016/j. gloenvcha.2016.08.005.
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