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The Mansholt Plan has put forward a controversial proposal to reform European agriculture in 1968, labor had been steadily migrating out of farming and there was a lot of concern regarding the aging of farmers. The median age of a farmer was over 57 years at that time. The key suggestion was to modernize production methods and enlarge the size of small farms (Bouman 2014). Rice farming in China also needs a Mansholt Plan, because rural-urban migration has accelerated the decrease in the young labor force and increased aging in agriculture. A fundamental solution to modernize Chinese agriculture is to decrease the number of farmers and let the remaining farmers cultivate more land. To date, the process of agriculture modernization has not been given enough attention by academics and policy makers. According to Schultz (1964, 30), there are three conditions that maintain traditional agriculture in equilibrium. First, the state of the art remains constant. Second, the state of preferences and motives for holding and acquiring sources of income remain constant, Third, both of these states remain constant long enough for marginal preferences and motives for acquiring new agricultural factors of production approach zero. In this case, the traditional agricultural equilibrium prevents the introduction of new production factors into agriculture. If the price of an input changes, farmers can adjust their production accordingly to a new efficient method based on the inputs at their disposal. But this change of factor input should be permanent and big enough. Otherwise, even if productive factors change, e.g. a new irrigation facility, or a reduction in the cost of any agricultural input, the factor inputs can be temporarily adjusted in production. Over time, agriculture will return to the particular equilibrium of traditional agriculture (Schultz 1964, 33). This is why a new factor is so difficult to introduce into agricultural production. Schultz’s solution to break this equilibrium and transfer traditional agriculture into a modern one is investment in human capital in rural areas.

In this section, I will argue that large-scale outmigration will break the traditional agricultural equilibrium and lead famers to modernize their agricultural production. It is

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well known that prices of productive factors are substantially determined based on scarcity. If relative scarcity clearly changes, relative prices of agricultural inputs, that is, capital, labor and land, must change correspondingly. As long as farmers are price- sensitive, they will change their production inputs in the directions the prices indicate. If input prices go up, they will reduce this input and vice versa. In the framework of Schultz’s theory, farmers are regarded as rational, that is, price sensitive. A large-scale outmigration of labor will fundamentally change the relative scarcity of essential agricultural inputs, particularly the man-land ratio. The area of land per capita for the remaining labor force will clearly be enhanced with outmigration of labor. Prices for agricultural labor will increase while those for land and capital will relatively fall. Therefore, less and less labor will be used while more and more capital will be allocated into agriculture to substitute for labor, In this manner, labor-intensive traditional agricultural will be gradually transformed into a more capital-intensive one. In the case of my village study in the following analysis, it was transforming towards mechanized agriculture at the time of my survey. The transition from traditional agriculture described above can be properly explained by Hayami and Ruttan’s induced technological and institutional innovation theory (Hayami and Ruttan 1971; Hayami and Godo 2005, 16-24). The theory of “induced technological innovation” stems from Hicks (1932) where he proposed that such kind of change in technology is induced by reducing production costs through substituting scarcer resources with abundant ones. Regardless of whether there is a competitive market, as assumed by neoclassical economists, this theory can be used to explain the change of production technology as long as the producers can recognize the relative factor scarcities, e.g. through shadow prices in non-markets or subsistence markets (Hayami and Godo 2005, 16).

Under the basic mechanism of induced innovation, the process of agricultural mechanization can be illustrated in Hayami and Ruttan’s model in Figure 5.1. It depicts the process of a farm household changing from labor-intensive production to capital (machinery)-intensive production. The left Land-Labor (A-L) quadrant includes two basic productive factor inputs, land and labor, is a isoquant of the meta-production function, which is the envelope of less elastic isoquants, such as and corresponding to two different types of machinery and technology. Isoquant is assumed

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to be an existing concave innovation possibility curve. and are two different relative price ratios (or shadow price ratios) of land and labor that reflect the relative scarcity of these two factor inputs. Correspondently, and represent points of tangency of different isoquants and factor price ratios. The line to the right Land-Machinery Power (A-M) quadrant reflects a complementary relationship between land and a third factor input; machinery power. The points, and , are two kinds of different combinations of land and power.

Figure 5.1 A model of induced agriculture mechanization for a farm household Source: Hayami and Ruttan 1971, 17, Figure 3

With a decrease of labor force and an increase of land consolidation in the rural areas due to rural-urban migration, a household faces a decreased labor force and an increased cultivated area of arable land. To adapt to this change of scarcity of input factors, agriculture production changes from labor-intensive production to labor-save production . It is noteworthy that it is not only the change of combination of input factors during the process of this change from to . In the meantime, innovation is induced by this change of input factors. The larger area of land and less labor force in production demand for larger scale mechanized production. Therefore, as labor decrease

𝐴𝐿 𝐴𝐿 𝐴𝑀 𝑃 𝑃 Machinery power (M) Land (A) Labor (L) U 𝐴𝑀 𝑢 𝑢

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from to , the machinery power that complemented with area of land changes from to .

In summary, most of farm households in the village can cultivate more areas of arable land by renting it from other rural-urban migrant households. The wage of farm labor rises with a decrease in the agricultural labor supply. Farmers start to use machinery to substitute the labor force. Finally, agricultural production changes from labor-intensive and a small scale system to a labor-save and relatively massive scale one . The whole process can be illustrated in Figure 5.1 and summarized as the substitution of a combination of land and machinery power for labor in response to a change to the ratio of labor and land (Hayami and Ruttan 1971). In what follows I will illustrate how rural- urban migration in the village I studied functions as the method to launch the substitution of a labor for a combination of land and machinery power.