Market failures, factor allocation and input use in Chinese agriculture

Minjie Chen

Research output: Thesisinternal PhD, WU

Abstract

Two important features characterize Chinese agriculture: First, operated farm sizes are usually very small and equally distributed within villages and do not reflect differences in productivity between farmers. Second, the use of chemical fertilizers per unit of land remains extremely high despite recent government policies aimed at reducing it. This thesis aims to obtain an improved understanding of the driving forces underlying these two characteristics, focusing in particular on the roles of agricultural machinery services provided to smallholders, agricultural land property rights and chemical fertilizer sellers. To start, the thesis reviews the recent literature that uses micro-level data to understand factor misallocation in the agricultural sector and its implications for aggregate agricultural productivity growth, both within China and beyond.

Following the structure of the literature review, the thesis first empirically examines to what extent land and capital are misallocated in a region within the North China Plain characterized by small and relatively equally distributed land sizes across households. This is motivated by the egalitarian allocation of agricultural land and small farm sizes in rural China, raising questions about the implications for overall productivity given that there exists potentially large heterogeneity in farm-level productivities. Using a survey data set collected among wheat-maize double-cropping farms, it finds that the dispersion in farm-level total factor productivity is small, and the quantified gains in aggregate agricultural productivity that may be obtained by reallocating factors from less productive to more productive farms are moderate relative to the current findings in the literature. Estimated productivity (output) gains in the studied region range from 7% for within-village reallocation to 10% for between-village reallocation. It argues that these moderate findings can be largely explained by the high-level use of hired machinery services in the relatively small region.

Then the thesis estimatess the impact of a land certification program on rural households’ land rentals, migration, as well as intra-village income inequality. Using household-level and village-level survey data sets collected in 2019 in three provinces in China, it measures the key explanatory variable as the number of years the program has been completed in villages and therefore is able to capture the impact of the program over time. It estimates that the program has a significant inverted U-shaped impact on households’ probability of renting in land. However, the study does not find statistically significant evidence that the program affects the decisions of households about land renting-out and migration, nor does the program significantly affect intra-village income inequality. These findings are robust to alternative measures and estimation strategies.

In the last, the thesis studies the agricultural input market. In particular, it examines whether the high intensity of chemical fertilizer use by Chinese farmers is related to the sources that provide information about fertilizer use, with a particular focus on the role of fertilizer sellers. It argues that chemical fertilizer is a credence good for which ex post detection of excessive use is costly for farmers. Household-level data of rice farmers collected in three Chinese provinces is used to test whether and to what extent fertilizer use intensities are related to the sources informing them how much fertilizer is needed. The study finds that farmers who are informed by fertilizer sellers on average have a 7.4% higher fertilizer use intensity, while farmers relying on information from public extensions services have an 8.9% lower fertilizer use intensity; the use intensity of farmers relying on their own farming experience is 10.6% higher on average. It explores mechanisms that are expected to mitigate sellers’ adverse incentives in credence goods market, e.g., market competition, but finds no evidence that these mechanisms significantly reduce the intensity of farmer fertilizer use. It seems that more attention may need to be paid to local fertilizer markets to reduce fertilizer use in China.

 

Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • Wageningen University
Supervisors/Advisors
  • Heerink, Nico, Promotor
  • Zhu, Xueqin, Promotor
Award date1 Dec 2021
Place of PublicationWageningen
Publisher
Print ISBNs9789463957854
DOIs
Publication statusPublished - 1 Dec 2021

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