Why do farmers quit from grain production in China? Causes and implications

Abstract

PurposeThe number of farms engaged in grain production in China has been declining in recent years. Limited efforts have been devoted to examine why producers quit from grain production and how such exits affect China's grain output. Such information, however, is invaluable in understanding whether the exit from grain production should be encouraged and if so, how. The purpose of this paper is to identify the factors that influence farmers' decision to quit from grain production, with a view to drawing implications for devising policies to deal with such exits.Design/methodology/approachBoth descriptive statistics and econometric techniques are used to analyse a set of unique and comprehensive farm‐level survey data to identify key factors that affect farmers' decision to quit from grain production.FindingsKey factors that influence a farm to quit from, or stay in, grain production include: family size, the share of farming labour out of total family labour, per capita arable land, the proportion of land used for grain production, the share of family income from grains. It was also found that the level of grain prices and the sunk cost in farming, chiefly in grain production, also affect the likelihood that a household will stay or exit from grain production. Further, farmers in more economically developed regions are more likely to quit from grain production.Originality/valueThe paper's findings clearly indicate that farms with a larger scale of grain production and earning higher income from grain are the major contributors to China's grain production. Potential exists for China to raise its total grain output if the land from those exiting farmers is readily made available to larger producers, enabling them to further benefit from the economies of scale.

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“…Therefore it may be assumed that farming, from a financial viewpoint, provides a higher expected utility than exit from farming. Although we found a small level of diversification among these farmers, its effect is in agreement with other studies Foltz 2004;Zhan et al 2012). This could indicate the willingness of small farmers to commercialize more than one product as a strategy to either buffer or expand their farm income.…”

“…Our findings for the capacity of farm income to cover the expenses of the whole family are supportive of utility theory Zhan et al 2012). Therefore it may be assumed that farming, from a financial viewpoint, provides a higher expected utility than exit from farming.…”

“…We expected these variables to have a positive impact on the decision to stay. We used OFFINCREL to capture the effect of off-farm activities Zhan et al 2012). We expected this variable to have either a positive or negative effect on the decision to stay.…”

“…Previous studies have established efficiency theory as the main theory for explaining the stay-exit decision in farming, with the exit barrier theory and life-cycle theory as two auxiliary theories Rosenbaum and Lamort 1992;Pietola et al 2003;Zhan et al 2012). However, most of these studies used only one theory to explain this decision, and only a few of them included variables from all three theories .…”

“…We used the dummy variable OFFINCREL to capture the effect of off-farm activities on the stay-exit decision (for importance of off-farm income). Off-farm income has been recognized for either (i) increasing the possibilities for maintaining a farm when there is low farm income or losses Zhan et al 2012), or (ii) increasing the farm exits since it lowers the transaction costs of leaving the farm , or increases the opportunity cost of farm labor . We expected this variable to have either a positive or negative effect on the decision to stay.…”