Farmers' Exit from Land Operation in Rural China: Does the Price of Agricultural Mechanization Services Matter?

• Published date: 01 March 2021
• Author: Tongwei Qiu,S. T. Boris Choy,Yifei Li,Biliang Luo,Jing Li
• Date: 01 March 2021
• DOI: http://doi.org/10.1111/cwe.12372

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 99–122, Vol. 29, No. 2, 2021 99

Farmers’ Exit from Land Operation in Rural China:

Does the Price of Agricultural Mechanization

Services Matter?

Tongwei Qiu, S. T. Boris Choy, Yifei Li, Biliang Luo, Jing Li*

Abstract

This study uses data covering 3,914 farm households, collected from Henan province in

China, to investigate the links between the price of agricultural mechanization services

and farmers’ exit from land operation. The results indicate that the increasing price of

agricultural mechanization services leads to farmers leaving land operation, especially

when the high sunk costs and the long-term breakeven period of self-owned machinery are

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analysis reveals that the surge in service prices reduced land renting-in and encouraged

non-grain production. Our analysis suggests that the agricultural mechanization service

market in China tends to work against the survival of smallholder farmers. However, the

price of agricultural mechanization services is conducive to eliminating less-productive

farmers and cultivating new agricultural operators.

Key words: agricultural mechanization services, land operation, price, rural–urban

migration

JEL codes: O13, Q15, Q16

I. Introduction

In many Asian and African countries, the development of agricultural mechanization

services has been an important approach to improving farm productivity and to substituting

manpower (Houssou et al., 2013; Diao et al., 2014; Yi et al., 2019). Outsourcing parts

*Tongwei Qiu, Associate Professor, College of Economics and Management, South China Agricultural

University, China. Email: 15150561782@163.com; S. T. Boris Choy, Professor, Business School, The

University of Sydney, Australia. Email: boris.choy@sydney.edu.au; Yifei Li, Editor of Management World,

China. Email: liyfphd@ruc.edu.cn; Biliang Luo, Professor, National School of Agricultural Institution and

Development, South China Agricultural University, China. Email: luobl@scau.edu.cn; Jing Li (corresponding

author), Lecturer, School of International Trade and Economics, University of International Business and

Economics, China. Email: 782358064@qq.com. The authors are grateful for support from the Key Project of

National Social Science Fund of China (No. 20FGLA004).

© 2021 The Authors. China & World Economy published by John Wiley & Sons Australia,

Ltd on behalf of Institute of World Economics and Politics, Chinese Academy of Social Sciences.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited.

Tongwei Qiu et al. / 99–122, Vol. 29, No. 2, 2021

©2021 Institute of World Economics and Politics, Chinese Academy of Social Sciences

100

of labor-intensive agricultural production is conducive to reducing the poverty of

smallholder farmers in many developing countries (Zhang et al., 2017). In rural China,

land fragmentation is a serious problem (Wang et al., 2007; Qiu et al., 2020a), and

opportunities to achieve economies of scale by increasing the land available are restricted.

For this reason, developing agricultural mechanization services is regarded as an important

approach to achieving economies of scale of services (Yang et al., 2013). Since 2004, the

Chinese government has enacted several policies to promote the development of such

services.

However, Foster and Rosenzweig (2017) found an inverse U-shaped relationship

between the grain-cropping area and the rate of adoption of agricultural mechanization

services in India. Similarly, in our study, the data collected from Henan province in

China shows a slight inverse U-shaped relationship between the wheat-cropping area

and the rate of adoption of agricultural mechanization services. If smallholder farmers

can benefit from agricultural mechanization services, why do they use fewer? Foster

and Rosenzweig (2017) posited that smallholder farmers tended to substitute family

labor for mechanization, whereas large farms had the advantages of using self-owned

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from economies of scale. Because using agricultural mechanization services actually

reduced their expected income from agricultural production, smallholder farmers were

less likely to do this.

In the past four decades, China has experienced the largest flow of rural–urban

migration (Zhao, 1999). As a result, non-agricultural income has become the main

income of rural residents. According to Johnson (2002), the share of labor engaged in

agriculture dropped from more than 70 percent in 1978 to less than 50 percent by 2000

because labor left the agricultural sector in favor of off-farm employment (Deininger

and Jin, 2005). Real wages also dramatically increased, even in the slack seasons in

recent years (Zhang et al., 2011). This evidence indicates that the opportunity costs of

agricultural production are much higher for farmers in China today, and that smallholder

farmers would not like to engage in agricultural production.

The price of agricultural mechanization services in rural China is not low. The

data we collected from Henan province in China reveal that the average price of

agricultural mechanization services, such as for plowing, sowing, and harvesting, for

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production. The higher the service price, the more likely smallholder farmers are to exit

from land operation. They also tend to exit because increased labor input and investment

in machinery are very expensive for them. Although the Chinese government has stated

that developing agricultural mechanization services is an important linkage between

© 2021 The Authors. China & World Economy published by John Wiley & Sons Australia,

Ltd on behalf of Institute of World Economics and Politics, Chinese Academy of Social Sciences.

This is an open access article under the terms of the Creative Commons Attribution License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited.