Increasing Wages, Factor Substitution, and Cropping Pattern Changes in China

• Published date: 01 September 2023
• Author: Zhoufu Yan,Shurui Zhang,Fangwei Wu,Binlei Gong
• Date: 01 September 2023
• DOI: http://doi.org/10.1111/cwe.12506

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 190–214, Vol. 31, No. 5, 2023

190

Increasing Wages, Factor Substitution,

and Cropping Pattern Changes in China

Zhoufu Yan, Shurui Zhang, Fangwei Wu, Binlei Gong*

Abstract

This article analyzed the influence of increasing wages on cropping patterns from

theoretical and empirical perspectives. The results showed that the increasing labor cost

provided a signifi cant incentive to adjust the grain cropping pattern, which increased the

production of the three major cereal grains but reduced the production of other grain

crops. Increasing wages had a signifi cant negative impact on cash crops. More labor-

intensive cash crops experienced a larger negative impact in the context of increasing

wages. The increase in labor costs also had a negative impact on the proportion of

vegetables produced, which was more evident in northern China. A further mechanism

test indicated that factor substitution was a significant reason for cropping pattern

changes; this illustrated the substitution of labor by machinery not only between grain

crops and cash crops but also among diff erent cash crops.

Keywords: cropping pattern changes, factor substitution, increasing wages, production

transformation

JEL codes: J31, Q10, Q16

I. Introduction

China has enhanced its capacity to ensure a suffi cient food supply, owing to advancements

in agricultural production conditions and adjustments in relevant policies (Gong, 2018a).

However, the rise in income among both urban and rural populations has catalyzed a

shift towards a more diversifi ed consumption structure of agricultural products. There

*Zhoufu Yan, Lecturer, College of Economics and Management, Shanghai Ocean University, China. Email:

zfyan@shou.edu.cn; Shurui Zhang, Lecturer, School of Business Administration, Northeastern University, China.

Email: zhangsr@mail.neu.edu.cn; Fangwei Wu, Professor, Institute for Urban–Rural Development, Shanghai

University of Finance and Economics, China. Email: wfangwei@mail.shufe.edu.cn; Binlei Gong (corresponding

author), Professor, China Academy for Rural Development and School of Public Aff airs, Zhejiang University,

China. Email: gongbinlei@zju.edu.cn. Seniority of authorship is shared equally. The authors acknowledge

support from the Major Program of National Fund of Philosophy and Social Science of China (No. 21&ZD092),

the National Natural Science Foundation of China (Nos. 72161147001 and 72103134), and the Research

Program for Humanities and Social Science of the Chinese Ministry of Education (No. 21YJC790139).

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Increasing Wages, Factor Substitution, and Cropping Changes 191

has been a signifi cant mismatch between supply of and demand for agricultural products.

In particular, the acceleration of industrialization and urbanization in China has led to

the transfer of rural labor to the urban industrial sector, resulting in a continuous decline

in rural surplus labor and an increasing rural labor cost (Wang et al., 2011; Zhang et al.,

2011), which has increased production cost, leading to the transformation of agricultural

production methods to save labor (Wang et al., 2016; Zhang et al., 2020). On this basis,

the structural contradiction between the supply and demand of agricultural products is

becoming increasingly prominent, necessitating urgent further adjustments.

As shown in Table 1, in 2017, the total supply and demand of China’s rice and wheat

were slightly in surplus, while the supply and demand gap of soybeans, cotton, sugar

crop, and oil crop remained high. The change in agricultural structure is incompatible

with the change in consumer demand, which negatively impacts the effi ciency of resource

allocation and the competitiveness of agricultural products (Wei, 2017). Furthermore,

from 2005 to 2017, the proportion of the sown area of the three major grains in the

total area increased by 7.92 percent. Even though the Chinese government reduced the

sown area of grains in the non-major grain production areas (about 3 percent of the total

cultivated land area) in 2016, the sown area of the three major grains still increased

substantially. On the other hand, the proportion of the sown area of cash crops such as

soybean, cotton, oil crop, and sugar crop decreased by 1.21, 1.34, 1.26, and 0.08 percent,

respectively, and showed apparent stagnation or even shrinkage. These changes make

the contradiction of agricultural supply and demand imbalance even more severe. It

is thus urgent to clarify the logic of agricultural cropping patterns under the current

situation.

Table 1. Supply and demand of China’s major agricultural products in 2017

Category Output

(10,000 tons)

Import

(10,000 tons)

Consumption

(10,000 tons)

Export

(10,000 tons)

Output/

consumption (%)

(Output + import)/

consumption (%)

Supply >

demand

Rice 21,268 403 18,651 171 114.0 116.2

Wheat 13,433 442 12,349 1108.8 112.4

Balance of

supply and

demand

Maize 25,907 283 26,790 296.7 97.8

Vegetable 69,193 49 68,113 1,125 101.6 101.7

Fruit 27,937 480 27,624 473 101.1 102.9

Supply <

demand

Soybean 1,528 9,553 10,705 14 14.3 103.5

Cotton 565 116 849 4 66.5 80.2

Sugar 1,031 229 1,510 18 68.3 83.4

Oil 2,715 577 3,336 29 81.4 98.7

Sources: The data are from US Department of Agriculture (USDA) and China Rural Statistical Yearbook (NBS,

2018a).