Should Smallholder Farming in China be Discouraged? Panel Evidence from Anhui Province

Abstract

New agricultural management entities have appeared and been encouraged by the government in the People's Republic of China (PRC) in recent years. Mainstream opinion has stressed the need to take action to overcome the perceived inefficient, small-scale, subsistence smallholder economy that rejects the market economy, has no specialized labor and a low level of technology. However, the question as to whether smallholders are inefficient remains to be substantiated. Smallholder farming households play an important role in the agricultural community in PRC. We believe that smallholder farmers are not representative of inefficient agricultural producers. The smallholder business model, not only shows its tenacious vitality and regenerative ability, but it also plays an important role in the economic and political culture of the nation. We adopt the stochastic frontier analysis framework, which accounts for random errors in the production function, together with technical inefficiency effects that are associated with different management capabilities, to analyze the technical efficiency of smallholder farming households and the impact of their household endowments on technical efficiency of crop production in China. The data used in this paper are from the annual statistical surveys of 17 village-level, fixed-observation points in Anhui province from 2011 to 2014, collected by the Ministry of Agriculture. The sample smallholder farming households considered in this paper have typical significance in terms of both location and economic significance. Using these panel data, we avoid the loss of volatility of variables but utilize the dynamic characteristics of technical inefficiency changes. There is evidence that smallholder farming households are performing quite well, contrary to the findings of previous studies. The level of education, technical training, incidence of a cadre in the extended family, and non-farm incomes have positive and significant impacts on the technical efficiencies of smallholder farming households. However, with the aging of smallholder farming households, increases in loans, increases in total farmland area and greater fragmentation of farmland, the crop production of smallholder farming households tended to be more technically inefficient. From the results of the empirical analysis, we suggest that the government increase investment in agricultural training and rural education, select and train more high-quality village cadres and encourage them to continue to assist in agricultural production of smallholder farming households, establish a unified urban-rural labor market, improve the rural financial credit mechanism so that rural financial institutions will not release loans arbitrarily, and make reasonable arrangements for land development projects.