Book Description

Smallholder farming remains predominant in China, despite a massive outflow of rural labor to nonfarm sectors and many agricultural households’ practice of renting out land for which they hold contract use rights. Most households, however, still partially or seasonally cultivate their contract land, resulting in complex land arrangements. Correspondingly, the allocation of labor is complex and frequently adjusted between farm and nonfarm sectors. This dissertation provides a comprehensive analysis of the determinants and efficiency of resource allocation by smallholders as well as large farms in China. Chapters III to IV focus on smallholders. I start with a theoretical model that explains why households often find it optimal to cultivate only part of their contract land or for part of a cropping year. The theory centers upon the value of farmland as a safety net and an appreciable asset for rural households, which is endogenous to the self-cultivated size and farm labor under two institutional restrictions: insecure land tenure and limited access to social benefit programs. According to recent survey data that I collected from 512 households in Sichuan Province of Southwest China, half of the households exit partially and seasonally from fully cultivating their contract land. I estimate the effects of variables that determine the non-productive value of land on the allocation of land and labor. Evidence shows that smallholders overemploy labor on their tiny fields due to the non-productive value. If policy changes eliminated this value, sector-level simulations in Chapter V suggest that the proportion of land cultivated by smallholders could fall from 78% to 41%, the annual income of agricultural households in Sichuan could increase by $15-16 billion, and 5-6 million rural laborers could cease cultivating their contract land and work off the farm. Chapters VI and VII are based on my other dataset of fifty large commercial farms in Sichuan. I first highlight salient features of these farms that suffer from the insecurity in lease contracts as lessor households may take back their land and governments can expropriate the land for nonfarm use. I use a conceptual model to characterize the relationship between insecure lease contracts and two types of farm assets, where attached assets determine farm infrastructure and, consequently, the efficiency of movable assets. I calibrate the model to Sichuan and show that the insecurity associated with leased plots reduces farm investment in attached assets. The corresponding loss can be worth 12-85% of the net production value under the suboptimal investment. Findings of the dissertation are important for Chinese policy in the agricultural sector and beyond. Though reducing the non-productive value of farmland tends to be costly, it is important to supplying enough labor from rural areas to China’s growing nonfarm industries. As a second-best solution, the government may be able to accelerate the consolidation of agricultural production by investing or subsidizing investment in farm infrastructure. Eventually, however, efficient farmland consolidation in China is to be realized only if smallholder households systematically make complete and long-term exit from farming.