Impact of Grain Subsidy Reform on the Land Use of Smallholder Farms: Evidence from Huang-Huai-Hai Plain in China

Smallholder farms have played an essential role in agricultural production and food security. In order to increase farm size, the Chinese government announced a reform of the grain subsidy program in 2015. Under the reform, 20% of the aggregate input subsidy, as well as the pilot subsidy to large-scale farmers and the incremental part of the agricultural support and protection subsidy budget, were used to support increasing farm size. This study evaluated the impact of China’s grain subsidy reform on the land use of smallholder farms to investigate whether the reform achieved its goal. Based on 2063 samples obtained from the 2013–2015 Survey for Agriculture and Village Economy data in Huang-Huai-Hai Plain, we conducted a difference-in-difference model to solve the problem of missing counterfactual states in policy evaluation. Farms from Henan and Shandong were assigned to the treatment group, and farms from Hebei were assigned to the control group. The results revealed that the average treatment effect on the treated of the impact of the grain subsidy reform on the wheat-sown area was −25% (0.10 ha). Furthermore, there was heterogeneity in regard to the subsidy reform effects in different sown-area groups. The reform had the most significant impact on the smallest farmers. We also found that China’s grain subsidy reform had a significant and positive effect on the amount of outflow land area, while the impact of subsidy reform on land tenure was insignificant. Our findings suggest that while encouraging large-scale farms, it is necessary to take into account farmers’ small-scale operations and gradually promote the transformation of small-scale operations to large-scale operations. The Chinese government should strengthen the supervision of land use to achieve the goal of ensuring food security.

Increasing the effectiveness of the Chinese grain subsidy: a quantitative analysis

Purpose The purpose of this paper is to examine the grain production implications of alternative designs for China’s grain subsidy policy. In particular, the authors examine three subsidy designs including area-based subsidy, quantity-based subsidy and production-cost-based subsidy. Design/methodology/approach To carry out the analysis, the authors develop a Chinese agricultural sector model (CASM) and an econometric, policy action–farmer response summary model. The CASM is used under a wide variety of subsidy level and basis experiments to generate pseudo data on farmer reactions to subsidies. Then a summary function model was estimated over those pseudo data that quantitatively summarized modeled farmer responses to different grain subsidy schemes. In turn, the summary functions were used to optimize the subsidy level such that it maximized grain production both within and across the area-based, quantity-based and cost-based subsidies. Regional implications were also developed. Findings The authors found that the production-quantity-based subsidy is the most cost-effective in stimulating grain production among the subsidy schemes. The authors also argue that scheme complies with WTO regulations regarding product-specific support. The authors found that the areas where grain production was most affected were the traditional grain-producing regions. Originality/value To the authors’ knowledge the authors have not seen a study of the Chinese grain subsidy program context that examined the effects of alternative subsidy schemes, nor one that developed estimates of the optimal subsidy level. In addition, the methodology is unique employing bottom-up, regionally disaggregated, sector modeling coupled with an aggregate pseudo data based summary function approach providing a new, original approach for analyzing agricultural policy design.

Cash transfers and multiplier effect: lessons from the grain subsidy program in China

Purpose – The purpose of this paper is to examine the multiplier effects of the grain subsidy program in China, which is a large food self-sufficiency project that is implemented as a cash transfer program. Income multiplier effects have not been empirically examined in the evaluation of the grain subsidy program although increasing the income of farmers is the original goal of this project. Design/methodology/approach – A large number of household-level observations are employed to measure the program’s income multiplier. An unrestricted model was first employed to measure the multipliers in a period of two years, and the difference was evaluated. Then, the income promotion effects of grain subsidy on various income sources for each specific subset of the population, such as liquidity conditions and household characteristics, were estimated. Findings – The results show that the grain subsidy program has a high income multiplier, and the income promotion effect of the transferred subsidies is from agricultural production derived by intensifying input for each unit of land. The multiplier effect of the grain subsidy program as a cash transfer program can be interpreted as the shadow value of relaxing liquidity constraints and could be particularly utilized by households with more farming land and farmers in less developed regions in China. Hence, to maximize the income multiplier effect, the grain subsidy distribution method should consider these criteria instead of retaining the prevalent standard that is based on contracted land areas. Originality/value – This study addresses the gap that the effect of China’s grain subsidy program on income increment has not been empirically examined in nation wide.