Diversification of Agricultural Production in China: Economic Rationality of Crop Choice under the Producer Subsidy Program

Abstract

Dietary habits of Chinese people have transformed drastically over recent years due to rapid economic and income growth, urbanization, and globalization. In response, farmers motivated to enhance their incomes should shift their product mixes to meet these new preferences. If, however, the government prioritizes self-sufficiency for staple foods, farmers' choices will diverge from the income-enhancing outcome. This study thus examines farmer's crop choice rationality in Chinese agriculture via estimation of a stochastic frontier output distance function. The estimated results for allocative efficiencies offer unambiguous evidence that grains excessively are produced relative to vegetables and fruits, a tendency that was particularly noticeable during the time of the Producer Subsidy Program. This program also had a distorting effect on farmers' abilities to make technically efficient choices. These findings lend strong support to the assertion that China's policy goal of grain self-sufficiency is to the detriment of agricultural production in terms of technical and allocative efficiencies.