How Do the Different Types of Land Costs Affect Agricultural Crop-Planting Selections in China?

Abstract

Land costs in agricultural production are rapidly becoming apparent and increasing in light of the market’s rapid development in rural China. This study examines how agricultural operators’ farming decisions are affected by explicit and implicit costs associated with land transfers. This study first categorizes explicit and implicit land costs theoretically and demonstrates that both types of land costs affect farmers’ crop-planting selections. The study then uses the most recent household survey data from the Chinese Family Database (CFD) and the China Household Finance Survey (CHFS), released in 2017, to empirically test the theoretical analysis and examine the mechanisms underlying the impact of land costs on crop-planting selections. This study makes the case that higher land costs, both explicit and implicit, cause agricultural operators to grow more crops for cash and less for food. The impact of land costs on planting selection can vary depending on the heterogeneity of production areas and geography. In terms of production area heterogeneity, the explicit cost of land has a greater influence on planting decisions in non-major food-producing areas, whereas the implicit cost of land has a greater influence on planting decisions in major food-producing areas. In terms of topographic heterogeneity, the less flat the terrain, the more growers would choose to grow cash crops. A complementary relationship between the two forms of costs is also suggested by this study’s confirmation that explicit and implicit land costs can positively reduce each other’s impact on cropping decisions. Additional mechanism research revealed that explicit and implicit land costs impact crop crop-planting selections. The explicit cost of land primarily affects the local land transfer market effect, whereas the implicit cost of land affects the land transfer service.