Land Allocation Dynamics in China among Five Top Staple Crops: Corn, Soybeans, Wheat, Rice, and Cotton from 1985-2009

Abstract

The objective of this study is to investigate the dynamics of land allocation in China among the five top staple crops, corn, soybeans, wheat, rice, and cotton for the years 1988-2010. Specifically, for this timeframe we investigate how each crop’s relative price change affects the land share allocation of other staple crops. The study estimates the measure of sensitivity of crops’ acreages to their own and other crops price changes in pair-wise crop specific combinations. Background Currently 20% of the world’s population lives in China (Population Reference Bureau 2012). However, the nation’s arable farmland is only 7.8% that of the world’s (FAO 2012). Despite population growth and rising food demand in the past 30 years, total cultivable land in China has not expanded significantly (Ghatak and Seale 2001). In addition, there is a trend of decreased crop-specific growth rates in grains (Zhang 2003). In the meantime, some crops, for example, corn, have been expanding their land share in the same time period. There is a reason to believe that the expansion of land share for some crops may be happening at the expense of land share allocated to other crops. It is important to examine which crops and with what magnitude compete for the already scarce cultivable land in China. The dynamics of competition for scarce cultivatable land among different crops directly influence stability of prices in Chinese and world markets, availability of future crop supply, and grain trade. Data and Methods The unique dataset that only recently became available spans 24 years after the enactment of 1978-79 agricultural policies makes it possible to perform a meaningful econometric analysis. The study is possible because policy changes of 1978-1979 have allowed Chinese agriculture to move away from the government-driven commune system to a more market oriented one (Lin 1992). These changes allowed prices to adjust upwardly (Zhang 2003) and made the study of the behavior of farmers in response to market oriented conditions possible. Data used in this study span from the year 1985 to 2010 and are obtained from the China agricultural and economic database (ERS-USDA). The data set includes the national level prices in Yuan, quantities in kilograms, and acreage in hectares for each of the five crops. Based on the acreage data, land shares are also calculated. The modeling for the Chinese agricultural industry, specifically, for the top staple crops, is performed on a nationwide scale. To find the effects of relative price changes on land allocation amongst these crops in China, we use Rotterdam and Central Bureau of Statistics (CBS) parameterizations of the differential model. The analysis applies the differential framework to a problem of land allocation driven by crops’ price changes from a production point of view utilizing a maximization set up. This study is distinct because the differential model allows us to establish a production model without controlling for technological changes occurring during the investigated period. Overall, the methodology allows us to assess crop-specific effects of relative price changes on farm land allocation amongst the top five strategic staple crops in China in the post agricultural reform period. Results Simple analysis indicates that since 1980, while total land expanded only by 3%, the land dedicated to the cultivation of wheat, rice, and cotton has decreased by 17%, 13%, and 6%, respectively. Land allocated to corn and soybeans has increased by 54% and 26%, respectively. In 2002, for the first time in Chinese history land acreage allocated to corn surpasses that of wheat, and more surprisingly in 2008 land acreage under corn has surpassed even that of rice. This is a significant shift given that in China historically rice consistently took up the largest acreage of cultivable land. The results of the differential model indicate that for an additional 1% increase in total land, corn, wheat, and soybeans acreages expanded by 2.04%, 1.17%, 0.91%, respectively, while that of rice actually contracts by 1.44%. These results are significant at the 1% level. The following crops compete for already existing arable land: rice and cotton as well as soybeans and cotton. Soybean and wheat as well as wheat and cotton behave as compliments. Discussion The findings in this study have significance for consumers, producers, and policy makers because the dynamics of competition for land among these staple crops directly influences stability of world prices, availability of future grain supplies, and grain trade. The results offer an interesting suggestive picture as to how grains’ trade may look like for China going forward.