PRODUCTIVITY GROWTH AND POLICY IMPLICATIONS FOR CHINA'S DAIRY FARMS

Abstract

Over the last five years, China has significantly expanded its dairy cow numbers and increased its dairy processing capacity in an attempt to meet increased demand for dairy products. However, China's net import of dairy products has expanded at a growth rate in excess of 30% during the same period. To consider why China is still struggling to meet rising dairy product demand in China in the new millennium, this paper employs a new set of farm-level survey data and Malmquist productivity indices to empirically estimate and decompose Total Factor Productivity (TFP) growth on China's dairy farms. The results show that TFP growth has been positive and the increase in productivity has been mostly driven by technical efficiency change. However, the new results show that on average, the same farms remain behind the advancing technical frontier. We also find that one of the drivers of the dairy farms' productivity advances is the relatively robust rate of scale efficiency change. The results suggest that efforts to increase the adoption of new technologies and to adopt better advice on how to use the technologies and manage production and marketing within the dairy farm sector, will likely further increase TFP growth in China.