The polarization and constraints of scale farming in China under the impact of rising wages

Abstract

For small-peasant economy countries in Asia, scale farming, characterized by land transfer, helps achieve scale economies and improve productivity. However, the scale farming development is hindered by the increasing farm labor cost because of the rising wages. Based on a panel dataset of 458 tenant farmers in Jilin, Jiangsu, and Sichuan provinces in China, we investigate heterogeneity in the impact of rising wages on tenant farmers’ farm size and machinery investment of different initial farm sizes. Additionally, we further analyze the different constraints they face in adapting to wage increases. Our results show the antithetical impact of rising wages on tenant farmers with different farm sizes. This results in the polarization of tenant farmers’ farm size in China. Meanwhile, tenant farmers face various constraints in the adjustment process of farm size and machinery investment. Specifically, large-scale tenant farmers increase their farm size and invest in agricultural machinery given the rising wages. The extent of this adjustment depends on farming seasons and their liquidity. In contrast, small-scale tenant farmers reduce their farm size and machinery investment. Their choices are limited by the availability of off-farm employment opportunities. Therefore, the government should consider the heterogeneity of tenant farmers and help mitigate the constraints they face to promote the development of scale farming.