Do subsidies make up for the loss of grain production efficiency?

GAO Ming1 SONG Hongyuan1 Michael CARTER2

(1.Research Center for Rural Economy, Ministry of Agriculture and Rural Affairs of the People’s Republic of China)
(2.Agricultural and Resource Economics, University of California, Davis)

【Abstract】This paper adopted the micro-data of National Rural Fixed Observation Point from 2003 to 2014 and used the latest technology epsilon based measure model of data envelopment analysis to dissect the loss of wheat production efficiency in Henan Province from 2009 to 2014 based on the dynamic asset poverty theory. Then, it estimated the impact of agricultural subsidies on the lost production efficiency with the Heckman sample selection model. Finally, it made robustness test on the research results through instrumental variables and multiple estimation methods. As revealed in research, Henan Province suffered severe loss of wheat production efficiency from 2009 to 2014 despite a year-by-year increase; agricultural subsidies motivated peasant households who were restrained by assets to choose mode of production with high productivity, thereby making up the loss in grain production efficiency; agricultural subsidies are critical for wheat production, especially the direct ones; subsidies for purchasing superior crop varieties reduce productivity loss of peasant households with the wheat sown area less than 6 mu, while general subsidies for agricultural supplies exert significant influence on peasant households with the wheat sown area greater than 6 mu. In light of that, this paper proposes relevant measures and suggestions.

【Keywords】 agricultural subsidies; grain security; efficiency loss; dynamic asset poverty; epsilon based measure model;


【Funds】 Key research project of China Institute for Rural Studies, Tsinghua University (CIRS2017-8) Project of China Scholarship Council (2015RW007) Youth Project of National Natural Science Foundation of China (71703158) Fundamental Research Funds for the Central Universities of China (2015RW007)

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    [1]. ① decoupled subsidies are one of the most effective ways to increase income of peasant households. Coupled subsidies are mainly linked with grain production. Though they do not directly increase the income of peasant households, the reduction of production expenditures means the increase of income in another way. [^Back]

    [2]. ② Subsidies in this paper consist of direct grain subsidies, subsidies for purchasing superior crop varieties, subsidies for agricultural machinery and tools, and general subsidies for agricultural supplies. [^Back]

    [3]. ③ As can be known from previous theoretical analysis, subsidies consists of decoupled subsidies and coupled subsidies, and they co-exist in China. As long as peasant households have arable land, they can receive subsidies (direct grain subsidies). [^Back]

    [4]. ④ In recent years, Research Centre for Rural Economy has provided investigation personnel of National Rural Observation Points with routine training. Therefore, quality of data in recent years is quite high, which is mainly reflected in the reduction of missing values and singular values, and the connection of data from different years. [^Back]

    [5]. ⑤ Given that there are altogether five core explanatory variables, each of them consists of an equation to avoid serious co-linearity. That is to say, five estimation equations are constructed in each estimation method. [^Back]

    [6]. ⑥ Direct grain subsidies are granted according to the land area contracted by peasant households, and it is unrelated with the crop varieties, the yield or production price. Those subsidies are also referred to as decoupled subsidies and income subsidies. It is noteworthy that there are some other reasons for direct grain subsidies being defined as decoupled subsidies. Firstly, according to the PSE categories of OECD, direct grain subsidies are coupled with the land area in China and also belong to coupled subsidies, but the principles of coupled subsidies are not adhered to in the actual operation. Secondly, direct grain subsidies were clearly stated as income subsidies and decoupled subsidies in the Third Plenary Session of the 17th Central Committee of the Communist Party of China in 2008. Thirdly, the Chinese government has defined direct grain subsidies as decoupling income subsidies and reported that to the WTO. Therefore, in general, academia defines direct grain subsidies as decoupled subsidies. [^Back]

    [7]. ⑦ There are two instrumental variables in the paper, that is, non-labor population and wheat yield in previous years. This paper regards non-labor population as an instrumental variable of core explanatory variables and explained variables in the analysis of the main part. In the robustness test, the wheat yield in previous years replaces non-labor population as the instrumental variable to test the validity of estimation results. [^Back]

    [8]. ⑧ [^Back]

    [9]. ⑨ If 0.6 is taken as the baseline of efficiency value (Zeng and Gao, 2013), the wheat production efficiency was 0.61 in 2014, merely reaching the baseline. Therefore, the loss of efficiency value was 0.39 in 2014, revealing a serious loss of wheat production efficiency. [^Back]

    [10]. ⑩ Data source: CEInet Statistics Database and China Statistical Yearbook over the years. [^Back]

    [11]. ⑪ This is because only when peasant households purchase large agricultural machinery and tools can they receive subsidies for agricultural machinery and tools. Given that large agricultural machinery and tools are expensive and seldom needed by small peasant households, there are few peasant households receiving this type of subsidies. [^Back]

    [12]. ⑫ The Amber Box policy denotes the subsidies that should be reduced according to the WTO Agreement on Agriculture. [^Back]

    [13]. ⑬ The reason for choosing this instrumental variable has been explained in the previous section, and will not be repeated here. This paper adopts the wheat yield of each peasant household from 2003 to 2008 in Henan Province. [^Back]


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This Article


CN: 11-1235/F

Vol , No. 09, Pages 85-100

September 2017


Article Outline



  • 1 Introduction
  • 2 Theoretical framework
  • 3 Methodology design, variable and data source
  • 4 Empirical analysis
  • 5 Robustness test
  • 6 Conclusion and implication
  • Footnote