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Farm size, inefficiency, and rice production cost in China

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Abstract

The relationship between farm size and production cost, especially inefficiency cost, has been a hotly debated topic for decades, but no general conclusion has been reached. This subject has particularly important implications for agricultural policies in China, which is in the course of rapid structural change. We decompose the production cost into frontier cost, technical inefficiency cost and allocative inefficiency cost with a primal system approach, and we demonstrate that technical inefficiency cost increases but allocative inefficiency cost decreases as farm size increases. In addition, large-scale farms gain the overall cost advantage due to their lower allocative inefficiency cost. We also find that a minimum purchase price higher than all farm costs impedes the enhancement of scale and masks the competitiveness of China. Moreover, the determinants of inefficiency costs imply that region-specific market imperfection holds a considerable explanatory power for the allocative inefficiency costs.

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Notes

  1. The value is calculated using data from the First Agricultural Census in China.

  2. xjOI, xjTI and xjAI are input demands under condition of both technical and allocative inefficiency, only technical inefficiency and only allocative inefficiency, respectively. cOI, cTI and cAI are corresponding costs.

  3. Here, the price of the other intermediate input costs is simply set to 1.

  4. There are no records for machinery total power for households. For simplification, we use diesel input quantity as machinery input quantity.

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Acknowledgements

This work was supported by Natural Science Foundation of China (NSFC) (Project ID: 71873050) and the Fundamental Research Funds for the Central University (No. 2662018QD008).

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Authors and Affiliations

  1. College of Economics and Management, Huazhong Agricultural University, No. 1 Shizishan Street, Hongshan District, Wuhan, 430070, Hubei, China

    Xiaoheng Zhang

  2. Courant Research Center “Poverty, Equity and Growth”, University of Göttingen, Whilhelm-Weber-Str. 2, Göttingen, 37073, Germany

    Xiaohua Yu

  3. College of Economics and Management, China Center for Food Security Studies, Nanjing Agricultural University, Weigang, Nanjing, 210095, China

    Xu Tian

  4. School of Economics, Jiangxi University of Finance and Economics, Nanchang, 330013, China

    Xianhui Geng & Yingheng Zhou

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  1. Xiaoheng Zhang
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  2. Xiaohua Yu
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  3. Xu Tian
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  4. Xianhui Geng
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Correspondence to Yingheng Zhou.

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Zhang, X., Yu, X., Tian, X. et al. Farm size, inefficiency, and rice production cost in China. J Prod Anal 52, 57–68 (2019). https://doi.org/10.1007/s11123-019-00557-6

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