Impact of Grain Subsidy Reform on the Land Use of Smallholder Farms: Evidence from Huang-Huai-Hai Plain in China

Abstract

Smallholder farms have played an essential role in agricultural production and food security. In order to increase farm size, the Chinese government announced a reform of the grain subsidy program in 2015. Under the reform, 20% of the aggregate input subsidy, as well as the pilot subsidy to large-scale farmers and the incremental part of the agricultural support and protection subsidy budget, were used to support increasing farm size. This study evaluated the impact of China’s grain subsidy reform on the land use of smallholder farms to investigate whether the reform achieved its goal. Based on 2063 samples obtained from the 2013–2015 Survey for Agriculture and Village Economy data in Huang-Huai-Hai Plain, we conducted a difference-in-difference model to solve the problem of missing counterfactual states in policy evaluation. Farms from Henan and Shandong were assigned to the treatment group, and farms from Hebei were assigned to the control group. The results revealed that the average treatment effect on the treated of the impact of the grain subsidy reform on the wheat-sown area was −25% (0.10 ha). Furthermore, there was heterogeneity in regard to the subsidy reform effects in different sown-area groups. The reform had the most significant impact on the smallest farmers. We also found that China’s grain subsidy reform had a significant and positive effect on the amount of outflow land area, while the impact of subsidy reform on land tenure was insignificant. Our findings suggest that while encouraging large-scale farms, it is necessary to take into account farmers’ small-scale operations and gradually promote the transformation of small-scale operations to large-scale operations. The Chinese government should strengthen the supervision of land use to achieve the goal of ensuring food security.

Keywords

• agriculture subsidy program
• land use
• farm size
• difference-in-difference