Agricultural diversification and specialisation : the impact on smallholders' farm efficiency in China

Abstract

Structural change is a major engine in fostering a country's growth. In the agricultural sector, diversification is the commonly used development strategy to increase the rural sector's flexibility, to respond to improving technologies and market conditions. From an agricultural transformation perspective, this thesis consists of three interrelated studies.The first study examines agricultural development and transformation during China's socio-economic reforms. In particular, it empirically tests the question of whether economic development results in agricultural diversification at the national and regional level in the Chinese context, given its fast growth and special paths of transition and development. The degree of agricultural diversification was quantitatively measured at a regional scale using the Herfindahl index. An underdeveloped region, Gansu province in Northwest China, was studied to provide insights into the interaction among structural change, agricultural diversification, and implemented development policies. Aggregate-level analyses suggest that, although economic growth in China is unique, its pattern of agricultural transformation is consistent with those of other developing countries. China's agricultural sector became more diversified as the economy grew. Agricultural diversification appears to relate to a region's comparative advantage and the relative importance of agriculture in the region. The second study explores the interrelationship between smallholders' production specialisation and commercialisation.This study first ascertains whether China's macro-level agricultural diversification is accompanied by farm specialisation. It then explores earlier studies,that were at a more conceptual level, that propose a relationship between commericalisation and specialisation by providing modest insights into farm-level commericalisation and specialisation.Using a set of simultaneousequations,a two-way interrelationship between specialisation and commercialisation were confirmed, suggesting that farmers' decisions on farm commercialisation and production specialisation are actually separate and interacting. The results further suggest that higher asset endowments indeed enable small farmers to specialise in production where they have a comparative advantage, while assets, especially capital, actually reduce farmers' incentives to sell their surplus to get cash. The third study examines the impact of specialisation on farm efficiencies. Farms' technical, allocative, and scale efficiencies were measured by non-parametric frontier analysis. Then the impact of specialisation on efficiency and the determinants of inefficiency were investigated using a Tobit model. The results reveal that specialisation increases households' technical efficiency and cost efficiency, confirming that specialised farms benefit from saving inputs or improving outputs. It was found that economic losses are commonly generated by allocative and scale inefficiency among the studied farms.

Date of Award	2016
Original language	English