Futoshi Yamauchi

This paper aims to examine the dynamics of land transactions, machine investments, and the demand for machine services using farm panel data from China. Recently, China's agriculture has experienced a large expansion of machine rentals and machine services provided by specialized agents, which has contributed to mechanization of agricultural production. On the other hand, the empirical results show that an increase in non-agricultural wage rates leads to expansion of self-cultivated land size. A rise in the proportion of non-agricultural income or the migration rate also increases the size of self-cultivated land. Interestingly, however, relatively educated farm households decrease the size of self-cultivated land, which suggests that relatively less educated farmers tend to specialize in farming. The demand for machine services has also increased if agricultural wage and migration rate increased over time, especially among relatively large farms. The results on crop income also support complementarities between rented-in land and machine services (demanded), which implies that scale economies are arising in Chinese agriculture with mechanization and active land rental markets.

Abstract This article aims to investigate major factors that led to the observed pace of mechanization and the substitution between labor and machines in rural China. We used commodity‐wise province‐level panel data for more than a quarter of a century from 1984 to 2012. The analysis demonstrated a dramatic increase in real agricultural wages in recent years, especially after 2003, in contrast to a relatively stable real machine price. The relative price of machines against agricultural labor has declined in an accelerating way, which contributed to the observed rapid introduction of machines. The elasticity of substitution between labor and machines was large in some commodities, which contributed to a fast substitution of labor by machines.

Farms throughout Asia are predominantly small. By nature, small farms use labour‐intensive production methods. The question arises as to the viability of small farms in the face of the rapidly increasing wage rate in most Asian countries. There is also indication that the production efficiency of small farms has declined relative to large farms in many Asian economies, indicating the increasing disadvantage of small farms in Asia. Therefore, this study argues that unless new policy measures are taken to expand farm size, Asia as a whole is likely to lose comparative advantage in agriculture and become an importer of food grains in the future.