Farm size and production efficiency in Chinese agriculture: output and profit

Purpose - The purpose of this paper is to analyze the relationship between farm size and agricultural production efficiency from the aspects of output and profit in order to find an optimal farm size that achieves both output and profit efficiency in agricultural production in China. Design/methodology/approach - This study uses the 2012 China Family Panel Studies survey data and employs the stochastic frontier analysis (SFA) models to investigate empirically the relationship between farm size and agricultural production efficiency. Findings - The study finds that there is an inverted-U curve relationship between farm size and output efficiency and a U-shaped curve relationship between farm size and profit efficiency in agricultural production in China. Based on the empirical results, the study estimates that the appropriate farm size is around 10–40 mu and the optimal farm size is around 20–40 mu both in terms of output efficiency and profit efficiency in Chinese agricultural production under the current agricultural technology and land management system. Practical implications - The findings of this study suggest that appropriate land consolidation will bring more benefits to farmer households and agricultural production efficiency. There are some policy implications. First, governments should give long term and more stable land using rights to farmers through extending the period of land contract and verifying land using rights. Second, governments should encourage transfers of land using rights and promote land consolidation. But the implementation of this policy should consider regional differences and not be used for blindly pursuing increasing land size. Third, land consolidation should be accompanied with the development of specialized agricultural services. Originality/value - The paper makes two major contributions to the literature. First, the authors use the SFA model to investigate the relationship between land size and agricultural production efficiency. Second, the authors establish two SFA models – the stochastic frontier output analysis model and the stochastic frontier profit analysis model – to estimate the optimal land size to achieve both output and profit efficiency of agricultural production in China.