Exploring a Moderate Operation Scale in China’s Grain Production: A Perspective on the Costs of Machinery Services

Due to the indivisibility of agricultural machinery in production, limited farm sizes have reduced mechanization efficiency and increased the cost of grain production in China. As a result, the development of a moderate-scale farming system has been proposed by academic communities and policy makers. However, it is still hotly debated how to determine a moderate farm scale. We offer a new perspective on the costs of machinery services. This manuscript employs the threshold model and uses the nationally representative data from the 2015 China Rural Household Panel Survey (CRHPS) to investigate the role of farm size expansion relative to per area machinery services expenditures (PAMSE). The empirical results reveal that there is a nonlinear relation between the farm size and PAMSE. Specifically, farm size expansion can reduce the PAMSE by improving mechanization efficiency in all cases, while the magnitude of cost-saving is progressively reduced in the process of farm scale expansion. In particular, a 1 mu (1 mu = 1/15 ha) increase in the farm scale could only lead to a 0.3% decrease in the PAMSE when the farm size exceeded 50 mu, which indicates that 50 mu is a minimum efficient farm scale to achieve most economies of scale. Therefore, we suggest that persistent efforts should be devoted to improving farmland circulation efficiency and developing scale farms. More importantly, governmental supporting policies, such as agricultural subsidies, need to attach more importance to these large farms.