| Agriculture is more and more dependent on energy with agricultural modernization in China. Agricultural production costs are increased significantly with the increasing energy consumed in agricultural production. It is a great challenge to keep farmers’income increasing sustainably and stably, especially in poor areas in China due to increasing production cost. In China,70.17 million people still live below the national poverty line, defined as an annual per capita income of less than 2,300 yuan in 2014 (National Bureau of Statistical,2015). It is of important significance for poverty alleviation in 2020 to study how agriculture productive energy inputs affect agriculture production and farmers’income in poverty stricken regions.Structure of energy inputs in agriculture production, factors affecting energy inputs demand and how energy inputs affect potato yield and farmers’income were analyzed based on 502 potato household survey data from Inner Mongolia and Hebei province in China. First of all, beside direct energy, we also calculated indirect energy cost and consumption using process analysis and energy equivalent coefficient methods using Tao et al (2009) and Yuan (2014) as references. After that, energy use and energy intensity of potato production were analyzed. Second, we look at factors that affect farmers’demand for energy inputs. Translog cost function was employed to analyze input demand under the cost minimization framework and Iterated Seemingly Unrelated Regression (ISUR) was used for the estimation. Thus, Allen partial elasticity of substitution and price elasticity were calculated. Third, a quadratic production function and farmers fixed effects model were employed to estimate the output elasticity of energy input and analyze the effects of energy inputs on potato yield. Finally, analysis model containing average energy cost of potato production and farmers’income was constructed under the profit maximization framework to analyze the impact of energy cost on farmers’income.Our interesting findings from the research are mainly as followed.I. Machinery, irrigation and fertilizer are the main energy costs, both energy cost and energy intensity increased from 2007 to 2012.Production costs were significantly increased from 2007 to 2012. Share of energy related inputs, both direct and indirect energy inputs, such as machinery, irrigation, transport, fertilizer and pesticides were above 50 percent and the share would be one third if only energy costs was calculated. Indirect energy cost accounted for about 70% and direct energy cost accounted for only 30%. In particular, chemical fertilizer, energy expenditure of machinery and irrigation were the most important energy costs. Energy intensities of potato production were 0.67 and 0.83 tons of standard coal per ten thousand yuan in 2007 and 2012, respectively. Increased energy intensity indicated energy efficiency was decreased and potato production was more capital intensive. Moreover, direct energy intensity was increased and indirect energy intensity remained constant but at high level.II.Demand to energy inputs was inelastic to their own price. Fertilizer can be substituted by electricity and diesel and electricity can be substituted by diesel.Farmers used more energy inputs in 2012 than 2007 though energy prices were increased. Under the cost minimization framework, energy input demand functions were induced from translog cost function and both Allen partial elasticity of substitution and inputs’price elasticity were calculated. We found that demand to energy inputs would decrease when energy price was rise. Besides, demand to electricity would increase when potato output was increased. Demand to fertilizer and hired labor will increase while demand to electricity and diesel will decrease when plant scale was enlarged. Farmers with irrigation equipment demand more electricity but less diesel and hired labor and farmers with machinery equipment demand much more diesel but less fertilizer. Aged farmer demand more fertilizer but less electricity and hired labor. This indicated that irrigation can improve potato output significantly and there is a scale economy in irrigation and machinery. Demand to energy inputs was inelastic to their own price. Fertilizer can be substituted by electricity, diesel and hired labor and demand to fertilizer was elastic to labor price but inelastic to other inputs’price, such as electricity and diesel. Electricity was substituted with diesel and complementary with hired labor. Diesel was complementary with hired labor. Both electricity and diesel were inelastic to other inputs’price.IILPotato yield can be improved significantly if fertilizer, irrigation and mechanization were increased for farmers with average inputs level. However, about 40 percent household used excessive fertilizer and irrigation were severely short compared with fertilizer.Potato yield in sample households was significantly increased from 2007 to 2012. While inputs, such as fertilizer, irrigation, machinery were increased at same time. Quadratic production function and farmers fixed effects model were employed to estimate the output elasticity of energy input. We found that there was an inverted u-shaped relationship between fertilizer and potato yield, so did irrigation. Potato yield can be improved significantly if fertilizer, irrigation and mechanization were increased for farmers with average inputs level. However, about 40 percent household used excessive fertilizer in potato production and they can reduce fertilizer usage to realize same potato yield or even higher yield with other inputs unchanged. Irrigation inputs were severely short compared with fertilizer and farmers can get higher potato yield by increase irrigation. Moreover, the elasticities of output to energy inputs with different plant scale are different.IV.Farmers’income would increase when average energy cost was reduced, i.e. improve energy efficiency.Farmers’incomes were significantly increased from 2007 to 2012 and the number of poverty household was decreased consequently. Potato income was the main sources of income for sample households. The energy cost to product one unit potato, named as average energy cost was increased while potato yield did not increase so much. Average energy cost, defined energy price plus energy quantity used divided by potato production was determined by energy quantity used and potato production as energy price was not determined by farmers. Under the profit maximization, the average energy cost had a negative influence on the net per capita income with other variables unchanged and it indicated that farmers’income would increased when average energy cost was reduced. Way to reduce average energy cost is to improve energy efficiency and reduce energy intensity. The impacts of average energy cost on income between poverty and non-poverty were different, so did farmers with different scale. Poverty farmers’ income can be increased more than non-poverty and farmers with moderate scale can improve their income when their energy efficiency was improved.Based on the empirical analysis and main conclusions, following suggestions were put forward for reference. First, promote soil testing and fertilizer recommendation to reduce indirect energy inputs in agricultural production, such as chemical fertilizers. Second, intensify propaganda and training to guide farmers use pesticide and fertilizer scientifically. Third, promote high efficiency and energy saving machinery to reduce energy consumption. Fourth, increase irrigation moderately in potato production. Fifth, improve energy efficiency in agriculture production to increase farmers’ income.
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