Non-farm Work And Government Policy Choice On Support For Agricultural Machinery

After the reform and opening up, labor cost in agriculture rises as farmer's non-farm work opportunities and income increase and agriculture labor input decreases gradually. In order to reduce the negative effects of labor input decreasing on agriculture production and to enhance the level of agriculture mechanization, Chinese Government has been encouraging the development of agricultural machinery manufacturing industry and been encouraging farmers to purchase and use agricultural machinery.2004 Central Document No.1 clearly stated to subsidize farmers and organizations to purchase agricultural machinery and in the following years government has been expanding subsidies funds and the scope of subsidies.The effects of government supporting policy on agricultural machinery depends on farmer's demand and the change of the demand. The economic theory tells us government supporting policy should focus on the industry and commodity which has large and expanding market demand. So as rural labor's non-farm work opportunities increase, will farmer's demand for agricultural machinery increase? The demand for what type of agricultural machinery increase more, the large-sized and medium-sized machinery suitable for providing service to the market or the small-sized machinery suitable for farmer's own ues? When it comes to policy choice in addition to the efficiency aspact the equity aspact should be considered. So supporting what type of agricultural machinery benefits the low-income farmers more, the large-sized and medium-sized machinery or the small-sized machinery? To answer these questions this paper theoretically and empirically stdudies the effects of non-farm work on farmer's machinery service utilization behavior and service source selection behavior, this paper also measures the amount of different source of machinery service used by different income groups. This paper's contents and the related conclusions are as follows: Content 1:farmer's agricultural machinery service utilization behavior and the effects of non-farm work.The objective of this section is to examine the effects of non-farm work on farmer's demand for machinery service, in order to predict future agricultural machinery demand. The empirical study based on Anhui rural households survey data shows that at the farmer level the area of arable land, the mumber of land plots, market price of machinery service, the number of family labors and the time of non-farm work are statistically significant. The time of non-farm work has a positive effect. This indicates that as no-farm work increases farmer's demand for agricultural machinery will rise in the future.Content 2:farmer's source selection behavior of agricultural machinery service and the effects of non-farm work.The objective of this section is to examine the impact of non-farm work on farmers machinery service source selection, in order to predict the relative demand for large-sized machinery and small-sized machinery in the future. A binomial probit model is applied to study farmers'decision to purchase small-sized machinery. The empirical study shows that land scale, the number of young male labors, no-farm employment of young male labors, household wealth, market price of agricultural machinery service, and training are statistically significant at the farmer level. The result indicates that as no-farm work increases farmer will prefer purchasing machinery service from market to purchasing small-scale machinery, the demand for small-sized machinery will decline and the demand for large-sized and medium-sized machinery will increase relatively.Content 3:the amount of machinery service utilized by different income groups.The goal of this section is to measure the distribution of machinery service among different income level farmers, thus to evaluate income distribution effects of machinery supporting policy. The results show that the distribution of machinery service is more equity than the distribution of income. However the low-income group of farmers uses less machinery service. Therefore, increasing machinery subsidies will reduce the income gap, but it would be better if we distribute the subsidies according to number of people. The distribution of market service is more equity than the distribution of the service provided by family-owned small-sized machinery. The 20% of the lowest income households utililize 16.7% of market machinery service but utililize only 6.8% of the small-sized machinery service. In this circumstance, supporting the large-sized machinery and reducing the prices of market service will narrow the income gap more.According above results this paper recommends that government should support large-sized agricultural machinery rather than small-sized machinery.The interesting discoveries of this paper are as follows:Farmer's machinery service utilization behavior is different from machinery investment as the machinery service market exists. The positive relationship between non-farm work and machinery demand and the negative relationship between non-farm work and machinery investment are both right at the farmer level. As the machinery service market exists, the low-income small-scale farmers utililize relatively more service provided by large-sized and medium-sized machinery.