With rapid income growth, dairy production and consumption in China have increased significantly. This emergence of the dairy sector will provide opportunities for farmers to participate in a high-value, potentially more lucrative enterprise. The overall goal of this paper is to analyze the major determinants of farmers' participation in dairy production. Our main question is whether or not the pace of the emergence of the dairy processing industry has affected the ability of farmers to participate in dairy production and whether or not it has limited the expansion of their herd size. Based on household, village and processor surveys conducted in the Greater Beijing region, our analysis shows that the location of dairy processing firms is one of the key factors that determines the participation of farmers in dairy production. Although other factors affect participation and herd size—for example, access to roads and the ability to get a job off the farm (which affects the opportunity cost of household members)—access to dairy processors is shown to be the major factor that has encouraged the growth of dairy production over the past decade. The results also show that poor, less educated farmers with relatively less access to land are not excluded from the rapid expansion of the Greater Beijing dairy market.
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