Are there too many farms in China? New evidence on economies of scale in grain production

The expansion of large-scale farming has sparked ongoing debate over agricultural economies of scale in developing countries. Using nationally representative survey data from China (2009–2017), this study employs a translog multi-product cost function (TMCF) to estimate farm-level scale economies in grain production. The results reveal significant scale economies with spatial-temporal variation. We also find that these economies arise from investment indivisibilities in machinery, infrastructure, and transportation. Moreover, the variation in scale economies is driven by farm size, factor prices, and technological change. Specifically, scale economies diminish marginally as farm size increases. Agricultural wages have mixed effects, positive where mechanization is feasible and negative where constrained. Higher land rents promote scale economies, while rising prices of agrochemicals and machinery reduce them. Technological change plays an increasingly vital role in enhancing scale economies. These findings underscore the importance of farm consolidation, improved factor market efficiency, and technological innovation in boosting agricultural productivity.