Technology efficiency or allocation efficiency

Purpose - The emergence of mega-farms in middle-income countries like Brazil and Ukraine and the efforts to consolidate small farms into larger ones in China and elsewhere have suggested that new institutional arrangements and technology progress may increase the significant farm economies of size, and therefore challenging the classical inverse relationship (IR) between productivity and farm size. The purpose of this paper is to conduct a research to examine the existence of IR in China’s cereal production and further explore the possible mechanism. Design/methodology/approach - Based on the panel data concerning farms from 31 provinces in China in 2009–2014, technology efficiency and allocation efficiency in cereal production were measured based on the Translog production function. Findings - In China, an IR exists between wheat, rice and maize production after controlling the related variables. Further, the presence of this IR is due to allocation efficiency rather than technology efficiency. Results of technology efficiency show that there is no significant difference between different size groups; in other words, even the larger size groups enjoy a higher technology efficiency in rice production. Results of allocation efficiency demonstrate that, compared with the larger farms, smaller holders tend to invest more in factors which are beneficial in growing productivity. Hence, yields of small-size farms exceed those of large-size farms, which consequently leads to the IR. Practical implications - The scale consolidation of cropland is harmless to the efficiency of factor utilization and, conversely, may contribute in improving the technology efficiency of specific crops (like rice). Based on the results of allocation efficiency estimation, the extent of misallocation in large scales is relatively less due to their less input of fertilizer and pesticide; thus, the size-improving policy of farmland may contribute to the ease of the non-point pollution in agriculture. Originality/value - The existing discussions of the IR in the context of recent China mainly focus on the accurate verification of IRs. This paper steps forward from the perspective of technology efficiency and allocation efficiency and explores the exact resources of IR with up-to-date and representative data and hopes to find some new conclusions.