How does the direct payment subsidy affect the economic effect of China’s grain production?

PurposeChina's grain subsidy policy was implemented nearly 20 years ago, and there have since been several changes in the subsidy content and methods. This study examines the impact of direct payment subsidies (DPS) on the economic effects of grain production for farmers.Design/methodology/approachThis study uses an instrumental variable fixed effect model to analyze the impact of DPS on the economic effects of grain production, based on data from the China Survey for Agricultural and Rural Economy from 2013 to 2020.FindingsThe results indicate that DPS significantly enhance the economic effects of grain production for growers. The elasticity value of DPS and grain output, and DPS and technical efficiency (TE) of grain production are 0.636 and 0.073, respectively. These impacts exhibit significant heterogeneity across different age, income and planting scale. DPS also efficiently improve the structure of input factors to boost the economic effects of grain production. Our results indicate that these effects became more pronounced after agricultural policy reform, especially for large-scale farmers.Originality/valueThis study measures the economic effects of grain production in two ways: grain output and TE. DPS has increased farmers’ enthusiasm for grain input and improved the structure of factor inputs, thereby promoting the economic effects of food production. The research results also confirm the positive effectiveness of China’s grain subsidy policy.