Capital deepening, land use policy, and self-sufficiency in China's grain sector

The objectives of this paper are twofold. First, we aim to clarify the mechanism by which use of farm machinery in Chinese agriculture has grown rapidly over the past decades, using a separate Cobb-Douglas (SCD) production function. Second, we determine under what condition will China's grain self-sufficiency be secured in the next decade. Our empirical results reveal that the supply and factor demand functions based on the SCD form can significantly explain the reality, in particular, the capital demand function. This finding suggests that the recent capital deepening in Chinese agriculture is caused by farmers' behavior in response to the government's directives aimed at securing arable land. Our simulation analysis reveals that the attainment of a 95% self-sufficiency rate would be quite challenging for China, unless the terms of trade in agriculture improve substantially in favor, of producers. China's policy makers must therefore seriously reconsider whether adhering to the policy goal of grain self-sufficiency is worth the effort. (C) 2012 Elsevier Inc. All rights reserved.