The sluggish rate of growth for China's grain production during the past decade is a major concern for agricultural planners. At the national level, the average rate of production fell to 1.8 percent per year from 1985 to 1990, after an average growth rate of 4.7 percent per year from 1978 to 1984. Supplies and application rates of critical farm inputs during 1985 to 1990 reached record levels, but had a disappointing effect on both yields and gross production. We hypothesize that environmental degradation has had a major effect on grain production in many of China's agricultural areas. In this article, we introduce a nationwide fixed effect grain-yield function which incorporates both traditional input variables and an additional set of variables that reflect trends in environmental degradation at the provincial level. The model is estimated using time-series data for the period from 1978 to 1990. The analysis suggests that environmental degradation may have cost China as much as 5.7 million metric tons of grain per year in the late 1980s. Results also indicate that the projected losses due to environmental stress are not evenly distributed throughout China, but that regions which brought considerable amounts of marginal land into cultivation during the earliest years of the reform period now face the greatest problems. Xinjiang and Gansu in the Northwest, the Loess Plateau provinces, and Yunnan and Guizhou AR in the Southwest reported stagnant production despite significant increases in technical inputs. We conclude that this stagnation should be credited to the increasing degradation of agricultural land in these areas.
