5. Conclusions
Lack of production scale has been long regarded in the literature as a major constraint of smallholder farmers. In this paper, we show this conventional wisdom may not be true. Agricultural production can be divided into multiple steps. When the nonfarm job opportunities are limited and wages are low, farmers tend to undertake most steps of production by themselves. However, as real wages increase, it becomes cheaper for farmers to outsource some of the power-intensive steps to professional service providers, such as labor-cum-machine services, than to manually harvest crops. Because China is a large country with diversified production seasons, labor-cum-machine service providers can travel widely for a long period, greatly lowering their unit cost of operation and essentially substituting for the more expensive manual harvesting. This is an important reason why despite the declining labor input in agricultural production, land productivity in China has not declined. The availability of the cheaper option of labor-cum-machine services is a key reason.
The emergence of the national labor-cum-machine service market may also help the nonfarm sector. When mechanization services are absent, migratory workers have to return home to help harvest crops, disrupting the normal production in the nonfarm sector. Now that the service is readily available for hire, migratory workers do not need to rush home during the peak seasons. This in turn may help boost labor productivity in the nonfarm sector; that is a hypothesis to test in future research.
By sourcing labor and power-intensive steps of production to others, smallholder farmers can maintain their competiveness despite their small and fragmented land size. However, as the current old-generation farmers with low opportunity cost of labor die out in the near future, land consolidation will become inevitable.
The Chinese experience highlights that agricultural production can be divisible in the same way as in industrial production. If we ignore the fine division of labor, we may draw a less precise assessment of the competiveness and potentials of Chinese agriculture. Paying greater attention to the structure of production can help us better understand the working economy (Coase & Wang, 2011).
