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Meri-Rastilantie 3 B, FI-00980 Journal of Food, Agriculture & Environment Vol.8 (3&4): 772-778. 2010 www.world-food.net
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Efficiency and its determinant factors for smallholder farms in the Grain for Green
Program on the Loess Plateau, China
Li Li 1*, Atsushi Tsunekawa 1, Mitsuru Tsubo 1, Atsushi Koike 2 and Jijun Wang 3
1
Arid Land Research Center, Tottori University 1390 Hamasaka, Tottori 680-0001, Japan. 2 Faculty of Engineering, Tottori
University 4-101 Koyama-Minami, Tottori 680-8550, Japan. 3 Institute of Soil and Water Conservation, Chinese Academy of
Science, No. 26, Xinong Road, Yangling, Shaanxi 712100, China. *e-mail: lili@alrc.tottori-u.ac.jp

Received 16 July 2010, accepted 25 October 2010.

Abstract
A nonparametric frontier approach, data envelopment analysis, was used to calculate technical, pure technical, cost, allocative and scale efficiencies
of 112 farms participating in the Grain for Green Program on the Loess Plateau in China. The results indicate substantial cost inefficiencies. The main
source of cost inefficiency was allocative inefficiency although considerable technical inefficiency also exists. Technical inefficiency resulted slightly
more from scale inefficiency than from pure technical inefficiency. Scale inefficiency was mostly due to the suboptimal scale of farms. Regression
analysis of explanatory variables against technical efficiency, allocative efficiency and scale efficiency suggested that LG_Agri (indicator for farm
size) was the only variable that was significantly related to all three efficiency indices. Other significant variables include Remittance Ratio (indicator
for rural-urban migration), Tenancy Ratio (indicator for land tenancy) and Simpson Index (indicator for land fragmentation). Our findings prompt
policy suggestions that would facilitate labor mobility, provide more secure land tenure and increase land consolidation, while avoiding further
withdrawal of cultivated land unless explicit measures to alleviate the potential impact on production efficiency are followed.

Key words: Semi-arid region, technical efficiency, allocative efficiency, scale efficiency, farm size, land tenure, land fragmentation, labor mobility.

Introduction
The Loess Plateau, a vast area in northwestern China comprising
Shaanxi, Shanxi, Gansu provinces, the Ningxia Hui Autonomous
Region and part of others, provides home and subsistence to
over 69 million farmers. Due to the extremely highly erodible
characteristics of the topsoil to wind and water, Loess Plateau
was among the regions with the most serious soil erosion in the
world. As a result of million years’ erosion, it is a heavily dissected
landscape that is, in part, too steep for cropping and too fragmented
for communication. Last several decades, however, population
growth and increasing demand for food caused widespread
overgrazing and excess reclamation of marginal and sloping land,
leading to accelerated land degradation 1. On the other hand, with
the shift of farmland from a collectively system to individual
household responsibility and the occasional reallocation of land
among farms to adapt to demographic changes, the land saw an
increasing trend toward fragmentation 2, 3. While land degradation
and fragmentation are detrimental to agricultural production
(UNEP), overpopulation brings about massive potential labor
surplus, lacking employment opportunities, which also reduce
the productivity and efficiency in agricultural production. The
combined consequence of these factors was that the subsistence
farmers of the Loess Plateau were living in poverty.
To help mitigate soil erosion, rehabilitate the environment and
improve the welfare of rural communities, Chinese government
initiated the Grain for Green Program on the Loess Plateau in 1999.
The principal measure of the Program is to compensate farmers
with grain or cash for reforesting cultivated fragile marginal or
sloping lands. The Program also devoted to foster long-term
sustainable rural livelihoods through measures like building
terraces, spreading bio-energy technologies, promoting out-
migration and off-farm work, expanding agricultural grants-in-aid
and providing extension services to farmers, etc. In general, the
Program is intended to help the peasants escape the poverty trap
through financial support, technical assistance and institutional
improvement so that agricultural production improves and surplus
labors shift to off-farm jobs (State Council of the P.R.C., 2007).
Agricultural production can be improved by intensifying
agricultural inputs, adopting new technology or improving
efficiency. However, options to expand agricultural production
by intensifying inputs within the context of the Grain for Green
Program are limited because the program not only directly
decreases the cultivated land area, but also encourages off-farm
employment. Recent work by Li et al. 4 suggests that as a result of
several years’ efforts by the program, even though the technology
available to farmers has greatly improved, farm efficiency under
the improved technology has not. Therefore, the most effective
way for farms to increase their agricultural production is to improve
production efficiency 5. Consequently, the aims of this study were
to explore (1) whether and to what extent farms are able to realize
the full production potential of emerging technologies, or their
production efficiency, under the prevailing circumstances brought
about by the program; (2) whether and to what extent involvement
in non-agricultural employment, out-migration (Uchida et al. 6
and Xu et al. 7 found evidence of increase in non-agricultural

772 Journal of Food, Agriculture & Environment, Vol.8 (3&4), July-October 2010
employment and rural-to-urban migration), land rental and land
tenancy (Zhang et al. 8 observed the emergence of the transfer of
land use right in farming among farmers to mitigate the land
constraints created by the program), the degree of land
fragmentation and access to credit affect farm efficiency; and (3)
which other factors, if any, are responsible for variation in farm
efficiency.
Methods
Estimation of efficiencies
Technical and pure technical efficiency: Following Fare et al. 14,
suppose that K farms (indexed by k) use N inputs (indexed by n)
to produce M products (indexed by m), we can estimate the input-
oriented technical efficiency of the ith farm, under the assumption
of CRS, TEi (yi, xi), by solving the following linear programme:
TEi (yi, xi)= θmin θi ,
,λ
i

We used a two-stage approach to this study. First, we used data subject to

envelopment analysis (DEA) to estimate efficiencies, including K
cost efficiency, technical efficiency, pure technical efficiency,
allocative efficiency and scale efficiency, excluding discretionary
– yim + Σy
k=1
km
λk
≥ 0, m = 1, 2, … , M

variables. Second, we used farm-specific socio-economic variables K

related to involvement in non-agricultural employment and out-
migration, land tenancy, the degree of land fragmentation and
θi xin – Σx
k=1
kn
λk ≥ 0, n = 1, 2, … , N

access to credit in an ordinary least square (OLS) regression

framework to explain variation in measured efficiencies.
Here we refer to widely used definition 9 that the efficiency of a
decision making unit (DMU, such as a firm, a farm, etc) is the
distance between observed and optimal values (frontiers) of its
outputs and inputs 9. If the combination of the inputs and outputs
lies on the production frontier, it is called efficient; otherwise,
inefficient.
The concept of technical efficiency was firstly advocated by
Koopmans 10 and then popularized by Farrell 11. It refers to the
ability to avoid waste by producing as much output as possible
as input usage allows (output orientation), or by using as little
input as output production allows (input orientation). Farrell 11
decomposed economic efficiency — the ability of a DMU to get
λk ≥ 0, k = 1, 2, … , K
where xi and yi are the input and output vectors of the ith farm,
respectively; xkn and ykm are the nth input and mth output of the kth
farm; λk represents the weights to be used in the inputs for the kth
farm to achieve efficiency; and θi is the technical efficiency of the
ith farm, bound by 0 and 1, where 1 indicates efficient and less than
1 indicates inefficient.
The technical efficiency under VRS, pure technical efficiency,
PTEi (yi, xi), can be derived by adding the convexity constraint
K
Σ λ =1 , which benchmarks the farm against farms of a similar size.
k=1
k

more output at minimum cost — into two components, given the Cost and allocative efficiency: To estimate the allocative
assumption of constant returns-to-scale (CRS). One component efficiency of the ith farm, we first need to calculate cost efficiency
is technical efficiency. The other is allocative efficiency (termed by solving the following cost-minimizing DEA model under the
as price efficiency by Farrell 11), which refers to the ability to assumption of CRS:
combine inputs and outputs in optimal proportions in light of
MCi (yi, , cin) = ,
prevailing prices. Since technical efficiency as defined above takes
no account of the scale effect, Banker et al. 12 introduced the
concept of technical efficiency under the assumption of variable subject to
returns-to-scale (VRS), which was later called pure technical
K
efficiency, to distinguish scale efficiency from technical efficiency.
Scale efficiency measures whether the DMU is operating at the
–yim + Σy
k=1
km λk ≥ 0, m = 1, 2, … , M
optimal size at which change in size will not improve output or K
revenue.
The efficiency of a DMU can be estimated by using a parametric
x’in – Σx
k=1
kn λk ≥ 0, n = 1, 2, … , N

method, such as stochastic frontier approach, or a non-parametric

method, such as DEA. We chose DEA because it simultaneously
examines technical efficiency, allocative efficiency and scale λk ≥ 0, k = 1, 2, … , K
K
efficiency, and readily handles multiple inputs and outputs. DEA
requires no assumptions about the form of the production function Σ λ = 1,
k=1
k

and the distribution of the underlying data and thus is less

sensitive to misspecification and unlike parametric methods, is
not subject to assumptions about the distribution of the error
term (see more comparison between parametric and nonparametric
method, refer to Bauer et al. 13).
We adopted the input-orientation in our study because we
assumed that farmers have greater ability to control land, labor
and capital than to adjust outputs according to market prices,
which are regulated by the local government.
where MCi (yi, x’in, cin) is the minimum total cost for the ith farm
under CRS; cin is the price of the nth input used by the ith farm for
agricultural production; and x’in is the combination cost-minimizing
nth input used by the ith farm. As the actual cost for the ith farm is
given by cin× xin, cost efficiency, the ratio of minimum to actual
cost, is expressed by:
CEi (yi, xin, cin)= [MCi (yi, x’in, cin)]/(cin× xin)

Journal of Food, Agriculture & Environment, Vol.8 (3&4), July-October 2010 773
The ith farm is cost efficient when CEi =1.
Allocative efficiency is then computed by:
AEi (yi, xin, cin) = [CEi (yi, xin, cin)]/TEi (yi, xi)
under the assumption of CRS 11.
Scale efficiency: The scale efficiency of the ith farm is obtained by
dividing technical efficiency by pure technical efficiency:
TEi (yi , xi) ,
SEi (yi, xi) =
PTEi (yi , xi)
where SE = 1 represents scale efficient (under both CRS and VRS)
and 0 ≤ SE <1 represents scale inefficient, which can be either
increasing returns-to-scale (IRS) or decreasing returns-to-scale
(DRS).
Following Coelli and Thirtle 15, the property of returns to scale in
operation can be detected by replacing the convexity constraint
K K
Σλ
k=1 = 1 (VRS) with kΣ
k k
λ
= 1 ≤ 1 (the assumption of non-increasing
returns-to-scale, NIRS) when estimating technical efficiency and
then comparing the NIRS and VRS efficiency scores. If the two
scores are equal, the farm is operating at decreasing returns-to-
scale; and if not, at increasing returns-to-scale. Finally, if technical
efficiency under CRS equals that under VRS, then it is by definition
operating under CRS.
Second-stage regression analysis: In efficiency analysis, the
second-stage regression usually involves a Tobit model (because
the efficiency scores are censored between 0 and 1), or, less
commonly, maximum likelihood estimate (MLE) or ordinary least
square (OLS) regression. Recently, McDonald 16 proved that the
efficiency scores by DEA are not generated by a censoring process
and are fractional data, thus, using Tobit in the second stage
would be inconsistent. Instead, he advocated the use of OLS.
Hoff 17 also asserted that the Tobit model is not necessarily
superior to OLS in many cases. Banker and Natarajan 18 further
demonstrated that DEA in the first stage followed by OLS or MLE
regression in the second stage yields consistent estimates of the
impact of contextual variables as long as the contextual variables
are independent of the inputs. We therefore used OLS regression
to identify the exogenous factors associated with farm efficiency,
as our data meet the requirements given by Banker and Natarajan 18.
The regression equation takes the following form:
J
EFFi = a0 + Σ a V +e,
j=1
ij ij
i Explanatory variables related to efficiency scores: Many studies
where EFFi is the efficiency score of the ith farm derived from the
first stage estimation; a0 is the intercept, Vij is the jth of J explanatory
variables for the ith farm; and ei is the error term.
Study Area and Datasets
The sample farms were chosen from the Zhifanggou and
Xiannangou catchments in Ansai County, Shaanxi Province.
Although agricultural production plays a crucial role in local
economy, the study area has a semi-arid continental climate and
agriculture is primarily rain-fed. Both catchments have been
774
affected by severe soil erosion and the farmers there lived in
poverty. Both catchments were among the 11 pilot catchments
selected in 1999 for the Grain for Green Program and have been
subjected to many program-sponsored measures. Considerable
changes have taken place in the rural community as a result of the
program, the most apparent being contraction of the land area.
For example, around 53.5% of the farmland in Zhifanggou
catchment had been withdrawn from agricultural production as a
result of the Grain for Green Program by 2003. The population
engaged in agricultural production decreased from 523 to 501,
most of which due to out-migration. The income from non-
agricultural activities at the catchment scale increased by 32.5%,
while agricultural production decreased by 16.5% in 2003
(provided by Wang). It is therefore urgent for policy proposal to
increase the farm efficiency of agricultural production for both
food security and the sustainability of the program.
In 2008 and 2009, we collected data related to agricultural
production as of 2007, the last year of the first phase of the Grain
for Green Program. The data were collected with the joint efforts
of the Arid Land Research Center of Tottori University, Japan,
and the Institute of Soil and Water Conservation of the Chinese
Academy of Sciences.
The catchments have a total area of 67.3 km2 and are composed
of 14 villages. In total, 124 households were randomly surveyed,
of which 112 gave valid data: 60 from Zhifanggou and 52 from
Xiannangou.
Inputs and outputs to estimate efficiency scores: To estimate the
input-oriented frontier, and thus the efficiency scores for the farms,
the quantities and prices of all inputs and the total volumes of
outputs were needed.
The input variables, for which data were collected at the farm
level, included Land, the total area under cultivation for all crops;
Labor, the total labor forces engaged in agricultural activities,
adjusted by working hours; Seed; Fertilizer; Fuel; Young animals;
Fodder. Except for land and labor, the quantities of all inputs were
estimated by dividing total expenditures by the average of sampled
prices. The prices for land and labor in 2007 are taken from the
Shaanxi Statistic Bureau (http://www.sei.gov.cn/). The price of
labor was given as the average annual net agricultural income at a
provincial level, instead of shadow wage-rate, due to data
availability. The output variables were Crop and Livestock, both
measured by market value. Crop included maize, millet, soybean,
potato, buckwheat, peanut, oilseed, vegetables and fruits; and
Livestock products included cattle, sheep, pigs, chickens and
their products, such as eggs, milk and wool (refer to Table 1).
have investigated the impact of exogenous variables that might
influence efficiency at the farm level 19-29 (see Bravo-Ureta and
Pinheiro 30 for a detailed review of the socio-economic variables
relevant to farm efficiency). In our model, we examined age (Age)
and education (Education) of the householder, farm size
(LG_Agri), non-agricultural employment (NonAgri Ratio),
remittance from out-migrant family members (Remittance Ratio),
land tenancy (Tenancy Ratio), land fragmentation (Simpson Index),
and access to credit (Access to Credit) (refer to Table 2).
We used years of schooling to reflect educational level: following
Fan et al. 31, we assumed 0 years for persons who are illiterate or
Journal of Food, Agriculture & Environment, Vol.8 (3&4), July-October 2010
semi-illiterate, 5 years for primary school education, 8 years for
junior high school education and 12 years for senior high school
education. No generally accepted measures exist for farm size,
although various measures of output, sales or inputs have been
suggested in the literature 32. Land area is the most frequently
used measure but because we included both crop and livestock
production as the outputs, we adopted the suggestion that an
agricultural output-related index would be more rational 20 and
take the common logarithm of agricultural income (LG_Agri) to
reflect farm size 21. The NonAgri Ratio is the ratio of non-
agricultural income, including earnings from both non-agricultural
on-farm and off-farm activities, to total household income. Rural-
urban migration and the remittance by out-migrant family members
are expected to affect farm production even though the influences
are complex and manifold. On one hand, out-migration helps the
shift of surplus labor force and the remittance might be critical for
enhanced agricultural investment and farm management 29, 33. On
the other hand, rural to urban migration usually involves more
well-educated and robust labors, which has the potential to
sacrifice agricultural production 22, 29. To distinguish the influence
of rural-urban migration and hence remittance from that of overall
non-agricultural income, we used Remittance Ratio, the ratio of
remittances from out-migrant family members to total household
income. The Tenancy Ratio is the rented cultivated land area
divided by the total cultivated land area. Land fragmentation was
S Statistics related to the returns-to-scale characteristics are given
measured by the Simpson Index, which is defined as 1– ( sΣ
2
as / 2
=1 s )
A in Table 5 to explore the details of scale inefficiency. Of the 82
where as is the area of the sth plot and A is the farm’s total land area,
S at increasing returns-to-scale (sub-optimal scale), implying that
composed of S plots, sΣ
a
=1 . We define a plot as a discrete parcel
s
of land physically separated from other land owned by the same
household. This index has a value between 0 and 1. A value of 0
means that the farm household has only one parcel or plot of land,
which indicates complete land consolidation, whereas a value
close to 1 means the household has numerous plots and the farm
is “very fragmented”. Access to Credit is the ratio of the sum of
loans obtained in the past 8 years to total household assets.
Results and Discussion
Descriptive statistics of the primary data: Descriptive statistics
of the primary data indicates the socio-economic structure
and demographical characteristics of the farms of the study area
(Tables 1 and 2). As shown in Table 1, the farms are dominated by
crop production and livestock is basically a sideline product, with
average income from crop production of 13,441.231 yuan and that
from livestock production of 2868.214 yuan. Arable land per
household is only 9.580 mu with substantial variability.
The householders in our sample were mostly middle-aged to
elderly, with low education level and had an average agricultural
income of about 16,310 yuan per household. Non-agricultural
income had become an important income sources, accounting for
37.8% of total household income. In contrast, remittance from
absent family members amounted to only 1.2% of total household
income. Land use right transfer emerged, and rented land amounted
to 9.9% of total cultivated land on average. The Simpson Index
indicates severe fragmentation. Access to credit was rather limited.
The statistics are marked by great variation in the tenancy ratio
and the non-agricultural income ratio.
Journal of Food, Agriculture & Environment, Vol.8 (3&4), July-October 2010
Farm efficiency estimates: Cost efficiency, technical efficiency
and allocative efficiency under the assumption of CRS and pure
technical efficiency were calculated using DEAP, a computer
program developed by Coelli 34. The statistics of the efficiency
scores are presented in Table 3. The results indicate considerable
inefficiency in agricultural production.
As cost inefficiency is a result of both allocative inefficiency
and technical inefficiency, we can conclude that cost inefficiency
(0.726) is due mainly to allocative inefficiency (0.611) rather than
technical inefficiency (0.311). The farmers could reduce costs by
61.1% choosing more cost-efficient input combinations without
compromising output.
Technical inefficiency (0.311) results from both pure technical
inefficiency (0.179) and scale inefficiency (0.181). This implies that
if all farms were an optimal size, the cost would be decreased by
18.1% to produce the same output.
Table 4 shows the distribution of the efficiency scores. More
than 90% of the cost efficiency and allocative efficiency scores
were less than 0.6, whereas nearly 60% of the technical efficiency
scores were above 0.6 and 25% were absolutely technical efficient.
This is consistent with the result above that farmers were unable
to allocate inputs so as to minimize costs, rather than unable to
use resources with the greatest technical efficiency. Thirty farms
(26.8%) had reached optimal scale but 82 (73.2%) operated with
non-optimal scale.
scale inefficient farms, most (69.6% of the total sample) operated
most farms are too small. Farms operating at decreasing returns-
to-scale (supra-optimal scale) and constant returns-to-scale
(optimal scale) have higher average values of agricultural output
than those at sub-optimal scale, and achieved, on average, higher
efficiency scores than those operating at sub-optimal scale,
suggesting that expanding the size of the farms would improve
production efficiencies.
Variables related to variation in farm efficiency: Because
technical efficiency, allocative efficiency and scale efficiency have
greater practical implications than cost efficiency and pure technical
efficiency, we used OLS regression to simulate the relationship
between the explanatory variables and the technical, allocative
and scale efficiency scores obtained in the previous section. The
results are presented in Table 6. LG_Agri was significantly
positively related to all the three indices; Remittance Ratio was
significantly positively related to technical efficiency and scale
efficiency; and Tenancy Ratio and Simpson Index were
significantly negatively related to technical efficiency and scale
efficiency.
The significant positive relationship between LG_Agri and the
three indices means that larger farms achieved higher efficiency
scores, which accords with the results in Table 5 that the farms
operating at supra-optimal or optimal scale had higher efficiency
scores than those operating at sub-optimal scale. This result is
consistent with the findings of Coelli and Battese 23 and Karagiannis
and Sarris 24. The underlying reason was given that smaller farms
usually face capital constraints, which restrain them from utilizing
and allocating resources more efficiently. Our understanding of
this result is that when increasing returns-to-scale prevails or
775
776
Table 1. Descriptive statistics of input and output variables used in DEA models to estimate Table 4. Frequency distribution of efficiency scores of
efficiency scores of sample farms on the Loess Plateau, China (n = 112). sample farms on the Loess Plateau, China (n = 112).
Ave. SD Min Max Range TE AE CE PTE SE
Inputs Q Land (mua) 9.580 4.574 0.800 23.500 (0.0-0.1] 0 4 17 0 0
Labor (persons) 1.779 0.488 1.000 4.000 (0.1-0.2] 3 13 29 0 0
Seed (kg) 11.172 7.551 0.910 38.960 (0.2-0.3] 9 15 24 0 3
Fertilizer (kg) 465.329 428.620 24.000 1838.000 (0.3-0.4] 9 22 20 1 4
Fuel (kg) 0.871 1.874 0.000 11.400 (0.4-0.5] 6 32 11 3 6
Young animal (kg) 58.552 107.632 0.000 640.000 (0.5-0.6] 18 18 7 11 9
(0.6-0.7] 8 4 1 20 7
Fodder (kg) 638.259 1486.056 0.000 15000.000
(0.7-0.8] 16 2 1 17 10
P Land (yuanb/mu) 48.000 (0.8-0.9] 8 0 0 11 14
Labor (yuan/person*year) 2645.000 (0.9-1) 7 0 0 5 29
Seed (yuan/kg) 10.000 1 28 2 2 44 30
Fertilizer (yuan/kg) 2.500
Fuel (yuan/kg) 5.882
Young animal (yuan/kg) 5.000
Fodder (yuan/kg) 0.700
Outputs Crop (yuan) 13441.231 13474.756 718.400 69960.000
Livestock (yuan) 2868.214 6104.027 0.000 60000.000
Here Q refers to quantity and P refers to price; a: 1 mu = 0.067 ha; b: 1 yuan = 0.133$ in 2007; and note that we assume farms faced same input prices.

Table 2. Descriptive statistics of explanatory variables expected to affect Table 5. Returns to Scale of sample farms on the Loess Plateau, China (n = 112).
efficiency scores of sample farms on the Loess Plateau, China (n = 112). No. of Average value
RTS
Variables Ave. SD Min Max farms Agricultural output TE AE CE PTE SE
Age (years) 46.821 9.587 22.000 75.000 IRS 78 11687.000 0.570 0.374 0.215 0.758 0.742
Education (years) 4.446 3.683 0.000 11.000 CRS 30 26790.000 0.985 0.421 0.417 0.985 1.000
LG_Agri 4.048 0.401 2.856 4.862 DRS 4 27848.000 0.797 0.451 0.358 0.819 0.974
NonAgri Ratio (percentage) 0.378 0.305 0.000 0.954 Here RTS refers to returns-to-scale; IRS refers to increasing RTS; CRS refers to constant RTS; and DRS refers to decreasing RTS.

Remittance Ratio (percentage) 0.012 0.039 0.000 0.358

Tenancy Ratio (percentage) 0.099 0.205 0.000 1.000
Simpson Index 0.658 0.165 0.000 0.885
Access to Credit (percentage) 0.024 0.104 0.000 0.800

Table 3. Technical, allocative, cost, pure technical and

scale efficiencies of sample farms on the Loess
Plateau, China (n = 112).
TE AE CE PTE SE
Ave. 0.689 0.389 0.274 0.821 0.819
SD 0.266 0.172 0.183 0.178 0.220
Min 0.105 0.076 0.029 0.344 0.210
Max 1.000 1.000 1.000 1.000 1.000
Here TE refers to technical efficiency; AE refers to allocative efficiency; CE refers to cost
efficiency; PTE refers to pure technical efficiency; and SE refers to scale efficiency.

Journal of Food, Agriculture & Environment, Vol.8 (3&4), July-October 2010

Table 6. OLS regression analysis of factors affecting technical efficiency, allocative
efficiency and scale efficiency of sample farms on the Loess Plateau,
China (n = 112).
Variable Technical efficiency Allocative efficiency Scale efficiency
Coefficient Coefficient Coefficient
t-value t-value t-value
Constant í0.780 í0.956 í0.590
í3.130*** í5.923*** í2.928***
Age í0.003 0.001 í0.003
í1.441 0.865 í1.755
Education í0.008 0.003 í0.008
í1.424 0.798 í1.894
LG_Agri 0.497 0.310 0.428
9.178*** 8.850*** 9.801***
NonAgri Ratio 0.003 0.037 í0.056
0.038 0.866 í1.043
Remittance Ratio 1.359 í0.365 0.875
2.834*** í1.176 2.257**
Tenancy Ratio í0.336 0.071 í0.227
í2.988*** 0.972 í2.501**
Simpson Index í0.557 0.023 í0.199
í4.653*** 0.298 í2.062**
Access to Credit 0.119 í0.117 0.030
0.607 í0.920 0.188
Multiple R 0.750 0.748 0.774
R Square (R2) 0.563 0.560 0.599
Adjusted R2 0.529 0.526 0.559
**
means 95% confidence level (p < 0.05);
***
means 99% confidence level (p < 0.01).

economies of scale exists, expanding farm size would be an
effective way to increase efficiencies of agricultural production.
The Remittance Ratio was significantly positively related to
technical efficiency and scale efficiency. In contrast, the NonAgri
Ratio did not have a significant effect on the efficiencies. These
two results suggest that remittances from out-migrant family
members help to relax the farm’s capital constraints to permit
investment in efficiency enhancing equipment and technology,
and in expanding farm size, but non-agricultural income does not.
Chen et al. 22 gave a regression analysis of village migrant ratio
against technical efficiency and found the same result. The
possible reasons, though, at village or regional level, he assumed
may include greater chances of voluntary land lease and
consolidation, which might benefit production efficiency 22.
Our result about Tenancy Ratio, however, was significantly
negatively related to technical efficiency and scale efficiency, which
means that renting lands (or land release at farm level) had a
negative effect on both efficiencies. The results of technical
efficiency are consistent with the work by Olson and Vu 21, Llewelyn
and Williams 25 and Latruffe et al. 26. Llewelyn and Williams 25
obtained the same result for technical efficiency of crop farms in
Indonesia and asserted that farmers utilize better resource
management practices on their own lands, thus achieve higher
technical efficiency than on rented land. The negative relationship
between Tenancy Ratio and scale efficiency, however, is somewhat
unexpected, implying that renting land prohibits the scale-efficient
use of resources. The result would seem to arise from the fact that
most farms renting land had already reached optimal or supra-
optimal scale, so further land renting would actually undermine
their scale efficiency.
The Simpson Index, which measures land fragmentation (higher
value indicate more fragmented), was negatively related to
technical efficiency and scale efficiency. The implication of this
result is that land fragmentation is significantly detrimental to
both efficiencies, as also found by others: Chen et al. 22 from
randomly selected samples from a Chinese national survey; Tan
et al. 27 for farms in Southeast China and Feng 28 from Jiangxi
Province in China. The underlying reason might be that land
fragmentation discourages agricultural mechanism, causes
wastage at plot boundaries, increases time spent commuting
between plots and increases loss of industrial inputs such as
fertilizers, pesticides and seeds during transport from one plot to
another 22, 27.
Conclusions
Our results suggest the existence of substantial inefficiency in
agricultural production for the sample farms participating in the
Grain for Green Program on the Loess Plateau. The inefficiency
was partly explained by insufficient farm size, lack of access to
capital, insecure land tenure and land fragmentation. Remittances
received from out-migrant family members provide an effective
way to outbreak farms’ capital constraints, and there is an
increasing trend for surplus labor forces seeking job in the cities
and towns as a result of the program 6, 7. However, the labor mobility
by rural-urban migration in China is still subject to significant
institutional constraints due to the different household
registration system (so called “hukou” in Chinese) between rural
and urban residents and thus different social welfares. The current
farmland tenure system is characterized by insecure land right,
resulted from both the separation of land property right and use
right, the former of which being possessed by the village collective
and the latter by the individual farm households and the occasional

Journal of Food, Agriculture & Environment, Vol.8 (3&4), July-October 2010 777

administrative reallocations of land by the village collective to
adapt to demographic changes 28. Against such background, the
land rental market on the Loess Plateau after the Program showed
to discourage land investment and undermine farm efficiency in
agricultural production. The land fragmentation in Loess
Plateau was also exacerbated during the process of egalitarian
reallocations of the land by the village collective to households
and parents to married sons and creates numerous farms with a
number of separated small parcels of land 27. However, little
attention has been paid to alleviate land fragmentation on the
Loess Plateau, which might be significant to improve farm
efficiency.
We therefore recommend that effort should be made to expand
the farm size, even though practical mechanisms by which to
achieve this may be difficult to identify. At the very least, it is clear
that any further withdrawal of cultivated land from production
must be performed in a manner that avoids the deterioration of
productive efficiencies, and thus agricultural production, on the
remaining land. Also policies should be oriented to facilitate labor
mobility, provide more secure land tenure and increase land
consolidation.
Acknowledgements
This work was supported by the Japan Society for the Promotion
of Science (JSPS) Core University Program and the Global Center
of Excellence (GCOE) Program in Japan. We are grateful to Prof.
Guobin Liu of the Institute of Soil and Water Conservation of
the Chinese Academy of Sciences, for assistance during the
investigations and the villagers of the study area for their kind
cooperation.
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