Do agricultural machinery services promote village farmland rental markets? Theory and evidence from a case study in the North China plain

The rapidly increasing availability of agricultural machinery services in rural China may promote development in the farmland rental market, but it can also hamper it. This study provides a theoretical and empirical examination of how and to what extent agricultural machinery services affect the participation of smallholders in farmland rental markets. In the theoretical part, a price band model for quasi-fixed inputs is developed and applied to analyse the responses of smallholders with varying land endowments to changes in the demand for land due to the increased availability of machinery services. The empirical analysis is based on survey data collected from 2041 smallholders in Handan Prefecture in the North China Plain. The availability of machinery services for crop management activities (fertilisation, spraying and irrigation) was found to have a significant positive effect on the renting in of land and a significant negative effect on the renting out of land. The availability of machinery services for basic activities (ploughing, seeding and harvesting) had no significant effect on land rental decisions. These results imply that policies aimed at promoting markets for agricultural machinery services may sometimes frustrate policies aimed at stimulating farmland rentals among smallholders.