Unleashing the Output Potentials of Scale Farms: Evidence From East China

ABSTRACT China's agricultural sector is undergoing a rapid transformation from traditional smallholder agriculture to family‐based scale farming characterized by intensive, commercialized, and specialized production. However, during the transformation process, these emerging scale farms often face significant credit constraints and technical inefficiency, which could become major obstacles to the high‐quality development of Chinese agriculture. To assess the impact of credit constraints and technical inefficiency on scale farms' output, we use the indirect production function approach in the stochastic frontier framework and based on data from a survey of 667 scale farms engaged in wheat production. The empirical results show that actual farm expenditures are on average 20% below the desired level, and the average technical efficiency is 0.78, indicating that farm output decreased by 17% and 22%, respectively, due to expenditure constraints and technical inefficiency. Furthermore, farm output losses increased for both reasons during the sample period. In addition, the land area of scale farms has a significant positive correlation with the degree of expenditure constraints and appears to have a U‐shaped relationship with technical inefficiency.