Commercial Rice Growers in Guangxi, China, Provide Evidence of Farm Expansion with Finance Constraints

Abstract

In China, financial constraints typically influence agricultural production decisions, and a shortage of finance frequently precludes beneficial investments like farm development that create economies of scale. Nonetheless, China continues to see a rise in farm expansion, with more smallholders moving their operations to a moderate scale, particularly in the rice industry. This study uses a representative household survey of rice farmers in Guangxi Province, China, to precisely evaluate the influence of financing constraints on farm expansion decisions in order to explore this contradiction. The propensity to expand in the near future, which is predicted by a number of parameters where the potential endogeneity of credit constraint is taken into account using instrumental variable methodologies, and the actual expansion in the last five years are both empirically measured. Credit constraints have been demonstrated to have a negative and severe impact on farm expansion. This effect varies and is most pronounced among holders of intermediate scale. Our results demonstrate how crucial it is to provide financial services to comparatively small-scale commercial farmers in emerging nations in order to alleviate their credit constraints.