Estimation of Agricultural Production Relations in the LUC Model for China

Abstract

China's demand for grains has been growing rapidly during the past two decades, largely as a result of the increasing demand for meat. This raises the important question of whether in the coming years China will be able to satisfy these increasing needs. The answer to this question will have implications that reach far beyond China's borders, especially in the light of China's accession to the World Trade Organization (WTO). The answer depends on many factors, including the policy orientation of the Chinese government, the loss of cropland caused by the ongoing industrialization and urbanization processes, and the effect of climate change on the country's agricultural potential. To analyze these issues, the Land-Use Change (LUC) Project at the International Institute for Applied Systems Analysis (IIASA) has been developing an intertemporal welfare-maximizing policy analysis model. This report presents the input-output relationships for agricultural crops in the model. The specified relationships are geographically explicit and determine the crop output combinations that can be achieved under the prevailing biophysical conditions across China from given input combinations in each of some 2,040 counties based on data for 1990. The non-land inputs are chemical and inorganic fertilizer, labor, and machinery. Irrigated land and rain-fed land are distinguished as separate land-use types. Distinct relationships are estimated by cross-section for the eight economic regions distinguished in the LUC model. The biophysical potential enters as an asymptote in a generalized Mitscherlich-Baule yield function and is computed on the basis of an agro-ecological assessment of climatic and land resources, including irrigation. The chosen form globally satisfies the required slope and curvature conditions. Estimation results show that all key parameters are significant and are of the expected sign. The calculated elasticities of aggregate output with respect to inputs quite closely reflect the relative scarcity of irrigated land, labor, and other inputs across the different regions. It also appears that if both the local population density and the distance to main urban centers are taken into account, the observed cropping patterns are generally consistent with profit maximization. The often-noted labor surplus is confirmed in all regions, particularly in the southern and southeastern regions