The Effect Of Market Participation Mode On Farmer's Income And Its Distribution

This paper analyzes the impact of the potato supply chain on farmers'income and builds on and refines other agric-supply chain studies. The paper assesses the impact of supply chains from two perspectives: First, from the angle of value chain, this paper analyzes price formation, cost constitution and profit distribution, focusing on farmers'status in the whole supply chain to see to what extent the participation of other actors affects their income levels; and second, from the farm household level, by constructing econometric model and decomposing the factors influencing farmers'poverty and inequality, this paper analyzes the impact of traditional and modern potato market channels on farmers'income and poverty, and the factors influencing farmers'choice of market channels. This paper may broaden the research scope of agri-supply chain, and offer new insight into raising farmers'income and reducing poverty. By conducting field surveys and statistical analysis and testing this paper arrives at the following conclusions:(1) From the overall value chain perspective, price formation, cost constitution and profit distribution vary in different supply chains. As for price formation, potato farmers receive 26% of the retail price of traditional retailers, while only 10% of the retail price of modern retailer (supermarkets in Beijing. In Gansu, wholesalers receive 53% of the retail price of traditional retailers, and Beijing wholesalers receive 84% of the retail price of traditional retailers. For cost constitution, total cost of whole supply chain from Gansu to Beijing accounts for 1/3 of the traditional retail price. Of the total cost, 9.75% is from agricultural inputs, 10.56% is from hired labor and rented machinery, and 34.1% is from transportation fee. As for profit distribution, this paper does not observe significant variance between supply chains, suggesting farmers'incomes are not significantly affected by the participation of other actors in supply chains.(2) Large farmers profit more than small farmers from planting potatoes. In the past five years there has been little change in the distribution of land between small and larger farmers. The, average land holdings of large farmers is roughly twice that of small farmers. For family deposit assets, family animal and machinery assets both witnessed substantial increase during the past five years, average animal and machinery assets of large farmers are both twice those of small farmers. For potato production, though potato yield of large farmers is relatively higher than that of small farmers, the sales price of small farmers is lower than that of large farmers due to the higher input and transaction costs of small farmers when compared to large farmers, causing the absolute margin of small farmers to be lower than that of large farmers.(3) Farmers choosing modern market channels profit more than farmers choosing traditional channels. In terms of production scale, farmers without selling any potatoes have the largest amount of agricultural land per household but the smallest amount of land used for potato cultivation; by contrast, farmers choosing the modern market channel have the smallest agricultural land per household but with a far great proportion dedicated to potato farming, meaning that farmers choosing modern market channels specialize in potato farming. For potato yield and marketing, farmers using traditional channels have the lowest yield, farmers choosing modern market channels enjoy the highest yield and sales per mu, with sales ratio of 77.12%, 6.55% higher than that of farmers choosing traditional market channels, meaning that farmers choosing modern market channels specialize in potato marketing. As for cost-benefit analyses, farmers choosing modern market channel had the highest unit cost with 649.97 Yuan per mu, 39.83 Yuan higher than that of farmers choosing traditional market channels. Farmers choosing modern market channel gain higher yields and prices, which offset the relatively higher input costs; the resulting higher net profit per mu of 310.60 Yuan is 133.93 Yuan than that of farmers choosing traditional marketing channels.(4)Potato marketing channels influence farmers'production and operational behavior. Model estimation shows that potato marketing channel is negatively correlated with potato cultivated land and passed the significance test at 1% level, positively correlated with potato yield and sales price and passed the significance test at 1% level, while negatively correlated with potato unit production cost while doesn't pass the significance test. It means that compared with traditional marketing channel, farmers choosing modern marketing channel tend to have smaller area of land for potato cultivation, higher yield and sales price, and lower production costs. As for potato seed choice, model estimation shows that marketing channel and seed choice is not closely correlated.(5) Farmers in the sample still face relatively serious poverty and inequality. The incidence of poverty in the sample is as high as 12.5% for 2010, higher than that of average national level and higher than that of key national poverty counties in the same period. When using the World Bank poverty standard, poverty incidence of farmers in the sample rises by 7.81%. The Gini coefficient by per capita income is 0.44, higher than that of average national rural residents in the same period, and falls under the category of relatively high inequality (0.4-0.5). FGT index varies between different marketing channel groups, in which the FGT index of farmers choosing modern marketing channels are the lowest, while the FGT index of farmers in traditional channels are the highest. Per capita income and expenditures vary between different marketing channel groups, in which farmers choosing modern marketing channel have the highest per capita income and expenditure, and the lowest GE index and Gini coefficient.(6)Non-farm income is the primary income source, and the primary factor influencing poverty and inequality measures. In terms of the per capita net income of farmers, non-farm income, farm income and transferred income are the three largest sources of farmers'income. Non-farm income accounts for 61% of per capita net income and contributes 79.56% to inequality; farm income accounts for 27.97%, of which potato income accounts for 10.75%; transferred income is the third largest income source, accounting for 6.33% of per capita net income. During the past five years, non-farm employment grew rapidly, with 75.94% of farm households in the sample participating in non-farm employment, a 20% increase from 2005, meaning that non-farm income has become increasingly important for farmers'income. Non-farm employment and agricultural land are both significantly negatively correlated with farmers'poverty, and family significantly positively correlated with farmers'poverty.(7) Participating in modern marketing channels help farmers raise income and alleviate poverty, but the effect is limited. Using an econometric model, this paper analyzes in detail the relationship of potato marketing channel and farmers'potato income, per capita net income and poverty. Model estimation results show that modern marketing channel is significantly positively correlated with farmers'potato net income and per capita net income. Although in the poverty determination model, the marketing channel variable is not statistically significant, however, its marginal effect direction is instructive, the probability of farmers that choose modern marketing channel falling into poverty decreases 3.82%.This paper puts forwards the following policy recommendations: strengthen the vertical integration of potato supply chain system and establish the integrated development model of potato production and distribution by facilitating long-term stable cooperation between actors in the supply chain to lower transaction costs and market risk, and develop the operational efficiency and benefit of potato supply chain; encourage and assist potato farmers to establish modern storages to avert market risk and gain more benefits; encourage farmers to conduct moderate scale production, exhibit scale advantages to lower production and transaction costs; promote the development of potato marketing associations and farmers'professional cooperatives to raise farmers'organizational level; strengthen the input of poverty alleviation fund and speed up the poverty alleviation development process, to promote the agricultural and rural development of western areas; and expand non-agricultural sectors and promote the migration of surplus rural labor and grant farmers with fair treatment to promote the development of labor resources.