China Agricultural Economic Review

Cheng Xiang; Xiangping Jia; Jikun Huang

2014 China Agricultural Economic Review

doi: 10.1108/CAER-04-2013-0062

Purpose – Internationally, microfinance run by non‐governmental organizations (NGOs) is often considered an important approach to meeting the credit demand of rural households, particularly among the poor. However, the perceived competitions with formal financial institutions and concerns about financial risks in the rural economy have impeded the development of microfinance by NGOs in China. Despite these concerns about NGO microfinance, little empirical evidence has been brought to prove them. The purpose of this paper is to provide empirical evidence of the relationship between NGO microfinance and farmers’ demand for formal and informal credit in rural China. Design/methodology/approach – The study is based on a household longitudinal data set consisting of 749 households from 40 microfinance villages in rural China. This study draws evidence from China's largest NGO microfinance. Out of the five county branches where China Foundation for Poverty Alleviation has launched institutionalized microfinance since 2006, the authors selected two of them. A random sampling approach was applied in surveying villages and households. In an effort to create impact assessments, the authors surveyed the detailed information on household characteristics and credit access during the period 2006‐2009. A panel data is thus structured for the analysis. Findings – The authors found that the demand for credit in rural China is immense and rising, as formal financial institutions have gradually moved away from less developed regions in rural areas. In its place, informal lending has become a primary source of credit for the poor. However, where NGO microfinance has become available, both formal and informal credit has slowed down. The development and expansion of NGO microfinance did stand up as a substitution for institutional lenders and informal financial networks. Research limitations/implications – The findings have profound policy implications. First, since the development of NGO microfinance fill the demand for credit in rural China and poses low financial risk, the intellectual bias against NGO microfinance is unwarranted. In particular, the regulations that hamper the development of NGO microfinance should be corrected. Second, informal networks do not appear to be costless. Where NGO microfinance can substitute for them, it can mitigate the financial stresses related to the informal credit market.

Chin‐Huang Huang; Chun‐Hung Lee

2014 China Agricultural Economic Review

doi: 10.1108/CAER-04-2012-0033

Purpose – The Fresh Milk Logo certifies that dairy product sold in Taiwan really is fresh milk. However, the logo represents only a moral pledge by the manufacturer. No method exists for inspecting whether products are fresh milk or reconstituted milk, and the label does not represent a commitment to the same level of quality and consumer health protection as found in organic foods. The purpose of this paper is to analyze consumer perceptions of organic certified agricultural standards (CAS) and estimates consumer willingness to pay (WTP) a premium should the Fresh Milk Logo be transformed into an organic CAS certified label. Design/methodology/approach – Exploratory factor analysis is adopted to extract the main determinants of respondent perceptions and preferences. Additionally, the double‐bounded dichotomous choice of the contingent valuation method (CVM) and survival function is used to measure consumer WTP a premium for organic fresh milk. Findings – Consumer consumption preferences for buying fresh milk extracted four main factorial dimensions: Fresh Milk Logo, price/promotion, organic, and product/brand. Respondents are willing to pay US$21.95 extra per year to buy organic CAS milk and the factors affecting WTP are “Fresh Milk Logo” and “organic”. Research limitations/implications – The problems of the CVM include hypothetical and starting point for price bidding. The double‐bounded dichotomous choice contingent valuation model and pre‐testing can reduce the biases. The survival function is more flexible, yields more information and permits assumptions regarding parametric distributions without additional costs. The collaboration of survival function with the double‐bounded method produces a reliable result that incorporates fewer statistical errors. Practical implications – Consumers are willing to pay a premium for fresh milk with an organic CAS label that certifies its good quality and safety. Social implications – Marketing managers can use the study findings to develop effective marketing strategies and refine advertising campaigns to promote organic fresh milk to attract more consumers. Originality/value – Organic food labels certify food safety, and are associated with the trend toward increasing awareness of environmental and health issues. Perception of organic food labels are introduced into double‐bounded dichotomous choice CVM to estimate consumers’ WTP, an approach which has successfully dominated traditional methods, using Likert scale‐type measurement.

Niels Pelka; Oliver Musshoff; Robert Finger

2014 China Agricultural Economic Review

doi: 10.1108/CAER-11-2012-0124

Purpose – Maize production in China is exposed to pronounced yield risks, in particular weather risk, which is one of the most important and least controllable sources of risk in agriculture. The purpose of this paper is to analyze the extent to which weather index‐based insurance can contribute to reducing the revenue risk in maize production caused by yield variations. An average farm producing maize is analyzed for each of eight Chinese provinces, six of which are part of the Northern Plains of China. Design/methodology/approach – Data are based on the Statistical Yearbook of China and the Chinese Meteorological Administration. The used method of insurance pricing is burn analysis. Hedging effectiveness of precipitation index‐based insurance is measured by the relative reduction of the standard deviation (SD) and the Value at Risk of maize revenues. Findings – Results reveal that precipitation index‐based insurance can cause a reduction of up to 15.2 percent of the SD and 38.7 percent of the Value at Risk with a 90 percent confidence level of maize revenues in the study area. However, there are big differences in the hedging efficiencies of precipitation index‐based insurance measured at different weather stations in the various provinces. Therefore, it is recommended for insurance providers to analyze the hedging effectiveness of weather index‐based insurance with regard to the geographical location of their reference weather station if they would like to offer weather index‐based insurance products. Research limitations/implications – The absence of individual, long‐term yield data in the study area prevents the evaluation of risk on individual farms. Thus, the hedging effectiveness can only be analyzed on an aggregated level of yield data and can rather be modeled for an average farm of a particular province. Originality/value – To the author's knowledge, this paper is the first that investigates the hedging effectiveness of precipitation index‐based insurance designed for reducing revenue risk of maize production in eight Chinese provinces.

Yi Che

2014 China Agricultural Economic Review

doi: 10.1108/CAER-06-2012-0070

Purpose – The purpose of this paper is to evaluate the relative impacts of full‐scale land reallocation (FLR) and partial‐scale land reallocation (PLR) on household land rental behavior in rural China. Design/methodology/approach – Probit model, Tobit model and Semi‐parametric model are used to provide empirical evidences. Findings – Drawing upon an unique farm survey in 2003, the authors find that in rural China, FLR is more likely to follow egalitarian rule and PLR takes productivity of households into consideration. Econometric analysis provides two main findings. First, FLR has positive effect on household land rental behavior, possibly because egalitarian FLR creates a mismatch between household agricultural ability and land size and after FLR households have to participate in land rental market to adjust the mismatch. Second, PLR has negative effect on household land rental behavior which supports that land reallocation and land rental market are substitutes (Brandt et al. , 2004). Originality/value – The main contribution of this study is to show that FLR and PLR in rural China are motivated by two different rationales (i.e. FLR by egalitarian concerns and PLR by efficiency concerns).

Assem Abu Hatab; Eirik Romstad

2014 China Agricultural Economic Review

doi: 10.1108/CAER-02-2013-0026

Purpose – The expected growth of China's cotton imports along with Egypt's quest for penetrating new cotton importing markets have together attracted the authors to investigate the competitiveness and the demand for Egyptian cotton in the Chinese market in order to capture the emerging opportunities that Egypt could gain from such a growing market. The paper aims to discuss these issues Design/methodology/approach – The paper employs Balassa's index of revealed comparative advantage and Vollrath's indices of revealed competitive advantage in order to measure the competitiveness of Egyptian cotton exports. An Almost Ideal Demand System (AIDS) approach was then used to estimate demand parameters for Chinese cotton imports from Egypt and major supply sources during the period 1992‐2011. Findings – Results show that Egypt has experienced dramatic declines in its cotton comparative advantage over the analyzed period. The estimation results of the AIDS model indicate that Egypt's market share is positively affected by both own and US export prices, but negatively influenced by export prices of other competitors in the Chinese market. Results also indicate that Egyptian cotton is substitutable for cotton imports from all other regions, especially for US cotton. Moreover, additional Chinese expenditure on cotton imports would favor other suppliers. Finally, demand for Egyptian cotton was found to be more sensitive to price changes and there is a greater tendency for China to switch to Egyptian cotton than the other way around should relative prices change. Originality/value – This paper is original and novel in that; despite numerous studies have been done on China's demand for cotton and the several studies have been carried out on export and marketing of Egypt's cotton, the issue of cotton trade between Egypt and China has rarely been empirically examined. Furthermore, our results update important parameter estimates, particularly import demand elasticities of cotton. For Egypt, the study provides useful policy implications that could help policy makers to improve informed decision making with regard topromoting cotton exports to the Chinese market. For China, the study helps understanding the interrelationship between the Chinese cotton market and other emerging exporting markets, while focusing on the Egyptian market.

Kaisheng Zeng; Xiaohui Luo; Yinglin Liu

2014 China Agricultural Economic Review

doi: 10.1108/CAER-07-2012-0073

Purpose – The purposes of this paper are to find out the correlations between the changes of food companies’ environments and the strategic reactions of food companies after the media disclosed that there were food safety incidents out there in the food markets. Design/methodology/approach – This paper uses a randomly sampling survey of 139 food enterprises in China. After statistical significance and statistical power were examined, canonical correlation analysis was used as the main data analysis technique of this research. Findings – Based on the environment‐strategy paradigm, the authors found that the changes of the competition environment, resource environment, and institution environment in the food industry have significant association with food companies’ strategic reactions such as public relations, networking with firms and futurity after food safety incidents in the food market were disclosed. Originality/value – The paper is the first to quantitatively examine the relationships between the changes of food companies’ environments and the strategic reactions of food companies after the media disclosed that there were food safety incidents in the food markets. The findings of this paper send novel and important messages to government decision makers and the public, evidencing how food companies strategically respond to external environmental changes, and suggesting that the institution‐builder as well as the media have more work to do in the aftermath of food safety incidents.

Shang‐Ho Yang; Ping Qing; Wuyang Hu; Yun Liu

2014 China Agricultural Economic Review

doi: 10.1108/CAER-01-2013-0017

Purpose – The purpose of this paper is to investigate Chinese consumers’ willingness‐to‐pay (WTP) for fair trade coffee given different amount of product information. Although coffee is becoming more popular in China, the concept of fair trade is often found unfamiliar to most Chinese consumers. Design/methodology/approach – A total of 564 consumers were interviewed in Hubei, China. The key survey question asked consumers’ willingness to purchase a cup of fair trade coffee compared to a traditional cup of coffee. A modified payment card approach was used to elicit WTP. Before answering the purchase question, respondents were randomly assigned to one of three different information scenarios: basic definition, impact on sustainability and the environment, and information including both environmental and social implications. Findings – Results indicated that consumers were generally willing to pay additional amount for fair trade coffee. Information played an important role in determining what types of consumers were responsive to fair trade coffee. Furthermore, the amount of information provided and consumer WTP did not follow a linear relationship. Practical implications – Results obtained in this study are useful for coffee marketers to better target their promotion strategies. Originality/value – In contrast to China's fast growing coffee market, little is known about consumer preferences and far less on fair trade coffee. This study is the first of its kind to understand Chinese consumers’ preferences for coffee in general and for fair trade coffee in specific.

Enjiang Cheng; Abdullahi D. Ahmed

2014 China Agricultural Economic Review

doi: 10.1108/CAER-07-2012-0076

Purpose – The purpose of this study is to examine the demand for credit and credit rationing conducted by formal, informal and emerging microfinance lenders in the four poor counties of China. Design/methodology/approach – This paper extends the existing studies on credit rationing in rural China by comparing the determinants of credit rationing by three different lenders, the formal lenders rural credit cooperatives (RCCs), the informal lenders and the new microfinance institutions (MFIs). Findings – MFIs are capable of reaching out to the even poorer households if they develop the loan products based on the income and expenditure flows of these households. Research limitations/implications – The determinants of credit rationing by three types of institutions are estimated separately. Practical implications – RCCs in China shall change their policy of discrimination against female‐headed households. RCCs shall also simplify the loan application procedures and assess the clients based on their repayment capacities rather than the age or assets alone. RCCs could learn from MFIs to use incomes from migrant workers as a criterion to assess the loan applicants. Social implications – gender equity for loan access. Originality/value – This paper extends the existing studies on credit rationing in rural China by comparing the determinants of credit rationing by three different lenders, the formal lenders (RCCs), the informal lenders and the new MFIs.

Zhaopeng Frank Qu; Zhong Zhao

2014 China Agricultural Economic Review

doi: 10.1108/CAER-10-2012-0113

Purpose – The purpose of this paper is to study the dynamic change of the migrant labor market in China from 2002 to 2007 using two comparable data sets. Design/methodology/approach – To understand the factors behind the wage change, the authors use the Oaxaca‐Blinder decomposition (Oaxaca, 1973; Blinder, 1973) method to study the hourly wage change over this five‐year period. Findings – The focus is on the rural‐urban migration decision, the wage structure of migrants, the labor market segmentation between migrants and urban natives, and the changes of these aspects from 2002 to 2007. The paper finds that prior migration experience is a key factor for the migration decision of rural household members, and its importance keeps increasing from 2002 to 2007. The results show that there is a significant increase in wages among both migrants and urban natives over this five‐year period, but migrants have enjoyed faster wage growth, and most of the increase of wages among migrants can be attributed to the increase of returns to their characteristics. The authors also find evidence suggesting convergence of urban labor markets for migrants and for urban natives during this five‐year period. Research limitations/implications – In order to make the 2002 and 2007 data sets comparable, the authors had to restrict the observations with fixed residence only, and can only include seven cities. These limit the representativeness of the sample. When interpret the findings in this paper, it is important to keep this in mind. Originality/value – Due to the scarcity of data, there are few studies on the dynamics of the migrating population and the migrant labor market. Since the urban natives and migrants are still segmented in the labor market, the migrant labor market may have its own characteristics, and also, because of the increasing importance of the migrants in Chinese society, knowledge of the evolution of the migrant labor market is crucial for grasping the whole story behind the Chinese economic miracle.

Ying Zhang; Zu Hui Huang

2014 China Agricultural Economic Review

doi: 10.1108/CAER-12-2012-0132

Purpose – The purpose of this paper is to investigate risks faced by farmer cooperatives in China, using farmer cooperatives in Zhejiang province as a case. Specifically, the authors identify risks inherent in two primary types of farmer cooperatives in China (traditional and modern ones) when the external environment changes, the cooperative size expands and heterogeneity in membership widens. Design/methodology/approach – The authors assume that the “uncertainty of the external environment” and the “deviation of organisational adaptation” constitute the two dynamic factors that generated risks for farmer cooperatives. A survey of 158 farmer cooperatives is obtained in Zhejiang province in 2010, and factor analysis is employed to identify the risks and their critical degrees of traditional and modern cooperatives. Findings – The results indicate that two types of cooperatives in China face drastically different sets of risks. Traditional cooperatives face larger competitive and human resources risks, whereas modern cooperatives face larger decision‐making and behavioural risks. Product market risk, macroeconomic policy risk and financial risk are common critical risks faced by both types of cooperatives. Originality/value – In this paper, risks in China's farmer cooperatives were empirically studied and systematically discussed. The paper offers a typology to identify risks inherent in two primary types of farmer cooperatives in China (traditional and modern ones) according to property rights arrangements and governance structure.