Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
Determinants of Pear Farmers’ Profits in China*
Shamim Shakur1 and Yan Wang2
Pear output and acreage in China has been increasing steadily since market
deregulations were introduced in 1980s. However, like other horticulture
producers, typical pear farmer in China remain small-scale operators and
price-takers in both input and output markets. Moreover, farmers can be
efficient in production but not in profit as the latter depends on organizational
and marketing skills. We investigate profitability of China’s pear farmers in
this study. We conducted annual survey on 184 Chinese pear farmers from
eight leading pear-producing provinces. Our primary data contains details
on pear price, production cost, pear variety and socio-economic variables.
We summarize useful observations on these variables in statistical tables.
Our regression results capture the relative importance of these variables in
terms of their contribution to profits. Specifically, we find that choosing the
“correct” pear variety and selling channel is more important than many other
perceived determinants of profit.
JEL Codes: Q12, Q13, P22
Keywords: China, Pear, Profit function
Name of the Track: Economics
1.0 Introduction
Until the early 1980s, China‟s agricultural sector was organized almost entirely according to
the commune system. By mid-1980s, the commune system was all but dissolved in favour
of a contract responsibility system. Under such responsibility system, farmers were
obligated to sell a certain amount of their harvest at a predetermined price to their village
unit; the remainder could be sold in the open market. Subsequent market reforms and
deregulations meant majority of Chinese farmers currently are left to face the challenges
and opportunities of the market. Reforms also encouraged farmers to plant orchards, and
the output of apples and pears, in particular witnessed extraordinary growth. China is
______________________________________________
1
Corresponding Author, Senior Lecturer in Economics, School of Economics and Finance
Massey University, New Zealand, Tel: +64 6 356 9099 ext. 84069, Email: S.Shakur@massey.ac.nz
2
Associate Professor, College of Economics and Management, Nanjing Agriculture University, P.R. China and
Visiting Scholar at School of Economics and Finance, Massey University, New Zealand, Email:
wyan@njau.edu.cn
*
The authors acknowledge the sponsorship of “the earmarked fund for China Agriculture Research System”
(No：CARS-29), National Natural Science Foundation of China (No.71103087) and “A Project Funded by the
Priority Academic Program Development of Jiangsu Higher Educational institutions (PAPD)”.
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
currently the world‟s largest horticultural producer and consumer.
Despite this unprecedented growth in production, a typical horticultural farmer in China can
best be described as a small scale operator characterized by a price-taking behavior in
both input and output markets. They have no capacity to bargain a better price with either
processors or wholesalers of their produce. Unless they subscribe to a farmer‟s
organization, isolated farmers, trapped at the lowest end from a supply chain perspective,
are left vulnerable to price and revenue volatility.
A very specific question we address is how to improve farmers‟ profit. To answer this
question, one has to take a closer look at the determinants of profit. Since profit is
calculated by revenue net of cost, there are two ways to improve profit; increase revenue or
reduce cost. Revenue can be increased by producing more output or by obtaining a higher
price. Output can be increased by adopting to better farming methods that includes
switching to high yielding varieties of produce or large scale farming. Price obtained is
determined by the market environment and producer participation in alternative marketing
channels. Cost can be reduced by increasing productivity or using less input. By examining
the determinants of a standard profit function, this paper is able to make specific
recommendations to raise profitability of Chinese pear farmers.
1.1 Pear Variety in China
Currently China leads the world in terms of cultivation area and output with an
overwhelming dominance in Asian pear variety. There are 96 Chinese local pear cultivars in
addition to 52 varieties bred and released by horticulture scientist (Cao, 2014). Some
varieties have been introduced from Japan, Korea or the West such as Housi, Kosui,
whangkeumbae, Wonhwang and Bartlett. Through long-term natural selection and
production development, four regions of China emerged as main pear growing area. These
are (1) Bohai region (Liaoning, Hebei, Beijing, Tianjin, Shandong) for surian and White Pear;
(2) Western China (Xinjiang, Gansu, Shaanxi, Yunnan) for White Pear, (3) old basin of
Yellow River (Henan, Anhui, Jiangsu) for White and Sand Pear, and the (4) Yangtze River
Valley (Sichuan, Chongqing, Hubei, Zhejiang) for Sand Pear. In 2014 the top five varieties
of harvested area were Yali, Suli, Huangguan, Nanguoli and Korla Pear, accounting for
27.29%, 15.88%, 9.19%, 8.63% and 5.86% respectively, as per our survey in the main pear
planting regions.
In terms of the regional distribution, Yali grows mainly in Hebei province, Suli in Shanxi and
Henan Province, Huangguanis in Hebei, Nanguoli in Liaoning and Korla in Xinjiang. For
other varieties, production is more dispersed. Cuiguan grows in Chongqing, Jiangxi, Fujian
and Zhejiang; Huanghua has been cultivated in Chongqing, Fujian, Jiangxi and Hubei;
whangkeumbae is mainly located in Shandong, Beijing and Hebei; Housi in Shandong,
Sichuan, and Jiangsu; Yuanhuang is produced in Henan, Jiangsu, Hubei and Chongqing.
Among these varieties, Chinese local cultivars include Yali, Suli, Nanguoli, Korla Pear,
Xuehuali, Pingguoli and CangxiXueli. Breeding varieties consist of Huangguan, Cuiguan,
Huanghua, Zaosu, Yuluxiang, Qingxiang and LongyuanYangli. Whangkeumbae and
Wonhwang come from Korea and Housi was introduced from Japan.
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
1.2 Pear Market
In 1985, the Chinese government relaxed the regulatory environment surrounding fruit
production and marketing. Market-oriented production and transaction encouraged fruit
producers including that of pear as terms of trade improved over rival grain production.
Pear output and acreage grew steadily as a result. During 1990s, large-scale wholesale
markets gradually became a key part of fruit transactions, functioning alongside farmers‟
market and small scale vegetable and fruit market, including that of pear. A flow chart of
pear marketing channel is shown below.
Figure 1: Pear Marketing and Sales Channel
Exporter or processing firm
Farmer
orgnization
Storage
Pear
farmer
Field
broker
Market at
producing
area
Wholesaler
City
wholesale
market
Retailer
Supermarket
or fruit
store
consumer
Pick your own
Brokers typically work as agents connecting pear farmers with wholesalers. Knowledgeable
about major planters and the farming community, they purchase pear as representatives of
wholesalers. Brokers gain brokerage without possessing pear, therefore do not bear the
risk of market price fluctuations. To their advantage, wholesalers purchase pear from
brokers instead of dealing directly with farmers due to lower transaction cost. Wholesalers
in their part transport and distribute pear to wholesale markets in city centres. At the
prospect of selling pear at a higher price, brokers also take the risk of price fluctuations and
attrition during transportation. In some situations, wholesalers are observed to be
experienced pear farmers with large scale production. On arrival at a wholesale city market,
pear is purchased by retailers from supermarkets, fruit shops or street vendors. Retailers
typically obtain a premium price but also bear the risk of market price fluctuations and
potential losses from product spoilage and pilferage. Wholesalers also store a part of their
acquired pear in cold warehouses in order to sell off-season when price is higher. However,
the storage merchants still have to face the risk of fluctuations in market prices. New
season pear typically enters the market in June.
On their own, farmers find it difficult to sell their produce because of lack of access to
prompt and accurate market information. Many frustrated farmers even quit planting
because of this. Similarly many distributors or wholesalers also complaint of high
transportation costs impacting on margins. A phenomenon that emerged in recent years is
when farmers quit harvesting because of low price simultaneously when urban households
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
complained of high price. The response from the Chinese government was to initiate a
support program “connecting farmers with supermarket” which helps farmers sell their
products to supermarket directly, guaranteeing a steady supply of fruits and vegetables to
urban residents. The program encourages large supermarkets establish stable purchase
and sale contracts directly with farmers. However, lack of familiarity with individual farmers
and associated high transaction cost prompts supermarkets to sign contracts with farmer
cooperatives or agricultural associations instead of individual farmers. With the
development of electronic commerce extending to agricultural products, pear is also
currently being sold via network platform in addition to other traditional channels stated
above. At this stage, online selling is dominated by branded pears of premium quality.
1.3 Pear Farmers’ Cooperative Organization
Following China's reform and “open door” policy, various farmers' cooperatives emerged as
an important form of production and management organization. The process got a boost
from implementation of "Farmer Cooperatives Law" in 2007. Statistics published by the
Chinese Ministry of Agriculture indicate a total of 689,000legally registered farmer
cooperative organizations in operation in 2012. The number of farmers who join such a
farmer cooperative organization stand at more than 4,600 million, accounting for 18.6% of
the total rural households. An increasing volume of land is being converted from small
farming to large scale farms, cooperative organizations and agribusiness firms, accounting
for 61.8%, 18.9% and 9.7% respectively among all the land conversions.
Our survey returns show that Shanxi, Hebei and Shaanxi have the largest concentration of
pear farmers‟ cooperative organizations. Core farmers are those that have shares in
Farmers‟ cooperative organization. These farmers have certain advantages over those that
do not subscribe to similar organization. For example, core farmers obtain training in new
techniques or technology adoption and have more opportunity to secure a higher price. In
addition, members may get certain dividend income each year. Some cooperative
organizations, however, are seen as more keen to secure subsidy from government than
aiming to help farmers producing or selling their produce.
2.0 Literature Review
Generally speaking, existing literature addresses the question of farm‟s production and
profit efficiency in terms of marketing activities, financial constraints, farm-specific factors
and farmer-specific characteristics. In this research, we consider a series explanatory
variable that includes farmers‟ characteristics (education, experience, non-farm income),
product variety, farm size, marketing channel and collective action to explain profitability of
Chinese pear farmers.
Productivity and Profit Efficiency
Productivity reflects the relationship between input and output where efficient use of
resources can achieve high productivity. Farrell (1957) is frequently credited for his
pioneering work on the measurement of production efficiency. In later analysis, production
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
efficiency is divided into technical, allocative and scale efficiency. Popular estimation
approaches to production efficiency include Cobb-Douglas and stochastic frontier
production functions.
Efficiency in production does not always translate into profit. Farmers can be efficient in
productivity but inefficient in profit. Profit efficiency requires achieving maximum profit that
depend on output price and input cost. So profit efficiency can capture the inefficiency
associated with inappropriate allocation of factors resulting in losing out on potential profits.
Such inefficiency is prevalent in farming. Ali and Flinn (1989) investigates the case of
Basmati rice production in Pakistan‟s Punjab province where the mean level of profit
inefficiency at farm resources and price levels was calculated at 28 percent, with a wide
range of variations around this mean of 5%-87%.The profit inefficiency here was shown to
be related to farm household's education, non-agricultural employment, credit constraint,
water constraint and the late application of fertilizer. Doole (2015) conducted his study on
pasture-based dairy farming in New Zealand‟s Waikato region. He found that maximizing
milk volume reduces operating profit by 12%–23% due to higher production costs. In
another study by Nwauwa et al. (2013), profit efficiency of small-scale dry season fluted
pumpkin averaged 0.925. Farmers‟ experience and farm size contributed to the explanation
of efficiency levels in their study.
Product/Crop Diversity
Product diversity can be useful in making full use of the labour force. Crop diversification
was found to increase productivity and affect farm income positively in a study by Ansoms,
Verdoodt, and Van Ranst (2008). In a later study, Qasim (2012) found such effects to be
statistically insignificant. For smallholder farmers that lose scale economy due to land
fragmentation, they may acquire scope of economy from product diversity. At the same time,
diversification is a key to greater wealth and to reduced vulnerability on livelihood as Block
and Webb (2001) found in case of rural Ethiopia.
Education and Experiences
Human capital is crucial in raising productivity and profit. Lockheed, Jamison, and Lau
(1980) found that farm productivity increases, on the average, by 7.4% as a result of a
farmer's completing four additional years of elementary education compared to none. In a
similar finding Anríquez and Valdes (2006) calculates high returns from education in terms
of elasticity measure. Specifically, if the education level of the household head were to rise
by 10 percent, the net revenues would rise by about 8 percent. Besides education or
schooling, farmer experiences in cropping or planting also enhances profit.
Farm Size
In terms of scale economy, an optimal production scale can conceivably be found, which is
measured by farm size or operational land. In general, operational size has positive effects
on farm revenue. Medium and large farm renters would be willing to pay more than
observed rents, implying an incentive to increase farm size(Anríquez and Valdes, 2006). In
some cases, though, farm size can have inverse relationship with land productivity due to
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
failure of land market, credit market, insurance market and labour market (Qasim, 2012).
Off-Farm or Non-Farm Income
Off-farm and non-farm income sources are more important for small farmers, contributing to
their economic viability (Anríquez and Valdes, 2006). However, the role of non-farm income
on productivity and profitability of farming operations can be ambiguous. Off-farm income
might result in neglect to the farm management but increase the use of fertilizer and
pesticide (McNally, 2002). In contrast, Qasim (2012) argues that young family members
engaged in off-farm employments would frequently take leave from their employers and
help farm household during the harvesting time. So off-farm income has positive
relationship with farm profit.
Marketing Activities
Sales price is a key determinant of farmers‟ profit and participation of farmers in innovative
marketing channels can acquire higher margins. Typically, marketing organisations would
charge a membership fee for their services. One advantage is that cooperation decreases
transaction costs(Verhaegen and Van Huylenbroeck, 2001). Presumably the savings on
private transaction costs offset the higher costs for subscribing farmers. Most importantly,
higher costs are compensated for by higher revenues due to higher prices and a higher
turnover and by reduced uncertainty. Tegegne et al. (2012) noticed that Farmers working off
farm tended to use middlemen due to time constraint.
Farmers’ Organization and Collective Action
Most small farmers find it difficult to market their products. The main value of farmers‟
organization and collective action is to provide more valuable and profitable sales channel.
Farms participating in collective groups have opportunities to realize scale economies in
production and input purchases that augment profit.
Lower transaction costs associated with market access is the main beneficial feature of a
farmer organization. Lead farmers provide local services at lower cost than donor
subsidized models. So the economic viability of organization with donor subsidized or
public support is questionable (Hellin, Lundy, and Meijer, 2009). The collective groups are
generally inclusive of poor farmers, but ownership of agricultural assets and ability to
access credit significantly increase the probability of joining a group. Fischer and Qaim
(2012) argue that collective action can spur innovation. Group participation has higher
adoption rates of technology and chemical inputs.
In summary, existing literature on profit functions centres on single product analysis of rice
(Ali and Flinn, 2006; Anríquez and Valdes, 2006), beef (McDonald and Schroeder, 2003),
vegetable (Nwauwa et al., 2013). Very few (Evenson and Gollin, 2003) have considered the
effect of product variety and none on pear farmers‟ profit that is the focus of this research.
In this paper we identify the determinants of pear farmers‟ profit and focus on the effects of
pear variety, marketing channels and participation in farmers‟ organization on profit.
Proceedings of World Business, Finance and Management Conference
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3. Data and Methodology
3.1 Pear Farmer Survey
Primary data for the study was collected from a survey on pear farmers conducted annually
from 2011 to 2014. Investigation sites were in the main pear producing provinces of Hebei
Province (HB), Shanxi Province(SX), Shandong (SD), Shanxi (SXi), Jiangsu (JS), Jilin (JL),
Xinjiang (XJ) and Fujian (FJ). A total of 597 observations were collected from these
provinces over a period of 2011 to 2014 that are summarized in Table 1. On an average, 84%
of the farmers responded each year that provided us with adequate information pear
production and related socio-economic characteristics.
Table 1: observations in the survey
Provinces
JS
HB
18
21
farmers
15
13
2011
18
19
2012
15
19
2013
15
19
2014
Total
63
70
Observations
Data source: from our survey
repetition
ratio
XJ
JL
FJ
SXi
SX
SD
total
27
15
17
21
21
21
16
19
19
19
29
21
19
27
27
21
17
19
19
19
18
15
18
18
18
23
18
20
23
19
184
130
149
161
157
73.03%
83.71%
91.57%
88.20%
74
73
94
74
69
80
597
84.13%
Farmers report their pear income each year but cost information in respect to all produced
varieties is contentious. Many farmers produce a multitude of pear varieties but our
questionnaire asked them to report cost on three of their top varieties. This was done as
farmers do not always know full costing of the minor varieties and to increase response rate.
We calculated farmers‟ profit of three largest varieties and then added them together to
form total profit for each farmer. In regard to cost, we classified total cost into land, labour,
material fee and capital cost. Our survey instrument was designed to extract information on
various aspects of pear production and farmer characteristics as summarized in Table 2.
Table 2: Content of the questionnaire
Farmers’
characteristic
Farmers’ Income
Detailed information
Name, county, province, year
Gender, age, if be head of village, education, family
population, if be communist party member, how long to
plant pear, if be member of farmers‟ cooperative
organization
Total income of the whole family, share of agricultural
income,
Proceedings of World Business, Finance and Management Conference
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Pear income, share of pear income
Fruit area, pear area cultivated, pear area harvested,
Pear production
output, tree age respectively of three varieties; the
distance between pear orchard and wholesale market,
wages per capital per day
Total production cost, land rent, fertilizer, manure,
Production cost
irrigation pesticide, herbicide, swelling agent, bag, box,
pollen, bee, scaffolding, instrument to harvest; employee
cost, self-employ cost, machine fee, of three major
variety respectively
Sales price and High price, low price, average price respectively of three
varieties; different channel to sale such as self-sales, by
channel
wholesaler, by firm, by cooperative organization, be
storage; the percentage of each channel
Technique
and If adopt new technique and the technique name, if take
part in training and training times; time of update variety
training
and the reasons; if adopt standard technique; if know
model of pear orchard; problems in planting
3.2 Methodology
Our econometric estimation is based on a simple model that sets out the determinants of
profit from pear farming as follows:
Profit=α0 + α1j Variety + α2k Channel + α3 Organization + α4l Control + ε
(1) Dependent Variable
Profit per hector is calculated by revenue less cost for farmers respectively and winsorised
by 0.01 and 0.99 to drop the outliers. Farmers do not always operate on their profit frontier
as inputs are not chosen optimally or existence of asymmetric information on pear market.
In addition, negative profit could exist in the short run. Many farmers reported negative
profits during the survey period.
(2) Explanatory Variables
Our primarily interest lies in three kinds of variables that include pear variety, sales channel
and participation in farmers‟ organization. Dummy variables are constructed to assess the
effect of these variables.
Variety is some dummy variables to reflect Yali, Suli, DangshanSuli, Korla, Huangguan and
Huanghua. Channel is dummy variable representing selling to (i) wholesalers or to (ii) firms
and farmers‟ organizations. Organization is also a dummy variable. It means farmer taking
part in cooperative organizations if it takes on a value of 1.
Proceedings of World Business, Finance and Management Conference
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(3) Control Variables
In addition to variables of our primary interest, a complete model should include other
fundamental factors that affect profit. These are lumped together under control variables.
Farm Specific Control Variables
Area represents pear area that is harvested; not the area that is cultivated. This approach
excludes the influence of natural disaster like extreme cold weather or drought. Price is the
average price obtained and yield is calculated at the level of each farmer. In order to test for
the effect of technology on profit, a new technique variable is included among control
variables.
Farmer specific control variables
Farmer‟s age, education, experience and share of non-agricultural income also impacts on
profit. We observed that among China‟s pear farmers, age is highly related to their
experience. That means only one of the variables should be considered in the model. We
chose farmers‟ age for our model estimation.
4.0 The Findings
4.1 Determinants of Pear Profit
Profitability from horticultural production depends on acreage, yield, input price and output
price. Returns from our survey of Chinese pear production indicate wide variations in
reported profits including losses by many farmers. In terms of cost, farmers are price-takers
in the input market paying essentially similar prices across the regions. But farmers can
choose what pear variety to plant and how to sell pear from among alternative sales
channels. As such, profit can vary across pear varieties and management capabilities.
(1) Pear Variety
In its long-history of production, over a hundred varieties of pear have been cultivated in
China with various degrees of success. In our survey, a total of 24 pear varieties are
reported as being planted by farmers that exhibit large variations in profit among these
varieties. On the average, at over thirty thousand yuan per hectare, Huangguan and
lvbaoshi show the highest profit. Xinshiji, Cuiguan, DangshanSuli, Korla, Hosu, Huanghua,
Hongxiangsu and Xingaogain are the other highly profitable varieties with an average profit
over twenty thousand yuan per ha.
In regard to acreage, pear varieties with largest area harvested are Yali, Sulu, Huangguan
and Korla with a combined acreage of 58% of the total pear planting area. Of these,
Huangguan pear is bred by Chinese scientists while the remaining three are local,
traditional varieties. In our regression estimates, we generate dummy variables to show the
effects of pear variety on profit.
Proceedings of World Business, Finance and Management Conference
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(2) Sales Channel
When it comes to selling the fruit, pear farmers in China can choose from three alternative
sales channels: (1) selling by farmers themselves, (2) by wholesalers and (3) by firms and
farmers‟ organizations. Only a few farmers (16%) chose to sell by themselves although
selling this way can mean negotiating a higher price and profit than selling to the
wholesalers. Some processing or trading firms purchase pear directly from farmers at a
better price but also at a transaction cost and an opportunity cost that varies widely among
farmers. Farmers that chose to sell via organizations also acquire higher profit. A summary
of these prices obtained in our survey from alternative sales channels and associated
harvested are reported below in Table 3.
Table 3: Average price and profit by channel
channel
Average price
(yuan/kg)
Profit
hectare
(yuan/ha)
1.7024
5823
1
1.6026
2091
2
2.1078
20281
3
Source: Calculations based on our survey
per
(3) Participating Farmers’ Organization
In our investigation of China‟s pear farming, we found that the farmers‟ cooperative
organizations can play a useful role in planting and selling of the final product. As the table
below would indicate, farmers that are members of a cooperative organization, on the
average, obtain a higher price and profit compared those that do not belong to such
organization. The significance of such differences still needs further investigation. From our
survey, we also noted that 28.8% of pear farmers that participated in farmers‟ cooperative
organizations did not sell pear via that channel. So participating in an organization does not
necessarily mean selling through that organization and that there are other benefits of
belonging to these organizations.
Table 4 average price and profit by joining organization
Member
organization
of Average price
(yuan/kg)
Profit
hectare
(yuan/ha)
1.6905
2294
0
1.7273
7163
1
Source: Calculations based on our survey
per
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4.2 Variance Analysis
We identify whether there are significant differences in profit in relation pear variety, sales
channel or membership to farmers‟ cooperative organization. One-way analysis of variance
is adopted to estimate the significance on group mean statistically. Yali, Suli, DangshanSuli
and Korla pear are traditional varieties. Huangguan and Huanghua are bred by horticultural
scientist. Yali, Suli and Huanghuahas negative mean profit, Dangshansuli and Huangguan
has higher profit among al pear varieties. Analysis of variance illustrate there is significantly
different profit between varieties.
Sales channel 1 to 3 is selling by farmers, by wholesalers and by firms or organization
respectively. Profits differ with respect to sales channel and the difference is also
statistically significant. Profits are also significantly different depending on whether farmers
participate in famers‟ organization or not.
Table 5: Variety variance analysis
variety
sales channel
member
organization
Between
groups
Within groups
Between
groups
Within groups
of Between
groups
Within groups
SS
df
MS
F
Prob>F
3.2648e+10 6
5.4414e+09 13.08 0.0000
2.3759e+11 571 416096976
2.5566e+10 2
1.2783e+10 29.02 0.0000
2.1935e+11 498 440467793
3.3177e+09 1
3.3177e+09 7.03
2.6393e+11 559 472143433
0.0083
4.3 Comparison between New Variety and Traditional Variety
We examine whether new variety is superior in terms of their contribution to profit. Suli,
Korla, Pingguoli, Mixue and Yali could be viewed as traditional pear varieties, while the rest
that are bred by local scientists or imported from foreign countries are viewed as new
varieties. Results reported in table 6 demonstrate that new varieties of pear command a
significant advantage over their traditional counterpart in pursuing profit objective.
Table 6: Profit Results
Harvested area
Average price
yield
New variety
profit
904.8**
(2.61)
10293.7***
(9.09)
585.4***
(8.22)
5770.5**
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(3.10)
Sell by wholesaler
1307.1
(0.61)
Sell by organization
5548.5
(1.92)
Member of famers‟ organisation 6620.8***
(3.88)
New technique
219.3
(0.13)
age
-210.4*
(-2.16)
Share of non-farm income
57.47
(1.53)
_cons
-26713.7***
(-4.12)
N
459
t statistics in parentheses
*
p< 0.05, **p< 0.01, ***p< 0.001
4.4 Random Effect Model Results
Random effects models have the advantage in that they can estimate coefficients for
explanatory variables that are constant over time. In our survey, these include the variables
of pear variety, sales channel and membership to farmers‟ organization. Random effects
models also provide more degrees of freedom compared to their fixed effects counterpart
as they estimate the parameters that describe the distribution of the intercepts rather than
estimating an intercept for virtually every cross-sectional unit.
In this model variant, we kept our definition of pear variety same as before. Results
reported in Table 7 show profitability of six of the important varieties of pear. In terms of
sales channel, selling by firms or organizations bring superior results compared to selling
by farmers themselves.
The regression results show that area harvested, pear price and yield have significant
positive effects on profit. In terms of variety, Huangguan and DuangshanSuli are most
profitable. Suli, Korla pear and Huanghua have significantly negative profit coefficient.
Farmers achieve significantly more profits by selling via cooperative organizations. Selling
to wholesalers has positive effects on profit but not significant. In addition, farmer‟s
participation in a cooperative organization is a profitable exercise. Farmers‟ age and larger
share of non-farm income has negative effect on profitability, but are not statistically
significant. Likewise, adopting new technique raises profitability, but the coefficient is not
significant.
Beta coefficients are regression results when independent variables‟ value is standardized
by subtracting off its mean and dividing by its standard deviation. It will make the scale of
the repressors irrelevant and not affect statistical significance. The results (Table 7) show
that sales price has the largest standardized effect. A one standard deviation increase in
average sales price raises profit per hector by 0.594 standard deviation. The same
movement of yield has a larger effect on profit than area harvested. Variety of
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
DangshanSuli and Huangguan has a larger effect on profit than selling by organization or
participating in farmers‟ cooperative organization. It means that choosing the “correct”
variety is more important than choosing a selling channel or be a member of farmers‟
cooperative organization.
Table 7: Random Effect Model Results
profit
Harvested area
1296.7***
(3.45)
Average price
15508.6***
(8.13)
yield
617.6***
(7.77)
Yali
-11062.3
(-1.78)
Suli
-8881.4**
(-2.90)
DangshanSuli
16823.4***
(4.41)
Korla
-20717.5***
(-5.78)
Huangguan
11563.1*
(2.28)
Huanghua
-19076.3***
(-5.78)
Sell by wholesaler
3478.9
(1.43)
Sell by farmers‟ organisation
7198.4*
(2.32)
Member of farmers‟ organisation 988.0
(0.45)
age
-217.2
(-1.54)
New technique
1319.1
(0.72)
Share of non-farm income
-35.10
(-0.89)
_cons
-26223.5***
(-3.30)
N
465
t statistics in parentheses
*
p< 0.05, **p< 0.01, ***p< 0.001
Beta coefficients
0.144***
(3.45)
0.594***
(8.13)
0.413***
(7.77)
-0.121
(-1.78)
-0.151**
(-2.90)
0.158***
(4.41)
-0.336***
(-5.78)
0.153*
(2.28)
-0.175***
(-5.78)
0.076
(1.43)
0.130*
(2.32)
0.022
(0.45)
-0.073
(-1.54)
0.029
(0.72)
-0.044
(-0.89)
465
Proceedings of World Business, Finance and Management Conference
14 - 15 December 2015, Rendezvous Grand Hotel, Auckland, New Zealand
ISBN: 978-1-922069-91-7
5. Conclusion
Indigenous pears have been cultivated in China for over 2000 years. Currently China
stands out as the largest pear producer in the world both in terms of output and acreage.
We know that farmers can be technically efficient in terms of maximizing output per input
and still remain profit inefficient as the latter requires prudent output mix and marketing
abilities. Market deregulations thrown at Chines communes in 1980s meant Chinese
farmers were left to face both opportunities and challenges. At the same time new and
improved varieties of pear were being released that are either scientifically bred or imported
from abroad. Some farmers were willing and able to produce these new, improved varieties
while others kept up with the traditional varieties of pear. Impacts of these innovations and
opportunities on farmer‟s profit remain an empirical question. By examining the
determinants from a standard profit function and applying survey data from Chinese pear
farmers, we are able to reach some firm conclusions. Our annual survey conducted on 184
Chinese pear farmers from eight leading pear-producing provinces gave us enough
information on pear price, production cost, pear variety and socio-economic variables on
which to base our conclusions.
We found that acreage harvested, selling price and yield have significant positive effects on
the profit, as a standard profit function would dictate. Our coefficient estimates goes a step
further to show that sales price has the largest standardized effect on profit and that a same
proportionate change in yield has a larger effect on profit than acreage harvested.
New varieties of pear command a significant advantage over their traditional counterpart in
pursuing profit objective. In terms of sales channel, selling by firms or organizations bring
superior results compared to selling by farmers themselves. Overall, we find that choosing
the “correct” variety and selling channel are more important than many other perceived
determinants of profit.
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