Organization model, vertical integration, and farmers’ income growth: Empirical evidence from large-scale farmers in Lin’an, China

Abstract

Since China’s reform and opening-up in 1978, the income of rural residents has increased when compared with that of urban residents. However, the income growth rate of farmers is relatively low, and the income gap between urban and rural areas is widening. Using a sample of 1,325 large-scale farming households in Lin’an, this study constructs a theoretical path for how the level of vertical integration and an organization model affect farmers’ income levels and empirically tests the path using a mediation effect analysis model. The results indicate that organization models and vertical integration are important factors that affect farmers’ income levels. The total income and agricultural operation income of farmers who participate in agricultural operation organizations are greater than that of farmers who do not participate in an operation organization. In addition, the total income and agricultural operation income of farmers who produce and process and those who produce, process, and sell are higher than those of farmers who only produce. A farmers’ organization model has both a direct and an indirect positive influence on their income level, with the indirect positive influence coming through the mediating variable of vertical integration. The application of the organizational model can promote the growth of rural households’ total family income and agricultural income by 13.48% and 14.48% respectively, consisting of direct increases of 9.67% and 10.19%, and indirect increases of 3.81% and 4.29% through vertical integration. The results also show that access to credit, agricultural technology training, and the farmer’s education level have significant positive impacts on farming income levels. The findings suggest ways to increase farmers’ income by perfecting agricultural management organization systems, promoting agricultural industrialization, strengthening rural financial support, improving agricultural technical training for farmers, and increasing their level of education.

The role of specialization in increasing farmers' income: Horizontal or vertical?

“…This division of labor allows for the realization of “service economies of scale,” which can augment income levels 12 . This premise is further corroborated by other researchers such as Takeshima, Zhang, and Ao, who argue that vertical specialization, particularly when characterized by productive service purchases, can enhance agricultural production efficiency and elevate the income level of smallholder farmers 13‐15 …”

“…12 This premise is further corroborated by other researchers such as Takeshima, Zhang, and Ao, who argue that vertical specialization, particularly when characterized by productive service purchases, can enhance agricultural production efficiency and elevate the income level of smallholder farmers. [13][14][15] Although the studies literature has respectively discussed the effect of horizontal specialization and vertical specialization on farmers' income, in the mainstream economics literature, the theory of horizontal division of labor characterized by horizontal specialization has been relatively separate from the theory of vertical division of labor characterized by vertical specialization. 16 In recent years, some scholars have begun to explore the relationship between horizontal specialization and vertical specialization in agriculture.…”

A policy and research agenda for Asia's poultry industry

“…Major Asian producers like the Thai company Charoen Pokphand achieve this through contract farming for feed and livestock production, and by marketing chicken products through their supermarket chains (Vicol et al., 2022). Poultry companies can differ in their modes and degrees of value chain integration, but both government and industry see this as the most promising approach for efficiency and price reasons (Ao et al., 2021). Governments across Asia have therefore supported vertical integration through policies that support contract farming, tax incentives for industry, the development of infrastructure such as special economic zones and direct investment (Ao et al., 2021; FAO, 2002).…”

“…Poultry companies can differ in their modes and degrees of value chain integration, but both government and industry see this as the most promising approach for efficiency and price reasons (Ao et al., 2021). Governments across Asia have therefore supported vertical integration through policies that support contract farming, tax incentives for industry, the development of infrastructure such as special economic zones and direct investment (Ao et al., 2021; FAO, 2002). In the process, smallholder agriculture and livestock farming have been subsumed and transformed (Wallace, 2016).…”

Research on the Operating Mechanism of E-Commerce Poverty Alleviation in Agricultural Cooperatives: An Actor Network Theory Perspective

“…Because of the low degree of farmers’ organization ( Ao et al, 2021 ), the weak ability of connecting the large market and resisting risks, it is difficult for poor farmers to continuously increase their income. So it has become one of the most prominent problems that poor farmers are returning to poverty after getting rid of poverty.…”