Chinese agricultural reforms have consisted of two transitional stages; initially decollectivization in the late 1970s followed by market
liberalization in the mid 1980s. While much research has been conducted on the initial stage of increasing the incentives for farmers in
collective cultivation, little quantitative evidence exists on how marketing reforms and the development of rural markets has affected
agricultural production decisions. Using more accurate and disaggregated measures of the reform and market development components of
liberalization than previous research, this study examined the effects of these liberalization policies on the agricultural production decisions
in Shaanxi province. Procurement quota levels were found to be positively associated with the area planted to grain crops. Thus, quotas
represent an effective way of increasing grain production and thereby also a means of achieving food self sufficiency which remains an
important policy objective for the Chinese government. The involvement of state grain stations in free market grain trade and the expansion
of rural markets has increased the area planted to the two potential cash crops, soybeans and wheat, and reduced the sown area of the
subsistence crop, corn reflecting the reduced need to plant corn as a self insurance mechanism for smoothing consumption. An increase in
procurement quotas increases fertilizer use on grain crops, due to the policy of linking quotas to access to below-market priced fertilizer, but
decreases the use of labor, which shifts to other more profitable enterprises. Market development has increased these off-farm employment
opportunities and the earnings associated with them, thereby promoting the shift of labor out of crop production and increased the use of
fertilizer which has also become more available.
