GOVERNMENT POLICIES AND ON-FARM WHEAT ALLOCATION IN RURAL CHINA

Market-oriented policy reforms have potentially important effects on farm-level grain production and utilization decisions in developing countries. This paper provides an empirical evaluation of the potential effects of market liberalization in China on farm-level wheat consumption, market sales, and on-farm storage. The results indicate that price changes have economically important impacts on utilization decisions by farm families through both income and substitution effects and that off- farm income also appears to be significant. The potential to earn off-farm income is also shown to be an important factor in grain utilization decisions. Storage is affected by government procurement policies as well as by more traditional food and income security considerations. The results indicate that policy makers should account for such changes in farm household behavior in designing and assessing the consequence of market liberalization programs for agricultural sectors in developing countries.