Impact of Farmland Leasing on Farmers' Profitability and Its Components: Insights From Chinese Rice Farmers

ABSTRACT In recent years, the decline in rice farmers' profit in China has become an undeniable fact, which has had negative impacts on various levels, including the individual farmer, society, and the nation. Although a few studies investigated the driving force of declining profitability, little is known about the role played by farmland leasing. This paper decomposes the profitability into four components: input price change, output price change, output change, and total factor productivity change, employing a stochastic frontier input distance function model. In addition, a two‐stage least squares model is used to evaluate the impact of farmland leasing on profitability change and its components. The results show that for each additional mu (≈0.067 ha) of leased farmland, the profitability change of rice farmers increases by 0.877 percentage points. This positive effect is stronger among large‐scale farms and after the implementation of the Three Rights Separation reform. Further results show that the positive influence of farmland leasing on profitability change mainly stems from “quantity‐driven” and “price‐driven,” with the latter largely shaped by input prices. Based on the above conclusions, this paper also proposes three policy implications aimed at providing references for farmland system reforms in China and other developing countries.