How Does Plant Capacity Affect Agricultural Processors' Performance? A Quasi‐Experimental Design Using International Sugar Price Shocks

ABSTRACT Understanding the relationship between plant capacity and performance among agricultural processors in developing economies remains essential for effective policy design. Exploiting exogenous international sugar price fluctuations between 2008/09 and 2016/17, this study employs a quasi‐experimental framework to examine how plant capacity influences profitability within China's sugar industry. Using detailed panel data for 99 sugar plants in Guangxi province, I find that plants with greater capacity realise significantly higher profit gains under the same price shock. Specifically, facing the same exogenous international sugar price increase of 500 yuan , a plant with daily production one standard deviation higher (4691 tonnes) experiences an additional increase of approximately 32 yuan in unit profit relative to a smaller plant. This scale‐driven profitability advantage primarily results from lower non‐raw material costs rather than improved selling prices or higher productivity. This study further identifies heterogeneity in capacity effects by plant ownership and location in major versus minor production regions, highlighting the nuanced role of economies of scale and local policy interventions. These findings contribute novel insights into how firm‐level characteristics mediate the effects of global market shocks, offering clear policy implications for optimising agricultural processing efficiency in resource‐dependent regions.