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.