Crop Switching and Farm Sustainability: Empirical Evidence from Multinomial Treatment-Effect Modeling

Abstract

Crop switching has been examined in the literature addressing the production effects of irrigation or as viable strategy in the adaptation to climate change, which is closely related to agricultural resilience. Attention to the identification of the direct linkage between crop switching and farm profitability, and, thus, farm sustainability, however, has been quite limited. This study attempts to provide a significant complement to the extant research by identifying the treatment effect of crop switching on the net returns of crop growers in Taiwan. A multinomial endogenous treatment effects model with the latent-factor structure is used to take self-selection into account. The result suggests that farm households’ economic resilience is closely related to their choice of crops, which constitute the major source of farm income. Specifically, among the six cash crop categories, fruit crops and other crops are found to be most remunerating and, thus, suggests possible improvements in farm households’ economic resilience through crop switching. A further analysis of the distributional implications of crop switching through quantile regression confirms the persistent and stronger effects of crop choice on net returns when moving from the bottom to the top quartiles along the net-return distribution. This result suggests a close association of crop choices with farm income inequality among the crop farm households in Taiwan, which in turn implies possible distributional effects of crop switching.