Can cooperatives help commercial farms to access credit in China? Evidence from Jiangsu Province

Abstract

Chinese agriculture is experiencing a transition from smallholder farming to the emergence of commercial farms that are characterized by intensification and specialization in production, as well as commercialization and cooperation in management. It requires substantial capital to facilitate such a transition, but it is very difficult for farmers in China to access bank credit. One way that commercial farms have to overcome such handicap is by organizing themselves into cooperatives. To assess the effect of cooperatives on the credit accessibility of commercial farms, we have developed a theoretical model as well as an empirical study of commercial farms in Jiangsu Province based on data from a survey of 754 commercial farm owners. Instrumental variable (IV) methods and the Propensity Score Matching (PSM) method that control endogeneity problem are used in the analysis. The empirical results show that cooperatives have a significant positive impact on the credit access of commercial farms. Commercial farms participating in cooperatives may alleviated their credit constraints by about 17.3 percentage points and increase the average credit per capita by nearly 80,000 Yuan. Cooperatives improve the credit access of commercial farms by exerting strong market power and reputation effect based on its organizational advantages. A disaggregated analysis also reveals that small commercial farms tend to benefit more from cooperatives in improving credit access than large commercial farms.