How a price-support policy can hurt the environment: Empirical evidence from Northeast China

During the corn stockpiling system reform in Northeast China between 2008 and 2015, corn production expanded dramatically, and corn residue, which was mostly burned in-situ, caused severe air pollution issues. Using a difference-in-differences approach, we assessed the effects of the corn stockpiling system reform in China and its associated environmental outcomes with a provincial-level dataset. Our results suggest that the implementation of this policy significantly increased annual corn production in Northeast China by 15.1%. We also observed a substitution pattern between corn and soybean cultivation in the treatment area, with a percentage point increase in the net soybean-to-corn profit ratio leading to a decrease in corn production by 0.023 percentage points. Overall, based on changes in crop patterns during the system reform, increased straw resulted in increased burning and the resulting consequence to the environment is a net pollution increase equivalent to 16.03%, 0.33%, and 3.64% of the smoke and dust, SO₂, and NO_X, respectively, from the industrial sector in the treatment provinces.