Grain subsidy, grain orders financing and farmers' grain production

Grain subsidy policy is an important means of ensuring food security, but there are still two contrary opinions about whether grain subsidy can enhance farmers' grain output. The primary difference is whether or not grain subsidy can be used to mitigate farmers' financing difficulties and then enhance input in grain production. In this study, the grain orders financing mode is introduced to reveal the mechanisms that transform the subsidy into investment in grain production. First, through a case study of this mode, research hypotheses were proposed to illustrate the impact on farmers' grain output in terms of the mode and its mechanisms. Secondly, 82×2 sample data was obtained from field experiments in rural China to test the hypotheses. The results demonstrate that the grain orders financing mode has positive effects on grain production by raising farmers' investment demand. They also show that the non-market mechanisms formed by peer selection, peer monitoring and social restriction in grain orders financing are the key factors to enhance grain output, which can mitigate credit rationing and transform grain subsidy into farmers' investment in grain production. This paper contributes to the limited knowledge about how to use grain subsidy to mitigate farmers'credit rationing and enhance grain production. The experiment results demonstrate that it is important for the government to support farmers to attend the industry organizations and establish long term transaction relationships with leading enterprises, on which basis non-market mechanisms can be established.