Why China’s AMS Market Is Difficult to Develop Sustainably: Evidence from the North China Plain

The agricultural machinery service (AMS) market enables China to rapidly realize agricultural mechanization on the basis of smallholder farmers. Academics generally believe that China has created a model of agricultural mechanization that matches small-scale farmers with large-scale machinery. However, in recent years, the transformation of the AMS market from prosperity to decline has been under-analyzed. This paper used farm and AMS supplier survey data from the North China Plain to estimate the links between acquaintance transactions, segmentation of the AMS market and losses in terms of transaction efficiency. We found that although the AMS from acquaintances is more expensive and less efficient than from non-acquaintances, farmers still buy from acquaintances because this reduces the transaction costs of the AMS. However, acquaintance transactions have led to the segmentation of the AMS market, reducing the transaction efficiency of the AMS. The AMS market has gradually changed from open to closed in China. The Chinese government should determine how to adjust policies to promote the sustainable development of the AMS market.