Food production stands as a critical global concern necessitating comprehensive investigation. This study utilizes provincial-level data from China to explore the intricate relationships between farmland transfer, agricultural loans, and grain production, with the aim of shedding light on the complexities of these dynamics.
A two-way fixed effects model and instrumental variable approach are applied to assess the interplay between farmland transfer, agricultural loans, and grain production. These methods provide a robust framework for understanding the complex relationships among these variables.
The study reveals a notable positive correlation between farmland transfer and grain production. Conversely, agricultural loans demonstrate a significantly negative impact on grain production. However, the positive interaction term between farmland transfer and agricultural loans suggests a nuanced relationship. While profit-driven financial activities may not inherently favor grain production, they contribute to more efficient utilization of farmland resources, ultimately promoting grain production. The findings underscore the significance of continued government support for rural land system reform and active guidance of farmland transfer. It is emphasized that a moderate-scale operation of farmland is crucial for finance to play a lubricating and catalytic role. Furthermore, there is a need to guide agricultural finance towards investing in medium and long-term projects of agricultural production. Attention is also directed to preventing potential food crises arising from the phenomenon of “non- farming” associated with agricultural loans.