Small Farms vs Large-Scale Agriculture: Who Should We Support, and How?
Foodthink Says
This piece further examines the case for small family farms through social, economic, and environmental lenses. It also addresses why small-scale dairy producers are increasingly marginalised in China, outlining practical measures to sustain them. The analysis draws primarily on fieldwork conducted in 2023 by Professor Feng Xiaojun and her team at China Agricultural University in a major dairy-producing county in Shandong.
I. Small Family Farms vs. Large Ranches: Who Should Be Supported?
Consequently, supporting farmers in meat, egg, and dairy production is a vital route to raising rural incomes. Yet the influx of capital into dairy farming tends to push out small-scale producers, severing this pathway to prosperity. This is precisely the story that has unfolded across China over the past two decades.
As operations scale from smallholders to larger farmers and eventually to corporate-run industrial farms, labour intensity steadily declines. With fewer jobs absorbed from the rural workforce, the potential for farm households to increase their income diminishes accordingly.
A smallholder family farm run by a couple without hired help typically keeps under 30 cows. A hardworking couple supplemented by one hired labourer can manage around 60. When two generations of a family pool four main labourers, supported by occasional hired hands, the herd can reach roughly 150.
Medium-sized operations run by relatively affluent farmers, who rely on hired labour, commonly range from 200 to 1,000 head. These farmers usually work alongside hired hands drawn from their local community, with each worker typically managing around 30 cows. Pastures exceeding 1,000 head are considered large-scale, generally corporate-run, and reliant on a hired workforce—often graduates—with each person overseeing roughly 40 to 50 cows.
When smallholders formed the backbone of China’s raw milk production, dairy farming markedly improved rural livelihoods, enabling families to build stable lives in their hometowns rather than migrating for work. Below are recollections from small-scale dairy farmers in the surveyed region:
“By 2004 I was driving a car—I was the first in my village to own one.”
“Raising cattle lifted me from having nothing to owning a car and a modern house.”
In the survey area, once smallholders were pushed out of dairy farming, most were forced into casual day labour. Figure 1 shows a dawn labour market in the region, where grey-haired men seek daily work, predominantly on construction sites.
Compounding this, China’s tariffs on imported dairy products are relatively low by international standards, meaning the landed equivalent price of raw milk from imported dairy has long undercut domestically produced raw milk (Figure 2). Furthermore, following the melamine scandal, domestic consumers remain deeply sceptical of locally produced milk, particularly infant formula. These factors have collectively intensified the pressure import dairy places on the domestic industry.
Against this backdrop, as shown in Table 1, small-scale dairy farmers help the country mitigate the impact of imported milk, owing to their lower production costs compared with large-scale farms.
There are several reasons why small-scale farming operates at a lower cost.
First, labour costs are minimal. Small-scale dairy farmers rely on family labour rather than hired staff.
Second, feed costs are lower. Some of the feed for small-scale dairy farmers comes from straw and corn grown on their own land, whereas large-scale farms purchase almost all theirs from the market. Smallholders tend to favour local, inexpensive feed, reflecting a low-cost, low-yield model (Table 1). Conversely, large-scale farms prioritise high yields and therefore use high-value feeds, including imported varieties.
Third, management costs are reduced. Small-scale dairy farmers employ a more extensive management approach, while large-scale farms use precision management, which is more costly. For instance, smallholders rarely separate their cattle into different pens and typically use only three or four types of formulated feed. In contrast, large-scale farms divide herds into at least ten groups based on the animals’ life stages and lactation characteristics. Professional feed formulators then design custom rations for each group.
Fourth, infrastructure and equipment costs are lower. Smallholders’ barns are usually located around their homes or within their own villages, meaning land costs are zero or negligible. As shown in Figures 3 and 4, the building standards for smallholders’ sheds are modest, whereas those for larger dairy operations and commercial farms are significantly higher. Furthermore, large-scale farms increasingly favour mechanisation over manual labour, with the tendency growing alongside farm size.
Waste management practices differ between the two as well. In the surveyed areas, small-scale farmers usually apply manure directly to their fields or sell it to local vegetable growers through intermediaries for fertiliser use.
Large farms in these regions claim to use mechanical systems to separate solids from liquids. The dry manure is allegedly fed into fermentation tanks, processed, and then used as bedding for the cattle. The liquid fraction is reportedly channelled into oxidation ponds, fermented, and later applied to fields as irrigation. Typically, large farms lease land, ostensibly to grow feed crops. In reality, however, these plots are frequently used to dispose of the farm’s liquid effluent.
Large-scale dairy operations have previously sparked environmental protests. In 2014, villagers in Fanzhong Village, Tongshan County, Hubei Province, blocked access to a 10,000-head dairy farm operated by Modern Dairy Co., Ltd. for over two weeks, ultimately forcing the site to relocate. The farm had been regularly dumping vast quantities of biogas slurry and cattle dung in the surrounding area, leaving the community to endure an “unbearable stench all year round, particularly in summer when the smell was so intense there was nowhere left to escape the heat outdoors.”
Small-scale farmers manage their cows sustainably over the long term, whereas large-scale operations tend to exploit them for short-term gain. In the areas surveyed, smallholders typically milk their cows twice daily, keeping each cow for five to six lactations before culling. Large farms, by contrast, milk three to four times a day to boost yields, culling cows after just two or three lactations. This production model relies on intensive nutrition to maximise output and exploits only the peak lactation period of each cow. As a result, every cow’s life is short and arduous.
Improving cow comfort does increase yields. Large farms provide more effective heat relief, soft bedding, imported automated brushes, and similar amenities—luxuries smallholders generally lack. Yet none of this offsets the hardship and brevity of the cows’ lives.
1. Policy bias
Due to the daily production and highly perishable nature of milk, combined with their small scale, smallholders inherently hold a disadvantage compared to dairy companies. This disadvantage has been exacerbated by the following factors.
First, agricultural policies targeting the farming sector have long favoured large-scale operations, marginalising smallholders. From the 1980s until 2008, the Chinese government supported the development of smallholders. Following the 2008 melamine scandal, the government began associating smallholders with backwardness and unsafe practices, while linking large farms with modernity and safety. Consequently, fiscal funds were heavily diverted towards large-scale operations.
Second, processing-sector policies have consistently favoured large dairy companies, deepening the power imbalance between smallholders and processors. After the melamine incident, the government shut down numerous small and medium-sized dairy processors, raised capacity requirements for new facilities, and encouraged mergers and acquisitions within the processing sector.
Third, government import policies for dairy products have harmed the interests of domestic dairy farmers, particularly smallholders. Large farms maintain closer ties with dairy companies, ensuring more reliable sales channels. By contrast, smallholders have faced a greater impact from imported dairy products.
2. Short-termism in the dairy industry
A senior industry figure has pointed out that over the past few decades, China’s leading dairy companies have focused on eliminating local small businesses rather than expanding the overall market; on leveraging various stakeholders for their own gain rather than fostering long-term industry growth; and on targeting only the high-end market rather than cultivating lower-tier markets. They overlook the fact that a well-developed lower-tier market is what generates a steady stream of consumers for mid-to-high-end products.
In 2021, per capita annual dairy consumption among urban residents in China stood at 18.2 kilograms, compared with just 9.3 kilograms for rural residents. This stark disparity reflects the industry’s abandonment of the rural daily dairy consumption market. In rural areas, dairy products are generally treated as gifts for festivals and visiting relatives, rather than everyday food items.
This short-sighted approach to industry development has shrunk the potential scale of dairy consumption. Meanwhile, dairy companies’ push towards premiumisation has driven them to build their own breeding farms. Both trends have further marginalised smallholders.
The marginalisation of dairy farmers tends to occur most sharply during periods of falling milk prices. When prices drop, it signals market oversupply, strengthening the bargaining power of dairy processors relative to farmers. Processors then seize the opportunity to reject farmers’ milk or demand costly upgrades and renovations, refusing to purchase unless changes are made. Since 2000, the first major price crash followed the 2008 melamine scandal, forcing numerous smallholders out of business. The second crash occurred between 2014 and 2015, triggering another wave of exits. The third crash, from 2022 to the present, has led to yet another wave of smallholders being consolidated into larger operations or forced out entirely.
3. How can small farms be supported?
First, move away from policies that favour large-scale operations and instead support the development of small family farms. Since 2017, the central government has begun to reassess past policies that tilted towards large enterprises, pledging greater support for family-run holdings. In reality, however, large farms continue to proliferate and regularly receive substantial government subsidies. This underscores the disconnect between the strategic direction of national policy and its practical implementation.
To bridge this gap, the government must introduce more targeted and robust measures to bolster small-scale operations. Suggestions include: ① fundamentally restructuring the allocation of public dairy funds to prioritise small family farms; ② conducting a full cost assessment of large-scale operations, including levying charges to offset their environmental and social externalities. This would ensure large farms bear their true operational costs and adjust their business models accordingly; ③ incentivising dairy processors to source raw milk from smallholders, for instance, by tying the proportion of milk sourced from small farms to eligibility for tax relief or rebates.
Second, discard policies that favour large dairy corporations, vigilantly curb the trend towards consolidation in dairy processing, and implement a range of measures to support local small and medium-sized processors. An over-reliance on massive enterprises inevitably leads to: ① dominant players leveraging their market position to prioritise short-term private gains over long-term industry sustainability; ② the abuse of supply chain power, which undermines the interests of other stakeholders; ③ the undue influence of corporate interests over government action, eroding public trust and complicating food safety oversight; ④ excessive distance between production and consumption, resulting in economic inefficiency. Consequently, the government should champion small and medium-sized processors to foster a diverse and competitive dairy landscape.
Third, implement a range of measures to bolster smallholders’ bargaining power against dairy processors. ① Smallholders are inherently fragmented; unity brings strength. 养殖小区 are typically overseen by milk parlour operators. While they have historically helped farmers resist price suppression and delayed payments, they also play a constructive role in sharing technical knowledge and monitoring milk quality. It is advisable to promote these clusters as an organisational framework for smallholders, while guiding their evolution into genuine, farmer-led cooperatives.
② Foster social organisations led by smallholders. At present, dairy associations across all administrative levels are largely controlled by processors and large-scale farms, leaving small farmers without a meaningful voice. Beyond farming clusters, it is essential to cultivate independent social organisations for smallholders. These bodies should facilitate self-governance within the community while presenting a united front to advocate for farmers’ interests.
③ Regulate procurement practices to curb processors’ arbitrary imposition of costs, price suppression, and outright rejection of milk. Introduce a negative list for corporate conduct, for example, prohibiting the tying of raw milk purchases to the sale of feed, consumables, or equipment. Establish a strict list of acceptable grounds for price reductions or milk rejection, preventing processors from acting outside these parameters. Given farmers’ limited capacity to independently verify milk quality, processors are often able to manipulate quality standards to justify price cuts or refusals. To counter this, government-approved testing laboratories should be appointed as independent third parties to provide impartial, publicly funded raw milk quality assessment services.
Fourth, provide robust support for 奶农办加工. Empowering farmers to process their own milk ensures a fairer distribution of profits, incentivises quality production at the farm level, and ultimately enhances both raw milk standards and farmer incomes.
Currently, the primary hurdles for farmer-led processing stem from national dairy industry regulations that cap the capacity of new facilities and impose minimum distance requirements between plants. These restrictions prevent many farmers from securing dairy processing licences, barring their products from supermarkets and school supply chains. Consequently, farmers are forced to operate under catering licences, retailing products through independently run milk bars. Given the limited market reach of milk bars, this model fails to meaningfully reduce farmers’ dependence on large processors.
These regulatory constraints ought to be eased. However, deregulation alone does not guarantee success. Practical challenges remain: how will farmers negotiate supply contracts with major retailers? How will they compete with established processors who already dominate the chilled fresh milk segment that small-scale processors typically target?
At present, farmer-led processing is primarily driven by larger holdings with several hundred head of cattle, alongside independent smallholders on urban fringes. To survive in a competitive market, collaboration is essential. Farmers should pool resources to establish 生产合作社, which can then merge into larger federations. These federations can incorporate dedicated processing companies to compete commercially. This cooperative model has proven successful in countries such as New Zealand and Denmark, offering a valuable blueprint for the country.
Fifth, harness consumer engagement to activate a bottom-up food safety oversight framework. The current national regulatory model prioritises large-scale production and relies on top-down enforcement, a structure that has generated numerous systemic issues.
Transitioning towards small and medium-sized raw milk producers and processors requires a corresponding shift in the food safety regulatory framework. Given the fragmented nature of these operations, oversight must pivot towards a bottom-up approach. Consumers are, by nature, the most effective monitors of food safety. Moving forward, regulatory efforts should actively engage the public, embracing a participatory approach to food safety governance.
Sixth, leverage the current dairy crisis to redefine the sector’s development trajectory and strengthen relief measures for dairy farmers when prices plummet. Raw milk prices in China have been falling for four years. This crisis has laid bare the flaws in the sector’s previous development model, offering a timely opportunity for reflection. Competent authorities should seize this moment to forge a renewed consensus and steer the domestic dairy industry towards a more sustainable path.
Seventh, in the longer term, reassess tariff policies on imported dairy products. The generally low import tariffs on agricultural goods in China were a concession made to secure WTO membership. In effect, this approach subsidises industrial and commercial interests at the expense of farmers. Agriculture underpins social stability, while industry and commerce drive prosperity. Such policies have accelerated rural hollowing out, even as they fuelled the growth of China’s export-oriented manufacturing sector and shifted hundreds of millions of rural residents into non-farm employment.
Any such policy adjustment hinges on a restructuring of China’s domestic and external economic cycles. Should China fail to reduce the pivotal role of external markets in its economic development, the scope for policy revision will remain constrained. Conversely, if China successfully transitions to a new development paradigm centred on domestic circulation, with domestic and international cycles mutually reinforcing one another, there will be greater flexibility to adjust these measures.
IV. Summary
The key to developing family-run dairy farms lies in shifting the balance of power away from the inherent disadvantage small-scale dairy farmers face against processing companies. To achieve this, the government should move away from policies that favour large-scale operations and major dairy corporations, and instead support family farms and small-to-medium enterprises. It must also implement measures to strengthen smallholders’ bargaining power when negotiating with processors; actively support farmers in setting up their own processing facilities; mobilise consumers to activate a bottom-up food safety oversight system; use the current dairy industry crisis as an opportunity to reshape its future trajectory; and, in the long term, revisit tariff policies on imported dairy products.
Author’s Note
For readers interested in how small-scale dairy farmers in China have been marginalised and how large-scale ranches have risen to dominance, please refer to: Xiaojun Feng. 2025. Cost competition or power struggle? The exclusion of dairy farmers from raw milk production in China. The Journal of Peasant Studies. https://doi.org/10.1080/03066150.2025.2539842
[2] China’s dairy industry to make comprehensive efforts towards high-quality development. 2018. https://www.gov.cn/zhengce/2018-05/26/content_5293782.htm
[3] Image source: Liu Changquan, Han Lei, Zhang Yuanhong. (2018). International comparison of China’s dairy industry competitiveness and development strategies. China Rural Economy, 7, 132-146.
[4] World Dairy Development Report. 2021. China Agricultural University Press. p. 8.
[5] Investigation into the Modern Farm crisis: In the ‘post-melamine’ era, the 10,000-head ranch model suffers a severe setback. 2014. https://www.thepaper.cn/newsDetail_forward_1282965
[6] Investigation into the Modern Farm crisis: In the ‘post-melamine’ era, the 10,000-head ranch model suffers a severe setback. 2014. https://www.thepaper.cn/newsDetail_forward_1282965
[7] Some reflections on China’s dairy sourcing strategy. 2024. https://mp.weixin.qq.com/s/zZoMFp3Av1-FTU2Nz8bVaA
[8] National Data. 2025. https://data.stats.gov.cn/easyquery.htm?cn=C01
[9] World Dairy Development Report. 2021. China Agricultural University Press.
[10] Representatives from all walks of life gather at the Great Hall of the People to discuss the second phase of development for China’s dairy industry. 2008. China Dairy Cattle.
Editor: Xiaodan