Small-scale vs Large-scale Farming: Who to Support and How?
Foodthink says
This article further argues for the rationality of developing smallholder family farms from social, economic, and environmental perspectives. It also addresses the reasons why small-scale dairy farmers in China are being marginalised and suggests specific ways to support them. The primary data is drawn from field research conducted in 2023 in a major dairy-producing county in Shandong by Professor Feng Xiaojun and her team from China Agricultural University.
1. Smallholder Farms vs Large-Scale Farms: Who Should Be Supported?
Consequently, supporting farmers’ entry into meat, egg, and dairy production is a vital way to raise rural incomes. However, the influx of capital into dairy farming marginalises small-scale farmers, cutting off this route to increasing income. This is precisely the story that has unfolded across China over the last 20 years.
As production shifts from smallholders to larger farmers and then to large-scale corporate farms, labour intensity gradually decreases. Fewer agricultural workers are absorbed, which in turn hinders the increase of farmers’ incomes.
A smallholder family farm run by a couple without employees typically raises fewer than 30 head of cattle. A hardworking couple with one employee can manage around 60 head. A household consisting of two generations (four adults) supported by a few employees can raise about 150 head.
It is common for prosperous farmers with some capital to run employee-based farms on a scale of 200 to 1,000 head. While these farmers participate in the labour themselves, the farm relies primarily on hired labour sourced from the local village, with an average ratio of one worker per 30 cows. In contrast, farms with over 1,000 head are considered large-scale farms; these are essentially corporate operations that rely on hired labour, primarily university graduates, with an average ratio of one worker per 40–50 cows.
In the era when smallholders were the primary producers of raw milk in China, raising dairy cows significantly improved farmers’ lives, allowing them to settle down and lead prosperous lives in their hometowns rather than migrating for work. Here are some recollections from small-scale dairy farmers in the research area:
“I got my first car in ’04; I was the first person in the village to own one.”
“Raising cows took me from having nothing to owning a car and a Western-style house.”
In the research area, once small-scale farmers were marginalised and pushed out of dairy farming, most turned to casual day labour. Figure 1 shows a labour market in the research area during the early morning, where grey-haired men are seeking daily work, primarily on construction sites.
Furthermore, China’s tariffs on imported dairy products are relatively low by international standards. The landed price of raw milk equivalent for imported dairy products has long been lower than the price of domestically produced raw milk (Figure 2). Additionally, following the melamine scandal, there has been a lack of trust among Chinese consumers regarding domestic milk, particularly infant formula. These factors have intensified the impact of imported milk on domestic production.
Under these circumstances, as shown in Table 1, small-scale dairy farmers help China resist the impact of imported milk because their production costs are lower than those of large-scale farms.
There are many reasons why production costs are lower for smallholders.
First, labour costs are lower. Small-scale dairy farmers use their own family labour rather than hired workers.
Second, feed costs are lower. Some of the feed for smallholders comes from straw and maize grown on their own land, whereas large-scale farms procure almost everything from the market. Smallholders prefer localised, cheap feed, representing a low-cost, low-yield model (Table 1). In contrast, large farms seek high yields and use high-value feed, including imports.
Third, management costs are lower. Small-scale farmers employ more extensive management, while large farms use intensive management, which is more costly. For instance, smallholders generally do not partition their cows into different pens and use only 3–4 types of formulated feed. Large farms, however, divide their herds into no fewer than 10 pens based on the cows’ life cycle stages and lactation characteristics, with professional nutritionists tailoring feed formulas for each group.
Fourth, infrastructure and equipment costs are lower. The sheds of small-scale farmers are located either around their houses or within their own village, meaning land costs are zero or very low. As shown in Figures 3 and 4, the construction specifications for smallholder sheds are low, whereas those for large-scale farmers and corporate farms are high. Additionally, large farms prefer to replace manual labour with machinery, a trend that becomes more pronounced as the farm grows larger.
Their methods of waste management also differ. In the surveyed areas, small-scale farmers typically return manure to the fields or sell it via manure traders to local vegetable growers for use as fertiliser.
Large farms in the surveyed areas claim to use equipment for solid-liquid separation. The solid manure then enters fermentation tanks and, once treated, is used as bedding; the liquid waste enters oxidation ponds and is used for irrigation after fermentation. Generally, these large farms lease land, claiming it is for growing fodder. In reality, however, this land is often used as a dumping ground for farm waste liquids.
Large farms have previously sparked environmental protests. In 2014, in Fancun Village, Tongshan County, Hubei Province, villagers blockaded a 10,000-head farm for two weeks, eventually forcing the farm to relocate. The farm had long been dumping massive quantities of digestate and cow manure in the surrounding area, leading to a situation where “it stank all year round, especially in summer, when the smell was so bad you couldn’t even find a place to sit in the shade.”
Small-scale farmers treat their cows with a sustainable, long-term approach, whereas large farms adopt an exploitative “kill the goose that lays the golden egg” strategy. In the surveyed areas, small-scale farmers generally milk their cows twice a day and only cull a cow after she has had five or six calves. Large farms, however, milk three to four times a day to maximise output, culling cows after only two or three calves. This production method relies on intensified nutrition to boost output, utilising the cow only during her most productive lactation period. Consequently, the life of each cow is arduous and brief.
Improving a cow’s comfort does increase yield. At large farms, heat protection is more comprehensive, with soft bedding and imported grooming brushes—luxuries small-scale farmers cannot afford. Yet, these amenities cannot offset the hardship and brevity of the cows’ lives.
1. Policy bias
Due to the daily output and perishable nature of milk, combined with their small scale, small-scale farmers are at a natural disadvantage compared to dairy companies. This disadvantage is further reinforced by the following factors:
First, long-term government industrial policies favouring the production end of large farms have marginalised small-scale farmers. From the 1980s until 2008, the Chinese government supported the development of small-scale farmers. However, after the 2008 melamine scandal, the government began associating small-scale farming with backwardness and insecurity, while linking large farms with modernity and safety, shifting financial resources heavily towards the latter.
Second, long-term government industrial policies favouring the processing end of large dairy companies have reinforced the power imbalance between small farmers and these firms. Following the melamine scandal, the government shut down a large number of small and medium-sized dairy companies, raised the capacity requirements for new entries, and encouraged mergers and acquisitions.
Third, government policies on dairy imports have harmed the interests of domestic cattle breeders, particularly small-scale farmers. Large farms, having closer ties to dairy companies, enjoy more secure sales channels. By contrast, small-scale farmers are more severely impacted by the influx of imported dairy products.
2. The short-sightedness of dairy companies
A veteran industry insider pointed out that for the past few decades, China’s leading dairy companies have focused on eliminating surrounding small businesses rather than expanding the overall market; they have manipulated various interests for their own benefit rather than promoting the industry’s long-term development; and they have cherry-picked the high-end market rather than cultivating lower-tier markets. They fail to realise that the high- and mid-end markets can only have a steady stream of consumers if the lower-tier markets are properly cultivated.
In 2021, the average annual per capita consumption of dairy products for urban residents in China was 18.2 kg, while for rural residents it was 9.3 kg. This stark difference is the result of dairy companies abandoning the daily consumption market in rural areas. In the countryside, dairy products are generally treated as gifts for festivals and visiting relatives rather than as daily staples.
This short-sighted path of industry development has shrunk the potential scale of dairy consumption. Simultaneously, the pursuit of “premiumisation” has driven dairy companies to build their own farms. Both trends have deepened the exclusion of small-scale farmers.
The marginalisation of farmers occurs primarily when milk prices drop. A price drop indicates sufficient market supply, which strengthens the bargaining power of dairy companies over producers. Companies take this opportunity to refuse milk from farmers or pressure them into “upgrading” their facilities, refusing to buy milk unless changes are made. Since 2000, the first major price crash occurred after the 2008 melamine scandal, leading to a mass exit of small-scale farmers. The second crash occurred between 2014 and 2015, resulting in another wave of exits. The third crash has lasted from 2022 to the present, leading to a third wave of exits and mergers into larger farms.
III. How to support small-scale farms?
First, abandon policies that favour large-scale farms and instead support the development of small-scale dairy farms. Since 2017, the central government has begun to reflect on past policies that leaned towards large farms and has started providing more support to family-run farms. In reality, however, large farms are increasing in number and generally receive huge government subsidies. This reflects a discrepancy between the strategic direction of national policy and its actual implementation.
To address this, the state needs to introduce more detailed and powerful policies to support small-scale dairy farms. For example: ① fundamentally reform the allocation of government dairy funding to prioritise support for small farmers; ② comprehensively assess the costs of large-scale farms and impose compensatory levies for their environmental and social impacts, thereby forcing them to operate under the constraints of their true operating costs and adjust their development direction; ③ encourage dairy companies to purchase raw milk from small farmers, perhaps by linking the proportion of small-farmer milk in their raw material supply to relevant tax breaks and fee reductions.
Second, abandon policies that favour large dairy corporations, be vigilant against and curb the trend towards consolidation in dairy processing, and implement multiple measures to support local small and medium-sized dairy enterprises. Over-pursuing large-scale enterprises leads to a situation where big companies: ① use their dominant position to focus on short-term self-interest rather than the long-term interests of the industry; ② abuse their power within the supply chain, harming the interests of other stakeholders; ③ capture government decision-making, which undermines government credibility and hinders food safety supervision; ④ increase the distance between production and consumption, creating economic inefficiencies. Therefore, the government should support small and medium-sized dairy enterprises to foster a diverse landscape where enterprises of various scales can flourish.
Third, implement various measures to cultivate the bargaining power of small dairy farmers relative to dairy corporations. ① Small farmers are fragmented; strength comes from unity. Livestock rearing zones are often led by milk collection centre owners, but they have played a certain role in resisting price cuts and payment arrears from dairy companies, and have also had positive effects on technical knowledge transfer and raw milk safety supervision. It is recommended to promote these rearing zones as an organisational form for small dairy farmers, while encouraging them to evolve into genuine cooperatives led by the farmers themselves.
② Cultivate social organisations led by small dairy farmers. Currently, dairy associations at all levels nationwide are largely controlled by dairy corporations and large farms, leaving small farmers with no voice. Beyond the rearing zones, social organisations run by the farmers themselves should be developed to promote self-governance within the community and to present a united front when speaking on their behalf.
③ Standardise the purchasing behaviour of dairy companies to curb the arbitrary increase of costs for farmers, as well as price-cutting and refusal-of-collection practices. A “negative list” for dairy company conduct should be established, such as prohibiting the bundling of raw milk purchases with the sale of feed, consumables, and equipment. A list of valid reasons for price reductions or refusals of collection should also be set, restricting companies from acting outside these criteria. Because farmers have limited capacity to test raw milk quality, dairy companies have been allowed to distort quality assessments to arbitrarily cut prices or reject milk. To counter this, national testing agencies should be designated as third parties to provide public-interest raw milk quality testing services.
Fourth, provide strong support for farmer-led processing. The significance of farmer-led processing lies in motivating the production end through a rational distribution of profits, thereby improving raw milk quality and farmer incomes.
Currently, the main difficulties for farmer-led processing are the national dairy industry policies that restrict the capacity of new processing plants and the restrictions on the distance between plants. These constraints mean many farmers cannot obtain dairy processing licences, meaning their products cannot circulate in supermarkets or schools; they can only obtain catering business licences and sell dairy products through self-operated milk bars. However, sales volumes at milk bars are limited, which fails to effectively reduce farmers’ dependence on large dairy corporations.
These restrictions should be eased. However, easing them does not automatically mean farmers will succeed in processing. For instance, how will they negotiate with supermarkets? How will they compete with existing dairy companies? Existing firms have already deeply penetrated the chilled fresh milk sector, where farmer-led processing is usually concentrated.
Currently, the main actors in farmer-led processing in China are large farmers with at least several hundred cows and small individual farmers in peri-urban areas. To survive in a competitive environment, farmers need to unite. By forming production cooperatives, small cooperatives can merge into federated cooperatives, which in turn establish dairy processing companies to compete in the market. This is the path to prosperity for dairy farmers in countries such as New Zealand and Denmark, and is a model worthy of reference for China.
Fifth, mobilise the power of consumers to activate a bottom-up food safety supervision system. China’s current food supervision system emphasises the scale of production entities and top-down supervision. This has created numerous problems.
If the focus shifts towards developing small and medium-sized raw milk production and processing entities, a matching food safety supervision system must be established. Given that these entities are small and dispersed, emphasis should be placed on developing a bottom-up supervision system. Dairy consumers are naturally food supervisors. Future food safety regulation should mobilise the consumer base and adopt a grassroots approach.
Sixth, utilise the current dairy industry crisis to reshape the direction of development and strengthen relief policies for farmers during periods of sharp price drops. Raw milk prices in China have been falling for four years. This crisis has exposed the shortcomings of the previous development route and provides a timely opportunity for reflection. Relevant departments should use this crisis to rebuild consensus and guide the Chinese dairy industry towards a healthier path.
Seventh, in the long term, rethink import tariff policies for dairy products. The generally low import tariffs on agricultural products in China are concessions made to join the WTO. In essence, this has been at the expense of farmers to promote the interests of industry and commerce. Yet, without agriculture there is no stability, and without industry and commerce there is no wealth. Such policies have driven the hollowing out of the countryside while promoting the growth of China’s export-processing industry, bringing non-agricultural employment to hundreds of millions of farmers.
The prerequisite for adjusting these policies is the restructuring of China’s domestic and international circulation. If China cannot change the critical role of the international cycle in its economic development, the room for policy adjustment will be limited. However, if China successfully forms a new development pattern where the domestic cycle is the mainstay and the domestic and international cycles mutually reinforce each other, there will be space for these policies to shift.
IV. Summary
The key to developing family farms lies in changing the vulnerable position of small dairy farmers relative to dairy corporations. To this end, the government should abandon policies that favour large farms and large corporations and instead support the development of family farms and small-to-medium dairy enterprises; implement multiple measures to cultivate the bargaining power of small farmers; strongly support farmer-led processing; mobilise consumers to activate a bottom-up food safety supervision system; utilise the current industry crisis to reshape the direction of development; and, in the long term, rethink import tariff policies for dairy products.
Author’s Note
Those interested in how small dairy farmers are excluded and how large farms have risen in China may 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
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Editor: Xiao Dan