Production risk, risk aversion and farmer’s agricultural machinery investment choice: Buy machinery or buy services?

Agricultural mechanization and appropriate agricultural risk management are important features of the development of modern agriculture and are also important components of rural vitalization. Based on the rational choice theory and prospect theory, this paper examines how farmers’ production risks and risk attitude affect their production machinery investment using a representative rural household survey data from Guangxi. Simultaneous equation model and three-stage least squares (3SLS) estimation are employed to empirically test the hypothesized mechanism, and analyze the risk management effect of machinery investment as captured by machinery and service purchases. Results show that that floods, droughts, typhoons and market risks are the main risks for rice production in Guangxi, and agricultural machinery usage is the main strategy for farmers to cope with production risks. Farmers have a stronger perception that machinery purchase is a better choice than buying machinery services. Production risks and risk aversion have significantly promoted farmers’ investment in production machinery and inhibited their adoption of agricultural machinery services. But the impacts of risk and risk aversion differ among farms of different production scales. Production risk has a stronger impact on large-scale farms to purchase machinery, and risk aversion has a greater impact on small and medium-sized farms. At the same time, the land connectivity, cooperative organizations, and rising farm wage also have significant impacts on farmers’ machinery purchasing or services purchasing. Our findings highlight the importance and necessity of encouraging and supporting farmers’ investment in production machinery to guide farmers to scientifically invest in agricultural machinery and to establish a comprehensive risk management system.