In order to prevent desertification in northern and western parts of China, Ecological Resettlement programs have been introduced in many regions. The programs are designed to cope with recovery of grassland ecology in desertificated pasture areas while maintaining the farm income levels. However, few relevant economic studies have ever been conducted. This paper examines the factors of profitability of dairy production in ecological resettlement villages by comparing economic circumstances in the village with those of existing traditional dairy farms. Random sample surveys have been conducted in ecological resettlement villages and traditional dairy village in the central part of Inner Mongolia. The number of sample is 293, of which 193 are farms in ecological resettlement and 100 are traditional farms.
The results show farm incomes in ecological resettlements are substantially lower than those of traditional dairy farms. It is because of problems of design for the resettlements, as well as because of problems of the technical inefficiency of farm production in ecological resettlements. Resettlement villages do not have farmland large enough to provide feed for animals, thus production costs are higher. The technical efficiencies estimated by the stochastic production function are lower in resettlement villages. Some farmers seek off-farm employment opportunities in urban areas, but their earnings are insufficient to offset high production costs. The profitability of resettled farms could be increased by providing larger areas of land to each farm, introducing technical extension systems and implementing quality control of cows. If these conditions are fulfilled, resettled farms could earn the same level of incomes as traditional dairy farms and the origin grassland could be rehabilitated.
