When Farm Subsidies Follow the Land, Leases Shrink and Trust Breaks Down

Every year, governments around the world pour billions of dollars into agricultural subsidies, hoping to shore up food security, support rural incomes, and encourage farmers to invest in the long-term health of their land. But a new study from China suggests that the way those subsidies flow through the countryside may be quietly undermining the very investments they are meant to encourage. When subsidy payments travel with rented land rather than staying with the family that owns it, land lease contracts become shorter and more fragile, and the farmers who rent the land pull back from the long-term investments that raise productivity, according to research published in Humanities and Social Sciences Communications.

The study, led by Mengfei Gao of the College of Economics and Management at Nanjing Agricultural University, together with colleagues Rui Pan and YueQing Ji, draws on two large bodies of survey evidence: the China Land Economy Survey conducted between 2020 and 2022, and a 2018 household survey focused on large-scale grain production across four agriculturally diverse provinces—Heilongjiang in the northeast, Henan in the central plains, Zhejiang on the eastern coast, and Sichuan in the southwest. By combining these datasets, the researchers were able to examine how the ownership of agricultural subsidies interacts with the structure and stability of land transfer contracts, and how that stability, in turn, shapes the investment decisions of the households that actually farm the land.

The core finding is deceptively simple but economically profound. When agricultural subsidies flow to the receiving households—the tenants who lease land from others—two things happen. First, land transfer contracts tend to become shorter in duration, as landowners grow reluctant to lock in long leases when the subsidy income attached to the land is effectively handed over to someone else. Second, the risk that contracts will not be honored rises: either party becomes more likely to renege, renegotiate, or seek to reclaim the land as the perceived value of holding it shifts. In other words, the subsidy, designed to support farming, ends up injecting instability into the contractual foundation on which modern farming depends.

To understand why, it helps to think about what a subsidy attached to land actually does to the bargaining position of the two parties in a lease. In many parts of China, subsidy payments are nominally tied to the land parcel, but the rules governing who receives them are often ambiguous or inconsistently applied. When a landowner rents out a plot, the question of whether the subsidy follows the land to the tenant or stays with the original contract-holder becomes a source of tension. If the tenant captures the subsidy, the landowner loses income they may feel entitled to, and the incentive to terminate the lease early or refuse renewal grows. If the owner retains it, the tenant may feel shortchanged. Either way, the ambiguity converts a routine rental arrangement into a contested claim, and contested claims invite short horizons.

Short horizons are exactly what long-term agricultural investment cannot tolerate. The study’s further analysis identifies short-term land transfers and high contract fulfillment risk as key factors inhibiting long-term investment by receiving households. The logic follows a well-established principle in institutional economics: farmers will only sink money into improvements—irrigation infrastructure, soil fertility building, machinery, greenhouses, drainage systems—when they can reasonably expect to capture the returns over time. A tenant on a one-year lease has almost no incentive to apply lime to acidic soil, plant orchard trees, or install drip irrigation, because the benefits of those actions accrue largely to whoever farms the land in future years. When contracts are short and enforcement is uncertain, the rational strategy is to extract value quickly and invest nothing, a pattern that erodes soil quality and productivity over the longer run.

The implications extend beyond individual farm budgets. China’s land leasing market has expanded rapidly as rural labor has migrated to cities, leaving many plots in the hands of households that no longer farm them. This transfer of land use rights is central to the country’s push toward larger-scale, more mechanized, and more efficient grain production. But the new research suggests that the institutional plumbing of that market—the contracts themselves—is leaking. Contractual instability, the authors argue, remains a prominent issue in China’s land leasing market reform, and its causes and impacts require systematic analysis. Their work provides that analysis, tracing a causal chain that runs from subsidy policy design, through contract length and enforcement, to the investment behavior that ultimately determines agricultural productivity and sustainability.

What makes the study methodologically notable is its grounding in real, geographically varied survey data rather than laboratory abstractions. The four provinces sampled span dramatically different farming systems: Heilongjiang’s vast mechanized grain farms, Henan’s intensively cultivated wheat and maize plains, Zhejiang’s fragmented, high-value horticultural landscape, and Sichuan’s terraced and heterogeneous terrain. Households in these settings face different land scarcity, different off-farm opportunities, and different local subsidy administration practices. The consistency of the underlying pattern—that subsidy flows to tenants shorten contracts and raise fulfillment risk—across such varied contexts strengthens the case that the mechanism is structural rather than a quirk of any one region’s institutions or agronomy.

The policy implications are correspondingly concrete. The authors recommend that during adjustments to agricultural subsidy policies, land transfer contract coordination mechanisms should be strengthened to reduce the impact of subsidy ownership changes on contract stability. In practice, this could mean clarifying, at the policy level, who is entitled to subsidies when land changes hands, so that neither party has an incentive to destabilize an existing lease. It could also mean encouraging explicit contractual clauses that allocate subsidy rights in advance, removing the ambiguity that fuels disputes. The second recommendation is equally important: mechanisms for protecting land transfer contracts and resolving disputes should be improved, so that operators who do sign long leases can trust that those leases will be enforced. Together, the two reforms aim at the same target—stabilizing the long-term expectations of agricultural operators so that they are willing to invest.

The broader lesson resonates far beyond China. Subsidy programs in many countries face a similar design tension: payments are often tied to land ownership or historical production rights, while the actual farming is increasingly done by someone else. In the European Union, debates over who should receive direct payments—the landowner or the active farmer—mirror the Chinese dilemma almost exactly. In the United States, farm program payments flow through complex eligibility rules that can diverge from who bears the risk and makes the investment on the ground. Wherever the mismatch arises, the economic mechanism identified in this study is likely to operate: when the party making long-term investments cannot be sure of capturing the returns, including subsidy returns, both contracts and capital formation suffer.

For a world confronting tightening food supplies, degrading soils, and the need for massive on-farm investment in climate adaptation, the study is a reminder that agricultural policy works through institutions, not just incentives. A subsidy is not merely a transfer of money; it is a signal about who holds claim to the land’s future returns. Get that signal wrong, and the money that was meant to build a more productive, sustainable agriculture may instead be quietly shortening leases, souring relationships between landowners and tenants, and starving the land of the investments it needs. The research by Gao, Pan, and Ji shows that fixing the plumbing—clarifying subsidy entitlements and hardening contract enforcement—may be as important to the future of farming as the size of the subsidy check itself.

Subject of Research: The effect of agricultural subsidy flows on land transfer contract stability and farm investment in China

Article Title: Research on the flow of agricultural subsidies and the stability of transfer contracts: with a discussion on its impact on investment

Article References: Research on the flow of agricultural subsidies and the stability of transfer contracts: with a discussion on its impact on investment. (n.d.). https://doi.org/10.1038/s41599-026-09409-9

Image Credits: AI Generated

DOI: 10.1038/s41599-026-09409-9

Keywords: agricultural subsidies, land transfer contracts, contract stability, long-term investment, China land leasing, farm tenancy, rural land reform, contract enforcement, agricultural economics, grain production, policy design, Nanjing Agricultural University