Product quality asymmetry and food safety: Investigating the “one farm household, two production systems” of fruit and vegetable farmers in China

- Food safety concern and cost saving affect the adoption of dual production systems.
- Product inspections and certifications affect the production decision.
- Training on pesticide application affects the production decision.
- Co-regulation and educating farmers is essential to ensure food safety.

The Chinese government faces a great challenge to safeguard the safety of the food supply chain due to the significant fragmentation of producers and weak institutional resources to monitor and enforce safety standards. Food safety in China has received escalating attention since the 2008 milk scandal. Mainly due to safety concerns, Chinese farmers adopt two separate production systems for the market and self-consumption, and thus, the so-called “One Farm Household, Two Production Systems” (OFH-TPS) has gained popularity in the recent years.This study provides a theoretical framework to examine how product inspections and certifications affect the OFH-TPS adoption by mitigating information asymmetry of product quality. It also shows that both food safety concerns and cost savings are important factors for famers' decision on the adoption. The empirical analysis finds that product inspections conducted by firms, agricultural cooperatives, and farmers curb the OFH-TPS adoption, whereas government inspections have no statistically significant effect. Farmers who grow “Green Food” are less likely but organic farmers are more likely to adopt the OFH-TPS. We also find that pesticide use training curbs the OFH-TPS adoption, and the perceived adverse effects of pesticide use to the environment and human health have no statistical effect. Farmers who use highly toxic or banned pesticides and/or who perceive food safety at the local markets is poor are more likely to adopt the OFH-TPS. This study provides rich policy implications. To safeguard food safety, it is critical to engage the private sector for co-regulation, improve the efficacy of government inspections, and promote education on pesticide use to both farmers as well as retailers of pesticides.