How do smallholders enter local market? Embedded procurement in rural China

This paper explores how some smallholder farmers in rural China are incorporated into local markets amid agricultural modernization, farming household differentiation, and production fragmentation. Based on field investigations conducted across multiple rural areas, the paper proposes the concept of embedded procurement to generalize a localized transaction mechanism rooted in some village communities. Within this mechanism, dealers purchase agricultural products from scattered smallholder farmers by relying on village social relations, shared norms, and community accountability mechanisms. Unlike standardized market exchange or vertically integrated contract farming, embedded procurement operates primarily through repeated interactions, relational trust, informal rules, and local expectations, thereby reducing costs associated with search, quality identification, transaction coordination, and compliance supervision. The findings reveal that different types of farming households participate in this mechanism in differentiated ways. This mechanism is most critical for part-time and marginal farming households in “hollowed-out” villages, yet its intensity varies in response to changes in social structure, transaction patterns, and local rules. Operational farmers provide relatively stable supply and enhance the attractiveness of local agricultural products to external markets. Part-time farmers rely on embedded procurement to balance agricultural production and non-farm livelihoods. And marginal farmers, despite a weak market orientation, are nevertheless integrated into the transaction system through kinship ties, neighborhood networks, and village norms. Meanwhile, dealers are not merely market intermediaries but actors embedded within local social relations, whose role is to transform surplus output from scattered households into identifiable and marketable commodity flows. This paper argues that embedded procurement constitutes a transaction order endogenous to rural communities, enabling smallholders to sustain market access under conditions of inadequate formal regulation, high transaction costs, and highly dispersed production. Although this mechanism is being shaped by ongoing modernization, capitalization, and market formalization, it retains substantial practical significance. It sustains local agricultural circulation, improves the welfare of vulnerable farmers, and strengthens rural community resilience. By conceptualizing embedded procurement, this paper makes empirical and theoretical contributions to the literature on smallholder commercialization, market embeddedness, and moral economy in rural transformation across developing countries.