Context: Integrated crop-livestock systems underpin sustainable intensification in arid lands, but the mechanisms by which grazing mediates interactions between annual and perennial forages to influence system-level productivity and economic outcomes remain poorly quantified. Objective: We evaluated whether grazing-based integration of annual and perennial pastures enhances system performance through spatial coupling compared to a non-integrated hay harvesting system. Spatial coupling is defined as livestock-mediated synchronization of forage utilization with regrowth dynamics. Methods: A six-year field experiment in northwest China used a randomized block design with three replicates. Each replicate covered six hectares and included both annual cereals and a perennial forage mixture. We compared a grazing-based integration system, where sheep moved between pastures based on sward height, with a mechanical hay harvesting system. We measured forage mass and nutritional quality and calculated food equivalent units. System performance was evaluated using the grazing land equivalent ratio and a cost-benefit analysis. We tested three hypotheses focusing on biomass productivity, functional complementarity, and economic thresholds. Results and conclusions: Grazing-based integration increased system-level forage mass by 22-35 % relative to hay harvesting, with grazing land equivalent ratios of 1.4-2.1 indicating land-use efficiency gains. Spatial coupling manifested as synchronized forage quality dynamics across pasture types, enabling concurrent high productivity (>= 13.3 t DM ha(- 1)) and nutritional efficiency (FEU > 0.9). The grazing system maintained profitability across a range of perennial pasture proportions, whereas the hay system required a minimum threshold of 32.4% perennial cover to achieve positive returns. Below this threshold, hay systems were not profitable due to high input costs and yield variability. Grazing systems maintained profitability below this threshold because livestock can adjust to variable forage supply and nutrient recycling reduces fertilizer dependence. Functional complementarity was observed as perennial pastures contributing proportionally more to total yield while annual pastures contributed proportionally more to forage quality, thereby overcoming the conventional yield-quality trade-off. Significance: Livestock-mediated spatial coupling transforms discrete pastures into a functionally integrated system. The documented efficiency gains and economic thresholds provide a framework for designing grazing-based systems that balance productivity and resilience in arid regions.