Chapter 65 Farm Size

From big to small: the significance of smallholder farms in the global food system

Farm sizes play an important role in increasing public debates surrounding the sustainability of agriculture, specifically of animal farming. While research cannot find consistent relationships between sustainability and farm sizes, the ‘small-is-beautiful’-hypothesis remains still prominent in public perceptions. The aim of this study is to deeply analyze public associations coming with small and large farms with a focus on sustainability issues, including animal welfare. We additionally consider the memory of media reporting on farms with different sizes, wishes for legal regulations on farm and herd sizes, and the persuasiveness of scientific results that disentangle farm size from sustainability aspects. To answer these questions, an online survey with 985 German residents was conducted in May 2021 and descriptively analyzed. Although the attribute ‘small numbers of animals’ range among the less important ones that constitute an ‘ideal animal farm’ (rank 10 of 12 attributes), the large majority of participants (75.8%) reveal a preference for small over large animal farms. This is backed up by the perception that small farms are advantageous in terms of good animal welfare, environmental protection and product quality, but disadvantaged when it comes to profitability. Additionally, negative media reporting on animal farms (remembered by 92%) is more frequently related to large farms (82.5%) whereas positive media reporting (remembered by 81.4%) are mainly linked to small farms by 56.8%. More than half of respondents wish for regulations that limit farm and barn sizes. Scientific results finding no relationship between farm size and animal protection or climate protection are convincing for only 33.0% and 39.8% of the sample, respectively. A large farm size acts as a proxy for farming systems with low animal welfare and conservation levels. This challenges communications about the future of farming with the public as it can be assumed that farm sizes will further increase.

Israeli agriculture has experienced rapid structural changes in recent decades, including the massive exit of farmers, a resulting increase in average farm size, a higher farm specialization and a higher reliance on non-farm income sources. The higher farm heterogeneity makes it necessary to examine changes in the entire farm size distribution rather than the common practice of analyzing changes in the average farm size alone. This article proposes a nonparametric analysis in which the change in the distribution of farm sizes between two periods is decomposed into several components, and the contributions of subgroups of farms to this change are analyzed. Using data on Israeli family farms, we analyze the changes in the farm size distribution in two separate time periods that are characterized by very different economic environments, focusing on the different contributions of full-time farms and part-time farms to the overall distributional changes. We found that between 1971 and 1981, a period characterized by stability and prosperity, the farm size distribution has shifted to the right with relatively minor changes in higher moments of the distribution. On the other hand, between 1981 and 1995, a largely unfavorable period to Israeli farmers, the change in the distribution was much more complex. While the overall change in the size distribution of farms was smaller in magnitude than in the earlier period, higher moments of the distribution were not less important than the increase in the mean and led to higher dispersion of farm sizes. Between 1971 and 1981, the contributions of full- and part-time farms to the change in the size distribution were quite similar. Between 1981 and 1995, however, full-time farms contributed mostly to the growth in the average farm size, while the average farm size among part-time farms actually decreased, and their contribution to the higher dispersion of farm sizes was quantitatively larger. This highlights the need to analyze the changes in the entire farm size distribution rather than focusing on the mean alone, and to allow for differences between types of farms.

This paper examines the relationship between farm size and productivity in China's agriculture. In developing agriculture where there is a broad range of farm sizes, farm size and productivity or output per unit of land are often found to be inversely related. In China, where average farm size is small and the distribution of farm sizes is relatively compact, farm size and productivity are weakly inversely related. However, when we utilize the egalitarian principle during land allocation in China and use imputed homogenous land area rather than actual land area in the regression, the inverse relationship between farm size and productivity disappears. Hence, the strong inverse relationship that some studies have found are undoubtly due to a number of methodological problems, including the failure to account properly for land quality differences and the method of land distribution. Applying the principal agency theory, we also discuss the possibility that market inefficiency may contribute to the inverse relationship. We examine the necessity and validity (Hahn & Hausman 2002) of the instrumental estimation applied in the paper. The corresponding variance estimates are adjusted as Murphy & Topel (1985) suggested.

This article proposes a nonparametric analysis in which the change in the distribution of farm size between two periods is decomposed into several components, and the contributions of subgroups of farms to this change are analyzed. Using data on Israeli family farms, we analyze the changes in the farm size distribution in two separate time periods that are characterized by very different market conditions, focusing on the different contributions of full-time farms and part-time farms to the overall distributional changes. We find that between 1971 and 1981, a period characterized by stability and prosperity, the farm size distribution has shifted to the right with relatively minor changes in higher moments of the distribution. On the other hand, between 1981 and 1995, a largely unfavorable period to Israeli farmers, the change in the distribution was much more complex. While the overall change in the size distribution of farms was smaller in magnitude than in the earlier period, higher moments of the distribution were not less important than the increase in the mean. Between 1971 and 1981 the contributions of full-time farms and part-time farms to the change in the size distribution are quite similar. Between 1981 and 1995, however, full time farms contributed mostly to the growth in the average farm size, while average farm size among part-time farms actually decreased, and their contribution to the variance of farm size was quantitatively larger. We conclude that the contribution of part-time farming to the increase in farm size inequality is not straightforward. Rather, it depends on the economic environment.

China's rural economic reforms radically altered land tenure in rural China. With the granting of land use rights and residual income rights to farming households between 1979 and 1983, agriculture shifted from a collective-based to a familybased system. Land was not privatized, however. Ownership remained "collective", with local officials, typically at the village level, exercising a major influence over the allocation of land and the way households could use land. The initial land allocations to families were typically based on household size, household labour supply, or both. The central government's policy was that these allocations were supposed to be for 15 years. In some villages, land use contracts have been respected; in other villages, however, local leaders have periodically redistributed land among households and have intervened throughout the reform period to determine how farmers are able to use the land. The initial reforms triggered an unprecedented acceleration of agricultural growth in China. From 1979 to 1984, the gross value of agricultural output increased in real terms at an annual rate of 7.6 per cent, and grain production rose by 4.9 per cent annually.' Empirical studies attribute a significant part of this increase to enhanced incentives, as farmers were able to keep the output and

The relationship between farm size and productivity has been a topic of interest in agricultural research for decades due to the significance of agriculture in rural economies and its potential to reduce poverty and promote inclusive growth. The relationship between farm size and productivity is influenced by factors such as the type of crop being produced, costs of cultivation, farm management practices, access to inputs and markets and socio-economic conditions. This paper aims to investigate the relationship between farm size and productivity in the context of farming households, their cost of cultivation and the types of crops they produce. Using the Cobb–Douglas production function, the present study estimates the regression function for principal crops such as cotton and paddy in the study area. The findings reveal strong evidence of an inverse relationship between farm size and productivity, indicating that small and marginal farmers are more productive in wetland cultivation (paddy). In contrast, medium and large farmers are more productive in dry land cultivation (cotton). The paper also investigates the availability and accessibility of credit facilities for different farm sizes. It concludes that small and marginal farmers depend mainly on non-institutional credit agencies compared to medium and large farmers.

Land productivity, farm size and returns to scale in Pakistan agriculture

How location, natural resources, and different policies toward the elite's preemption of unused land shaped the historical development of different agrarian structures across Southeast Asia, conditioning agricultural growth performance until today. According to Myint's vent-for-surplus theory, development of the economies of Indonesia, the Philippines, and Thailand from the nineteenth century on took natural advantage of large tracts of unused empty land with low population density and abundant natural resources of the type typically found in Southeast Asia and Africa at the outset of Western colonization. When these economies were integrated into international trade, hitherto unused natural resources (primary commodities the indigenous people had not valued) became the source of economic development, commanding market value because of high import demand in Western economies. The major delta of Chao Phraya River was the resource base of vent-for-surplus development with rice in Thailand; tropical rain forests filled that role in Indonesia and the Philippines with respect to the production of tropical cash crops. This basic difference underlay differences in distribution of farm size: the unimodal distribution of peasants or family farms in Thailand and the coexistence of peasants and large estate farms or plantations specializing in tropical export crops in Indonesia and the Philippines. Differences in agrarian development were also shaped by different policies toward the elite's preemption of unused land. Under Spanish colonialism, the elite preempted unused land in the Philippines wholesale, bifurcating land distribution between noncultivating landlords and sharecroppers in lowland rice areas, and between plantation owners and wage laborers in upland areas. In Indonesia, the Dutch government granted long-term leases for uncultivated public land to foreign planters, but prevented alienation of cultivated land from native peasants, to avoid social instability. In Thailand, concessions were granted for private canal building, but the independent kingdom preserved the tradition of giving land to anyone who could open and cultivate it. Relatively homogeneous landowning peasants dominated Thailand's rural sector. As frontiers for new cultivation closed, the plantation system's initial advantage (large-scale development of land and infrastructure) began to be outweighed by its need to monitor hired labor. The peasant system, based on family labor needing no supervision, allowed Thailand's share of the world market in tropical cash crops to grow, as Indonesia and the Philippines lost their traditional comparative advantage. Moreover, land reform in the Philippines made land markets inactive, with resulting distortions in resource allocation and serious underinvestment in agriculture. This paper - a product of Rural Development, Development Research Group - is part of a larger effort in the group to review rural development in Asian countries.

We examine the relationship between farm size and productivity during India's Green Revolution, a period of rapid technological transformation. Using a unique panel of over 5000 Indian farm households that spans the Green Revolution (1971–1999), we show that the classic (linear) inverse farm size–productivity relationship gradually evolved into the U‐shaped pattern observed today in India, with both small and large farms outperforming mid‐sized ones, by the turn of the century. The roll‐out of high‐yielding varieties seems to have driven this change, and also driven the increased rate of hired labor use and mechanization on large farms (relative to mid‐sized farms) that underpins that enhanced large farm productivity. Last, we show that the Green Revolution may have reduced the propensity of the smallest farms to grow into medium‐sized farms over time.

We study the determinants of differences in farm size across countries and their impact on agricultural and aggregate productivity using a quantitative sectoral model featuring a distribution of farms. Measured aggregate factors (capital, land, economy-wide productivity) account for one-quarter of the observed differences in farm size and productivity. Policies and institutions that misallocate resources across farms have the potential to account for the remaining differences. Exploiting within-country variation in crop-specific price distortions and their correlation with farm size, we construct a cross-country measure of farm-size distortions which together with aggregate factors accounts for one-half of the cross-country differences in size and productivity. (JEL D24, J24, J43, L11, O13, Q12, Q18)

Title of dissertation: ESSAYS ON THE ECONOMETRIC ANALYSIS OF U.S. AGRICULTURE Shinsuke Uchida, Doctor of Philosophy, 2014 Dissertation directed by: Professor Erik Lichtenberg Department of Agricultural and Resource Economics This dissertation consists of three essays empirically investigating three important aspects of the U.S. agriculture: conservation, subsidy, and productivity. Each essay is conducted with the U.S. Census of Agriculture micro file data. Availability of cross-sectional and time variations of detailed individual farm production and demographic characteristics allows for uncovering heterogeneous relationships between farm production decisions and the corresponding aspects of U.S. agriculture. The first essay examines an adverse effect of a cropland retirement policy. A cropland retirement policy contributes to the reduction of environmental externalities from agricultural production such as soil erosion, nutrient runoff and loss of wildlife habitat. On the other hand, participant’s potential adverse behavior could undermine the environmental benefits of the policy. Several sources of such an unintended effect, known as “slippage”, have been conceptually identified, but their empirical evidence has been scarce. This article tests one source of slippage caused by in-farm land substitution from noncropland to cropland as a result of farmland retirement in the U.S. Conservation Reserve Program (CRP). The causal relationship of CRP participation and subsequent slippage through in-farm land substitution is identified by employing farm fixed effects, time-varying county fixed effects, and selection-on-observables. These could eliminate effects of unobservables that are potentially correlated with both the program participation and subsequent farmland reallocation decisions. Overall, slippage seems evident and fairly robust among specifications. It is found that an average program participant converts 14% of noncropland to cropping activities after enrollment. Results further show that participants with a larger share of uncropped land contribute more to slippage, indicating that farms with the excess capacity of conversion are more flexible in the land allocation decision and thus likely to give rise to slippage. This suggests that additional restrictions on the rest of land use for participants and/or introduction of penalty points reflecting the share of noncropland in the current auction mechanism can hinder such a backward incentive offsetting the program benefits. The second essay examines the distortionary effects of agricultural policy on farm productivity by examining the response of U.S. tobacco farmers’ productivity to the quota buyout of 2004. We focus on the impact of distortionary policy, i.e., the tobacco quota, by decomposing aggregate productivity growth into the contribution of farm-level productivity growth and the contribution of reallocation of resources among tobacco growers. We find that the aggregate productivity of Kentucky tobacco farms grew 44% between 2002 and 2007. The elimination of quota rental costs and reallocation of resources, including entry and exit, accounted for most of the post-buyout productivity growth. It is also noted that the aggregate productivity of Kentucky tobacco farms vary across farm characteristics and locations. This highlights the importance of using highly disaggregated data to uncover the sources of aggregate productivity growth. The third essay examines the relationship between farm size and productivity growth. In the past several decades, crop production in the U.S. has shifted to larger farms. During the same period, crop productivity has fairly improved. While these two events seem clearly associated, no studies have fully uncovered the link between them. Using farm-level longitudinal data from the Censuses of Agriculture from 1987-2007 enables us to decompose the contributions of aggregate productivity growth (APG) by farm size, but also by farm entry/exit and by technology/reallocation. We have three main findings. First, productivity growth is clearly non-uniform among farm sizes. Between 1987 and 2007, virtually all of the aggregate productivity growth of crop farms came from farms with annual sales of more than $500,000. These farms account for only 8% of U.S. crop farms. A closer look at the APG contributions to productivity growth from surviving farms confirms the findings for all crop farms: the productivity of mid-size farms has barely increased, and the productivity of smaller farms has fallen. Finally, the relative importance of technical efficiency growth and resource reallocation varies over time. Technical efficiency growth seems to be a larger source of APG for large farms between 1987 and 1997, whereas reallocation across all sales classes contributes more to APG between 1997 and 2007. Overall, our finding provides the concrete evidence that farm consolidation has been strongly associated with the productivity growth of U.S. crop farms. Our finding that resource reallocation through farm consolidation is nontrivial for the APG of crop farms highlights the usefulness of farm-level panel data for studying structural changes and APG. ESSAYS ON THE ECONOMETRIC ANALYSIS OF U.S. AGRICULTURE

De-mystifying family farming: Features, diversity and trends across the globe

University of Minnesota M.S. thesis. October 2016. Major: Applied Economics. Advisor: Philip Pardey. 1 computer file (PDF); iv, 40 pages.

Many agricultural policy decisions in underdeveloped countries are affected by the belief that the price of increased equity is reduced growth. An important argument used frequently against land reforms, for example, is that large farms are more efficient than small farms. If true, land reforms cannot achieve the dual goals of equity and efficiency. The relative efficiency of large farms, however, may be an illusion if national policies have consistently favored these farms in such a way that their apparent relative efficiency is due to market imperfections in which specific public policies have played a crucial role (Berry and Cline, Griffin). It is evident that better information on the true relative efficiency of large farms would provide a better indication of how agrarian structures affect resource use and thereby of the likelihood of being able to achieve both growth and equity. This paper provides such information for Pakistan. The concept of efficiency has been interpreted in various ways. An operational concept of economic efficiency has been developed by Lau and Yotopoulos (1971, 1972) and Yotopoulos and Lau, to measure and compare performance of farm firms. Differences in economic efficiency among groups of farms (say large and small) may result from variations in technical efficiency (larger output with equal amounts of inputs) and price efficiency (higher profits). Profit maximization is implied if the value of marginal product of each variable input is equal to its price. Thus we can test relative economic efficiency of large versus small farms by comparing their actual profit functions. Although the question of relative economic efficiency of large farms is central to a discussion of land reform in underdeveloped countries, there is little empirical research due to lack of adequate disaggregated data. Some evidence for India has been presented by Yotopoulos and Lau (1973), indicating that small farms are more efficient than large farms. However, in studies by Sidhu for wheat in the Indian Punjab and by Khan and Maki for wheat and rice in Pakistan, there was no difference in efficiency by farm size. In this paper, the Lau-Yotopoulos model is used to derive values of technical and price efficiency parameters in order to identify and isolate possible differences between large and small farms. These estimates are based on farm-level data collected from a sample of 728 farms in the Punjab and Sind provinces of Pakistan. Because there are wide differences between these provinces in their agrarian structures, any conclusi ns drawn from the overall sample would be of dubious value. We, therefore, present estimation re ults for the provincial samples separately.