Economics of Structural Change in Agriculture

Abstract

The structure of the agrifood system has changed significantly over the past century. In production agriculture, the changing structure is often characterized by a drastic decrease in the number of farmers associated with a rapid increase in average size, more reliance on purchased inputs, and greater interdependence between the farm and nonfarm sector. The farm input industry has changed to meet the increased reliance of the remaining farms on purchased inputs such as fertilizers and machmery. The food processing sector has also evolved with the aid of new technologies such as food preservation to meet chang~ng consumer preferences. As in the farm sector, both non-production components of agriculture have been characterized by increasing levels of firm concentration and integration between the sectors. Consumer preferences and purchasing patterns have also changed sigtuficantly as the structures of households and of society have evolved. Although there is a consensus that the structure has changed, there is no agreement on the implications of the changes for the health and viability of the sector, the rural community, the environment, and society. For example, many farm organizations argue that the family farm is essential to s o c d well-being and the competitive production of adequate food supplies while others argue that there are efficiency gains associated with increases in farm size. Whatever the net effects of structural change are, they may be influenced by appropriate actions if the causes of the structural change are understood. Thls is particularly important if the net effects of structural change are not coincidental with the politicdsocial agenda of the country. The purpose of this paper is to review the economics of structural change in agriculture. The paper begins with alternative definitions of structural change and notes that the definition in agriculture has generally been narrowly focused on the number and size of farms. Models proposed to explain structural changes are then presented followed by a discussion of why we would be interested in knowing the forces behmd the changes. The paper concludes with an examination of why we are interested in how agriculture is structured and the associated implications for future research.