Farm Size and Productivity: A Global Look

Posted by on January 30th, 2017 | 1 Comment »

By: Dr. Keith Fuglie*

Small family farms apply their labor very intensively (and inefficiently) because they don’t have access to alternative employment opportunities or low-cost credit that would allow them to expand their farms. Photo credit: ICARDA

In 1962 a young Indian economist (and future Nobel Prize winner) Amartya Sen published a brief paper [1] where, drawing on farm management data from Indian farms in the 1950s, he showed that average crop yields were highest on the smallest farms. This finding – highest yields on the smallest holdings – has since been observed in many other developing countries as well. It has been used to justify emphasizing small farms in agricultural development programs and calls for land reform.

However, average labor productivity on these small farms is often very low, and successful economic development almost always involves moving some labor out of agriculture into more productive non-farm jobs. Moreover, in industrialized countries like the United States, large farms are often viewed as the most productive, achieving the lowest unit costs of production through economies of scale.

What explains these diverging patterns of productivity by farm size? Why is so much labor used on small farms when it might earn higher income elsewhere? And do these patterns continue to hold today?

On February 2-3, the U.S.D.A.’s Economic Research Service and Farm Foundation, NFP, will bring together some of this new research in a conference, “Farm Size and Productivity: A Global View.” Leading economic researchers from around the world will present and discuss recent findings of their work with case studies from the United States, Australia, Europe, Latin America, Asia and Africa. Click here for more information about the conference from Farm Foundation, NFP

The most prevalent explanation for the higher crop yields on small farms in developing countries is that markets for labor and capital function poorly. Small family farms don’t have access to alternative employment opportunities or low-cost credit services that would allow them to expand their farms, thus they are forced to apply their labor very intensively (and inefficiently) on their small plots. But even in highly industrialized countries where agricultural markets are more developed, large numbers of (relatively) small farms continue to operate. Moreover, arrangements like contract farming and machinery rental services continue to evolve that may help small farms overcome some of the size advantages of large farms.

Farm-level data are allowing researchers to investigate how farm size and access to various inputs influence the productivity of individual family farms, and compare farms with one another. For more on Total Factor Productivity (TFP), see GHI’s 2016 Global Agricultural Productivity Report® (GAP Report®), pages 10-15.

This question of how farm size affects agricultural productivity continues to receive considerable attention from policy makers, agribusiness and researchers. For researchers, the availability of richer farm-level data sources allows them to investigate these relationships with more rigor and detail. One important development is the availability of surveys with multiple observations of the same farm in different years, so that productivity outcomes for individual farms can be tracked over time as well as compared across farms.

Researchers are also becoming better able to control for other factors – like soil fertility and the use of other inputs– that might also account for some of the productivity differences across farms. In addition, researchers are getting creative at combining data from different surveys (e.g., surveys of farm households where most farms are small with surveys of large-scale and agribusiness farms) to get a more complete picture of farm size-productivity relationships. Results from recent research are beginning to challenge some of the established conclusions of past work on small farm productivity.

* Keith Fuglie is an Economist with the U.S. Department of Agriculture’s Economic Research Service. The views expressed in this article are the author’s own and should not be attributed to the USDA or ERS.

[1] Sen, Amartya. “An Aspect of Indian Agriculture.” Economic Weekly 14, 4-6 (1962):243-6.

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1 Comment

  1. the only way to develope small farms with crops is through contractors who give machinery services.
    China and India are developing Cooperatives of Harvesters contractors and Custom Hiring Centers, respectively
    If you only think that owning machinery equipment each smal farmer is the only way to develope agriculture yoy will be waiting for centuries
    Ricardo E. Garbers
    Buenos Aires - Argentina