Farm Size and Productivity

There seems to be a lot of consternation about "large farms" in the foodie community and a desire to enact policies to support "small farms."  One of the issues often missed in such discussions is that larger farms tend to be the most productive farms and countries that tend to have the smallest farms tend to be the poorest.

These "stylized" facts were summarized in this paper by in Adamopoulos and Restuccia in the most recent issue of the American Economic Review.

(i) There are striking differences in the size distribution of farms between rich and poor countries with the operational scale of farms being considerably smaller in poor countries. Using internationally comparable data from the World Census of Agriculture, we show that in the poorest 20 percent of countries the average farm size is 1.6 hectares (Ha), while in the richest 20 percent of countries the average farm size is 54.1 Ha, a 34-fold difference. In poor countries very small farms (less than 2 Ha) account for over 70 percent of total farms, whereas in rich countries they account for only 15 percent. In poor countries there are virtually no farms over 20 Ha, while in rich countries these account for 40 percent of the total number of farms.

(ii) Larger farms have much higher labor productivity (value added per worker) than smaller farms, implying that farm size differences can potentially have large effects on measured agricultural productivity. Using data from the US Census of Agriculture (USDA 2007) we document a 16-fold difference in value added per worker between the largest and smallest scale of operation of farms reported. Available data from other sources, based on national censuses and farm surveys, indicate that labor productivity rises with size in a large set of developing countries as well (see, for instance, Berry and Cline 1979; Cornia 1985). This occurs despite differences in land scarcity, soil, geography, agrarian structure, and form of agriculture observed among these countries. In India, Foster and Rosenzweig (2011) show that efficiency also rises with farm size.

They also show this interesting graph relating average farm size in a country to GDP per capita in a country

Adamopoulos and Restuccia conclude that one of the main causes of inefficiently small farms in poor countries is government policy. Here are some examples they discuss

Many countries have set direct restrictions on farm size. In most cases these restrictions were ceilings on the size of permitted land holdings and were imposed as part of postwar-period land reforms that redistributed land in excess of the ceiling (e.g., Bangladesh, Chile, Ethiopia, India, Korea, Pakistan, Peru, Philippines). In many cases the ceiling on land holdings was accompanied by prohibitions on selling and/ or renting the redistributed land. Other countries have distorted size by also imposing minimum size requirements. This is done either directly by setting an explicit lower bound, as in the case of Indonesia and Puerto Rico, or indirectly by setting conditions for subdivisions, such as a “viability assessment” in the case of Zimbabwe. Several countries have imposed progressive land taxes where larger farms are taxed at a higher rate than smaller farms (e.g., Brazil, Namibia, Pakistan, Zimbabwe). Several African countries have offered input subsidies for fertilizer and seed that are either directly targeted at smallholders or disproportionately benefited them (e.g., Kenya, Malawi, Tanzania, Zambia). In other cases smallholders were provided with subsidized credit (e.g., Kenya, Philippines) or grants to purchase land (e.g., Malawi). Tenancy regulations, such as rent ceilings, tenure security, and preferential right of purchase (e.g., India), can also provide smallholders with an advantage.

However noble or virtuous it may seem to want to subside "small farms", we should at least acknowledge the adverse consequences and inefficiencies of such policies, which this paper shows are nontrivial because of  lower productivity,  and as a result lower wages, less economic growth, and higher food prices.