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.   

The more things change the more they stay the same . . .

I ran across this poster created sometime around 1917 by the US Food Administration (which was created during WW I and no longer exists).

 Looks like the playlist of any number of current popular food books . . .

How problematic are food deserts?

Not very according to this piece in Slate:

Unfortunately, more fresh food closer to home likely does nothing for folks at the bottom of the socioeconomic ladder. Obesity levels don’t drop when low-income city neighborhoods have or get grocery stores. A 2011 study published in the Archives of Internal Medicine showed no connection between access to grocery stores and more healthful diets using 15 years’ worth of data from more than 5,000 people in five cities. One 2012 study showed that the local food environment did not influence the diet of middle-school children in California. Another 2012 study, published inSocial Science and Medicine, used national data on store availability and a multiyear study of grade-schoolers to show no connection between food environment and diet. And this month, a study in Health Affairs examined one of the Philadelphia grocery stores that opened with help from the Fresh Food Financing Initiative. The authors found that the store had no significant impact on reducing obesity or increasing daily fruit and vegetable consumption in the four years since it opened.

and

Earlier research suggesting that better fresh-food access improves diet and would therefore improve the health of people living in poverty was drawn from small samples or looked at store availability in narrow geographical slices—often without information about how or where the people who lived there shopped. “They never link the neighborhood characteristics to actual individuals,” explains Helen Lee, author of the Social Science and Medicine study. “Without that, all you have is speculation.”

Lee also notes in her study that, on closer inspection, food deserts don’t actually exist in the U.S., at least not as a national problem—on average, poor neighborhoods have more grocery stores than wealthier neighborhoods.

The writer concludes on a note which which I agree.  The real issue here probably isn't access to fruits and veggies.  These are simply symptoms of a larger problem.  Poverty.  Alas, solving the problem of poverty is no easier or no less complex than solving the problem of obesity.  But, if you could made headway on poverty, I'd argue people would have a greater incentive to consider their own future health outcomes.  

For the Starving, 'Eat Local' Isn't an Option

That is the title of an opinion piece at the WSJ in which Adrienne Johnson warns that the local food movement isn't all it's promoted to be.  A few snippets:

More important, local foods do nothing to help the world's poor, who have long relied on export markets for their livelihood. American farmers likewise rely on foreign markets: About 25% of total crop production is exported, according to the Agriculture Department, representing a near $100 billion market that helps offset trade deficits in other sectors.

The "return" to local foods and yeoman farmsteads isn't just impossible. It misdirects political attention away from the problem of world hunger. Local foods simply cannot feed the world.

and

In this global sense, the often-heard eat-local slogan of "vote with a fork" is well-intentioned but naïve. It doesn't satisfy our moral obligations as global citizens. If you want to cast a food-related vote, find a candidate talking about global hunger and do it at the ballot box.

We shouldn't deny ourselves the privilege (if we have it) of a good meal, but let's not do so under the banner of political action. If you're eating free-range chicken from an organic farm down the road, with side orders of locally sourced arugula and kale, just remember you're not acting politically. You're just having dinner.

I'm glad to see these ideas in the WSJ.  They are many of the the same arguments I've made with Bailey Norwood at the Library of Economics and Liberty and in Chapter 9 of the Food Police.  If you want a whole book on the subject see The Locavore's Dilemma: In Praise of the 10,000-mile Diet.

Are Local Foods Good for the Economy?

I addressed that question, among others, in chapter 9 of the Food Police. For myriad conceptual reasons outlined in the chapter, on my blog, and elsewhere, I do not find this sort of argument to be very compelling. Today, a colleague forwarded an article in the Economic Development Quarterly by some agricultural economists (the lead author was a student in one of my courses at Purdue) which provided some empirical evidence on the issue.

Here are the authors on the motivation for the study:

Local markets are believed to provide farmers with a higher share of the food dollar, with money spent at a local farm and nonfarm businesses circulating within the community, creating a multiplier effect and providing greater local economic benefits (USDA, 2012). Furthermore, agritourism generates additional dollars in the local economy as visitors spend money in associated regional travel. As a result, CFA is seen as a potential contributor to local economic growth.

What did they find?

Using Census of Agriculture data, regional growth models are estimated on real personal income per capita change between 2002 and 2007. We find no association between community-focused agriculture and growth in total agricultural sales at the national level, but do in some regions of the United States. A $1 increase in farm sales led to an annualized increase of $0.04 in county personal income. With few exceptions, community-focused agriculture did not make significant contributions to economic growth in the time period analyzed.

Rather, one of the factors they find to have the biggest effect on growth in per capita income is how "tradable" a county is - as measured by the share of business establishments that are in tradable sectors. A 1% increase in the share of establishments in tradable sectors was associated with a $3,235 increase in per capita in county personal income.

I've said it time and time again, but trade (facilitated by comparative advantage and specialization) is what makes us wealthy. Do what you do well and trade with others for what they do well, and both are better off. Policies or movements that seek to deny that basic axiom, even when applied to local food production, have dubious economic merit.