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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.   

Is Food too Inexpensive?

A recent review study (opinion piece) published in the journal CA: A Cancer Journal for Clinicians  is making the rounds, and it seems to fit a narrative that food is "too cheap" and cheap food is a major cause of obesity (e.g., see here or here).  The article actually does a good job dispelling several myths about obesity and food consumption (for example, fruit and vegetable consumption is up over time).  However, much of the commentary on the issue is rather glib and ill conceived. 

A basic economic tenant is that that when prices fall, consumers consume more (i.e., demand curves slope downward).  It is not surprising that falling food prices would be associated with greater food consumption.  

Standard welfare economics suggests consumers are unambiguously better off with lower prices.  Paying less for food allows consumers to reallocate income toward buying other items that they can now afford.  All this remains true even if people care about body weight.  It is possible that people suffer from behavioral biases (i.e., they don't consider future effects on weight when deciding what to eat today), but as I showed in this reply in the journal Health Economics, even if that's true, prices declines still benefit consumers in most plausible scenarios.  As I said there:

under this sort of behavioral economics framework, where people naively or myopically optimize utility without considering future weight effects, it is possible to imagine situations where raising prices might increase ultimate experienced welfare. However, this condition occurs only when price is very high and falls in the range where consumption would take place only because people are ignoring the ultimate health impacts; at lower prices, a ‘fat tax’ would only lower welfare. 

Moreover, if one looks at recent trends in food prices, they are increasing.  Here is data from the UN Food and Agricultural Organization on the world food price index over time.

Who do you think is most affected by these price increases?  Probably not well-to-do people reading food and economics blogs.  Recall, that the US exports large shares of domestic agricultural production, so what we do here in the US has an important effect on world prices, and the prices paid for food by some of the most impoverished people in the world.  It has been suggested that these food price spikes are responsible for civil unrest in many parts of the world.  But they have effects even here in the U.S.  In the U.S., there are almost 50 million people on food stamps, and almost 15% of US households are food insecure.  Food prices and food stamps are related, even in the US, to hunger and food insecurity.  Higher food prices mean more hunger. 

That alone would be enough to suggest caution in price policies aimed at obesity.  Moreover, research by Okrent and Alston suggests that obesity is a result of over-consumption of ALL kinds of food, and they conclude the only kind of tax that is effective is an across-the-board food tax. And, yet we can see precisely why such a tax is a bad idea.  It is regressive because the poor spend a higher share of their income on food than the rich.   

Ultimately, when papers published in medical or nutrition journals start advocating for fat taxes or thin subsidies, as they often do, they often move into shaky territory, because they often lack appropriate conceptual background for their policy proposals beyond the simple mantra "it promotes public health".

Once one wants to pass policies that set prices at a point where they are no longer equated with marginal cost, there will be a dead-weight loss to society. The first fundamental theorems of welfare economics suggest that (absent the usual caveats), a competitive equilibrium (i.e., market outcomes) leads to a Pareto efficient outcome (one where you cannot make some people better off without making others worse off). So, if you move prices away from that competitive equilibrium (say with a fat tax or thin subsidy), welfare loss is likely to result.  

Even if the preceding arguments are don't hold water, there is a very strong assumption that someone (namely the “government” in this case) knows what the “right” prices are, and that any mistakes in getting the right prices produce less dead-weight loss than whatever benefit might have been created through the tax/subsidy policy. This is a very old argument going back to people like Hayek in the midst of the “socialist calculation debate".  As he aptly argues, it is hard (or impossible) for experts to know the "right" prices.  

Simply asserting that price changes through fat taxes can reduce obesity doesn't mean people are better off with the policy.  One needs some sort of conceptual model showing how the tax/subsidy indeed makes people better off (not just thinner), all things considered.  Some people might argue for a fat tax, for example, because they think it will offset an externality. In the externality case, we presume, there is a market failure and have some belief that altering prices can offset the deadweight loss of the market failure (I would disagree, but at least I understand the argument being made). However, without the author explicitly articulating the market failure justifying the food taxes/subsidies, they are making a general case that a technocratic third party has the knowledge to re-set prices and make society better off.  I find this position untenable. 

Skepticism over potential benefits of GMO wheat

My colleague (and chief wheat breeder) at Oklahoma State University was recently interviewed by Ag Journal, and he expressed reservations about GMO wheat.  

A few snippets:

“Among consumers, there are a lot of myths and fallacies being spread, but I think they are also being spread on the science side,” said Brett Carver, chief wheat breeder at Oklahoma State University. “There’ve been some promises made about GM wheat that I don’t think are true or are being overstated.”

His main complaint is the way wheat has been portrayed as lagging behind other crops with the blame often placed on a lack of genetic modification. Carver is currently helping to edit a technical book that follows advancements in 16 major field crops and says studies show wheat is more than holding its own.

Carver contends changing climate trends in the last 25 years have benefited corn and beans more than GM seed development has. Most of the yield gains breeders have achieved are the result of taking advantage of a longer growing season and the ability to plant earlier in the spring, he said

The wheat "lagging behind" argument is one that appeared in my co-authored New York Times editorial on the subject.  To be sure this is a complicated issue and there are many factors at play including climate, government policies (particularly ethanol policies), drought, falling cattle inventory, interest rates, and technological advancement (including biotechnology), just to name a few.  Carver is right that the trend is not due solely (or perhaps even mainly) to biotechnology.  But, might it be one small part of the picture?

One should probably be careful about comparing yield of apples and oranges (or wheat and corn).  So, let's move away from discussions about yield, and look at farmer planting decisions. What do farmers decide to do with their land. The data are pretty clear that acreage allocations have moved against wheat over the past decade.  Here, for example, is USDA-NASS data on the number of acres planted to wheat since the mid 1990s (when GE corn and soy came on the market).

To look at it a bit differently, here is the % of planted acres in Oklahoma allocated to wheat over the past 10 years (this is the wheat % out of other major crops that include canola, corn, sorghum, soybeans, and wheat).

 

Some of this change is due to government policies.  Some may be due to climate change.  Some may be due to changes relative prices.  Some may be do falling cattle numbers (a lot of the wheat in OK is planted to feed stocker cattle).  But, some may also be due to differences in seed technologies available and benefits they provide beyond yield.  As the story indicates:

the most common application of GM technology so far — herbicide resistance — “protects rather than increases” yields, Carver noted

I agree, it is more than just about yield.  Convenience, risk reduction, and time saved also factor into planting decisions, and I suspect producers are willing to pay something for yield protection.   

Ultimately, I don't think "competitive disadvantage" of wheat (to the extent one exists) is the key reason to think about GMO wheat.  After all, if a farmer doesn't allocate their ground to wheat, they're likely to allocate it to a different crop (in recent years in Oklahoma that has been Canola - GMO and non-GMO).  What we care about are not crops but farmers and consumers.

Carver discusses a lot of interesting developments in wheat breeding and genetics that are worth pursing (do see the whole article).   Many of these are likely to bring about farmer and consumer benefits.  

Carver's chief complaint with biotechnology (aside from over-sold benefits) seems to be the following:

it represents “the most expensive tool in the toolbox.”

“I do want to be able to use the technology, but I want to use it responsibly,” Carver said. “What that means is, if I use it, I’m going to use it as a last resort. Why? Because of cost and because of public opposition.”

One of the huge costs is that related to regulatory burden associated with creating and commercializing seeds made with GM technologies relative to other breeding technologies.  That sounds to me like good motivation to work on attempts to bring down the regulatory costs associated with genetic engineering.  It also suggests a need to work on public opposition with scientific communication on the health and environmental aspects of genetic engineering.  It also makes me wonder if activist pressures might eventually bring molecular breeding techniques under a similar regulatory umbrella that now drives up the cost of commercializing GM.

Ultimately, Carver may be right.  New molecular breeding technologies and other advancements may circumvent the need for "GMOs" - at least as they're currently defined by the public and by regulators - and these advancements may indeed be less costly and invite less public scorn.  I'm certainly proud to work at a University with scientists like Carver working on those issues. 

In the end, however, I find it hard to see why we would want to block farmers' access to biotechnology.  If a company (or University) can create and commercialize a GMO wheat (and I suspect that day isn't far off, as there are many in development), farmers will have the choice to decide for themselves whether the promise has been oversold.  Clearly, the vast majority of corn, soybean, and cotton farmers believe enough in the merits of GMOs to pay a premium for them.  Maybe wheat farmers will have a different experience, and GMO wheat will fail the market test.  We'll never know until one is introduced.    

GMO bans and labels

It appears that voters in Jackson county Oregon have passed a ballot measure that would ban GMOs in the county.  

Much of the discussion by supporters of the ban leading up to the vote focused on GMOs "contaminating" organic crops.  But, that really doesn't make any sense because organic is a labeling scheme based on process not outcomes.  Just because an organic-labeled food was found to have synthetic pesticide residue or (heaven forbid!) trace elements of GMOs, that doesn't make it non-organic as long as the producers followed organic rules and procedures.  

I suspect the outcome will embolden supporters of mandatory GMO labeling laws and will speed the efforts of GMO advocates seeking some kind of over-riding national labeling law (which is unlikely to require mandatory GMO labels).  

At the same time, there seems to be growing acceptance and acknowledgements of the benefits and safety of biotechnology by the mainstream media and by prominent food writers.  Mark Bittman's recent writing is one prominent example.    

In that vein, I noticed this recent piece in Slate by the food writer and historian, James McWilliams on GMO labels.  You'll see a quote from me about some of the pseudo science that's sometimes used to promote such labels, but McWilliams mainly focuses on the potential costs of such labels:

It’s certainly possible that food will be reorganized into three general tiers—GMO, non-GMO, and organic—with non-GMO food moving toward the more expensive organic option while GMOs, which will be seen as less desirable, drop in price.

However it happens, a cost-free label is a happy thought. But until the label becomes the law, and until consumers are set free to cast their votes in the aisles of the marketplace, we’ll have little more to go on than tea leaves. And until they are genetically modified to be more accurate, I’d prepare to pay more for food.