Farm Size and Productivity: A Global Look

February 06, 2019

The article first appeared in January 2017 on the website of the Global Harvest Initiative, the previous host institution of the GAP Report.

By Dr. Keith Fuglie

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?

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.

Total Factor Productivity (TFP) is a ratio that measures changes in how efficiently agricultural inputs (land, labor, fertilizer, feed, machinery and livestock) are transformed in outputs (crops and livestock). 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.

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.

* Dr. Keith Fuglie is an agricultural economist. He provides data and analysis for the annual GAP Report. The views expressed in this article are the author’s own.

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

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