Re-examining the inverse relationship between farm size and efficiency

Abstract

Purpose – Whether there exists an inverse relationship (IR) between farm size and its efficiency remains a hotly debated question among agricultural economists. In most studies to date, farm efficiency is measured by land productivity. Thus, the IR actually measures the relationship between farm size and land productivity. The purpose of this paper is to examine and understand the IR from a novel angle by using multiple definitions of farm efficiency indicators like labor productivity, profit ratio, total factor productivity (TFP) and technical efficiency (TE). Design/methodology/approach – By using the farm-level panel data from Hubei province in China from 1999 to 2003, this paper employs the two-way fixed effect model of panel data and the stochastic frontier analysis of Battese and Coelli model to investigate the relationship between farm size and its production efficiency derived from the multiple definitions of production efficiency indicators including land productivity, labor productivity, profit ratio, TFP and TE. Findings – The study confirmed the IR between land productivity and farm size, as in many formal studies. However, the relationship between farm size and other agricultural efficiency indicators may be positive, negative or uncorrelated at, depending on how the farm efficiency is defined. Therefore, the paper concluded that the relationship between farm size and its production efficiency is mixed. This paper provides economic explanations for the IR through the comprehensive study using the expansion of agricultural efficiency indicators. Practical implications – Because different agricultural efficiency indicators have different policy implications for China's future agricultural and land policy, the findings have tremendous policy implications, particularly in terms of the current debate on large or small farm development strategy, the also so-called “go big or small” agricultural strategy. In this sense, the Chinese household responsibility system has played a critical role in its agriculture and will continue to play a critical role in terms of social security and social equality. Any reform to this system should proceed with caution. Originality/value – While most existing studies only try to explain the IR from the perspective of land productivity, this paper attempts to propose a novel angle to examine the IR by using multiple definitions of agricultural efficiency and hopes to find some new conclusions.

De-mystifying family farming: Features, diversity and trends across the globe

“…According to the inverse relationship hypothesis, the land productivity of small sized farms is greater than that of large farms (e.g. Tomich, 1995;Woodhouse, 2010;Li et al, 2013;Collier and Dercon, 2014). The greater productivity of small farms is primarily caused by the ample availability of motivated labour per unit of land as is the case for family farms (see also Section 4.2).…”

“…Many tasks are done most effectively and for the least cost by family members, who are motivated, knowledgeable of the local conditions, can quickly respond to site-specific variables, are flexible and willing to work long hours when necessary (Errington and Gasson, 1994;Hazell et al, 2010;Masters et al, 2013). Family labour is cheap, and if priced as wage labour, many family farms would not be economically viable (van der Ploeg, 2008, p. 49;Li et al, 2013). Family labour increases the farms' economic flexibility and resilience.…”

“…Farm expansion occurs as land rights of farmers who have left are transferred to the remaining farmers (Masters et al, 2013;Tan et al, 2013). Hence, farms tend to increase their labour use efficiency through mechanisation as possible due to both the nature of the work and availability of capital (partly through subsidies) Li et al, 2013;Tan et al, 2013). However, when labour shortage cannot be covered and farm output is insufficient, this can lead to 'hidden slavery' if the work load per worker is above normal working hours without proportional remuneration.…”

Managing soil functions for a sustainable bioeconomy—Assessment framework and state of the art

“…However, the operationalization of linkages between soil management, soil functions, and ecosystem services remains a challenge (Schwilch et al, 2016;Stavi et al, 2016). Our framework addresses this gap by linking soil management practices to soil functions and services in particular (Figure 1 Gomes et al, 2009;Hoang, 2011;Hoang & Alauddin, 2012;Lee & Park, 2017;Masuda, 2016;Pagotto & Halog, 2016;Sabiha, Salim, & Rahman, 2017;Spicka, 2014;Spicka & Smutka, 2014;Wang, Chen, Wu, & Li, 2015Boshrabadi et al, 2008Li et al, 2013 Note. Separate indicators are determined by the fraction of benefit divided by resource.…”

“…These choices should be guided by the intended function of a process and its main inputs and by the characteristics of production alternatives. However, agriculture is characterized by the production of multiple benefits while using multiple (Boshrabadi, Villano, & Fleming, 2008;Li, Feng, You, & Fan, 2013). A more common, nonparametric approach is data envelopment analysis (DEA; Table 1 Resource use efficiency is central to achieving highly productive agriculture while minimizing harmful externalities, including land degradation.…”