Farm size and productivity: Old debate in new context

Signs and swings

In the 1960s, small farmers were thought to be efficient in terms of land productivity on the grounds that, first, they could fully utilise family labour, and second, they had the capacity to closely monitor their production activities. That view prevailed for a pretty long time till, in the 1970s and the 1980s, when the pendulum swung in favour of large farms. Small farms were considered as constricting the process of industrialisation and urbanisation undertaken by some of the Asian countries. The squeeze on small farms, reportedly, came from two fronts. First, industrialisation leads to increased demand for labour from rural areas and thus comes into conflict with labour intensive practices of small farms. On the other hand, by providing cheaper modern inputs such as machinery, industrialisation made the increase in farm size possible by relaxing the labour constraints during the peak season. Therefore, there was a call for large farm size during the decades: large is laudable!

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Then again, in the 1990s, the laudability of the large farms received a backlash and the view that "small is beautiful" began to gain prominence. It has been argued that with growing diversification of agriculture especially from grains to cash crops, from crops to livestock and horticulture products, small farms earn distinct edge over the large ones. Mostly labour intensive and less input intensive as most of these crops are, the inverse relationship is not difficult to detect. There was another allegation against the large farms: they tend to use more fertilizers and pesticides and thus contribute to the degradation of natural resources and environment.

Review of literature

A popular stylized fact in development economics is that there exists a strong Inverse Relationship (IR) between farm size and land productivity. The pioneering paper produced by AK Sen in 1962 argued that small farmers were more productive per unit of land than large farms. Other economists also echoed the same sentiment arguing that because of the advantage in using family labour and hence facing a lower labour transaction costs, small farmers fare far better than their counterparts. Michel Lipton came out with the implication of the observation: it entails that any type of land reform that reduces landholdings inequality will have a positive effect on productivity.

Since Sen's seminal (sensational too!) observation on the efficiency of the small farms, a large number of literature began backing up the issue of IR but, unfortunately, with no consensus. The supporters to the hypothesis of Sen include, among others, economists like R. Heltberg, D. Majumdar, K. Bharadwaz, S. Bhalla, A.K. Ghose etc. Noticeably, most of the economists and their observations pertain to India as the literature mostly focused on India. Of course, they have emphasised different aspects in reaching the respective conclusions. For example, G.A Cornia attributed higher yields observed on small farms to greater application of inputs and to a more intensive use of land. Again, B.N. Benarjee observed that smaller farms in the districts of Nadia in West Bengal use their land and fertilizer inputs more intensely than the large farms. Another economist B.N Benarjee took the analysis a step forward and showed that the cost per unit of output is directly related with the size holdings, but inversely related with the value of output. This finding implies that small farms are using their variable resources more efficiently than bigger farms yielding to higher output per hectare. In Bangladesh, DR Mahabub Hossain submitted his thesis on IR pointing to village study at Phulpur, Mymensingh. The IR was strongly observed as supporting the hypothesis that small is efficient. Some other economists also followed the footprint .

The forthcoming book on "Rural livelihood systems in Bangladesh: Changes and challenges" by Mahabub Hossain and others seems to suggest that in Bangladesh small farms have some edge over the large farms in terms of the land productivity. However, in the early stages of technology adoption, large farms gained the edge following their access to credit and other infrastructure facilities. With the passage of time, small farms duly embarked upon seizing the opportunity and optimally utilised family labour to turn the tide in their favour.

Other view

But the IR hypothesis was contested by many. It has been argued that the transformation of agriculture towards a science-based approach, reduced the role of family labour in shaping land productivity while other cash inputs played a pivotal role. Particularly, concerning the issue of Green Revolution, the critics contend that use of HYV requires inputs that embody higher cash costs. In the presence of capital imperfections and collateral constraints, the large farms tend to lead the revolution while the small farms lag behind. Opponents of IR hypothesis argue that the earlier adoption of new technology by large farms have reduced or even reversed the yield advantage of small farms. For example, A.B. Deolalikar found that inverse size productivity relationship cannot be rejected at lower levels of agricultural technology but could be rejected at higher levels. This means that IR could be valid for traditional agriculture but not for agriculture experiencing technical change. M. Chattapadhya and A. Sengupata found that the IR was observed in the developed region of West Bengal compared to the relatively under developed regions. S.Bhalla and P.Roy concluded that the stylized fact of the IR might be due to the difference in soil quality.

Conclusion

Assuming that most of the researches point to the increased productivity of small farms, the policy question is: should we go for land reforms to transfer lands from the large to the small? This question of land reform still looms large among a section of academics and politicians. Of course, the political pains of pursuing such a policy should be in mind considering the class character of the ruling oligarchs. Less painful could be the tenancy reforms and institutional changes to provide more access for the small farms to credit and other facilities. Especially, rural infrastrucural development could go a long way in paving paths for the small farms.

Abdul Bayes is professor of economics, Jahangirnagar University