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Rising real wages, mechanization and growing advantage of large farms: Evidence from Indonesia

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  • Yamauchi, Futoshi

Abstract

This paper examines dynamic patterns of land use, capital investments and wages in agriculture using farm panel data from Indonesia. The empirical analysis shows that with an increase in real wages that prevailed in both agricultural and non-agricultural sectors in rural areas, relatively larger farmers increased the size of operational farm land by renting in land as well as used more hired-in machines through machine rental and/or service providers, which induces the substitution of labor by machines. Machines and land are complementary and, consistently, the inverse farm size-productivity relationship tends to be reversed among relatively large holders. The results support growing (diminishing) advantage of large (small) farms in the presence of rapidly rising real wages and have food security policy implications to many Asian countries where real wages are rapidly rising and small farms are predominant.

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  • Yamauchi, Futoshi, 2016. "Rising real wages, mechanization and growing advantage of large farms: Evidence from Indonesia," Food Policy, Elsevier, vol. 58(C), pages 62-69.
  • Handle: RePEc:eee:jfpoli:v:58:y:2016:i:c:p:62-69
    DOI: 10.1016/j.foodpol.2015.11.004
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    Cited by:

    1. Yu Xu & Liangjie Xin & Xiubin Li & Minghong Tan & Yahui Wang, 2019. "Exploring a Moderate Operation Scale in China’s Grain Production: A Perspective on the Costs of Machinery Services," Sustainability, MDPI, Open Access Journal, vol. 11(8), pages 1-17, April.
    2. Yao, Ling & Chen, Qihui & Wu, Laping, 2018. "Heterogeneous supply response: Does high price expectation attenuate the inverse farm size-productivity relationship in China?," 2018 Annual Meeting, August 5-7, Washington, D.C. 274363, Agricultural and Applied Economics Association.
    3. Wineman, Ayala & Jayne, Thomas S., 2017. "Factor Market Activity And The Inverse Farm Sizeproductivity Relationship In Tanzania," Feed the Future Innovation Lab for Food Security Policy Research Papers 265405, Michigan State University, Department of Agricultural, Food, and Resource Economics, Feed the Future Innovation Lab for Food Security (FSP).
    4. Hassan, Md. Fuad & Kornher, Lukas, 2020. "Is mechanization in agriculture curse or blessing for the rural labor market in Bangladesh?," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304543, Agricultural and Applied Economics Association.
    5. Klaus Deininger & Songqing Jin & Yanyan Liu & Sudhir K. Singh, 2018. "Can Labor-Market Imperfections Explain Changes in the Inverse Farm Size–Productivity Relationship? Longitudinal Evidence from Rural India," Land Economics, University of Wisconsin Press, vol. 94(2), pages 239-258.
    6. Gautam, Madhur & Ahmed, Mansur, 2019. "Too small to be beautiful? The farm size and productivity relationship in Bangladesh," Food Policy, Elsevier, vol. 84(C), pages 165-175.
    7. Takeshima, Hiroyuki & Adhikari, Rajendra Prasad & Shivakoti, Sabnam & Kaphle, Basu Dev & Kumar, Anjani, 2017. "Heterogeneous returns to chemical fertilizer at the intensive margins: Insights from Nepal," Food Policy, Elsevier, vol. 69(C), pages 97-109.
    8. Takeshima, Hiroyuki & Shivakoti, Sabnam & Bhattarai, Binod & Karkee, Madhab & Pokhrel, Suroj & Kumar, Anjani, 2016. "Farm size and effects of chemical fertilizer price on farm households: Insights from Nepal Terai," IFPRI discussion papers 1578, International Food Policy Research Institute (IFPRI).
    9. Takeshima, Hiroyuki & Shrestha, Rudra Bahadur & Kaphle, Basu Dev & Karkee, Madhab & Pokhrel, Suroj & Kumar, Anjani, 2016. "Effects of agricultural mechanization on smallholders and their self-selection into farming: An insight from the Nepal Terai," IFPRI discussion papers 1583, International Food Policy Research Institute (IFPRI).
    10. Liu, Yanyan & Barrett, Christopher B. & Pham, Trinh & Violette, William, 2020. "The intertemporal evolution of agriculture and labor over a rapid structural transformation: Lessons from Vietnam," Food Policy, Elsevier, vol. 94(C).
    11. Wang, Xiaobing & Yamauchi, Futoshi & Otsuka, Keijiro & Huang, Jikun, 2016. "Wage Growth, Landholding, and Mechanization in Chinese Agriculture," World Development, Elsevier, vol. 86(C), pages 30-45.
    12. Wei Li & Xipan Wei & Ruixiang Zhu & Kangquan Guo, 2018. "Study on Factors Affecting the Agricultural Mechanization Level in China Based on Structural Equation Modeling," Sustainability, MDPI, Open Access Journal, vol. 11(1), pages 1-16, December.
    13. Rada, Nicholas E. & Fuglie, Keith O., 2019. "New perspectives on farm size and productivity," Food Policy, Elsevier, vol. 84(C), pages 147-152.
    14. Hiroyuki Takeshima & Yanyan Liu, 2018. "The Role of Plant-Breeding R&D in Tractor Adoption among Smallholders in Asia: Insights from Nepal Terai," Working Papers id:12748, eSocialSciences.
    15. Xiaoshi Zhou & Wanglin Ma & Gucheng Li, 2018. "Draft Animals, Farm Machines and Sustainable Agricultural Production: Insight from China," Sustainability, MDPI, Open Access Journal, vol. 10(9), pages 1-16, August.
    16. Ostapchuk, I. & Curtiss, J. & Gagalyuk, T., 2018. "Holding Affiliation Effects on Performance and Growth: Analysis of Ukrainian Farms," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277468, International Association of Agricultural Economists.

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    Keywords

    Wage growth; Farm size; Mechanization; Indonesia;

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