Mechanization growth and declining farm size in South Asia: Exploring the role of biological technologies in Nepal Terai

The agricultural sector in developing countries including those in South Asia, like Nepal, faces dual challenges of the persistent dominance of smallholder-based farming, and at the same time, rising labor costs due partly to growing non-farm sectors. The underlying factors that lead to the co-existence of these seemingly conflicting patterns are not yet clear. However, an important consequence is that inclusive agricultural transformation requires increased agricultural capital use like machines among these smallholders that remain in the agricultural sector. Studying the experiences in lowland Nepal (Terai zone) which has seen significant growth in tractor use since the mid-90s, despite the continuous decrease in average farm size, offers useful insights into what induce the adoptions of mechanization among smallholders who naturally lack the scope for exploiting the scale economies due to complementarity between machine and land. We test the hypotheses that high-yielding technologies, which potentially raise returns to more intensive farm power use, are important drivers of adoptions of agricultural mechanization among smallholders. We do so by using two-rounds of Agricultural Census data in Nepal, as well as Nepal Living Standard Survey (NLSS), and indicators of agroclimatic similarity with plant-breeding locations within Nepal.