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Are small farms really more productive than large farms?

Author

Listed:
  • Fernando M. Aragón

    (Institute for Fiscal Studies)

  • Diego Restuccia

    (Institute for Fiscal Studies)

  • Juan Pablo Rud

    (Institute for Fiscal Studies and Royal Holloway, University of London)

Abstract

This paper shows that using yields may not be informative of the relationship between farm size and productivity in the context of small-scale farming. This occurs because, in addition to productivity, yields pick up size-dependent market distortions and decreasing returns to scale. As a result, a positive relationship between farm productivity and land size may turn negative when using yields. We illustrate the empirical relevance of this issue with microdata from Uganda and show similar findings for Peru, Tanzania, and Bangladesh. In addition, we show that the dispersion in both measures of productivity across farms of similar size is so large that it renders farm size an ine?ective indicator for policy targeting. Our findings stress the need to revisit the empirical evidence on the farm size-productivity relationship and its policy implications.

Suggested Citation

  • Fernando M. Aragón & Diego Restuccia & Juan Pablo Rud, 2021. "Are small farms really more productive than large farms?," IFS Working Papers W21/35, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:21/35
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    Cited by:

    1. Beatriz Manotas-Hidalgo, 2021. "Addressing Oil Spills and Agricultural Productivity. Evidence of Pollution in Nigeria," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 2109, Departamento de Economía - Universidad Pública de Navarra.
    2. Nicholas Li, 2021. "In-kind transfers, marketization costs and household specialization: Evidence from Indian farmers," Working Papers tecipa-700, University of Toronto, Department of Economics.
    3. Meilin Ma & Richard J. Sexton, 2021. "Modern agricultural value chains and the future of smallholder farming systems," Agricultural Economics, International Association of Agricultural Economists, vol. 52(4), pages 591-606, July.
    4. Zhang, Cheng & Nie, Kunxi & Zhu, Yueji, 2024. "Participation in land rental and labor markets and agricultural economic performance of banana farmers in China," Land Use Policy, Elsevier, vol. 146(C).
    5. Fernando Aragon & Diego Restuccia & Juan Pablo Rud, 2021. "Heterogeneity, Measurement Error, and Misallocation in African Agriculture: A Comment," Working Papers tecipa-697, University of Toronto, Department of Economics.
    6. Thanh‐Tung Nguyen & Trung Thanh Nguyen & Ulrike Grote, 2023. "Internet use and agricultural productivity in rural Vietnam," Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1309-1326, August.
    7. Yang Xu & Yujia Huo & Xiangyu Guo, 2024. "Relationship of Arable Land Scale and High-Quality Development of Farmers’ Cooperatives: Evidence from Grain Production Cooperatives in China," Sustainability, MDPI, vol. 16(6), pages 1-30, March.
    8. Ahmed, Shakil & Mallick, Debdulal & Roy Chowdhury, Prabal, 2025. "Marshall Meets Lewis: Efficiency of Sharecropping in the Presence of Surplus Labor," MPRA Paper 123684, University Library of Munich, Germany.
    9. Britos, Braulio & Hernandez, Manuel A. & Robles, Miguel & Trupkin, Danilo R., 2022. "Land market distortions and aggregate agricultural productivity: Evidence from Guatemala," Journal of Development Economics, Elsevier, vol. 155(C).
    10. Heng Zhang & Xiangyu Guo, 2024. "Farmland Rental Market, Outsourcing Services Market and Agricultural Green Productivity: Implications for Multiple Forms of Large-Scale Management," Land, MDPI, vol. 13(5), pages 1-23, May.
    11. Shuai Qin & Hong Chen & Tuyen Thi Tran & Haokun Wang, 2022. "Analysis of the Spatial Effect of Capital Misallocation on Agricultural Output—Taking the Main Grain Producing Areas in Northeast China as an Example," Sustainability, MDPI, vol. 14(10), pages 1-17, May.
    12. Elizabeth Ahikiriza & Joshua Wesana & Xavier Gellynck & Guido Van Huylenbroeck & Ludwig Lauwers, 2021. "Context Specificity and Time Dependency in Classifying Sub-Saharan Africa Dairy Cattle Farmers for Targeted Extension Farm Advice: The Case of Uganda," Agriculture, MDPI, vol. 11(9), pages 1-19, August.
    13. Hailemariam Ayalew & Jordan Chamberlin & Carol Newman & Kibrom A. Abay & Frederic Kosmowski & Tesfaye Sida, 2024. "Revisiting the size–productivity relationship with imperfect measures of production and plot size," American Journal of Agricultural Economics, John Wiley & Sons, vol. 106(2), pages 595-619, March.
    14. Marijn A. Bolhuis & Swapnika R. Rachapalli & Diego Restuccia, 2021. "Misallocation in Indian Agriculture," NBER Working Papers 29363, National Bureau of Economic Research, Inc.
    15. Shiladitya Dey & Piyush K. Singh, 2023. "Role of market participation on smallholder vegetable farmers' wellbeing: Evidence from matching approach in Eastern India," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 1217-1237, October.
    16. K. L. Krishna & J. V. Meenakshi, 2022. "Agricultural Productivity Growth and Structural Transformation in Rural India: Some Recent Evidence," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(1), pages 277-302, September.
    17. Aragón, Fernando M. & Restuccia, Diego & Rud, Juan Pablo, 2024. "Assessing misallocation in agriculture: Plots versus farms," Food Policy, Elsevier, vol. 128(C).
    18. Andrew P. Barnes, 2023. "The role of family life‐cycle events on persistent and transient inefficiencies in less favoured areas," Journal of Agricultural Economics, Wiley Blackwell, vol. 74(1), pages 295-315, February.
    19. Cherevko Heorhiy & Yatsiv Ihor & Cherevko Iryna & Yatsiv Svitlana, 2024. "The Prospects of Small Business Entities in the Agricultural Production System of Ukraine," Folia Oeconomica Stetinensia, Sciendo, vol. 24(2), pages 41-68.
    20. C. S. C. Sekhar & Namrata Thapa, 2023. "Rural market imperfections in India: Revisiting old debates with new evidence," Development Policy Review, Overseas Development Institute, vol. 41(5), September.
    21. Helfand, Steven M. & Taylor, Matthew P.H., 2021. "The inverse relationship between farm size and productivity: Refocusing the debate," Food Policy, Elsevier, vol. 99(C).
    22. Khonje, Makaiko G. & Nyondo, Christone & Mangisoni, Julius H. & Ricker-Gilbert, Jacob & Burke, William J. & Chadza, William & Muyanga, Milu, 2022. "Does subsidizing legume seeds improve farm productivity and nutrition in Malawi?," Food Policy, Elsevier, vol. 113(C).
    23. Chiarella, Cristina & Meyfroidt, Patrick & Abeygunawardane, Dilini & Conforti, Piero, 2023. "Balancing the trade-offs between land productivity, labor productivity and labor intensity," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 52(10), pages 1618-1634.
    24. Meilin Ma & Jessie Lin & Richard J. Sexton, 2022. "The Transition from Small to Large Farms in Developing Economies: A Welfare Analysis," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 111-133, January.

    More about this item

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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