Are There Too Many Farms in the World? Labor-Market Transaction Costs, Machine Capacities and Optimal Farm Size by Mark Rosenzweig

Join us for the latest Applied Economics Research Seminar Series event, Autumn Term 2021.

Mark Rosenzweig from Yale University will present their research on Are There Too Many Farms in the World? Labor-Market Transaction Costs, Machine Capacities and Optimal Farm Size. 

Abstract

A salient feature of farming in low income countries is the small scale of farms. Average farm sizes in low-income countries are at least an order of magnitude smaller than those of farms in high-income countries. At the same time, the productivity of agriculture in low income countries is substantially below that of high-income countries.

Is the difference related to scale? What is the optimal scale of farming? Are there too many farms? This paper explains the U-shaped relationship between farm productivity and farm scale - the initial fall in productivity as farm size increases from its lowest levels and the continuous upward trajectory as scale increases after a threshold

- observed both across the world and in low-income countries. We show that the existence of labor-market transaction costs can explain why the smallest farms are most efficient and slightly larger farms that dominate in low-income countries least efficient. The rising upper tail of the U characteristic of high-income countries, however, requires there be economies of scale in the ability of machines to accomplish tasks at lower costs at greater operational scales. Using data from India we find evidence consistent with these conditions and identify the minimum farm scale in India using local technology that maximizes the return on land, which we find is eight times the size of the median Indian farm. We calculate that if all farms were this size, the number of farms in India would be reduced by 82.2%, total output would increase by 42% and income per agricultural worker would increase by 68%. Our analysis thus suggests that there are indeed too many farms, at scales insufficient to exploit locally-available equipment-capacity scale-economies.

The seminar will begin with a presentation and will end with a Q and A session.

It will be held at the Colchester Campus at 4pm on Tuesday 16th November. Room: TBC, but a zoom link can also be provided for remote access. This event is open to all levels of study and is also open to the public. To register your place and gain access to the webinar, please contact the seminar organisers.

This event is part of the Applied Economics Research Seminar Series.