Are There Too Many Farms in the World?

I have shamelessly copied the title of today’s blogpost.

And the answer to the question is, obviously: yes!

I enjoy being provocative in my Principles of Economics classes, making seemingly outrageous statements to try and provoke my students into heated (and therefore enjoyable) debate. One such statement is this: the best way to help farmers in India is by helping many of them leave agriculture.

It never fails, that statement, and what follows is always a fun debate about the importance of agriculture and how best to help it flourish in India. Which is why I enjoyed reading this brief write-up from the Yale Economic Growth Center:

A new study uses data from India to connect the dots between these two phenomena, showing that farm productivity follows a U-shaped curve with farm size, and that substantial gains in output and income would result if farms in developing countries were significantly larger. The analysis suggests that agricultural consolidation – though a challenging policy prospect – could lead to significant economic growth and poverty reduction.

If you are an Indian reading this, I (hopefully) don’t need to explain to you what a typical Indian farm looks like. But if you’re looking for a point of contrast, try going through this fantastic photo essay to understand the difference in terms of scale.

So what’s going on?

Explained in simple terms: on a very small farm, family members work the land, participate in wage work on other farms, and operate their farm efficiently. As farm size increases, the family members increase their level of on-farm work until they are unable to spend any more time working (this point of complete self-sufficiency is known as autarky). Because hiring additional labor comes with additional transaction costs (finding workers and travel costs) and thus lowers net income, the family continues to work the land as farm size increases (decreasing labor to land ratio, or productivity) until such point that the benefit of hiring additional workers outweighs the cost, and productivity starts to increase – which is where we observe the bottom of the curve. After this point, productivity rises with farm size, as larger farms can take advantage of machines that have higher capacity at larger scales and lower labor use – mirroring the economies of scale that are well-observed in developed countries.

Foster and Rosenzweig, the authors of the paper behind this write-up run the numbers and come up with the following conclusion:

The authors illustrate this point using their model to show that the minimum farm size in India that would maximize return on land using only locally- available machinery is 24.5 acres – over 7 times the mean farm size in India today. If all farms were this size, the number of farms in India would decrease by 82%, total output would increase by 42% and income per farm worker would increase by 68%. However, there would only be a 16% decline in the total agricultural workforce, owing to the under-utilization of labor in most small-scale farms.

This isn’t an easy topic to think about, by any means. But for those interested, I have three recommendations:

  1. Small Holdings in India and Their Remedies, by Dr. Ambedkar (written over a hundred years ago!)
  2. The first part of How Asia Works, by Joe Studwell (reading this one might confuse you, for the advice will be at odds with what we’ve been discussing here, but it is a very instructive read nonetheless)
  3. The very first episode of TSATU.

2 thoughts on “Are There Too Many Farms in the World?

Leave a Reply