The debate on the optimum size of farms is very old, dating back at least to the end of the 19th century, when most experts believed that ultimately agriculture would be like any other sectors of the economy and many authors spoke of the industrialization of agriculture. But subsequently that view was more and more challenged. And in the 1960s, a broad consensus emerged among professional economists, particularly those concerned with economic development, on the superiority of small family farms. The debate appeared settled. Yet several developments in recent decades - notably the existence of very large farms in countries of the former Soviet Union, the forms taken by what is commonly called “land grabbing” in Africa, the economic dynamism of large commercial farms in several Latin American countries - have put the consensus on the superiority of small farms into question. The purpose of this essay is to review this old debate, to show its great policy relevance today and to suggest that public policies supporting small farms continue to be warranted today, as situations vary greatly among countries and among regions. Strategies targeting small family farms that can produce for the markets, i.e., beyond subsistence needs, and be linked to value chains are of primary importance, for social as well as economic reasons.
The debate on farm size became a major issue for Marxist authors and militants towards the end of the 19th century. Marx himself seems to have been convinced that ultimately peasant farms would disappear and that capitalist production relationships (with salaried workers employed by capitalist firms) would prevail in agriculture as in industry. But in a famous book published in 1900, Kautsky was concerned that this “general economic theory” did not seem to apply in agriculture, as he noted that small farms were not at all disappearing, or only slowly and not everywhere. He feared that a major flaw in its theory, would lead the Marxist movement to catastrophes. This judgement turned out to have been extraordinarily prescient. Most socialist or communist regimes in the 20th century firmly believed in the superiority of large farms, which incidentally contributes to explain the liquidation of the Koulaks in the Soviet Union in the 1920s. The counterexample of the People’s Republic of China supports this view. The abandonment of the Communes in 1979 and the adoption of the so-called “household responsibility system” was essentially a return to small family farms. And this change turned out to be the keystone of the economic reform movement which generated the spectacular economic growth of the last three decades.
Events have not been so dramatic in Western countries. But policy debates have been raging and many public policies have been influenced by considerations and concerns regarding the structural evolution of agriculture, as illustrated for instance by the ancient debate on corporate agriculture in the United States and the agricultural structure policies pursued in several European countries, including many of those included in what is called the “second pillar” of the Common Agricultural Policy. The economic nature of the many forms of family farms was clarified, particularly by US agricultural economists in the 1960s and 70s, when American agriculture was confronted with what was then perceived as a major surplus problem (Johnson et al. 1972). At the risk of oversimplifying, one can say today that the gist of these economic arguments rested on the lack of mobility of the factors of production, particularly family labour.
A parallel debate took place on the nature of agriculture in developing countries, particularly in Asia, where farms were generally very small. In his famous book, entitled Transforming traditional agriculture, published in 1964, T. W. Schultz pointed out that small farmers, although poor, are rational and allocate efficiently the scarce resources available to them. They are poor because they have very limited access to productive resources. And the fact that they often refuse to adopt modern practices, such as mechanization, can easily be explained rationally. It is not because they are bound by tradition that they do not adopt these modern practices, often recommended by research and extension services, but because these practices are actually inappropriate for them. Soon this economic argument was widely accepted by the development economics profession and it has guided many agricultural development policies, notably those promoted by the World Bank and other international organizations, for decades.
It is worth noting that the two sets of arguments, developed separately for Western agriculture and for agriculture in developing countries, again particularly in Asia, converge. The key point in both cases is the mobilization of productive resources by farmers, their limited mobility in the former case and the difficulty of accessing them in the latter. Besides, especially after Sen’s seminal work on Indian agriculture (1962), small farms were believed to be more efficient, because they could use available resources more effectively and closely monitor production activities ; and a wealth of data across Asia and Africa supported the “inverse productivity” assumption, according to which crop yields are negatively correlated to farm size. In such circumstances, one can understand that agricultural modernization policies based on large farms, which would entail a massive substitution of capital for labour, were not considered optimal.
For several decades the consensus on this perspective was very strong within the development economics profession. It was so strong that many thought in the 1990s that the de-collectivization of agriculture in former socialist countries after the fall of the Berlin wall should be guided by the promotion of family farms, much smaller than the former Kolkhozes and Sovkhozes.
The dominant view in the economics profession on the superiority of small farms was never fully accepted in Latin America, where farm sizes are extremely diverse from one country to another and within individual countries, where agrarian revolutions in countries such as Peru or Mexico generated heated discussions and even violent conflicts and where, as a result, the simple dichotomy between small and large farms is viewed critically. Yet, it is such a differentiation which explains that Brazil has two ministries of agriculture, one dealing with a large farm-commercial sector and the other one dealing with “family farms”. The coexistence of these two forms of agriculture in Brazil and the dynamism of the commercial sector in Brazil and several other countries (e.g. Argentina and Uruguay) clearly challenge the view that small farms are superior to large ones. A more sophisticated economic interpretation is called for. Actually, several ministries of agriculture (e.g. in Argentina, in Uruguay, in Paraguay and elsewhere) have special sections dealing with small farms based on the belief that smaller farms cannot compete with larger ones (because of access to credit, to new technologies and to markets).The justification for these small farm programs is mainly of a social nature. More economic considerations, related to employment growth, trade balances and general economic growth legitimize the growth of a value chains dominated by agribusiness and where large farms tend to dominate in sub-sectors such as cut flowers in Colombia, fruits in Chile or soybeans in Southern Cone countries.
Developments in the former Soviet Union, where very large farms play a dominant role, notably in the very fast growth of exports of wheat from the so-called Black Sea region, namely from Russia, Ukraine and Kazakhstan, lead to the same conclusion. Obviously those very large farms are internationally competitive. The contrast with Central European countries, which had also socialist regimes, can help us understand the processes which were at play in the transition from socialist agriculture and to throw light on our small-vs-large farms issue. In Central Europe, the political pressure to return land to previous owners or to their heirs was irresistible. This led to a division of many former large farms. In the Soviet Union, which had had a socialist regime for a longer time (around seventy years) than countries of central Europe (around forty years), there was little pressure to return land to previous owners and, after several generations, former workers of State and collective farms were far from family farmers. They did not have the necessary knowledge and skills. Thus, the situation was ripe for the development of very large farms.
Finally, the process of “land grabbing” in Africa poses another challenge to the small farm superiority thesis. Foreign investors seek large tracts of land to establish large commercial operations. They are not interested in small farms. Thus, they must be convinced that large farms are superior. And this belief is obviously shared by the government officials who facilitate this form of “foreign direct investment”. The controversies raised by this process provide us with additional information, relevant for our purpose. There is indeed very little land which is entirely free. When a government sells land to a foreigner or makes it available otherwise, that government ignores the traditional land use rights of the nationals who made use of that land before the foreign investment. Admittedly, those uses are often quite extensive and the productivity of land is generally low. But those traditional users are often poor and this loss may endanger their livelihood. Thus, when a government facilitates land grabbing, this decision can be interpreted as sacrificing the welfare of its poor citizens in the countryside for the increased production expected from the foreign investment, increased production which may contribute to increased domestic consumption and ultimately benefit poor people in urban areas. The main lesson to be drawn from this for our purpose is that government officials encouraging foreign investments in agriculture are convinced that large farms are superior to small farms for the purpose of increasing domestic production.
Obviously, the simple dichotomy between small and large farms oversimplifies the complexities of reality in most situations even if, as with all models, it may be useful in some debates, as it can help boil down the arguments to fundamentals. What are then the economic fundamentals at stake ? One key issue was already identified above : the mobilization of resources. Another one which remained implicit so far is whether or not there are economies to scale in agriculture, a question which has been debated at length in the agricultural economics profession. Let us first note that those two issues are closely linked. Expressed formally, if a factor of production is fixed, as may be family labour in many circumstances, its opportunity cost is zero. And this will have a direct impact on whether or not there are economies to scale : costs of production will be low in small farms relying on fixed family labour denying the possibility of economies to scale. This is still the case in many Asian countries, notably India and China. And this explains why farms are often very small in Asia. A similar analysis is relevant to explain the situation of agriculture in Western Europe at the end of the Second World War, when small farms dominated in many countries, and its evolution since then : when jobs became available outside of agriculture, family workers moved out of the sector and capital massively substituted for labour. When and where small farms survive because the opportunity cost of labour is very low, the returns to that labour tend to be low also. Small farms survive but the small farmers may be very poor. So, the “superiority” of small farms discussed above may be obtained at a very high social cost.
In summary, the size of farms in a given country at a given time depends on many factors, which precisely vary through time and space. Public policies can and do have an impact on these factors and therefore on the structure of the agricultural sector. But too many government interventions in this domain have been driven by ideological or doctrinal considerations.
The small vs big farms debate has taken a new turn since 2007/08, as the strong hike in agricultural prices, together with energy prices, has revived the fears of structural, lasting food shortage, and put agriculture – and the necessity to increase agricultural production and productivity – center stage. While agriculture so far was hardly considered an attractive sector for corporate investors, the private sector is now pushing for a “business agenda” to enhance food and biofuel production, often with an emphasis on large commercial farms and integrated value chains. This business agenda is opposed by many donors and NGO’s, who underline that in the majority of developing countries the bulk of food insecure households live in rural areas and mostly on small farms. They propose a “social and environmental agenda” focused on a pro-poor, food security approach (Hazell 2013).
The opposition between these two agendas is particularly strong in Sub-Saharan Africa, where 80% of farms have less than 2 hectares and whose average performance in terms of agricultural production, crop yields and farm income are much below those in other regions. In this context, some suggest that small farms have a limited future as farm businesses, and that it is better to encourage private investments in large scale farm operations and to direct public assistance towards helping small farmers diversify out of agriculture. They note that crop yields on large farms can be as high if not higher than on small farms. In fact, yields might not even be the right measure to assess growth potential in today’s world. The ability to adopt new technologies, access credit, and dispose of effective links to product markets are the new keys to success in modern agriculture ; and large commercial farms have a clear advantage in these three domains (Collier and Dercon 2009).
The other camp reckons that this business strategy does not address the needs of the large number of subsistence farmers, whose main goal is to produce more to feed their family. Contrary to what many think, subsistence farmers are far from disappearing in Africa. In the more populous African countries, the number of small farms continues to grow and the average farm size is falling (Jayne 2013). This trend will probably continue in the next decades as the rural population in Sub-Saharan Africa is expected to rise, even though urbanization is bound to increase. Accordingly, since most of the food insecure households live on small farms, improving the productivity of subsistence-oriented farms should be a high priority.
These challenges imposes to move beyond the small vs big farm debate, and devise policies that build upon the diversity of small farms, as these face varying prospects that depend on their own assets, talent and aspirations as well as on the general economic situation of the country where they are, which has such a big impact on the opportunity cost for labour. Socially-acceptable policy options definitely need to include small farms in agricultural growth strategies ; at the same time, it should also be recognized that a large number of small farms is not going to make it as commercial businesses, especially asset-poor farmers in backward regions, and that “a clear exit strategy” is required for this category of the population (Drechsler 2013).
Hazell (2013) has classified smallholders into three groups for the purposes of targeting small farm assistance : commercial small farmers who are already successfully linked to value chains, or who could link if given a little help ; small farms in transition, who have or will soon have favourable off-farm opportunities and would do better if they were to either exit farming completely ; and subsistence-oriented small farms, who are marginalized for a variety of reasons that are hard to change, but may reach the “transition category” with appropriate policies. Of course, the relative importance of these three small farm groups varies widely by region. We believe the commercial small farm category should be high on the agenda of policy makers because they are an essential component for a sustained and inclusive economic growth, that can both strengthen food security and revitalize rural areas. Public intervention has also a role to play in facilitating the diversification of farm household income, by encouraging job creation, and educational and training programs in rural areas.
The Foundation for World Agriculture and Rurality (FARM as per its French acronym), based in Paris, was created in 2005 as a think thank to promote the role of commercial small farms in developing countries that are or may be able to meet the rising demand for food, especially from the growing urban markets. FARM’s philosophy is based on the premise that these farms can be competitive if they have access to credit and inputs, have tools to manage weather risks, are able to link to efficient value chains, and are granted a legitimate protection against commodities imported from countries with much higher farm productivity levels. To be effective, this “pro-business” strategy must also focus on capacity building to help farmers improve their performance, and form well-managed producer organizations that can increase their bargaining power on the market. Of course, it should be part of a global policy framework that allows for the creation of public goods, including transportation, education, health services, etc., and fosters a business-friendly environment.
In addition to carrying out studies and organizing conferences to promote an entrepreneurial approach in the farm sector, FARM is supporting producer groups and cooperatives in West Africa, to assist them in increasing their production and productivity in a sustainable way and improving the marketing of their crops. The results obtained by these producer organizations suggest how pro-business policies could help small farms tap the extraordinary potential of African agriculture.
Collier, P., and S. Dercon (2009), African agriculture in fifty years : smallholders in a rapidly changing world ?, Expert Meeting on How to Feed the World in 2050, FAO.
Drechsler, D. (2013), The future of African agriculture : Can smallholders be the answer ?, www.voxEU.org.
Hazell, P. (2013), Is Small Farm Led Development Still a Relevant Strategy for Africa and Asia ?, A Festschrift in Honor of Per Pinstrup-Andersen, Cornell University.
Jayne, T. (2013), Urbanization and farm size changes in Sub-Saharan Africa : implications for agricultural research. Background Paper for the ISPC Foresight Study on Farm Size and Urbanization.
Johnson, G. et al. The Overproduction Trap in US agricilture : A Study of Resource Allocation from World War I to the Late 1960’s, Baltimore, The Johns Hopkins University Press, 1972, 212 p.
Kautsky, K. La question agraire. Etude sur les tendances de l’agriculture moderne. Edition française, Paris, Girard et Brière, 1900, p. 3-4.
Schultz, T. W. (1964), Transforming traditional agriculture, New Haven and London, Yale University Press.
Sen, A. K. (1962), An Aspect of Indian Agriculture, Economic Weekly 14.
Michel Petit, Former Director of Agriculture and Rural Development at the World Bank, President of the Scientific Council of the Foundation for World Agriculture and Rurality (FARM), Paris.
Jean-Christophe Debar, Director of the Foundation for World Agriculture and Rurality (FARM), Paris.
A preliminary version of this article has been written for the Global Agribusiness Forum, held on 24-25 March 2014 in Sao Paulo, Brazil.