The relationship between farm size and efficiency in south african agricultre

1、The relationship between farm size and efficiency in south african agricultreIJsA5ffr%, POLICY RESEARCH WORKING PAPER 15848The Relationship Between Commerciafla rmsin SouthAfrica could becomeFarm Size and Efficiency significantly more efficient ifin South African Agriculture they became smaller. The

2、government could encouragethat trend by removingpoliciesa nd distortionsth atJoban van Zyl Hans Binswanger favorl arge overs mallf arms.Colin TbirtleThe World BankAgriculture and Natural Resources DepartmentOffice of the DirectorNovember 1995PoLjy REsEARCIXWORKIN4.; PAIFR 1548Summary findingsDrawing

3、 on interinational evidence, van Zyl, Binswanger, There is an inverse relationship between farm sizeand Thirtle discuss the son rces of economies of scale. and efficiency in the commercial farming areas for theUlsingr epresentative farm-level survev data for South range of farms analyzed, regardless

4、 what method is used.Africas six mnajor grain-producing areas and one This inverse relationship seems to become stronger andirrigation area for rhc period 1975-90, they: more accentuated as policy distortions -whichi tend to* Describe the structure of South African agriculture, favor large farms ove

5、r small ones -are removed.detailing the distributioll of larin sizes and results from * Large farms tend to use more capital-intensiveprevious studies of farmi-sizu e fficiency. methods of production, while smaller farms are morte* Analvze the evidence on scale efficiency in the labor-intensive. And

6、 managerial ability seems to be betterformer homelands. on larger farms.* Analyze the relationishiip between farm size and There is an inverse relationship between farm sizeefficienicy in commieitrcial farminig and discuss how policy and efficiency in South African agriculture despiteaffects that re

7、lationsliijp. South Africas history of policies favoring relativelyClearly policy hals a crucial impact on the relationship large mechanized farms. Clearly, efficiency gainsbetween farm size and efficienicy. lhey find that: could be significant if commercial farms became* Farms in tht iformiterh ome

8、lanids seem to be scale- smaller. To encourage that trend, policies andinefficient, which is unsurprising, givenl the historical distortions that favor large farms over small shouldlack of access to support services and infrastructure, be removed.policies that discriminate against farmers in thehome

9、lands, and tht extremeitlc fragimierited and limitedlanid-use rights of farmerzs the re.his paper- a product of the Office of the Director, Agriculture and Natural Resources Department- is part of a large!effort in the department to design appropriate strategies for land reform. Copies of the paper

10、are available free from tiltWorld Bank, 1818 H Street NW, Washlinigton, 7DC 20433. Please contact Melissa Williams, roonm S8-222, telephone 202-458-7297, fax 202-522- 1 142, Internet address mwilliams(i). November 1995. (45 pages)Thc Policv Rese.ar, I WYorkingP aper Series dissemniniat

11、es the findings of work in progress to encourage the exchange of ideas aboutdeielopment Anvz ob,IsL. tiic of the series is toget the findings out quickly, even if the presentationsare less than fully polished. Thepapers c-arry tbe names If tie authors atid should be used and cited accordingly. The f

12、indings. interpretations, and conclusions are theauthors owU1d shbu1l d otlb e attributed to the World Bank, its Executive Board of Directors, or any of its memiberc ountries.Produced by the Policy Research Dissemination CenterThe Relationship Between Farm Sizeand Efficiencyin South African Agricult

13、ureJohan van Zyl(World Bank)Hans Binswanger(World Bank)Colin Thirtle(Universityo f Reading)Thisp aper is a product of the Agriculturea nd Natural ResourcesD epartment.T he authorsthankJean-PaulC havas,R obertC hristiansen,P aula Despins,J ohann Kirsten,JennyP iesse,Helmke Sartoriusv on Bach, and Rog

14、ier van den Brink for their contributions.INDEX2Values. .International Experience On EconomiesO f Scale, Farm Size And Productivity. .23Sourceso f economieso f scale. .Evidenceo n thef a rm 5size -productivityr elationship. .Relatedi ssues:M echanizationl,a boro rganizationa ndfarm 7size. .Structure

15、 Of South African Agriculture: Issues Related To Size. .8.8Farm sizes in South Africa. .9Evidenceo f economieso f scale. .Evidenceo n causes of scale efficiency11. . Efficiencyi n thef ormer homeland13.s. . 15Synops is. . Evidence Of Scale EfficiencyI n The Homelands15. . 16The data. . Measurement18

16、o fproductive efficiency. . 20Results and interpretation. . 23Conclusion.s. . EfficiencyO f Scale In CommercialA griculture. . 23Data24. . Totalfactorp roductivity byfarm size category. . 26Non-parametrice fficiencye stimationu singD ata EnvelopeA nalysis (DEA.). .3 1Econometrice stimationo ffarm si

17、ze-efficiencyr elationship. .3. 6Explaining The Results: Policy, TechnologyA nd Managemen.t. .3. 9Implications For Land Reform. . 4142References. . South African agriculture has the appearance of being sophisticated and highly successful. A closerlook at the present structure and performance of Sout

18、h Africasa gricultural sector, however, reveals that despitethe appearance of efficiency, the sector has followed a pattern of growth that is far from normal. Althoughagriculture is generally characterized by constant returns to scale and an inverse relation between farm size andproductivity (Binswa

19、nger,D eininger and Feder, 1993), the sector is dominated by relatively large farms that areowned and operated by a comparatively small number of individuals. International evidence indicates that alarge-scale mechanized farm sector generally is inefficient,e specially when compared to small-scale f

20、amily typefarm models. Although there may exist very real economies of scale, they are mostly false because they areusually the result of policiesw hich favor larger farms over small farms.At least tNo questions related to the productivity relations in South African agriculture -bothcommercial and s

21、ubsistence- and the effects of size on these relations, which have not been adequatelyaddressed, are important when considering land reform along the lines proposed for South Africa: Are large mechanized farms and the present commercial white farms economically efficient relative tosmaller holdings?

22、* What is the role of past policies in determining these observedp roductivityr elations?If larger farms are not efficient relative to smaller farms, then smaller farms and equalizing theownership distribution would enhance both efficiency and equity, and if policy created artificial economies ofsca

23、le, they should be adjusted.This paper has as objective to explore these issues by briefly reviewing the sources of economiesof scale and international evidence on these issues, as well as analyzing representative farm-level data inboth the commercial and former homeland sectors. These analyses are

24、conducted against the policyenvironment and changes therein, as well as other factors which influence farm production.2 In its recent study, the WorldB ank( 1994), supportedb y seveal othr studies( see, for example,V an Zyl andGroenewald1, 988;T hirtle,e t al, 1993a nd Van Zyl, 1994),c oncludedth at

25、 agriculturein SouthA fricaa ppearst obe a highlys ophisticateda nd successfuls ector,b ut this appearanceh ides severed istortionsa nd inefficiencies.Evidenceth at is oftenc itedi n supporto ft he formerv iewi s the fact that SouthA fricai s self-sufficienwt ithr espectto most of its major agricult

26、uracl ommodityre quirements.A t the same time, the sectors relativelys mall anddeclinings hareo f GDPi s seen as indicatinga patterno f seculard eclineo f agriculturapl rduction that is consistentwith a normalp atterno f economicg rowtha nd developmen(tV an Zyl,N el and Gromnewal1d9, 88). A closerl

27、ookat the presents tructurea nd performancoe f SouthA ficasa griculturasl ector,h owever,r evealst hat despitet heappearanceo f efficiency,t he sector has followeda patten of growthh at is far from normal( Van Zyl andGroenewald1, 988).1Values;Efficiencyf or whom?; should be a central questioni n the

28、 determinationo f efficiency( Schmid,1994).T he issue can be conceptualizedb y the portrayal of two personsi ndifferencem aps for two goodsin a conventional Edgeworthb ox diagram. Any combinationo f goods held by the parties not on thecontract curve is Pareto-inefficienta, nd any barrier to reaching

29、t he contract curve is inefficient.F rom anygiven starting place, the parties have a mutual interest in reaching the contract curve. But the portion ofthe contract curve that they can reach by mutually advantageouse xchange is different for each startingplace. Efficiencys ays nothing about the power

30、 questioni nvolvedi n choice of startingp lace and resultingequilibriumo n the curve (Schmid, 1987;B romley, 1989).F urthermore,a ny voluntarya greement to tradesays nothing about any agreementa s to the legitimacyo f the starting place. If the original distribution ofrights was illegitimate,a ny Pa

31、reto-improvemenftr om it has no legitimacye ither (Calabresi, 1991).Since efficiencyi s alwaysr ootedi n somed istributiono f rights, it can neverb e a basis for judgingthat distribution (Schmid, 1992). Rights are antecedentt o efficiencyc alculations.I n this context it isneither useful nor meaning

32、fult o conceptualizep olicyi ssues as efficiencyv ersus distribution.T he issue isefficiency 1 versus efficiency2 , each with a different starting place that resolvest he questions of powerand rights.Given the skewed land ownershipi n South Africa and the way in which these land rights wasderived, t

33、he question, ;Efficiencyf or whom?;, is extremely relevant for South Africa when comparingefficiencyo f different farm sizes and land distributions.B ecause the validity of the efficiencya rgumentdependso n the legitimacyo f the rights prior to the calculation,t he efficiencyc alculationsc annot be

34、theonly criteria when deciding on land reform when the very basis of these rights is in question. With thisperspective,t his paper uses the existing distribution of rights to determine efficiencyi ssues. It should,however,b e acknowledgedf rom the outset that this is not an attempt to justify this o

35、riginal distribution,but rather to show what the efficiencyi mpacts and issues are given the existing distribution of power,wealth and rights.InternationaEl xperienceO n EconomiesO f Scale, FarmS ize And ProductivityIn examiningt he relationshipb etweenf arm size and productivity,i t is necessaryt o

36、 look first atthe sources of economieso f scale, which underpin the justification for the move towards large-scaleproduction.I n generalt hese are: (i) lumpy inputs that cannot be used below a certain minimuml evel suchas farm machinery and managements kills; (ii) advantages in the credit market and

37、 in risk diffusion2arising from ownershipo f large holdings; and (iii) processingp lants that transmit their economieso f scaleto farms, usually giving rise to wage plantations.A summary of the basic theoreticalc ontext is followedby a brief summary of these sources of economieso f scale are followe

38、d by a brief description ofinternational empirical findings and related issues. For a more detailed discussion on these, seeBinswanger,D einingera nd Feder( 1993) and Johnsona nd Ruttan (1994).In theory, economieso f scale are defined by a productionf unction which exhibits a more thanproportionali

39、ncrease in output for a given increase in magnitude of all inputs. In practice, the conceptprovides problems as there rarely is a situation when an increase in magnitudeo f some inputs does notimply a change in the factors of production (Peterson and Kislev, 1991). The general consensus ofresearcher

40、s on economieso f scale is that they do not exist, except under very special circumstances.Empirical studiest ypicallyf ind constantr eturns to scale (see, amongsto thers, Johnson and Ruttan, 1994;Peterson and Kislev,1 991),a lthoughl umpy inputs, credit and risk diffusion,a nd processingp lants can

41、 beimportant sourceso f economieso f scale.Sources of Economies of ScaleLumpy inputs: Farm machinery- threshers, tractors and combine harvesters- are lumpy inputs,and reach their lowestc ost of operationp er unit at relativelyl arge areas. With the advent of agriculturalmechanizationm any people bel

42、ievedt hat the economieso f scale associatedw ith it are so large that itmakest he family farm obsolete.S mall owners would sell or lease their land to larger operators.H owever,it became quickly apparent that machine rental can permit small farmers to circumventt he economieso fscale advantagea sso

43、ciatedw ith machinesi n all but the most time-boundo f operations,s uch as ploughingand planting (seeding) in dry climates or harvesting where climatic risks are high. In those situationsfarmers competef or early service and thereforep refer to own their own machines.T hus, economieso fscale associa

44、tedw ith machines do increase the minimum efficient farm size, but by less than expectedbecause of rental markets. The use of lumpy inputs leads to an initial segment of the productionf unctionthat exhibits increasing returns with operational scale, but these technical economiesv anish when farmsize

45、 is increasedb eyondt he optimal scale of lumpyi nputs or when rental markets make the lumpinesso fmachines irrelevant.Managemenst kills,l ike machines,a re an indivisiblea nd lumpyi nputs,s o the bettert he manager,t helarger the optimalf arm size.T echnicalc hanges trengthenst his tendency.T he us

46、e of fertilizersa nd pesticides,and arrangingt he financet o pay for them, requirem odernm anagemenst kills. So doest he marketingo f high-qualityp roduce.I n an environmento f rapid technicalc hange,a cquiringa nd processingi nformationb ecomes3 Thesei ssuesa re alsoa ddressedin WorldB ank( q99$)mo

47、re and more important,g iving better managersa competitivee dge in captunng the innovatorsr ents.Thereforeo, ptimalf arm sizest end to increasew ith more rapidt echnicalc hange.H owevers, ome managementand technicals kills,l ike machineryc, an be contractedfr oms pecializedc onsultantsa nd advisorys

48、 erviceso r canbe providedb y publiclyf inanced extensions ervices.C ontract farming for processingi ndustries or bulkmarketingc ompanieso fteni nvolvesth e provisiono f technicala dvice.Accesst o credit and risk diffusion: Land, becauseo f its imnmobiliatyn d robustness,h as excellentpotentiala s c

49、ollateralm, akinga ccesst o credite asierf or the ownero f unencumberedla nd. On the other hand,rural creditm arketsa re difficult o developa nd sustain.T herei s thereforeo ften severer ationingo f credit,w hichcanb e partlyr elievedb y the abilityt o providel and as collateral.T he high transactio

50、nc ostso f providingf ormalcrediti n rural marketsi mpliest hat the unit costso f borrowingd eclinew ith loan size. Manyc ommercialb anksdo not lend to smallf armersb ecauset hey cannotm ake a profit.R aisingi nterestr ates on small loansd oes notovercometh is problem,s incei t eventuallyle adst o a

51、dverses electionF. or a givenc reditv alue,t herefore,t he costof borrowingi n the formalc reditm arketi s a decliningf unctiono f the amounto fo wnedl and. Providingf undst oovercomee mergenciesi s a commonf unctiono f informalr ural credit markets.H owevert,h e amountss mallfarmersc an borrowf or

52、consumptiona re usuallyt iny, and ofteno nly at high interestr ates. Investigationisn tohow farmersa nd workersc opew ith disasters howt hat creditf inanceso nlya smallf ractiono f theirc onsumptionin disastery ears. Accesst o formalc ommerciabl ank creditt hereforeg ivesl arge modemc ommercialf arm

53、ersa considerablea dvantagei n risk diffusiono ver small farmersw ithouta ccess. Establishmenot f a viable creditfiunctionfo r the familyf arm is a conditios ine qua non of modem conmmercifaal mning.H ence emphasisi sneededf or all effortst o developr ural credit, includingc o-operativbe anking and

54、other savings-mobilizationmnechanisms.Economieso f scale in processing: Wage-basedp lantationsc ontinuet o exist for typical plantationcrops, for example sugarcane,b ananas and tea. This is not because of inherent economieso f scale inproducingt hese crops, rather economieso f scale arise from the p

55、rocessingo r marketings tage rather thanfrom the farming operation and are transmitted to the farm. However,e conomieso f scale in processingalone are not a sufficientc ondition for the explanationo f the existenceo f plantations.T he sensitivityo fthe timing betweenh arvesting and processingi s crucial as well, sugarcane,t ea or the fruits of the oil palmhave to be processedw ithin hours of harvesting.P lantations tyle productionh as neverb een es