The Inverse Farm Size Productivity Relationship: Some New Evidence From Sub-Sahara African Countries

Abstract

The inverse farm size productivity relationship (IR) for short implies that diseconomies of scale characterize agriculture systems for several possible reasons, including the failure of land and labor markets to equalize production efficiency across farm size distribution. From the policy perspective in turn, should smallholders be found to be more efficient, policies to facilitate the redistribution of land from large towards the small farms would be justified not only on equity but also on efficiency grounds. While many consider IR as a “stylized fact” of rural development and a guiding principle of the major land reform in the former Soviet Union, and the Eastern European countries, others find it difficult to accept without further questions for several reasons. These include the fact that in most empirical studies IR appears as smooth tendency for land productivity to decline with farm size and thus is not limited to a different pattern of resource uses between large and small farms. While different reservation wages could account for family versus non-family farms, this would not explain why land productivity appears to decline within small family farms as well. Some empirical evidence also suggests that land quality and farm size are inversely correlated, so that ignoring this relation may be the cause of a basic specification error. Finally, several studies have indicated that total factor productivity does not show any negative correlation with farm size. In this paper, we investigate the relationship between productivity and farm size from the point of view of the option value of land and its relation with management quality and efficiency. We use LSMSISA national representative datasets of five sub-Saharan African countries, which provide standardized location details of sampled communities allowing the data to be linked to any other geo-referenced data . We are thus able to control for many exogenous common and comparative geo-spatial measures of land quality, infrastructure and access to markets, climate conditions, soil and topography. We also use an estimation strategy, based on quantile regressions at the household level, that allows us to test IR existence and verify signs’ switches across the entire distribution of farm size, and between countries located in different agro-ecological zones. Our findings indicate that, as suggested by a model combining land option values and farm size related management quality, while IR may be important for certain ranges of farm efficiency and size, it is by no mean an ubiquitous characteristic of agriculture. Whether the relationship between productivity and size is positive or negative may thus depend crucially on other factors, including soil quality, agro-economic zones, and the efficiency of farm management.