Is economy of scale really what’s best for the agriculture sector?

Over the last two decades there has been a great surge in land reform policies in developing countries. These land reform policies have mainly focused on rural property rights, and have consisted of giving small to medium size farmers, who for years have suffered from tenure insecurity, legal ownership of their land and property. Land reform has different objectives in different countries, but it is generally an attempt to boost development of the agricultural sector and rural regions, where poverty is often at its most extreme.  It is also used to appease peasant farmers, who in many countries are increasingly disgruntled by the rural inequality legacy of colonialism that is now being heightened by the rise of wealthy large scale agribusinesses due to the globalization of the food market.

The agribusiness sector is composed of a diverse group of food and plant related enterprises, including crop producers, poultry and egg companies, dairy farmers, timber producers, tobacco suppliers and stores.  As opposed to small and medium size farms, agribusinesses on the agricultural production side tend to intensively harvest one crop or animal over hundreds or even thousands of hectares. For example, PepsiCo owns 12 of its own farms and contracts over 13,200 more. Farming agribusinesses have received a lot of flack during the last few decades for maltreatment of workers, using land degrading farming practices, polluting the environment and pushing small and medium size farmers out of business. And yet they continue to receive governmental support in infrastructure, policies, and finance.

The rise of large-scale agriculture adds to the already shocking inequality in land distribution that colonialism left in its wake in many developing countries. In countries like Bolivia, for example, 10 percent of agricultural landholders control 90 percent of the land that can be productively used for agriculture despite over 50 years of supposed land reforms. Furthermore, large scale farms are often held by foreigners of “mestizo” (mixed descent) Bolivians, while small-scale farmers, who unfortunately often suffer from extreme poverty and food insecurity, have more indigenous roots. Bolivia is not a unique case, many Latin American, Asian and African countries suffer from similar inequalities in arable land distribution. For instance, after gaining independence from British colonial rule Zimbabwe was left with a rural sector that was ruled by a white minority while the black majority lived as the peasant underclass in their own country. In 1999, 4,500 whites held claim to 11 million hectares of Zimbabwean land, and as in Bolivia these were also the country’s most fertile lands.

Regrettably, representing stark inequality within a country is not the only folly that large-scale farming is guilty of. There are repeated complaints from researchers and journalists concerning the mass pollution caused by agribusinesses. For example, over the last few years the sheer volume of green house gases that is produced by cow dung on large-scale intensive Concentrated Animal Feeding Operations (CAFOs) has been in the lime light, as well as chemical pollution caused by the runoff of fertilizers from industrial farms into the local water supply.  Moreover, in many cases insufficient methods are used by large scale farms to protect the land against the extensive degradation caused by intensive farming. This is especially the case when the land is leased, as the proprietors have little vested interested in using costly anti-land-erosion measures when they can get the most possible profit out of the land in the short term and move on to greener pastures once the nutrients of the present land have been exhausted.

Fortunately, the agricultural sector is unlike other business sectors in that the economy of scale does not apply. Ever since the famous research of Nobel economist Amartya Sen discovered the inverse relationship between scale and productivity in farming it has become increasingly clear that large-scale is not the answer when it comes to agriculture. Small-scale farms have so many benefits over large-scale farms that it is one area where the economy of scale should not be considered as an unavoidable destiny.  Not only do small-scale farms produce more per hectare, they also preserve biodiversity with their preference to cultivate multiple, complementary crop types nourish each other and the shield the farm against total crop failure, and ensures higher food security in the face of global price fluctuations.

Land reforms that focus on land titling have the potential to provide a much needed boost to the small-hold agricultural sector of developing countries. Augmented farm related economic and environmental investments are a direct result of successful land titling, partly due to increased access to credit and partly due to a firmer belief that the investor will see the investment’s long-term benefits. In turn, increased investments result in increased productivity, which improves the economic status and food security of the family.

However, land titling is not sufficient to really generate mass rural development that in the long run would enable small farmers to be free from food insecurity and even have the opportunity to compete with larger farms in the local and global market. The socio-economic potentials of land titling policies can be maximized by accompanying it with other investment incentives, such as a type of conditional cash transfer scheme or education on how strong property rights can improve investment and the long-term benefits of such investments. But it is the long term international support of the governments that will really dictate whether small-farming remains an impoverished profession that is no longer considered important for the wealth and health of a country.

One major contributor to the success of large-scale farms is the subsidies that they receive from their own government or foreign governments. For instance, this year the Bolivian government expects to spend US$ 750 million on fuel subsidies, which will go a long way toward keeping the production costs of industrial farming down but will do little to help the technology-deprived small-scale farmers. Similar policies are being implemented on the other side of the Atlantic, where 80 percent of the 53 billion Euros of European Union (EU) subsidies is given to just 20 percent of the continent’s landowners. In Romania, a European country where small-scale agriculture still employs a large bulk of the population, 70 percent of farms are considered ineligible for subsidies of any kind and 51 percent of the subsidies go to just 0.9 percent of the country’s farmers.

This system of political agricultural support enables large farms to sell their products at an unrealistically reduced rate or even zero percent profit whilst taking their profits from the subsidies. In the United States, which on average gives $20 billion annually in subsidies to farmers, this situation is taken even further as their subsidies allow farmers to sell their corn at significantly less than production costs, which not only puts North American small-scale farmers out of business but also farmers in developing countries.

Through the introduction of land titling policies and land distribution reforms in countries where disproportionate amounts of land are owned by a handful of big land owners, as well as redirecting the subsidies that agribusinesses receive toward small-scale farms, a government could spark a real agricultural reform. If you consider that small scale farms are more productive than large scale farms even without the top of the range technology, fertilizers, subsidies and human capital that the latter group possess, it is difficult to imagine what they could do with government support and subsidy money. However, one thing that is certain is that they would be able to compete in terms of food prices, and therefore contribute not only to their own food security but that of the world as well.

Do you think that an expansion of the intensive farming sector will have detrimental effects on the environment and world food security? How important do you consider land titling to be as a support measure for small-scale farmers in developing countries?

Mieke Dale-Harris is working as an intern at the Institute of Advanced Development Studies (INESAD), La Paz, Bolivia. She is a psychology graduate from Goldsmiths University of London.

Like this article? Be sure to sign up at the top of this page to receive future articles directly to your inbox.

For you reference:

Fatma, G. U. (2006). Small is beautiful: Evidence of inverse size yield relationship in rural Turkey.

Armarta, K. S. (1962). An Aspect of Indian Agriculture. The Economic Weekly. Febuary.

Moltzen, K. (2009). Subsidies and “Speciality” Crops: An analyisis of the Current State of U.S. Agricultural Policy.