Modelling the origins of managerial ability in agricultural production*

The efficiency of production from a farm’s land, labour and capital is critically dependent on the ability of the farm manager. Yet, while there are studies correlating a wide range of manager‐related variables with returns, and, therefore, probably ability, little understanding of the basic determinants of managerial ability exists. Questions such as ‘what is the importance of a farmer’s family experiences and training in determining the farmer’s managerial ability?’ need answering. The solution to this, and other, questions will enable determining ways of improving farmers’ inherent ability developed both in early, and later, life. In that most decisions on a farm are made intuitively, in contrast to the use of a formal analysis, improving farmers’ inherent ability will have a significant payoff. The research reported here uses data from a large stratified random survey of 740 developed farmers (29 per cent had tertiary education, 30 per cent had 4 or more years secondary education) to create a structural equation model of the determinants of managerial ability. The results suggest that a farmer’s exposure to experiences is a significant factor in ability, as is the farmer’s management style and the family influence on early life experience.     

Apparent Gains,Hidden Costs: Examining Adoption Drivers,Yield, and Profitability Outcomes of Rotavator Tillage in Wheat Systems in Nepal

The ‘high speed’ rotavator is used for shallow tillage to create a fine tilth and incorporate crop residues, often with a single tractor pass. Rotavator tillage has spread quickly in many parts of South Asia, despite short-term experimental trials suggesting deteriorating soil quality and crop yield penalties. Evidence of rotavator impacts on farmer fields across soil gradients and time is largely absent. From a farm household survey conducted among wheat farmers in Nepal, we estimate wheat yield and profitability outcomes for rotavator adopters and non-adopters using propensity score matching. We find that rotavator adoption leads to inferior outcomes, despite significant cost savings for land preparation (US$ 11–15 per hectare). With rotavator adoption, farmers lose about 284–309 kg of wheat grain and about US$ 93–101 of profits on average per hectare per season, and these penalties increase with longer-term use of the technology. Adoption of rotavator appears to be driven by the cost and time savings for land preparation. Against this backdrop, new policy and extension efforts are required that discourage rotavator use and favour more sustainable tillage technologies.     

Why small farms persist? The influence of farmers’ characteristics on farm growth and development. The case of smaller dairy farmers in NZ

Human capital is an important resource in primary production impacting on farmers’ decisions and actions. Given their current and expected economic environment, farmers must use their human capital in mapping out a trajectory for their farm. This study considers particular aspects of farmers’ human capital and its influence on farm growth, or lack of it. Farmers’ characteristics as expressed through their personality, intelligence and objectives are the main human capital aspects considered in a sample of smaller NZ dairy farms. They are somewhat typical of western farmers working on smaller farms. They can be broadly classed into Expanders, Maintainers and Retractors. It is hypothesised each group will have distinct and different personal characteristics and these influence the farmers’ choice of trajectory. This is in addition to purely economic factors. It is also hypothesised the characteristics influence the farmers’ choice of development strategy and how challenges to the strategy are viewed. The data collected from the small dairy farms support the hypotheses suggesting the design of policy and extension programs must allow for these human capital drivers. Using past data, it is also shown aspects of human capital are different in large farms emphasising the same conclusion.     

Off‐farm employment and reasons for entering farming as determinants of production enterprise selection in US agriculture

In today’s agriculture, farmers consider off‐farm employment and lifestyle goals in complex ways to select production enterprises. Data from USDA’s Agricultural Resource Management Survey were used to examine how off‐farm employment and ‘reasons for entering farming’ influence production enterprise selection in US agriculture. A two‐stage analysis with a multivariate tobit model was used to examine the impact of off‐farm employment as influenced by government farm programme payments, reasons for entering farming, demographics and location on production enterprise selection. Results underscore the impacts of reasons for entering farming and off‐farm employment on production enterprise choice and provide implications for policy development. The study highlights the importance of government farm programme payments in production enterprise selection by US farmers.     

Assessing the Impact of the ‘Decoupling’ Reform of the Common Agricultural Policy on Irish Farmers’ Off‐farm Labour Market Participation Decisions

This paper assesses the impact of the ‘decoupling’ reform of the Common Agricultural Policy on the labour allocation decisions of Irish farmers. The agricultural household decision‐making model provides the conceptual and theoretical framework to examine the interaction between government subsidies and farmers’ time allocation decisions. The relationship postulated is that ‘decoupling’ of agricultural support from production would probably result in a decline in the return to farm labour but it would also lead to an increase in household wealth. The effect of these factors on how farmers allocate their time is tested empirically using labour participation and labour supply models. The models developed are sufficiently general for application elsewhere. The main findings for the Irish situation are that the decoupling of direct payments is likely to increase the probability of farmers participating in the off‐farm employment market and that the amount of time allocated to off‐farm work will increase.     

Effect of off‐farm income on smallholder commercialization: panel evidence from rural households in Ethiopia

This article investigates how off‐farm income affects crop output market participation decisions and marketed surplus of smallholder farmers in Ethiopia. A double‐hurdle model is estimated using three waves of panel data from the Ethiopian Rural Household Survey. Unobserved heterogeneity is controlled for using a correlated random effect procedure and potential endogeneity of explanatory variables using a control function approach. The results show that off‐farm income has no significant influence on household crop output market participation. However, conditional on market participation, additional off‐farm earnings negatively affect the marketed surplus. This indicates that farmers use off‐farm earnings for consumption rather than for investment in agricultural production. Policy measures that promote rural investment may help increase returns to labor for land‐poor households participating in off‐farm work in the process of agricultural commercialization.     

Cooperatives and the Commodity Political Agenda: A Political Economy Approach

Historically, major agricultural cooperatives in Canada have been intimately involved in commodity policy issues. Large cooperatives were created because farmers were upset about the perceived lack of competition in buying farm inputs or selling farm outputs. Often, the resulting cooperative was the organization farmers saw as the logical organization to represent their view of commodity policy or competition policy. As cooperatives grew and diversified, the ability to represent their members coherently across policy issues was hampered. For processing cooperatives in the supply-managed sector, the requirement that the cooperative be the political arm of industry, process product, and provide maximum returns to producer members made for a complicated objective function. This paper focuses on the twin objectives of providing efficient member services and performing political lobbying in a public choice framework. The results are illustrated by the recent history of a supply-managed further-processing cooperative and a diversified grain cooperative.     

Custom‐hired tractor services and returns to scale in smallholder agriculture: a production function approach

Historically, agricultural transformation has often accompanied the increase in the returns to scale. Little direct evidence exists, however, on what actually causes such increase, despite the knowledge of many factors that are associated with this increase. We fill this knowledge gap by testing whether hiring in tractor services has raised returns to scale in agriculture at the household level in Nepal Terai that has undergone rapid growth in the tractor use through custom‐hiring services. Using Switching Regression and Inverse‐Probability‐Weighted Generalized Method of Moments, we address two sources of endogeneity involved with the estimation of returns to scale; (1) farmers’ self‐selection on whether to hire in tractor services and (2) use of inputs in the production function. For both Cobb‐Douglas and Translog production function specifications, we find that hiring in tractor services significantly increased the returns to scale in agricultural production by about 0.2 ～ 0.3 among farm households not owning tractors, for which suitable control groups are found. Findings are robust under various alternative specifications.     

Farm succession,occupational choice and farm adaptation at the rural-urban interface: The case of Italian horticultural farms

The survival of family farming in Europe is a crucial issue, as it assures landscape maintenance in marginal areas and provides transmission and accumulation of site-specific knowledge in agricultural activity. Using data from a sample of Italian horticultural farms, we explored the multiple forces driving farm succession in a high value added sector. In addition to the traditional factors examined in the literature (farm, farmer and family features), we treated the farm transfer choice as the complement of the decision to migrate out of the agricultural sector, testing the effects of local labour market conditions (employment, income gap between farm and non-farm sector) and population density around the farm, as a proxy of rural-urban interface relationships. It has been shown that both traditional factors and territorial and labour market conditions influence the probability of farm succession. Interestingly labour market conditions exerted an effect in line with occupational choice theory only in less inhabited areas; in more densely populated regions a rural-urban linkage effect seems to prevail, creating an environment that fosters succession of young horticultural farmers. Peri-urban areas may thus be a favourable location for professional and specialised horticultural farms, as well as multifunctional and de-specialised ones, if their assets are properly protected against farmland subtraction. More generally, these findings confirm the validity of a more comprehensive approach toward farm succession, which takes occupational choice theory and rural-urban farm adaptation strategies into account.     

Will future land based food and fibre production be in family or corporate hands? An analysis of farm land ownership and governance considering farmer characteristics as choice drivers. The New Zealand case

Family farming in various guises has been the dominant ownership and governance system in primary production over recorded history. This outcome has been controlled by farmers and their families, possibly due to tradition, opportunities, personal characteristics, skill sets and the nature of primary production. Of these, it is hypothesised that the farmers’ personal characteristics play a major part in the choice, and continuance, of current ownership and governance systems. Equally as important, they, and therefore the land ownership system, play a part in the efficiency of production systems and improvement of the biological and production environment.The benefits and difficulties of commonly used ownership systems in Western society are reviewed. Using a sample of New Zealand (NZ) farms, a comparison of the managers’ features for owner/operator, partnership and corporate based systems is presented. There were significant differences in many variables including the farmers’ age, education, number of children, asset levels, years on the current farm, and similar, but more importantly, the farmers in the ownership system groups had differing personal characteristics. Significantly, despite the corporate based farms employing more professional assistance, the profit levels were similar across ownership systems leaving the farmers’ characteristics the main factors correlating with system choice. However, governance systems per se are only marginally correlated with production systems and efficiency.As successive generations of farmers are unlikely to have different characteristics, and corporate based systems continue to exhibit similar profit levels, relatively simple family based systems will continue to dominate farm land ownership and control. The trends suggest family farms will increase in size and involve family conglomerates facilitating the management of larger, and in many cases multiple, farms. While currently there are few differences in biological efficiency between ownership systems, given the efficiency benefits of size and scale, this could well change with the increase of family conglomerates. Relative to increasing corporatisation, the continuance of family based ownership and governance will also be of benefit to the environment. When developing land policies, these highlighted relationships should be taken into account. This study is a first to consider personal characteristics relative to ownership.     

To plant or not to plant—Irish farmers’ goals and values with regard to afforestation

To encourage Irish farmers to transfer land into forestry, a premium scheme supporting farmers who afforest was implemented in 1989 and afforestation targets outlined in 1996. In the period from 1996 to 2006, however, only half of the targeted area was planted in Ireland. As the income of many farmers would improve when joining the scheme, a number of studies have been conducted to find out why the response was not as expected. However, to date the phenomenon has not been explained. Amongst the studies undertaken, a lack of qualitative approaches looking at farmers’ decision-making was identified. In order to understand farmers’ decisions regarding farm afforestation, in-depth interviews with 62 farmers in the North-West and Mid-Western regions of Ireland were conducted in winter and spring 2011. The interviews were based on the theory of farmers’ goals and values developed by Ruth Gasson in 1973 and relate specifically to their instrumental, intrinsic, social and expressive values about farming. The results of this study show that farmers exhibit complex, multiple and sometimes contradictory values in relation to farming. The biggest group in the study were guided by intrinsic values when it comes to farm afforestation. Their decision not to plant is made based on their values and beliefs about farming, e.g. that it is a shame to plant land used for food production, even if this returns a greater profit. A much smaller group were directed by profit maximisation when it comes to afforesting land. These farmers would plant if the financial incentives for forestry were more attractive, e.g. if the premiums available for afforestation were higher or if the outlook for agricultural profits was not as good as anticipated.     

What farmer types are most likely to adopt joint venture farm business structures?

Joint venture (JV) farm structures have the potential to increase the productivity and profitability of traditional family farms. However, such structures are not widely adopted within the farm business community. Furthermore, knowledge on the relative attractiveness of different JV models to farmers is limited. We use a choice experiment to explore what JV structures are preferred by Australian farmers, and how farmers’ socio‐demographic and attitudinal characteristics influence the type of JV structure preferred. A latent class analysis revealed significant unobserved preference heterogeneity amongst the population. We identify four latent classes that differ in their preferences regarding the number of JV partners, access to new machinery, and/or the opportunity for additional annual leave. All classes of farmers displayed positive preferences for operational decision‐making with other JV partners, although they varied in their preferences towards final operational responsibility. The diversity in preferences shows that there is no ‘one size fits all’ JV design, leaving opportunities for a range of JV decision models. Such flexibility in JV design is likely to have advantages when seeking JV partners, with a significant proportion of the sampled population open to collaborative decision‐making models.     

Profitability of incremental generic promotion of Australian dairy products

The motivation for this study rests on two factors. First, Australian dairy farmers spend around $20 million annually on generic promotion and estimates of the returns from this expenditure are required to facilitate efficient investment decisions. Second, while the Australian dairy industry has been highly regulated, there has been a substantial reduction in assistance over the past decade and farm‐gate milk prices were deregulated on 1 July 2000. The profit potential of promotion may vary with the degree of regulation, so past estimates of the returns from promotion may not hold in the competitive environment of the future. Hence, the aim of this study is to examine the effects of government intervention on the profitability for dairy farmers of incremental changes in generic dairy promotion expenditure using a perfectly competitive market as a reference point. Competitive market price and quantity outcomes for the Australian dairy industry are estimated. The impacts of increments in dairy product and competing product generic promotion expenditures on dairy farmers’ profits are assessed using equilibrium displacement modelling. Finally, graphical procedures are used to examine the effects of dairy industry regulation on the profitability of dairy promotion.     

Does Intensive Tillage Enhance Productivity and Reduce Risk Exposure? Panel Data Evidence from Smallholders’ Agriculture in Ethiopia

We analyse the impact of intensity of tillage on wheat productivity and risk exposure using panel household‐plot level data from Ethiopia. In order to control for selection bias, we estimate a flexible moment‐based production function using an endogenous switching regression treatment effects model. We find that tillage has a complementary impact on productivity and risk exposure. As the intensity of tillage increases, productivity increases and farmers’ exposure to risk declines. Our results suggest that smallholder farmers use tillage as an ex‐ante risk management strategy. The main policy implication of this study is that the opportunity cost of switching to reduced tillage in wheat production seem rather high unless farmers are supported by appropriate incentive schemes.     

Quantifying the Economic Return to Participatory Extension Programmes in Ireland: an Endogenous Switching Regression Analysis

This article examines the effectiveness of a government funded extension programme. Farm‐level data are used to assess the economic impact of dairy discussion groups, a common participatory extension method. The evaluation focuses on whether discussion group participants have improved farm profits, which is estimated with an endogenous switching regression model. This method controls for self‐selection bias due to unobserved characteristics, such as the farmer’s ability, that may affect both participation and farm profitability. After controlling for this potential bias, we find that the economic returns to discussion group membership are positive, thus supporting government targets to enrol more farmers in discussion groups.     

Farmers’ Income and Production Responses to Rural Taxation Reform in Three Regions in China

The relationship between agricultural taxation and production efficiency has been thoroughly explored for many countries. Recently, China has taken various measures including the rural taxation reform (RTR) to promote grain production and to increase farmer incomes. In this study, we investigate whether the Chinese policy of abolishing rural taxation has improved farm households’ incomes and affected their production decisions. Using household survey data obtained from three regions in China, we estimate the effect of the RTR on farmers’ income. Results show that the RTR has significantly improved farmers’ post‐tax net income by 9.2% in Shandong, 16.9% in Shanxi and 16.8% in Zhejiang. These increments, mostly from farm income rather than from off‐farm income, are much higher than the direct income increase from the tax savings. In addition, we examine the dynamic impact of farmers’ net income, and find that the RTR has a sustained positive income effect in Shandong and Shanxi, whereas its positive effect in Zhejiang appears temporary. We also examine farmers’ production responses to the RTR. Results show that farmers in the three regions respond in different ways: farmers in Shandong significantly increase their labour input, farmers in Zhejiang increase intermediate inputs, whereas Shanxi farmers augment their intermediate inputs and enlarge their crop acreage. It appears that the farmers’ responses to the taxation reform vary due to the agronomic and economic factors in these three regions, suggesting that diverse post‐RTR supplemental policies should be implemented in different regions.     

Worth the Risk? The Behavioural Path to Well‐Being

There is increasing interest in the ‘economics of happiness’, reflected in the volume of articles appearing in mainstream economics journals exploring the major determinants of self‐reported well‐being. We contribute by exploring the factors influencing how satisfied farmers are with their quality of life. We find that farm income, subjective perceptions relating to the adequacy of household income, debt, health and personal characteristics such as age and relationship status are significantly associated with farmers’ self‐reported life satisfaction. While significantly associated with farm income, farm structural variables such as farm size, farm type and the presence of a farm successor were not found to be significantly related with life satisfaction. Our results also suggest that farmers who are more risk averse enjoy significantly lower levels of both life satisfaction and farm income than their more risk seeking or risk neutral counterparts. We suggest that, in the same way that risk aversion inhibits farmers from making choices that could lead to an increase in their income, it may also constrain farmers (and the wider public at large) from engaging in certain types of behaviours that could lead to an increase in their self‐reported quality of life. Finally, we find that while farm income is significantly related to self‐reported life satisfaction, the direct correlation between these variables is weak, suggesting that farmer life satisfaction can be distinct from business success.     

The impacts of information on returns from farming: evidence from a nationally representative farm survey in India

Using a nationally representative sample of farm households from India, this paper examines the impact of use of information on net farm incomes. Employing methodologies that mitigate potential biases in the estimation of the impact, the empirical results show that farmers who use information realize over 12% higher net returns per hectare. The paper also establishes a pecking order in access to information. Small farmers and those at the bottom of social hierarchy (based on caste) have access to fewer information sources, and they depend more on informal social networks and input dealers for their information needs. The larger farmers and those from upper caste rely relatively more on sources such as radio, television and newspaper.     

Adoption of climate‐smart practices and its impact on farm performance and risk exposure among smallholder farmers in Ghana

Increased climate variability during the last four decades has made the agricultural environment in many developing countries more uncertain, resulting in increasing exposure to risk when producing crops. In this study, we use recent farm‐level data from Ghana to examine the drivers of individual and joint adoption of crop choice and soil and water conservation practices, and how adoption of these practices impacts on farm performance (crop revenue) and exposure to risks (skewness of crop yield). We employ a multinomial endogenous switching regression model to account for selectivity bias due to both observable and unobservable factors. The empirical results reveal that farmers’ adoption of crop choice and soil and water conservation leads to higher crop revenues and reduced riskiness in crop production, with the largest impact on crop revenues coming from joint adoption. The findings also show that education of the household head, access to extension and weather information influence the likelihood of adopting these practices. Thus, enhancing extension services and access to climate information and irrigation can reduce gaps in adoption of soil and water conservation and crop choice, considered as climate‐smart practices that will eventually improve crop revenues and reduce farmers’ exposure to climate‐related production risks.     

Farm households’ risk perception,attitude and adaptation strategies in dealing with climate change: Promise and perils from rural Pakistan

Pakistan is highly vulnerable to extreme climatic events, such as floods and droughts. This study determines the farmers’ risk perception, risk attitude, adaptation measures and various aspects of vulnerability to climate change (e.g. floods, droughts, heavy rainfalls, pests and disease) at farm level in rural Pakistan. The risk perception and attitude of farm households are crucial factors that influence farm productivity, investment and management decisions at this level. A well-designed questionnaire was used to interview 720 farm households from six districts of the Khyber Pakhtunkhwa province. A binary logit model was used to determine the main factors that affect the choice of adaptation strategies of the farm household. The findings revealed that crop diversification, changing crop varieties, altering the crop calendar, varying the fertilizer used, mulching and farm insurance were the main adaptation strategies followed by farm households. The results of the binary logit model revealed that age, education, farm size, household size, credit accessibility, annual income and the perception on the increase in temperature and decrease in rainfall had significant influence on the selection of the adaption strategies. The findings of this study can provide guidance, policy recommendations and reference for future researchers.