MANAGEMENT AND SIZE ECONOMIES IN THE ENGLAND AND WALES DAIRY SECTOR

Analyses of size economies in the England and Wales dairy sector have generally been made on the basis of comparisons of input-output measures. These measures have been classified according to input use and farm size and have led to conclusions about efficiency and structural change. This paper examines the influence of managerial ability on economies of size using econometrically estimated long-run average cost (LAC) functions from Milk Marketing Board data for 1980/1. The results show that the LAC curve is U-shaped though skewed to exhibit greater economies than diseconomies of size. Better managed farms are shown to produce any given level of output at lower average cost. Moreover, they have larger optimal levels of output.     

Plot size and maize productivity in Zambia: is there an inverse relationship?

This article examines the relationship between maize productivity and plot size in Zambia. It offers a unique empirical approach. First, it focuses on maize, which is the major crop on small and medium size farms in Zambia, but also accounts for the endogenous determination of the size of the plot devoted to maize. Previous studies have used total farm size or harvested area. Second, it corrects for selectivity in maize cultivation. Third, it controls for differences in land quality and weather conditions across districts. Finally, it offers a structural interpretation of the above framework by modeling farm decisions as a sequential, two‐stage process, in which land is first allocated to the different crops based on the information set of the farmers at the time of planting, and the yield is affected by subsequent application of inputs, the quantities of which may depend on additional information that is revealed after planting. We use this recursive structure and the differences in the information sets over time to identify the model. The results show that the endogeneity of plot size is very important in this analysis. When considering plot size as an exogenous explanatory variable, we find a monotonic positive relationship between the yield of maize and plot size, indicating that economies of scale are dominant throughout the plot size distribution. However, when we correct for the endogeneity of plot size, we find that the inverse relationship dominates the economies of scale in all plots up to 3 ha, which constitute 86% of our sample. These results suggest that market imperfections should be targeted by any policy aimed at increasing maize productivity in Zambia.     

Estimating Farm Productivity Differentials using Panel Data: The Hausman‐Taylor Approach

This paper investigates the relation between unobserved farm productivity and other production factors in a system of netput equations for specialised pig breeding farms in the Netherlands. In order to estimate the system, a Hausman‐Taylor panel data estimator is developed for a system of equations with unbalanced panel data. Tests on the correlation between model variables and farm‐effects are performed, yielding an insight into the sources of differences in total factor productivity and its components (e.g. managerial ability and scale economies). Results indicate that specialised pig breeding farms that are characterised by high total factor productivity have more buildings and machinery than farms with low total factor productivity.     

On the nature and magnitude of cost economies in hog production

In this article, we assess the impact of farm size on production cost and evaluate the marginal costs and margins by considering that input prices may change with the scale of production. By using French hog farm data, we estimate a system of equations including a feed price function, input demand functions, and an output supply function based on a technology approximated by a combined generalized Leontief‐Quadratic form. Our results suggest that the marginal costs are over‐estimated when the adjustment of the feed unit prices to a change in farm size is not controlled for. More specifically, the cost economies for large farms (enjoying the highest profits) arise primarily from lower feed prices, with technological scale economies having little impact. In contrast, farms with no hired labor exhibit technological scale economies and reach higher price‐cost margins compared to larger farms.     

Productivity and farm size in Australian agriculture: reinvestigating the returns to scale

A positive relationship between farm size and farm productivity is often considered to be largely due to increasing returns to scale in farm production. However, using farm‐level data for the Australian broadacre industry, we found that constant or mildly decreasing returns to scale is the more typical scenario. In this study, the marginal returns to various farm inputs are compared across farms with different sizes. We found that large farms achieved higher productivity by changing production technology rather than increasing scale alone. The results highlight the disparity between ‘returns to scale’ and ‘returns to size’ in the industry, suggesting that productivity improvement among smaller farms can be made through increasing their ability to access advanced technologies, rather than simply expanding their scale.     

Scale Economies and Inefficiency of U.S. Dairy Farms

This study employs data drawn from the 2000 Agricultural Resource Management Survey, a U.S. Department of Agriculture-sponsored farmers' survey. The article estimates returns to scale relationships across dairy farms of different sizes and across different regions, incorporating variables hypothesized to influence farm performance. Results point to significant scale economies in U.S. dairy farms and underscore the importance of taking account of inefficiency when estimating scale economies. Contrary to previous research, the preferred cost function specification does not show a region of decreasing returns to scale. This finding helps explain why the average size of dairy farms has been increasing.     

Outsourcing and efficiency: the case of Spanish citrus farming

Outsourcing in agriculture has traditionally been seen as a managerial strategy of smaller farms to achieve higher levels of efficiency. In this article, we provide empirical evidence supporting the existence of a positive relationship between outsourcing and efficiency in Spanish citrus farming. Outsourcing is measured by the proportion of outsourced labor and capital in farms' total use of these production factors, i.e., the higher the proportion of outsourced inputs, the higher the degree of outsourcing. Making use of data envelopment analysis techniques, we compute input‐specific reductions required to achieve technical efficiency at the farm level. Our results show that attainment of technical efficiency leads to a reduction in the use of both farms' own and outsourced production factors. Furthermore, the degree of outsourcing increases as farms move to their technically efficient productive plans. In addition, outsourcing labor and capital allows farms to achieve efficiency regardless of their size. In our view, this result has a clear implication for policy makers. Instead of trying to improve Spanish citrus farms' competitiveness by pursuing an increase of their average size, policy measures should be adopted to enhance farmers' managerial skills and the efficiency of those external service firms and co‐operatives that are effectively performing basic cultivation tasks.     

Economies of Size in Grain Farming in Saskatchewan and the Potential Impact of Rail Rationalization Proposals

This paper empirically examines the economies of size in both grain production and distribution by farm truck in Saskatchewan by using farm level data, and confirms that economies of size prevail. The examination also shows that economies of size in farm trucking reinforce the economies in production. The policy implication is such that the potential impact of an increase in rail freight rates and branch line abandonment would have a differential impact on individual producer's net income by farm size.
En utilisant les données relev'ees au niveau des fermes, ce document examine d'une façon empirique les exploitations agricoles de la Saskatchewan importantes tant du point de vue de la production céréaliere que de la distribution par camionnage et confirme que ce genre d'exploitations prédomine. L'analyse montre aussi que le camionnage par gros tonnage renforce la production. L'impact potentiel d'une augmentation des tarifs ferroviaires et I'abandon des voies d'embranchement auraient un impact sur le revenu net de chaque producteur variant selon la grandeur de son exploitation.     

Changes in grain handling catchments in Australia: an historical perspective

This paper explores some of the important issues that influence the magnitude of receival site grain catchments in Australia. Changes in grain harvests, transport and grain handling technologies and costs; changes in farming systems, crop yields and harvesting capacity; investments in roads and on‐farm storage and economies of size in grain receival infrastructure are shown in combination to affect the size of grain catchments in major grain‐growing regions of Australia over the last 30 years. The size of grain catchments that minimise growers’ costs of road transport of their harvested grain and their receival point charges in various time periods are determined. Differently shaped grain catchments are considered. The main finding is that the size of grain catchments that minimise farmers’ grain transport, off‐farm storage and handling costs since the mid‐1980s has consistently increased, principally due to lessening real costs of road transport, more on‐farm storage and economies of size in grain receival, despite higher grain yields and a greater intensity of cropping. These findings are consistent with the observed reduction in the number of receival sites in many grain‐growing regions of Australia. Site rationalisation is less evident in states where the receival network is owned and operated by a grower cooperative.     

Measuring managerial efficiency: the case of commercial greenhouse growers

Recently the managerial decision making process has been given new attention, both in theoretical studies as well as in empirical research explaining differences in farm results. However, while critical to explaining efficiency, managerial ability has been difficult to measure and therefore often ignored. This study attempts to measure managerial ability. It divides the decision making process into four steps: goal formulation, planning, monitoring and evaluation. The quality of each step is measured in a panel of 26 specialised flower producers, The impact of decision making on the firms' efficiencies is measured by means of a stochastic frontier production function. A one‐step procedure is used in which technical and decision making parameters are jointly estimated. The results show positive associations between firm efficiency and the quality of decision making (especially monitoring and firm evaluation), indicating that this procedure has been potentially successful and is a move towards successfully measuring a critical input.     

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.     

The costs and benefits of land fragmentation of rice farms in Japan*

Land fragmentation, in which a farm operates multiple, separate plots of land, is a common phenomenon in Japan and many other countries. Usually, land fragmentation is regarded as a harmful phenomenon as it increases production costs and reduces the advantages of scale economies. However, it is also known that fragmentation may have beneficial effects in reducing risk through spatial dispersion of plots. Thus, land fragmentation has both costs and benefits, and whether it is beneficial or harmful is determined by the magnitude of these costs and benefits. This article investigates the costs and benefits of land fragmentation empirically using panel data from Japanese rice farms. The empirical results reveal that fragmentation increases production costs and offsets economies of size, and these impacts strengthen as farm size increases. Moreover, although fragmentation does reduce production risk, its monetary value is far below the cost of land fragmentation. From these findings, we conclude that land fragmentation is an impediment to efficient rice production in Japan.     

Off‐farm work and technical efficiency on U.S. dairies

In this study, we investigate the impact of an increase in farm households’ off‐farm work on technical efficiency (TE) of U.S. dairies. We present a theoretical framework that implies that an increase in farm household off‐farm work decreases TE. We use two nationally‐representative samples of U.S. dairies (2010 and 2005 Agricultural Resource Management Surveys) and a parametric approach (stochastic frontier analysis) to empirically test the hypothesis. Results are generally consistent with the hypothesis and show that an increase in off‐farm work by the farm household is associated with a significant decrease in TE. In addition, results show that there is a statistically significant difference in TE between small, medium, and large farms. Small farms are associated with significantly higher off‐farm work and have lower TE than large farms, which implies that less off‐farm work by households with larger farms is at least partially responsible for the evidence of economies of scale in the U.S. dairy industry.     

Managerial ability — a review of its basis and potential improvement using psychological concepts

Achieving an appropriate resource allocation structure usually revolves around the farm manager. His or her ability is crucial to success. Yet, most farmers learn by experience and/or through various courses that concentrate on technical, production economic and related aspects. Putting more effort into understanding the components of managerial ability and how a managers’ ability to perform well in each component might be improved is well overdue. As psychology is the study of people and their actions it is the obvious discipline to turn to for assistance. This paper contains a review of the psychology of decision making from a farm management perspective, outlines what psychology offers for changing a person's attributes, and considers the structure of a research programme aimed at developing methods for improving individual's managerial ability.     

FARM SYNDICATION AND RISK SHARING: A CASE STUDY*

The effectiveness of fully integrated group farming as a means of permitting farmers to achieve economies by working together and to share risk is investigated using two case-study farms from the mid-north region of S.A. Linear programming is used to explore the scope for economies achievable through group farming. The results show that, by joint use of resources, total net farm income can be increased and average costs per unit value of output can be reduced. The risk-sharing advantages of group farming are examined using quadratic risk programming. A group farm plan is found that generates a risky income which, when shared between the two risk-averse farmers, allows both to increase their expected utilities. The group plan also generates a higher aggregate expected net farm income than with sole ownership.     

Do family farms really converge to a uniform size? The role of unobserved farm efficiency*

We analyse the growth of family farms in Israeli cooperative villages during a period of economic turmoil. We use instrumental variables to account for the endogeneity of initial farm size, and correct for selectivity as a result of farm survival. We also include a technical efficiency index, derived from the estimation of a stochastic frontier production model, as an explanatory variable. Our aim is to check whether ignoring efficiency could have been the reason for convergence results obtained elsewhere in the literature. We found that technical efficiency is an important determinant of farm growth, and that not controlling for technical efficiency could seriously bias the results. In particular, larger farms are found to grow faster over time, while without controlling for technical efficiency the farm growth process seemed to be independent of initial farm size. The increasing polarisation of farm sizes in Israel has ramifications for the inefficiencies induced by the historical quota system, for the political power of the farm sector and for the social stability of farm communities.     

The determinants of technology adoption by UK farmers using Bayesian model averaging: the cases of organic production and computer usage

We review and implement a reversible jump approach to Bayesian model averaging for the Probit model with uncertain regressors. Two applications are investigated. The first is the adoption of organic systems in UK farming, and the second is the influence of farm and farmer characteristics on the use of a computer on the farm. While there is a correspondence between the conclusions we would obtain with and without model averaging results, we find important differences, particularly in smaller samples. Concerning the adoption of an organic system, we find that attitudes to the sustainability of the current system along with the ability of organic farms alone to satisfy society’s needs for food are influential. Additionally, the source of management information used by the farmer has a significant impact. Regarding the adoption of computers, we confirm the findings of previous work that the level of education affects uptake and that age is a factor determining adoption. We also find that dairy and organic farms are more likely to use a computer. The physical size of the farm is positively associated with the probability of computer use while net farm income has a limited impact.     

Farm Size Growth and Participation in Agri‐environmental Schemes: A Configural Frequency Analysis of the Swiss Case

This paper examines the relationship between farm growth and participation in agri‐environmental schemes, using the example of meadow extensification schemes in Switzerland. As a result of small farm sizes in Swiss agriculture, theory would suggest that economies of scale are considerable for market production activities, so that for growing farms it would be rational to intensify. Configural frequency analysis is used to identify and describe combinations of farm size development and proportion of meadows placed under agri‐environmental schemes. In the Swiss case, growing farms are likely to reduce their participation, whereas shrinking farms have a growing share of their meadows under extensification schemes.     

The Growing Heterogeneity in the Farm Sector and Its Implications*

The farm sector has moved from one that was very homogeneous to one with significant differences in size and/or orientation. The decline in the number of “average‐sized” farm and the growth in the number of large farms are due primarily to technological innovations that push operations producing commodities to grow as a means of capturing economies of size. The increase in the relative number of small farms is also due partially to technical advances that allow for the production of food goods with the desired quality attributes to be delivered to the appropriate market. This market is continually being differentiated due to demographic and income shifts. The growing heterogeneity in farm structure complicates the assessment and design of farm policy. The social policy objective of improving the livelihood of farmers and their families could be achieved through farm support and extension programs when the sector was homogeneous. The policy objective has shifted toward improving the competitiveness of the sector, but for which of its components? The trend toward greater heterogeneity is likely to continue and thus so will the internal and external support for any policies targeted toward the farm sector.     

Income Mobility and Income Inequality in Scottish Agriculture

The paper explores the distributional consequences of farm income mobility in Scotland, focusing on the extent to which farm income inequality is a chronic as opposed to a temporary phenomenon and on the nature of the dynamic processes driving changes in farm income inequality over time. The empirical results reveal that the majority of farm income inequality was long‐run or structural in nature, reflecting differences in both farm business size and farm‐specific factors such as land quality, managerial ability and business structures. Evidence of absolute convergence in farm incomes is explained by short‐run adjustments towards equilibrium or target incomes conditional upon prices, technology and farm business size, with farm business growth conditional upon survival found to have had no significant redistributive effect.