Is productivity good for you? Inverse relationships and smallholder agriculture in rural Mexico

• Agricultural Economics - Industrial Organization Forum
• Development Workshop

Date and Location

Friday, May 27, 2011, 4:10 PM - 5:30 PM

Abstract

Since Chayanov (1926), the received wisdom in development economics has been that there is an inverse relationship between farm size and land productivity, implying that small and medium-size farms produce crops with higher yields than large holders. Researchers have advanced a number of different explanations for this inverse relationship, but its implications for efficiency are less researched. This paper uses a unique panel data set from rural Mexico to test the inverse relationship and its implications regarding the efficiency of the small farm sector. We find strong evidence of a negative relationship between farm size and land productivity that appears to be constant over time, even while controlling for farm fixed effects. Using stochastic frontier analysis, we then find that there is an inverse relationship in technical efficiency as well: Larger farms not only have a lower value of output per hectare; they produce farther away from the efficiency frontier on average than do small farms. The paper explores why this might be the case. Findings suggest that, in spite of the on-going transformation of agricultural markets and supply chains and economists’ recommendations for peasants to exit crop production, there may be sustained advantages for smallholder farms.