1. Today: More Structural transformation
AGEC 640 Agricultural Development and Policy The “industrialization” of agriculture
September 4, 2018
Today: More Structural transformation
In what ways does agriculture industrialize?
Thursday: Inputs, R&D and Technology
Reading: Allen and Lueck, The Nature of the Farm (excerpts)

2. Conclusions on economic growth and structural transformation
As incomes grow…
Farming declines as a fraction of the economy
in favor of industry and services
even within agriculture
Farmers’ incomes at first decline relative to others
but then farm incomes catch up
eventually farmer incomes pass nonfarmers’ incomes
The number of farmers first rises and then falls
speed depends on both population and income growth
the number of farmers stabilizes and farm/non-farm incomes converge
But…beware the “middle income trap”
old before prosperous
squeezed by countries from above (capital rich) and below (low wage)

3. The “middle income trap”
Source: Figure 3, panel B in Glawe & Wagner (2016) “The Middle-Income Trap: Definitions, Theories and Coutnries Concerned—A Literature Survey” Comparative Economic Studies 58:

4. The “middle income trap”
Source: Figure 4 in Glawe & Wagner (2016) “The Middle-Income Trap: Definitions, Theories and Coutnries Concerned—A Literature Survey” Comparative Economic Studies 58:

5. More conclusions from last week:
Demographic transition and structural transformation interact, causing a rise & then fall in the number of farmers;
Today’s developing countries have had very fast decline in death rates, leading to unprecedented speed of change;
With small shares of the population in nonfarm employment, this leads to high rural population growth and falling land/farmer.
The rural effect is compounded by shift in age structure:
first, more children/adult (the “demographic burden”),
then, more child-bearing women (“population momentum”),
then more working-age adults (the “demographic gift”)
a race

6. From last week’s slides… Interaction of demographic and structural change makes the number of farmers rise and then fall…
…and eventually stabilize
Today: within the farm sector, (how) does it “industrialize” ?

7. Does agriculture industrialize? If so, how?
First, speculation…
In what ways might farms become “factory farms”?
In what ways might agriculture become “industrial”?
Then, data from the U.S.
and explanations from Allen and Lueck (2002) …with some cross-country evidence

8. Does agriculture industrialize?
 4/farm
 2/farm
 2/farm
 .02/farm
Source: Reprinted from Allen and Lueck (2002), p. 19.
Note: Recall that 1920 was near the peak of number of farmers in the US.

9. How big are modern farms?
Source: Reprinted from Allen and Lueck (2002), p. 18.

10. Are these “family farms”
Are these “family farms”? How does farm ownership differ from ownership of nonfarm enterprises?
Organization of farm and nonfarm enterprises in the U.S. (1990s)
Enterprises
Receipts
Farms
Family
86.0%
52.2%
Partnership
8.9%
18.1%
Family Corp.
4.0%
23.3%
Nonfamily Corp.
0.4%
5.6%
Other
0.8%
0.9%
Nonfarm Businesses
Proprietorships
73.0%
5.9%
Partnerships
8.3%
Corporations
18.0%
90.0%
Source: Calculated from United States 1997 Census of Agriculture, Table 47 and Statistical Abstract of the United States 1993, Table 848, as reported in Allen and Leuck 2002, page 24.

11. What are “family farms”?
From Banker and MacDonald (eds.) Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report. USDA Agricultural Information Bulletin No. 787, March 2005.

12. More and more farms are for residences/lifestyle, but more and more output comes from the largest farms
From Banker and MacDonald (eds.) Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report. USDA Agricultural Information Bulletin No. 787, March 2005.

13. Small operators are spending money earned elsewhere to maintain their farms, but even large operators work off-farm; All but the poorest have above-average incomes.
Farm household income by type of farm, 2001
Total Farm Sales Category
Farm Earnings
Off-Farm Earnings
Unearned Income
Total Household Income
under $10,000
-5,755
52,034
15,948
62,227
$10, $99,999
-1,365
38,041
17,597
54,273
$100,000 - $249,999
25,321
24,433
9,516
59,270
$250,000 - $499,999
37,182
18,915
14,096
70,193
$500,000 - $999,999
87,994
19,841
10,984
118,819
over $1,000,000
332,494
21,318
13,413
367,225
Farm Typology Group
Limited-Resource
-3,165
6,272
4,841
7,948
Retirement
-1,070
10,341
38,331
47,602
Residential
-5,694
77,333
9,614
81,253
Farming Occupation-low sales
-2,552
17,493
20,924
35,865
Farming Occupation-high sales
26,497
18,788
8,332
53,617
Large
Very Large
181,660
20,407
11,914
213,981
Adapted from D.E. Banker and J.M. MacDonald, ed., Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report. USDA Agricultural Information Bulletin No. 787, March <
Data drawn from USDA ERS Agricultural Resource Management Survey (ARMS), Phase III.

14. Net worth of farm operator households by type, 1998
Even the largest farms have a significant fraction of their wealth in non-farm assets
Net worth of farm operator households by type, 1998
Source: USDA ERS, 1998 ARMS farm data; US average from Current Population Survey, US average net worth from Survey of Consumer Finances.

15. How do farms acquire land
How do farms acquire land? Most full-time operators own some and rent in more
Reprinted from D.E. Banker and J.M. MacDonald, ed., Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report. USDA Agricultural Information Bulletin No. 787, March <
Note: The additional land rented by farm operators comes from about 1.25 million non-operator farmland owners, 95% of whom are individuals or partnerships (with 66% of the individuals over age 60), who rented a total of 125 million acres to farm operators.

16. Reprinted from Allen and Lueck (2002), p. 25.
How do farms sell their output? A few crops have used contract sales for decades
Reprinted from Allen and Lueck (2002), p. 25.

17. How do farms sell their output
How do farms sell their output? Contracting for livestock production grew in the 1990s
From Banker and MacDonald (eds.) Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report. USDA Agricultural Information Bulletin No. 787, March 2005.

18. Contracting is growing fastest for swine and also for cotton
From Banker and MacDonald (eds.) Structural and Financial Characteristics of U.S. Farms: 2004 Family Farm Report. USDA Agricultural Information Bulletin No. 787, March 2005.

19. How do farms acquire non-land assets?
Source: Reprinted from Allen and Lueck (2002), p. 25.

20. Allen and Lueck’s “Nature of the Farm”
Why do family farms predominate?
Why do other forms persist in some cases?
Settler farms and “latifundia” (spacious-farms) or haciendas in S. America and Southern Africa
Plantations with slavery or other labor restrictions in tropics
Absentee owners and wage workers in some crops and livestock
Why do family farms use certain types of contracts?
Why is sharecropping so widespread and persistent?
Sharecropping and “landless” farmers in South Asia
Piece-rate contracts and migrant workers everywhere
Land markets and land use in industrialized countries
How we answer these questions is important for policy, and of great interest for economics as well.

21. Allen and Lueck - Context
Previous research and policy focuses on risk, leading to a big role for wealth and risk aversion:
• early view: farm workers progress up a “tenancy ladder” from wage work to sharecropper to owner-operator as wealth increases and they can absorb more risk
• credit and insurance needed to absorb risk: key to greater efficiency
Allen and Lueck focus on transaction costs and information, leading to very different policy implications! • sharecropping more efficient than previously thought
• information & communication technology is key to efficiency

22. Allen and Lueck - Objectives
Allen and Lueck argue that self-motivated effort (i.e. family farming) is more likely to persist if:
Activity is seasonal in nature,
that is, is sequenced in between random events
…which limits the scope for specialization, and
Activity is difficult to observe
…which limits owners’ ability to specify contracts
They argue that
the type of contract used maximizes joint wealth
given the information constraint on contract choice

23. Historical examples of nonfamily operations
Allen and Lueck’s cautionary tale:
“Bonanza” wheat farms in the U.S. ( )
up to 1000 workers/farm, organized like factories
facilitated by abundant land, eastern markets, and railroads
after boom & bust cycles, land soon subdivided and leased/sold to workers
Other famous failures:
Plantations
characteristic of tropical environments
used restrictions on labor mobility to keep serfs, slaves, etc. on the job
some persist after labor is free to move
Collective farms
characteristic of socialist systems
use restrictions on private ownership to keep farms under political control
some persist after individuals are free to work independently

24. Historical examples of nonfamily operations
Where do nonfamily operations succeed?
Some plantations, where:
Activity is year-round, so workers can specialize more; but note that family operations still better unless…
Activity is spatially concentrated, so supervision is easier; often this occurs due to on-site processing (e.g. fruit)
Some livestock, where:
Activity is “industrialized” due to “control of nature”
Many specific operations, especially:
Harvesting, where specialized workers migrate north-south