The Economics of Agriculture

Margaret Capstick

• Publisher: Taylor & Francis
• Year: 2019
• eBook ISBN: 9781000682250
• Edition: 1
• Topic: Biological Sciences
• Subtopic: Ecology
• Index: Biological Sciences

First published in 1970. The aim of this book is to provide an introduction to the special problems of agriculture in modern economies. The author writes for students of economics who have already acquired the elements of economic theory; no attempt is made, therefore, to explain simple theoretical concepts, but instead these are used in the analysis of some of the main problems of agricultural adjustment.

Emphasis is placed on the position of agriculture in the economies of western Europe and of the United States. Sufficient historical background is given to explain the present use of the factors of production in agriculture and the way in which this use and policies of agricultural support vary from one country to another. Agricultural support policies are discussed with reference to their effect on consumers, producers and on rural society.

CHAPTER I

Some Types of Agricultural
Organization

Agriculture is the occupation of a majority of the human race. The Food and Agricultural Organization of the United Nations estimates that, in the world as a whole, over 50 per cent of the population is engaged in agriculture, or dependent on agriculture for a living.¹ Among the countries of Africa and Asia only Libya, Japan, Cyprus, Taiwan and Israel have less than 50 per cent of their population engaged in agriculture, as farmers or farm workers, and in a few of the tropical African countries the proportion of the population so employed is over 90 per cent. Even in the world’s industrially developed countries only Belgium, the Netherlands, the United States and the United Kingdom have less than 10 per cent of their economically active population engaged in agriculture.

It is very broadly true to say that the ratio between the agricultural and other sectors of the population of a country is proportionate to that country’s stage of economic development. The African countries with over 90 per cent of their population dependent on agriculture— Mali, Niger, Ruanda, Burundi, Chad, the Central African Republic and Tanzania—are countries of very low income per head (less than one-twentieth of that in the United Kingdom).

Large areas of these countries have as yet no significant division of labour, and consequently no market economy; each family, extended family or tribe produces for itself the basic necessities of life—food, tree fuel and fibre or hides. Such countries have, in the strict sense of the word, subsistence agricultures. Small pockets of genuine subsistence agriculture remain in other parts of the world in remote and isolated communities; one notable example in the British Isles was, until the twentieth-century advent of the tourist ships, that of the Aran Islands off the west coast of Ireland, whose inhabitants provided all their own consumption goods from their fields, their livestock, and from the sea.

The advent of the trader, native or foreign, turns the subsistence agriculturist into a commercial farmer. He may still be a very small producer, marketing no more in any one year than will enable him to pay interest on the loan that will tide him over from sowing time till harvest, or to pay his taxes. In bad years he will have no marketable crop, and will live as best he may on the produce of his holding. But once the habit of producing and selling agricultural commodities surplus to his own family’s needs has been acquired, the farmer has ceased to be a subsistence farmer. He is more correctly described as a ‘peasant’ farmer, though the term ‘subsistence’ agriculture is sometimes loosely used to denote an agriculture where the marketable surplus is small and chancy.

¹ FAO Production Yearbooks, Annual Series.

Most of the world’s millions of farmers are peasants. Taking the countries of Africa, Asia, Latin America and south-east Europe as a whole, the vast majority of holdings are small farms yielding a very low income to their owners or tenants; few, or no, mechanical aids to cultivation are used, and the total input into a holding may be seed, animal fertilizer (if it can be spared from other uses) and the labour of the occupier. The term ‘peasant’ has consequently acquired a pejorative meaning; urban dwellers use it as a generic term for ignorant and illiterate country dwellers. But peasant farming, in the sense of very small-scale farming, need be neither inefficient in its use of physical resources nor commercially negligible. The Japanese, whose typical farm is a family holding of one hectare, are technically advanced in the sense of using much fertilizer, improved strains of seeds, in making the maximum use of such machinery as is appropriate to their holdings (on its 6 million cultivated hectares Japan has 2½ million small horticultural tractors) and in having developed a comprehensive system of agricultural co-operation and marketing and of agricultural education. Nor is peasant farming necessarily geared only to the production and marketing of a small, locally consumed surplus; Burma and Thailand for example are the world’s major exporters of rice from their largely peasant holdings. About 55 per cent of the exports of Malaya are of natural rubber, two-fifths of which is grown on peasant holdings. None the less, one of the major problems of the developing countries is that of transforming inefficient peasant agriculture, with its uncertain contribution to food supplies and to economic growth, into an efficient agriculture capable of sustaining an increasing industrial population; agricultural advance may have to be preceded, as it was in Europe, by a revolution in both land holding and farm structure, though the experience of Japan again shows that this is not an absolute necessity.

In the developed countries of the West, and in New Zealand and Australia, farming is largely organized in family units; the farmer makes all the decisions, provides much or all of the capital, and does all, or a substantial part, of the manual work. The United States Department of Agriculture defines the family farm as a risk-taking business in which the operating family takes most of the risks and does most of the work’²—a definition which might equally apply to small shopkeepers or hoteliers, among others, and which emphasizes the fact that in much of the world the organizational problems of agriculture are more akin to those of the service trades than to those of industry. The United States family farm is one which provides full-time work for no more than three people, and so defined family farms account for nearly 75 per cent of all farm marketings in the United States, and over 50 per cent of those in the United Kingdom. A typical British family dairy farm of 60 hectares, worked by the farmer and one son, may represent a total landlord’s and tenant’s investment of £45,000 (about 108,000 United States dollars); in terms of investment per worker the British and United States figures of 45,000 dollars are roughly comparable.

Such a family farm is a sizeable business; much smaller farms predominate in some parts of Britain and the United States, in the Scandinavian countries and in the countries of the EEC. In Denmark, for instance, where small family holdings were created as a deliberate act of policy by the land reforms of the late eighteenth and early nineteenth centuries, as late as 1960 almost half the farms were of less than 10 hectares, and in the EEC 75 per cent of all holdings are still of less than 10 hectares. Family holdings are still being created as large estates are broken up by governments in such countries as the United Arab Republic, Italy and parts of Latin America. This is not being done purely for economic reasons; a class of independent small farmers is held to be a stabilizing element in a country’s social edifice. Such nebulous concepts apart, it may be noted that in terms of technical and economic efficiency the family farm has been outstanding in many countries, from the minute holdings of Japan, which before the First World War fed a rapidly growing population and provided the major part of fiscal revenue as land tax, through the small farms of Denmark and the Netherlands, weathering years of agricultural depression in the late nineteenth century and again in the 1920s and 1930s by means of efficient stock management and marketing, to the substantial stock and dairy farms of New Zealand which are probably the best managed grassland farms in the world.

There are, however, drawbacks to family farming as a type of agricultural organization, the chief of which, as agriculture becomes more capital intensive, is that of financing land purchases and farm operations; there is also some difficulty in achieving economies of scale which, though by no means so marked as in industry, are possible in some sectors of farming, notably in mechanical cultivations and harvesting and in some forms of intensive livestock enterprises. There have therefore grown up, especially in the United States, very large enterprises financed by joint-stock investment; California and Texas have cotton-growing enterprises of this kind, and in the United Kingdom there is at least one poultry business with several million hens which may be classified with these ‘agrobusinesses’. The declining importance of manual labour as an input in all, and especially in arable and intensive livestock farming, will almost certainly lead to an increase in farming by private and public companies, but in this, as in other aspects of agriculture, prophecy is unwise.

² Miscellaneous publication No. 1023, USDA Office of Information.

Apart from the main stream of development of agricultural organization, which we may regard as a progression from subsistence to peasant farming to family farming to (possibly) agrobusiness, there are two other main types of farm organization. One is that of plantation agriculture. This developed from the seventeenth century onwards with the process of colonization, mainly in tropical and sub-tropical countries; it was characterized by large-scale production of a single export crop—tea, coffee, cotton, rubber, sugar cane—the capital being provided by, and the profits returned to, the colonizing country. Plantation agriculture is still of considerable importance; for instance, in Malaya two-fifths of the total cultivated area is in plantations, including over half the area of rubber trees. Plantation agriculture does not, however, accord with the political aspirations of many of the developing countries where it is found, and its importance is likely to decline.

The future of another form of large-scale farming, that of state farming, or collective farming under the aegis of the state, has also been doubted. It was established in the USSR in the 1930s, by force and terror, with unwilling participants who have had to be humoured into productive effort by the continuance of private peasant farming concomitantly with the growth of collective farms. Collectives were established in other Eastern European states after the Second World War. Their success has been variable, though some of their critics seem at times to hold collectivization responsible even for the vagaries of the weather. In some countries, such as Poland and Yugoslavia, collective farming has been modified. The increasing output of Russian agriculture in the second half of the 1960s and the undoubted efficiency of some East German collectives would suggest that the system is not inherently unworkable, and as the conditions for paid farm labour even on the medium-sized farms of the West approach more closely those of industrial workers it may be expected that some of the mystery which has surrounded the bond between the farmer and his own land and stock will disappear. Certainly the experience of the voluntary collectives, kibbutzim and moshiavim, of Israel, does not suggest that the rugged individualist is the only good farmer.

In an industry of such diverse organization, many features of which derive from accidents of history, and which is carried out in conditions of climate and vegetation which vary from tundra to tropical rain forests, any generalization is hazardous; whatever may be deduced from conditions in one place at any one time may be negatived by instances half a world away in space and in technology. Because of this great diversity, this book must deal primarily with the problems of agriculture in industrially advanced countries, though reference will be made to particular problems of types of farming elsewhere. As for projections in time, it is necessary only to recall that in the earlier half of the 1960s it was frequently assumed that Russia and China were now permanent customers for the grain surpluses of the West, and in 1966–7 it was assumed that India would be in permanent grain deficit. Stocks of grain in the United States, in effect world stocks, were drawn down to the lowest level which the United States Government considered compatible with safety of supply. Yet by 1968 stocks had mounted again to problem levels: Russia and China were no longer significant importers, and the Indian situation had rapidly improved. Two years of good harvests with improved varieties of plants have swung some of the prophets of famine into an equally exaggerated optimism about the food prospects of Asia, as if the monsoon were now guaranteed to be adequate and on time for ever more. Like the farmer, the agricultural economist operates under conditions of uncertainty, and should equally be wary of tempting providence.

With spatial and temporal qualifications very much in mind we may proceed to discuss factors of production in agriculture, the main determinants of agricultural demand and supply, the marketing of, and trade in, agricultural products, and the increasingly important role which Governments play in creating the conditions for agricultural production and decision making. It is also necessary briefly to consider some of the social problems which arise at a time of rapid change in agriculture.

CHAPTER II

The Factors of Production
in Agriculture

The classical economists differentiated three factors of production: land, labour and capital. These are still convenient headings under which to discuss the inputs in agricultural production; their relative proportions change spatially and temporally, and the use made of any one of them is dependent on the available quantities of the others, as well as on the general conditions of demand for agricultural products.

Problems of Factor Allocation

Suppose that a farm or a parcel of land is offered for sale. The neighbouring farmers, as well as possible buyers from a distance, will cast their eyes on it, and assess its possible value to them in the light of their command of the other two factors of production, labour and capital. Will they be able to work it with their existing machinery? If it was added to their present holding, would the existing farm buildings suffice to house the increased head of stock that the joint holding would carry? Or would a new set of buildings be needed, and how much would these cost? Would their financial assets extend to buying enough livestock to make full use of the extra land; or would it be better to put some of the newly acquired acres into arable, which needs less immediate capital outlay? Would the present labour force be able to cope with the extra work with existing plant; for example, would the present milking parlour be adequate for the milking of a bigger dairy herd with the present labour, or should there be two men to milk, or a parlour of a different design in which the present one cowman could milk the extra cows (in other words, could the productivity of present labour be increased)? Such questions show that one factor of production can rarely be considered in isolation; changes in one factor must be considered in the light of the availability of one or both of the other factors.

This first set of questions concerns the balance of factors. At any one time, with given technology and given prices of inputs and of output, there will be one possible combination of factor inputs, either into an existing farm business or into a potentially expanded business which will be, for that business, the optimum combination or ‘bundle’; this combination will produce the greatest possible margin of revenue over costs. With optimal factor allocation, the marginal product of each factor will be equal.

This concept has limited practical application; any change in the price of inputs or of output, or a change in the physical output of the farm such as might follow the adoption of a new strain of livestock or of seeds may render the present optimum combination sub-optimal. A grain silo of optimum size at time t may be too small in year t+2. So an apparently sub-optimal choice of factor combination in year t may be the correct choice for the future development of the farm. Nor is it permissible to conclude that the combination of factors which suits one farm is necessarily the best for all, or even for any one other. Giles, with two stalwart sons whose aim is maximum physical efficiency in husbandry may well find that his optimum factor combination is one much more labour intensive than that of Hodge, who runs his holding extensively with no other l...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Editor’s Note
• Contents
• Introduction
• Chapter I Some Types of Agricultural Organization
• Chapter II The Factors of Production in Agriculture
• Chapter III The Demand for Agricultural Products
• Chapter IV The Supply of Agricultural Products
• Chapter V Agricultural Marketing
• Chapter VI International Trade in Agricultural Products
• Chapter VII States and Farmers
• Suggestions for further reading
• Index