Giovanni Federico Agriculture
Introduction: two centuries of successes
Nowadays, agriculture does not enjoy a great reputation. In the advanced countries, it is blamed for being inefficient and polluting. In less developed countries (LDCs), it is accused to fail to perform its main task – i.e. producing enough to feed the population at affordable prices. Yet the historical performance of the
agricultural sector does not warrant this pessimism. In the last two centuries, world agriculture succeeded in producing enough to provide more food per capita in spite of an almost seven-fold increase in population and to supply industries with raw materials, and in using less land, capital and labour per unit of output. It has been a really remarkable feat, and this chapter describes how it was achieved 1.
Mapping the growth of total production in the first seventy years of the nineteenth century is not easy. There are few, often tentative, series, which refer almost exclusively to countries in Europe and North America. In none of these countries, except Portugal, total output declined and in the majority of cases it increased faster than population. We cannot rule out that these gains were offset by a decline in output per capita elsewhere in the world, but this hypothesis is not terribly plausible. The growing population was mostly employed in agriculture and, as we will detail in the next Section, land was abundant. The quantitative evidence is more solid after 1870. It is possible to estimate an index of “world” output from national production series for 25 countries, accounting for about 50-55 per cent of world population (Federico 2004). The list includes all European countries (except the Balkans), the United States, Canada, the main Asian countries (India, China, Indonesia and Japan), and three countries in South America (Argentina, Chile and Uruguay). Production per capita in these 25 countries increased quite fast before World War One (at a yearly rate 0.55 per cent) and stagnated from 1913 to 1938 (Figure 1).
[Figure 1 about here]
If the output per capita of the missing countries had been growing as much as their population (a
reasonable hypothesis), total world production increased by 90 per cent and per capita output by about 10 per cent. Figure 1 then links the 25 country series to the series by the FAO (Food and Alimentation Organization of the United Nations) which covers all countries. From 1938 to 2010, world production increased by almost five times, and output per capita by 60%. This total includes some dubious series for LDCs and for Socialist ones (China, USSR and satellite countries until the 1990s), but no plausible bias in country series can question the outstanding performance of agriculture. The output is more than sufficient to feed the world population. Undernourishment, which, according to the latest data by FAO, still affects about one billion people, is a consequence of inefficiency in distribution and wastage.
Production can be augmented by using more inputs – capital, labour and land- and/or by using them more efficiently. The next Section outlines the growth in inputs, and shows that it can account only for a part of the increase in output. Most of the growth reflected the increase in productivity, and the other Sections deals with its causes. Growth in productivity is usually identified with technical progress, and Section Three describes the main innovations and the pattern of adoption. However, efficiency depends also on how factors are allocated and techniques are used – and thus ultimately also on institutions (Section 4) and policies (Section 5). The last Section speculates about the prospects for the future.
How was it achieved, i) the growth of inputs
The evidence on the growth of inputs is fairly abundant, but incomplete. Before 1913 it refers mostly to Europe and North America, and during the interwar years the country coverage, although increasing, is still partial. The FAO website provides world total only since 1960. In order to minimize the impact of differences in coverage, the tables report chained indexes, with base 2000=100. The implicit world total can be
computed by multiplying the indexes by the absolute figures in 2000 (last column on the right) Table 1 proxies the amount of labour with the number of workers, of both genders
[Table 1 about here]
The table highlights a key distinction between the number of agricultural workers and their share on total occupation. This latter is bound to decline as a consequence of modern economic growth, but the relative 1 The chapter relies heavily on Federico, Feeding, where the reader can find additional material and references.
decline does not necessarily cause the number of workers, the labour input, to decrease. Actually, the number has declined only in a handful of advanced countries and only long after the start of their modern economic growth. Agricultural workforce did peak in the United Kingdom around 1850, but in other advanced countries of Europe and North America it peaked sometimes in the first half of the twentieth century, and it collapsed only after World War Two. Worldwide, worldwide agricultural workforce has been growing, although at a decreasing rate, until 2010.
The number of workers might not be an accurate measure of labour input. In fact, it assumes a constant number of hours per workers and a constant intensity of work, it omits the part-time work by non agricultural workers (e.g. at harvest time) and does not take into account changes in the human capital of workers. The evidence and some reasoning suggest that these biases work in different directions. For instance, the human capital of agricultural workers has increased spectacularly in advanced countries after 1950, but the trend has been compensated by the decline in the number of hours worked and possibly in the contribution from non-agricultural workers. The net effect is difficult to measure but probably not very large – so that the total increase of the input labour of should not differ much from the headcount.
Table 2 reports comparable indexes for the extension of cropland and tree crops, the best available proxy for land input.
[Table 2 about here]
Since 1880, acreage has increased all over the world. The story of the settlement of the American West is well known thanks to many Hollywood movies, but the pattern has been repeated, with some delay (and without movies) in all other countries of European immigration, such as Canada, South America and
Oceania. Cropland increased also in Asia and Africa, with little or no contribution from Europeans. Even in a supposedly overpopulated country as China there was a lot of land to exploit, especially in the North, where 8 million Han Chinese settled from 1860 to 1940. The exception was Europe, or more precisely the core areas in the West (acreage went on growing in the “periphery” – the Iberian peninsula and Russia, until World War One). There, acreage has fluctuated throughout the period, with a clear downward trend in the 1980s and 1990s. The table does not cover the period before 1880, but there is very little doubt that acreage has been growing parallel to population in all areas, except perhaps Western Europe. If land was still
abundant in 1880, a fortiori it was abundant one century before.
There are two reasons to suspect that figures in Table 2 overstate the actual increase in land input. First, they assume that all additional cropland was not productive at all. This inference is plainly wrong for pastures. Unfortunately, the data on acreage under pasture before 1960 are scarce and plagued by
inconsistent definitions. Since 1950, pastures have increased about as much that cropland – i.e. this latter is not a biased measure of total acreage in use. Second, the figures would overstate the increase if the best land were settled first. This seems a common-sense rule, but it does not hold true for large-scale
colonization, which depends on the available infrastructures. For instance, the pampa humida in Southern Argentina is more suited for agriculture than the area around Buenos Ayres.
It is impossible to sum up trends in agricultural capital in a simple table, because it consists in a number of widely different items - tree crops, buildings, livestock, irrigation works, tools and machinery and so on- which must be summed together in monetary terms to get a meaningful total. The FAO provides an estimate of “world” capital stock which shows a 25 per cent increase from 1975 to 2000 –i.e. much less than output. For the period before 1975, there are few series, which refer only to advanced countries and often cover only a subset of items. Most of them show an increase, which is, unsurprisingly, faster in USA, Canada and Russia than in Western Europe. It is thus necessary to use the information on specific components of capital, such as the number of tractors or the extension of irrigated land. Such an analysis highlights four different patterns a) by 1800, the capital stock in the countries of Western settlement countries was negligible, except in the small areas of old colonization, such as the American East Coast. The colonization entailed massive investments, and the rate of accumulation dropped after the end of the process. The adoption of modern, capital-intensive technologies caused a boom in investments from the1930s onwards.
b) the advanced, long settled countries, of Western Europe had traditionally a very substantial capital stock. Thus it grew until World War Two decidedly slower than in the Western Settlement countries. The post-war spurt was similar.
c) in “backward”, long settled countries, most notably China, the capital stock around 1800 was quite large, possibly even greater than in Europe because of the extensive irrigation works needed for rice-growing. It grew very slowly or did not grow at all until quite recently and then boomed, with the intensive use of fertilizers and also mechanization.
d) in “backward” unsettled countries (i.e. Africa) the capital stock was initially minimal, and it grew as much as population, probably until World War Two. Since 1950 the per capita stock of capital has increased, but much less than in Asia.
Summing up, all inputs have been growing throughout the whole period, but there is evidence of a slowdown after 1950, at least for labor and land. It seems highly unlikely that the acceleration in the growth of capital stock was large enough to compensate it. Therefore, the sharp acceleration in the growth of output since 1950 must reflect the increase in the efficiency in using these inputs – or to use the economists’ jargon, an increase in Total Factor Productivity (henceforth TFP). This inference has not escaped economic
historians and economists, who have produced literally hundreds of estimates of TFP. Table 3 sums the estimates available for the period to 1938, as continent-wide averages.
[Table 3 about here]
The geographical coverage is limited and the estimates are often fairly crude, but two stylized facts stand out. First and foremost, TFP grew almost everywhere, and this by itself is a major change from the (alleged) stagnation of traditional agriculture. A 0.5 per cent yearly growth may seem slow, but, when cumulated over forty years, corresponds to a 25 per cent increase, and this is far from trivial. The cases of falling TFP are very rare: the two negative signs in the table refer to Argentina and Egypt, and one must add the Philippines and the Soviet Union in interwar years. Second, in most countries, productivity growth has accelerated over time. For instance, the growth rate of TFP in the United States was 0.4 per cent in 1840-1870, increased by a third in 1870-1910 and then, even according to the most conservative estimates, by a further half in the next thirty years.
The available estimates for the post-war period cover almost all independent countries with a variety of methods and for different periods. Whenever a direct comparison is possible (i.e. for eighteen country-cases) the data show a further acceleration of productivity growth: the post- war rates are on average almost three times higher than the pre-war ones. About 70 per cent of the estimates are positive, and the negative rates concentrate in Socialist countries and in Sub-Saharian Africa. The rates for some African countries are so low to be somewhat suspicious. These countries drag down the un-weighted mean of country rates to “only” 0.7 per cent per annum. Indeed computing a “world” rate, over the period 1960-2000 as if the whole world were a single country, yields significantly higher figures. They vary, according to the method of computation, between 1 per cent and 1.25 per cent per annum. TFP grew decidedly faster in OECD
countries, where rates range between 1.5 per cent and 1.8 per cent, than in the rest of the world (rates from 0.8 per cent to 1 per cent). The excellent performance of agriculture in the post-war years emerges by a comparison with the rate of TFP growth in manufacturing for a sample of 36 countries in 1967-92: agriculture outperformed manufacturing in 22 countries (Martin-Mitra 1991).
Technical progress in agriculture
In over two centuries, farmers have introduced thousands of innovations, which for the purpose of illustration can be grouped in four categories - new practices of cultivation, new plants and animals (biological
innovations) chemical products and machinery (industrial innovations).
i) Most new practices aimed at reducing the length of periods of rest, which was the traditional way to restore the soil fertility depleted by cultivation. In traditional agricultural systems, the number of crops per year (or cropping ratio) ranged from 0.05 in the so called slash and burn systems (i.e. two or three crop followed by 20-30 years of rest) to figures above one in the most intensive irrigated rice cultivation in Asia, where fertility was restored by water and intense manuring. In most of Europe, land was left idle (fallow) one year out of three – i.e. the ratio was around 0.6. The ratio was increased by substituting fallow with the cultivation of fertility-restoring plants, such as grass, roots (e.g. turnips and potatoes) and maize. This practice had been used in some areas of Europe since the Middle Ages, but in the late eighteenth and early nineteenth century it spread widely in England, earning the name of Agricultural Revolution, and with some delay all over the Continent. Towards the end of the century the succession of crops (rotation) become really sophisticated. The increasing use of rotations and of fertilizers increased the cropping ratios. On the eve of World War Two, they were slightly below one in Europe and the United States, and over 1.3 in China, Korea and Taiwan, with a country-wide world record of 1.6 in Egypt. Since then, the ratio has increased further, approaching 1 world-wide at the end of the 1990s, with maxima around three in some areas of Asia.
ii) Any variety of plant (or animal) is new from the point of view of the individual farmer who cultivates or raises it for the first time, but from the point of agriculture it is important to distinguish its source – the casual discovery, the transfer from other areas and the artificial creation via the hybridization of existing varieties. Casual discoveries had always been rare and in the last period their role has further diminished. The latest discovery of a new plant, the sugar-beet, dates back to the late eighteenth century and the latest discovery of a new wheat variety to 1862. The contribution of long-range transfers has been similarly declining. It had been very important during the age of discoveries, and had had a sort of revival in the nineteenth century for the combined effect of the efforts of government, which wanted to foster the economic potential of
agriculture, and of spontaneous action by emigrants, who often brought with them the seed and plants of native countries. There were some notable successes – such as the introduction of early ripening varieties of Russian wheat in the Canada prairies or of the rubber tree, originally from Brazil, in South East Asia. Hybrid animals had always been known (mules are hybrid of horses and asses), the theoretical possibility of hybridizing plants was first suggested in the eighteenth century, and the experiments started in the mid-19th century. However, the initial results were disappointing, as techniques were still primitive and not yet supported by the knowledge of mechanisms of genetic transmission, which were (re)-discovered at the end of the century. The first great success was the production of hybrid corn in the 1930s. In the 1940s
researchers started to work on wheat and maize varieties fit for Mexican environment, and in the late 1950s on rice in the Philippines. The effort paid off handsomely: some varieties, aptly named high-yield varieties (HYV), in the right conditions, produced up to eight times the traditional ones. The results of their adoption were so stunning to earn the nickname of Green Revolution. Since the 1980s, the potential for production of new varieties was boosted by genetic engineering. The first genetically modified variety of tomatoes was commercialized in 1994.
iii) The major contribution of chemical industry to agricultural progress was the solution, apparently for good, of the problem of restoring soil fertility. In 1840 the German scientist Liebig discovered that soils needed (different combinations of) phosphates, potash and nitrogen. The commercial production of phosphates started the following year and that of potash in 1856. Nitrogen was first supplied by natural sources, such as Chilean nitrates and Peruvian guano and then by the production of coke. However, output boomed and prices collapse after the discovery of the Haber-Bosch method of producing ammonium sulfate in 1909. The first composed fertilizers were marketed in Germany in the 1920s. Chemical products were used since the late nineteenth century to fight diseases and parasites, but results were rather poor until the 1940s and the discovery of DDT.
iv) Water and, later, steam-powered machines had always used for processing agricultural products (e.g. for milling), but mechanization of fieldwork started quite late. Arguably, the first machine was the wheat
harvester, or reaper, which Hussey and McCormick patented independently in 1833-1834. In the next decades, investors focused on increasing labour productivity in harvesting, introducing joint machines for reaping and threshing (the combine) in the 1880s, the corn picker in 1900, the cotton picker in 1907-1912 and so on. However, mechanization was delayed by the lack of a suitable source of inanimate power. Neither water nor steam was, for different reasons, really suitable. Mechanization really took off only after the introduction of tractors powered by internal combustion engines since the early 1900s and was boosted by the introduction of the power-take-off shaft (or PTO), which transformed the pulling power of the engine into a rotatory movement.
All (successful) innovations cut production costs by reducing the amount of factors per unit of product, but their effects on the demand for factors differ. Some innovations save all factors in the same proportion (neutral), others save prevalently one factor (say land) and some other need more of a factor to save others. With the possible exception of rotations, agricultural innovations were capital-intensive – i.e they needed additional investments to purchase seeds, machinery, fertilizers and so on. Machinery saved labor, by definition, but also land, as tractors reduced the number of horses and other animals and thus the need for feed. Chemical products and new varieties increased production per unit of land and thus saved land. Basic economic theory suggests that benefits of substituting a factor are, ceteris paribus, the greater the more it costs, and that the cost depends on its scarcity. Thus, one would expect that the transfer of
technologies from advanced to LDCs countries was hampered by absolute scarcity of capital and by the poor development of institutions for agricultural credit. One would also expect that land-scarce Europe was on the forefront of the adoption of fertilizers and new varieties, while labour-scarce Western Settlement countries pioneered mechanization. Indeed, on the eve of World War Two, tractors already accounted for about two thirds of total power used in the United States and for a third in the United Kingdom, the most mechanized country in Western Europe. In contrast, the United States consumed on average 9 kg. of fertilizers per hectare, vs. 26 in Italy and 300 in the Netherlands. These differences has narrowed since then, but they still persist: in 1998-2000 Italy consumed 60 per cent more fertilizers than the United States, and the
Netherlands 5 times more, while the United States had about double the number of tractors per worker than the whole Western Europe. Hayami and Ruttan (1985) go a step further along this line of reasoning. They argue that factor endowment affects not only the adoption of innovations but also their production. Land-scarce countries invest more in research on land-saving innovations, and vice-versa. Their view is however controversial. Olmstead and Rhode (2008) argue that even the quintessential labor-scarce country, the United States, invested more in biological innovations than in mechanical ones until the 1930s.
Factor endowment can explain a lot, but it is not sufficient to account for all differences in the rate of adoption of innovations in agriculture across countries, for two reasons. First, most agricultural innovations are environment-specific. A new variety might perform wonders where developed and prove unsuitable in another location, with different soil, water and so on. Second, many innovations are complementary or interrelated -i.e. they can develop their potential only if adopted jointly. The high-yielding varieties need more fertilizers and more water than the traditional ones. The Green revolution was not just a change in varieties,
but a comprehensive package which transformed agriculture altogether. The environmental suitability of a specific innovation and the right package of innovations can be discovered only with systematic testing in specialized research facilities.
The need for additional testing increases the overall cost of R&D (research and development) but this is not the only problem for the production of agricultural innovations. The main problem is the appropriability of “biological” innovations – i.e. the possibility to recover the costs of successful R&D. In fact, new practices of cultivation or natural varieties are very easy to imitate and also hybrid seeds can be produced by any firm with the necessary skills. The inventors risk to lose part of the potential returns from their investments and thus the expenditures in R&D may be inferior to the socially optimal. The gap should be filled by non-profit expenditures. In the late eighteenth and early nineteenth century, some money was disbursed by
enlightened landlords. Some very enlightened landlords, such as Gilbert, ceded their estates to set up research facilities (Rothamstead in the United Kingdom). Less spendthrift ones gathered in learned societies, such as the ’Royal Agricultural Society of England’ (established in 1838), to test innovations and spread knowledge about new techniques. Some money was supplied by non-profit organizations, such as the American Ford and Rockfeller foundations, which funded the early research on high-yielding varieties in Mexico. However, the resources of private foundations were too limited relative to the needs, while the willingness to commit by landlords was beset by a free-riding problem: why should they organize field trials if he could get the information from trials organized by some-one else? Thus, by far the major source of funding of R&D in not appropriable agricultural technologies has been the public purse. Some research was performed in universities and governments established experimental stations. The idea was pioneered by the government of Saxony (1851), which was imitated by the United States and by most European countries (with the notable exception of the United Kingdom). At the turn of the century, colonial powers funded R&D in tropical cash crops for exports (cocoa, rubber), while research in food-crops took off after World War Two, with the creation of specialized institutions (e.g. CIMMYT in Mexico for wheat, the IRRI in the Phillippines for rice), which were co-ordinated in 1971 by the CGIAR. The total investment was substantial. In the United States, total expenditures increased from two millions (1993) dollars in 1889, equivalent to 0.03 per cent of gross output, to 50 million on the eve of World War Two (0.7 per cent) and exceeded 500 millions (over 2 per cent of output) in the late 1990s. According to the best estimates, world-wide public expenditure increased by 150 per cent in the 1960, by 50 per cent in the 1970s, by 30 per cent in the 1980s and only by 15 per cent in the 1990s (Federico 2005 tab. 6.6 and Pardey et al. 2006). By 2000, total expenditure was equivalent to 2.4 per cent of gross output in advanced countries, but only to 0.53 per cent in developing ones (and to 0.8 per cent worldwide). Expenditures for diffusion of best practices among farmers (the so-called extension) doubled from 1959 to 1971 and increased by 25 per cent in the next decade. The clear slow-down in public spending in R&D was compensated, at least in the advanced countries, by a surge in private investments, which was related to a major institutional change, the extension of patenting rights to living species. This measure had been advocated by firms selling seeds and plants since the beginning of the twentieth century and it was granted, for the first time, but for trees only, in the United States in the 1930s. In 1960 European Union countries extended the right to all plants and in 1961 they signed an inter-country agreement, for the mutual recognition of patents, the “International Union for the protection of new plant varieties” (UPOV). The United States followed suit in 1970. As of 2011, the UPOV has 69 member countries. Private expenditures in agriculture-specific R&D (i.e. excluding mechanical or chemical research) overtook public expenditure in the United States already in the 1980s and by 2000 private expenditure in accounted for about a third of world total and for over half of the expenditure in advanced countries.
Institutions and agricultural performance in the long run
In the economists’ jargon, institutions can be defined as the set of formal or informal rules which determines the ownership of the goods and factors (property rights) and regulates the interactions among individual agents or households (contracts, markets and other forms of distribution). There is a wide consensus among historian, economists, agricultural experts and policy-makers on the relevance of institutions as a whole for agricultural growth, but also wide differences of opinion about the importance of each type of institution and their effects.
i) Economists believe that modern property rights are necessary to exploit the full potential of an economy and thus they assume that their diffusion improves agricultural performance. This statement is not
controversial for personal freedom. Yet, a sizeable share of world population was denied it as late as the mid-19th century. Slave trade had been formally banned in 1807, but slavery was outlawed in many countries only much later (in the United States in 1865, after the Civil War, in Brazil in 1888) and survived in some remote areas, such as Nigeria well into the twentieth century. Serfdom, which tied workers to the estate rather to an individual master, was abolished in 1861 in Russia and three years later in Romania.
Economists strongly believe in the benefits of modern property rights on land – including the right to sell and bequeath it (De Soto 2000). They prevent the excessive exploitation of land for short-term gains (the so-called tragedy of the commons), stimulate location-specific investments and experimenting with new
techniques and allow the use of land as collateral for borrowing. By 1800, full ownership prevailed only in Western Europe, in the already settled areas of countries of Western settlement, such as the East Coast of the United States and in part of Asia, including most of China (Pomeranz 2008 Kishimoto 2011). Elsewhere, the rights to land were jointly held. In some areas, feudal lords or other powerful individuals had the right to claim a part of the product and/or of the time of workers. In most areas, however, the rights to land were owned collectively by all users. Tribes of hunter-gatherers used it collectively, while in more settled areas, such as Russia, land was allocated to households for cultivation for a pre-determined period and under the control of the village.
In the last two centuries, these traditional property rights have been disappearing. The process has been slow, featuring massive reversals, such as the collectivization of previously private land in Soviet Union in the 1930s and in China in the late 1950s, and is not yet fully over. The feudal systems of Eastern Europe were the first to disappear, in the first half of the nineteenth century. The land was divided between peasants (former serfs) and former lords, who often got also a financial compensation. In theory, common ownership could be abolished by transforming the temporary allocation of land into full permanent ownership. In most cases, the process was very gradual, with intermediate stages: in Turkey it lasted from 1858 to the 1940s, in Indonesia from 1870 to 1960, and so on. Such a direct transfer was not feasible in Africa, Oceania and the Americas, where, under traditional systems of swidden agriculture or hunting-gathering, only a tiny fraction of the total land was in use. Anyway, European colonial powers ignored the rights of the natives and seized all the land European immigrants wanted. The temperate areas of the New World attracted large number of European immigrants and so the governments expropriated most of the land and distribute it to settlers, with different procedures (sales, block concession to railway companies, homestead etc.). The natives got a somewhat better deal in the tropical countries of Asia and Sub-Saharian Africa, where the demand for land by Europeans was comparatively modest. Most of the land remained under common ownership. Colonial administrations started to register the ownership of individual farmers (“titling”) in the 1940s and the process has continued since then, with a strong support by international organization such as the World Bank. In 1990, tribal land was down to 0.34 per cent of worldwide total, but it still accounted for 14 per cent of land in Africa. The modernization of property rights must have enhanced efficiency and accumulation of capital, but benefits may have been smaller than hoped-for. In some cases, as in Mexico, titling was unfair or blatantly rigged and peasants lost their rights. Furthermore, anecdotal evidence and some quantitative analyses, such as the article by Nafziger (2010) on Russia, suggest that in many cases, farmers found arrangements to circumvent the shortcomings of traditional property rights.
ii) Historians and agricultural experts tend to pay a lot of attention to the patterns of size and ownership of farms. They deem the concentration of land in the hands of absenteeist landlords (latifundia) a major hindrance to technical progress. Economists acknowledge that land concentration may affect negatively the economic growth to the extent that it entrust political power to an élite who are not interested in growth-enhancing expenditures, such as the investment in education (Engermann and Sokoloff 1997). In contrast, the evidence about the negative effect of concentration on technical progress is very weak if existing at all. Allegedly absentee landlords did introduce innovations whenever profitable. On the other hand, it is fairly clear that large “capitalist” farms do not enjoy any advantage in cultivation (processing is an altogether different case, and it has become an industrial activity). The economies of scale are small, if any, and large farms manned by hired workers are less efficient than family farms. Family farmers have strong incentives to work hard, while preventing wage workers from shirking is much more difficult in agriculture than in
manufacturing. It is possible to monitor effectively agriculture workers only while they perform simple tasks, such as harvesting.
The superiority of family-owned farms is revealed by their growing share of total land. In the nineteenth century, they prevailed in Western Settlement countries, in many countries of Europe, especially in the North, and possibly in China. In the late 1930s, according to the so-called Agricultural censuses by the FAO “farms managed by owners” (admittedly including the very few capitalist farms) accounted for about 55 per cent of acreage already in the 1930s, and this figure rose to almost 80 per cent at the end of the twentieth century. The coverage by country differs between censuses, but results from a pairwise comparison between identical samples are similar. Furthermore, land is, if any, more productive in small than in large farms and thus the share on acreage is likely to underestimate the percentage on output.
In a number of countries, the diffusion of family farms was helped by the intervention of government, which deemed the concentration of landownership unjust. The first land reforms were enacted in the early 1920s by new countries of Eastern Europe and they became a flood after World War Two (Jorgensen 2006). The book by King (1977) lists twenty-three measures to 1975 all over the world. However, the share of owner-operated farms rose also in countries or areas where no land reform was enacted. Of course, family farms in
advanced countries in the early twenty-first century are very different from traditional ones. According to the latest American agricultural census, in 2007 the 100000 “very large family farms” (with sales in excess of 1 million dollars and on average 1366 acres of cropland) accounted for 50 per cent of total sales. Yet, even the largest of them were tiny relative to the whole market for agricultural products.
iii) Whenever landowners are not willing (or forced) to sell, the advantage of small-scale self-monitoring cultivation can be captured by hiring a tenant and his family, for a predetermined sum (fixed rent tenancy) or for a share of the product (sharecropping). This latter is a very contentious institution. Historians argue that it hinders technical progress, while economists, following Marshall, suspect it to be inefficient as both tenants and landlords get only half of the returns from the additional amount of factors they provide. Marshall’s argument spawned a huge literature to defend the rationality of sharecropping. This literature offers a lot of good points, but no encompassing theory of the choice of contracts. The scarce quantitative evidence shows that sharecropping was less diffused than fixed rent in the nineteenth century and that its share on total tenanted land, and thus a fortiori on total acreage, has been declining in the twentieth century (Federico 2006). However, without a good theory of contract choice it is difficult to explain this change. Anyway, the few available tests have uncovered no evidence that sharecropping is less efficient or less innovation-fostering than fixed rent contract
iv) Agriculture is plagued by serious problems of asymmetric information between farmers and buyers of their products or lenders. The former know much more than the latter about the quality of the goods and their own creditworthiness. Buyers can react to uncertainty by refraining from purchasing, while informational
asymmetries in the market for credit can produce a dual market. Banks and other “formal” institutions would lend only to landowners, who can pledge real assets, while all other farmers have to resort to “informal” sources (moneylenders, traders etc.) and pay very high rates. Even if economically rational, this behaviour would reduce output and investments below their potential. Governments have tried to help – e.g. by setting up specialized banks for credit to farmers, with mixed success. They invested huge sums, but only part of their money reached farmers and the overall rate of repayment was low. However, the most popular solution to the asymmetric information problem has been the self-organization of farmers in co-operatives. The members of a production co-operative have a collective interest in the quality of the product and thus they would monitor each other to avoid cheating. Similarly, a farmer can assess the credit risk of another farmer in the same village much better than a bank clerk from the city. On the other hand, local credit co-operatives are highly vulnerable to shocks. A drought can cause the crop of all its members to fail at the same time, and no bank can stand this, unless supported from outside. This latter provided either by the state or by regional or national associations of co-operatives.
The first co-operatives for agricultural credit were organized in Germany in the 1850s, and the first producer co-operatives in Denmark in the 1880s. In spite of some setbacks, co-operatives have been growing since then. In the mid-1990s, when world agriculture employed about 1.3 billion people, agricultural co-operatives had 180 million members – i.e. one worker out of six if membership was individual and more if the figure refers to households. About eighty per cent of these people were in LDCs, but advanced countries, including Japan, account for 80 per cent of the total turnover. In Europe co-operatives have up to 80-90 per cent of markets for perishable or not homogenous products, such as fruit and vegetables, wine, and above all dairy products. Some of them have built highly successful consumer brands, becoming, in some extreme cases, a threat to competition.
v) Markets for factors and products are essential to elicit all benefits from specialization and modern technology. Of course, markets had existed well before 1800, but in most cases their beneficial effect was reduced by poorly defined property rights and by high costs of transports and barriers to trade. The evidence on factor markets is too sketchy to be of much use. At most, one can surmise that the diffusion of family farming reduced the percentage of full-time labourers on total agricultural workforce, and thus possibly the depth of the market for their services. Modernization of agriculture, increasing the need for fertilizers and other capital goods, should have increased the demand for capital. The available data refer to “formal” credit and thus they are likely to overstate the growth of total lending to the extent that “formal” credit substituted “informal” one.
We know more about the market for commodities. In the long run, the share of marketed product on total output has undoubtedly increased a lot, and the share of long-run trade has increased even more, in spite of the growing barrier to trade. The most compelling evidence for this hypothesis is the growth in the gross output per worker, well beyond the consumption of farming households, and in the urban population, who have to be fed via markets. In fact the data on share of marketed production show a steady increase in all countries. In the 1960s, it exceeded 95 per cent of output in the United States and 80 per cent in all
advanced countries and it hovered around 40 per cent in the most backward African countries. It is likely that since then the share has increased further.
This analysis, although very sketchy, suggests that agricultural institutions were quite flexible although not perfect. In some cases, they may have hampered technical progress or reduced efficiency, and thus output relative to its potential, but on balance these negative effects seem to have been minor.
A comprehensive list of state policies which may affect directly agriculture would include i) measures affecting ownership of factors of production (creation of property rights, land reform);
ii) provision of public goods to farmers (R&D, infrastructures, marketing support, well-enforced property rights etc.);
iii) provision of public goods to the population (health regulation, fight against food frauds, etc.); iv) transfers to farmers (subsidies, low-cost credit, etc.) or from farmers (taxation);
v) interventions on the domestic market of agricultural products (purchases by marketing boards, etc.) or of agricultural factors (provision of low cost credit, regulation of the agricultural labor market, etc.);
vi) interventions on international trade of agricultural products (tariffs, taxes, quotas, etc.).
This Section will concentrate on the last three items, which affect directly and immediately the farmer’s income.We have already touched upon briefly the two first items in this list, in Sections Three and Four respectively. We can add that the earliest measures to protect consumers and also producers of premium products such as wine (Simpson 2012) were adopted since the late nineteenth century, and multiplied in the second half of the twentieth century.
Most pre-industrial polities traditionally did not intervene in agricultural markets, with some notable exceptions. European states and cities regulated the market for staple foods in order to supply the urban population (and prevent it to revolt) while Qing China set up a network of state granaries. Between the end of eighteenth century and the beginning of the nineteenth, the Chinese granaries were progressively shut down for shortage of funds, and the European regulations were phased out dismantled. Roughly at the same time, many European governments, including the United Kingdom, started to protect wheat-growers against foreign competition for the first time. This first wave of protection lasted for few decades, from the late 1810s to the 1850s. After a brief spell of free trade, in the 1880s, most European countries, excluding the United Kingdom, returned to protecting wheat-growing against the alleged invasion of overseas grains. This is often considered an epoch making change, but actually duties were not very high and other products were
affected much less than cereals, if any. Indeed, the aggregate protection, as measured by the so-called Nominal Rate of Assistance (NRA) remained very low or even negative until World War One (Swinnen 2009).
The real epoch-making change was the outbreak of the Great Depression, which caused a fall in relative prices of agricultural good. The European countries protected farmers by increasing duties and by adding quantitative restrictions and regulations of the markets, with the exception of the United Kingdom, which let imports from the Empire free and compensated farmers with subsidies. On the Continent, the NRAs shot well above 50 per cent, with a peak of 160 per cent in Germany in 1934. Overseas producers tried to prop up their export by setting up marketing boards or subsidized their farmers for the losses (e.g. the United States with the Agricultural Adjustment Act, one of the first measures of the New Deal). State intervention was not phased out after the war. Japan maintained the state monopoly in rice trade (established in 1942) and in Europe the Common Agricultural Policy (formally enshrined in the Treaty of Rome of 1958 and implemented since 1962) resumed the key principle of French and German pre-war policies. It set prices of agricultural products, which had to be equal (and very high) in all countries. As a result, the NRAs in the 1950s and 1960s come close to 100 per cent in Japan, exceeded 50 per cent in Europe, while they remained fairly low in exporting countries. The Latin American countries and the former colonies in Africa and Asia chased the dream of industrialization and used agriculture as a cash cow to finance it. They imposed heavy taxes on agriculture, set up marketing boards to control exports and subsidized the urban consumption of food. The NRA was negative (i.e. domestic prices were lower than world market ones) in at least two thirds of LDCs them, and the average hovered around -10 per cent, in spite of the presence of a small group of protectionist outliers, such as the South Korea. Since the 1990s, state intervention was slowly phased out, although not entirely. Poor countries liberalized their domestic markets and dismantled state-owned marketing boards, while advanced OECD ones switched from price setting and market intervention to direct subsidizing farmers. As a result, in the former, the NRAs declined sharply in the early years of the new millennium, although the OECD average remains high as smaller European countries, such as Switzerland and Iceland, did not share the liberalizing zeal. In LDCs the average NRA, while still below zero in African countries, became positive in South America and especially Asia.
Economists reckon that state intervention is justified only when it can foster competition (not an issue in agriculture) or it can redress some market failure. A case in point was arguably the low level of investment in RD (Section 3). It seems impossible to defend policies aimed to augment prices of agricultural products above their world market level. They transferred income from consumers to producers, with a net loss for the consumers, which has been estimated to amount in the 1980s to about one quarter of total transfers. Consumers did not complain too much, as food accounted for a very small share of their consumption. For the same reason, they did not rejoice that much at the liberalization of the 1990s, which their losses by about two thirds. The effects of policies of LDCs were the opposite: producers lost and urban consumers gained. The total effect for the world economy is very difficult to measure. There are some estimates of the effect of trade restrictions only, and they are quite impressive (Cline 2004). A complete liberalization of trade in
agricultural products in the early 2000s, without modifying other support policies, would have increased world GDP by about half a point, and GDP of poor countries by about 1-1.5 per cent.
Conclusions: the challenges ahead
In spite of its past achievements, world agriculture faces a difficult task. The United Nations forecasts that by 2050 world population will range between a minimum of 7.4 billion and a maximum of 10.4 billion— that is, it will be 20 to 65 percent larger than at the beginning of the twenty-first century. On top of this, the increase in income is bound to shift demand towards fruits, vegetables, and, above all, dairy and meat, which requires much more land than cereals per unit of calories produced. But, unfortunately, available land is scarce, and it is constantly reduced by urbanization. Some pastures can be transformed into cropland, but irrigating deserts would prohibitively expensive and a massive deforestation would cause huge
environmental and social problems. Scarcity of land is not the only problem. The modern varieties of seeds tend to lose their beneficial properties after a few years, and thus they have to be replaced with new ones, with a continuous investment in research. Last but not least, peasants are moving to cities in greater numbers all over the world, so that agricultural manpower, if any, is bound to decrease in the future. Thus, the only solution to the problem of production increase seems to be a further increase in capital intensity and further technical progress. Unfortunately, modern techniques, although extremely efficient, damage the environment. Irrigation causes salinization or waterlogging (an accumulation of salts or water in the soil), which might make it unsuitable for cultivation, although the real extent of the problem is still controversial. Chemical products are harmful for farmers and for the whole population, as they pollute the environment and aquifers. The massive adoption of selected seeds and improved breeds threatens biodiversity and thus the stock of potentially useful varieties. The impact of genetically modified organisms is highly controversial.
To some extent, the needs of increasing production and of preserving the environment are in conflict. This conflict cannot be solved with a return to traditional agriculture, which, although environmentally more sustainable, would be unable to feed the current and projected world population. Developing efficient and environmentally sustainable techniques is the great challenge for the future of agriculture and of humankind.
Figure 1
Output and population (1913=100)
0 100 200 300 400 500 1870 1885 1900 1915 1930 1945 1960 1975 1990 2005
Table 1 Workforce
Continent Circa 1880 Circa 1910 Circa 1938 1960 2000 2000 (mil)
Africa 31 51 100 197.1
Europe 392 392 359 309 100 17.6
Canada and USA 304 405 340 173 100 3.4
Latin America* 24 44 68 83 100 44.2
Asia 34 41 42 59 100 1031.8
Oceania 36 57 68 64 100 2.8
Former USSR 203 178 100 21.7
World 64 100 1318.6
Source Federico 2005 tab. 4.16 and 4.17 * including Mexico and Central America Table 2
Acreage
Continent Circa 1880 Circa 1910 Circa 1938 1960 2000 2000 (mil ha)
Africa 86 77 100 201.8
Europe 110 112 112 114 100 133.2
Canada and USA 41 77 91 100 100 231.1
Latin America * 44 73 63 100 153.1
Asia 29 58 64 85 100 511.7
Oceania 7 22 34 66 100 53.0
Former USSR 48 52 55 110 100 217.5
World 81 90 100 1501.5
Source Federico 2005 tabs. 4.1, 4.3 and 4.5 * including Mexico and Central America Table 3
Growth in Total Factor Productivity to 1938
Before 1870 1870-1910 1910-1940
Number Average Number Average Number Average
Europe 5 0.30 13 0.65 11 1.00
Europe (Van Zanden) 15 0.78
Western Settlement 1 0.40 2 0.74 2 0.56
Asia 3 1.24 6 0.08
Africa 1 3.41 1 0.83 1 -0.21
South America 1 -1.90 2 1.57
