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

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  • Yu Sheng
  • Shiji Zhao
  • Katarina Nossal
  • Dandan Zhang

Abstract

type="main" xml:id="ajar12063-abs-0001"> 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.

Suggested Citation

  • Yu Sheng & Shiji Zhao & Katarina Nossal & Dandan Zhang, 2015. "Productivity and farm size in Australian agriculture: reinvestigating the returns to scale," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 59(1), pages 16-38, January.
    • Handle: RePEc:bla:ajarec:v:59:y:2015:i:1:p:16-38
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