Changing Relationship between Farm Size and Productivity
and Its Implications for Philippine Agriculture
KeijiroOtsukaJanuary , 2021
Discussion Paper No.2102

GRADUATE SCHOOL OF ECONOMICS
KOBE UNIVERSITYROKKO, KOBE, JAPANChanging Relationship between Farm Size and Productivity
and Its Implications for Philippine Agriculture
Keijiro Otsuka
Graduate School of Economics, Kobe University
2-1 Rokkodai-cho, Nada, Kobe, Hyogo 657-8501, Japan
andInstitute of Developing Economies – JETRO
3-2-2 Wakaba, Mihama-ku, Chiba 261-0014, Japan

Short bio
Keijiro Otsuka is a professor of Development Economics at the Graduate School of
Economics, Kobe University, and a Chief Senior Researcher at the Institute ofDevelopment Economies. He received a PhD in economics from the University of
Chicago in 1979. He was a Chairman of the Board of Trustees of the International Rice
Research Institute from 2004 to 2007 and President of the International Association ofAgricultural Economists from 2009 to 2012. He received the Purple Ribbon Medal fromthe Japanese Government in 2010 and was selected as a member of the Japan Academy
in 2018.

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Abstract
No controversy in the history of agricultural economics is more perennial than therelationship between farm size and productivity. While the dominant view has been the
inverse relationship (IR), particularly when the productivity is measured by gross valueof output or physical yield per hectare, several studies found the positive and U-shaped
relationships between farm size and productivity. Furthermore, there is evidence that IR
has been weakened, particularly in rapidly-growing countries in Asia. This study's
primary purpose is to identify causes for the different and changing relationships between
farm size and productivity based on a literature review. The second purpose of this study
is to review farm size changes over time among selected Asian countries to examine how
farm size changes are related to the changing farm size-productivity relationship or thechanging advantage of small vs. large farms. The third purpose is to draw policy
implications of the changing farm size-productivity relationships for the future ofPhilippine agriculture.
Keywords: farm size-productivity relationship, advantage of small farms, mechanization,
advantage of large farms, changing comparative advantage of agriculture
JEL codes: O13, Q12, Q15

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1

Introduction

No controversy in the history of agricultural economics is more perennial than therelationship between farm size and productivity. From the days of Chayanov (1926) tothe present, the dominant view has been the inverse relationship (IR) between farm sizeand productivity, particularly when it is measured by physical yield or gross value of
production per hectare (e.g., Barrett, Bellemare, and Hou 2010; Larson et al. 2014;
Delvaux, Riesgo, and Paloma 2020). Feder (1985) theoretically demonstrated that
because large farms tend to use hired labor more intensively than small farms, andbecause hired workers do not work as hard as family workers, large farms tend to be lessproductive than small farms. Based on this IR, Lipton (2012) advocated redistributive
land reform as it is supposed to be conducive to both efficiency and equity.
However, Otsuka (2007) argued that the IR is partly the consequence of the land reform
programs that suppress land rental transactions between less productive large farmers andmore productive small farmers. He points out that IR is found primarily in South Asia,
where land reform programs were widely implemented, but not in Southeast Asia, where
they were not implemented rigorously, except in the Philippines. 1 Otsuka (2013);
Estudillo and Otsuka (2016); and Otsuka, Liu, and Yamauchi (2016a) also maintain thatby nature, small farms in Asia employ labor-intensive production methods and since thewage rate has been rising sharply in many high-performing Asian countries, theproduction cost of small-scale farming has been rising. This results in the loss ofcomparative advantage of agriculture in this region. This argument suggests that IR has
been weakened in Asia because small farms’ labor-intensive production is no longer
advantageous. Using cross-country data from 1980 to 2010, Otsuka, Liu, and Yamauchi(2013) confirmed that the efficiency of smallholder agriculture has been declining. Thus,
Asia as a whole may become a major importer of food grains unless farm-size expansion
and large-scale mechanization take place (Yamauchi, Huang, and Otsuka 2021).
According to a recent meta-regression analysis of roughly 1,000 cases by Delvaux,Riesgo, and Paloma (2020), strong IR tends to be found when the gross value of output
or physical yield per hectare is used as a measure of productivity; weaker IR is generally
found when the net value of output (i.e., the gross value of output minus cost of purchased
inputs) is used; and the farm size-productivity relationship becomes unclear when profit

1 An exception is a study by Benjamin (1995), which found IR in Indonesia.

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(i.e., the net value of output minus the imputed value of owned resources, including
family labor) or total factor productivity is used. 2 Furthermore, several studies found a
U-shaped relationship between farm size and productivity in Pakistan (Heltberg 1998),
Brazil (Rada and Fuglie 2019), and China (Sheng, Ding, and Huang 2019). As will be
discussed later, the positive relationship between farm size and productivity is also
reported in high-wage economies.
If factor markets work efficiently, no difference in productivity should be found across
farms of different sizes because resources are transferred from less productive to moreproductive farms through land renting or labor employment (Kevane 1996). Therefore,
the existence of an IR, positive, or U-shaped relationship implies inefficiency of
production due to market failures, which must be eradicated ideally by policy means.3
To do so, we must have a clear understanding of the causes for these different types ofrelationship between farm size and productivity. The first purpose of this article is to
identify causes for the different and changing relationships between farm size andproductivity based on a literature review. I observed that an IR tends to be found in lowwage economies where farm size is small and labor-intensive farming methods are
adopted. In contrast, a positive relationship tends to be found in high-wage economies
where farm size is large, and large-scale mechanization takes place. The U-shaped
relationship is found where small-scale farming and large-scale farming systems coexist.
The second purpose of this article is to review changes in farm size over time among
selected Asian countries in order to examine how farm size is related to the comparativeadvantage of agriculture, which should be reflected in the food self-sufficiency ratio inthese countries. I would like to show that food self-sufficiency declines with economic
development accompanying wage growth unless significant farm-size expansion occurs(Otsuka 2013).
The third purpose of this article is to draw policy implications of the changing relationshipbetween farm size and productivity for the future of Philippine agriculture, based on areview of rice farming systems in Central Luzon from 1966 to 2015. I assert that unlessland reform policies are redirected towards farm-size expansion, the efficiency of2 I presume that since both profit per hectare and total factor productivity take into account thecontribution of whole inputs to production, they are highly correlated.
3 I assume that soil quality is not different between farms of different sizes. See Section 2 for a discussion
on the possible impacts of soil quality difference on the farm size-productivity relationship.

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Philippine agriculture is bound to decline with economic development in the future.
This article is organized as follows. Section 2 examines the theoretical causes for the
inverse, positive, and U-shaped relationships between farm size and productivity, andSection 3 reviews the empirical evidence. Section 4 considers the future of small farms
in East Asia (i.e., Northeast and Southeast Asia). This is followed by Section 5, with areview of long-term changes in rice farming systems in Central Luzon and a reexamination of the impact of land reform programs in the Philippines. The last section
considers appropriate land policies for efficient land use in the course of successful
economic development.
2

Economics of Farm Size-Productivity Relationship

2.1 Conceptual framework
In order to grasp why differential productivity is observed across farms of different sizes,
let us consider the following production function:
𝑄𝑄 = 𝐹𝐹�𝐴𝐴, 𝐿𝐿𝑓𝑓 , 𝐿𝐿ℎ , 𝑋𝑋, 𝐾𝐾�,(1)

where Q is output; A is the land area or farm size; Lf is family labor; Lh is hired labor; X
is purchased inputs, including fertilizer and pesticides; and K is capital service. Familylabor and hired labor are not perfect substitutes and, as such, are treated as separate inputs.
In fact, the former is primarily engaged in care-intensive tasks, such as land preparation,
crop care, and supervision of hired workers, whereas the latter is engaged in simple tasks,
such as transplanting, harvesting, and threshing (Otsuka, Chuma, and Hayami 1992;
Hayami and Otsuka 1993). Otsuka, Chuma, and Hayami (1993) demonstrate that tenancy
contract is chosen over labor contracts, wherever tenancy transaction is allowed. Thisimplies that the labor market does not work efficiently in spatially-dispersed andecologically-diverse agricultural environments. 4 It is also noteworthy that roughly 90
percent of farms in the world are family farms relying on family labor (Lowder, Skoet,
and Raney 2016), which indicates the importance of family labor in the management offarms. Note that labor inputs are assumed to be measured in terms of labor time in
Equation (1). Since family workers are motived to work harder than hired workers, themarginal product of family labor is higher than that of hired labor (i.e., 𝜕𝜕𝜕𝜕⁄𝜕𝜕𝐿𝐿𝑓𝑓 >4 I will provide the supportive evidence in the analysis of labor use data in Central Luzon in Section 5.

5𝜕𝜕𝜕𝜕 ⁄𝜕𝜕𝐿𝐿ℎ > 0) in the observable range of labor inputs.

For simplicity, assume that the production function is subject to constant returns to scale.
Then, Equation (1) can be rewritten as:
𝑞𝑞 = 𝑓𝑓�𝑙𝑙𝑓𝑓 , 𝑙𝑙ℎ , 𝑥𝑥, 𝑘𝑘�,(2)

where lower-case letters show output or input per hectare, corresponding to capital lettersin Equation (1). I assume that a farmer’s profit maximization leads to the optimum input
use functions in which input (or input per hectare) is a function of real wage, real rental
price, and farm size. Farm size can be changed in the long run through market transactions,but it is assumed to be fixed in the short-run or due to the suppression of the land market.
Let us also assume that there are two types of technologies (i.e., labor-intensive andcapital-intensive technologies). While it is optimal to choose labor-intensive technology
in low-wage economies, it is optimum to choose capital-intensive technology in highwage economies. First, let us consider the case of low-wage economies. Since the use ofcapital is negligible, let us assume that k is low and fixed or k = 0. The question is how
optimum lf, lh, and x change when A changes. Since it is reasonable to assume that theendowment of family labor is largely fixed, Lf cannot increase proportionally with anincrease in A, which implies that 𝜕𝜕𝑙𝑙𝑓𝑓 ⁄𝜕𝜕𝜕𝜕 < 0. Large farms must employ large numbers of

hired workers, which implies that 𝜕𝜕𝑙𝑙ℎ ⁄𝜕𝜕𝜕𝜕 > 0. Whether x increases with an increase in A
is uncertain (i.e., 𝜕𝜕𝜕𝜕 ⁄𝜕𝜕𝜕𝜕 ≷ 0), because x tends to decrease with an increase in A if familylabor and purchased inputs are complements, but it will increase if larger farmers havebetter access to credit.
In this framework, IR is explained primarily by lower productivity of hired labor thanfamily labor and the more extensive employment of hired labor per unit of land on larger
farms. If the amount of purchased inputs per unit of land decreases with an increase infarm size (i.e., 𝜕𝜕𝜕𝜕 ⁄𝜕𝜕𝜕𝜕 < 0 ), the tendency of IR is strengthened. If the land market(whether land rental or land sales market) works efficiently, however, IR will be
eradicated by the transaction of land from less to more efficient farmers. Therefore, IR
can be explained by multiple market failures, or at least by failures in both labor and landmarkets (Kevane 1996).
Next, let us consider the case of high-wage economies, where the intensive use of capital
service or mechanization is advantageous. The important point is that since the tractor isa substitute for family labor for land preparation, a tractor reduces the demand for family
6labor. On the other hand, hired workers can be employed for driving tractors. 5 In otherwords, the use of tractors reduces the productivity of family labor and increases that ofhired labor so that the marginal product of family labor can be either higher than or lower
than hired labor (i.e., 𝜕𝜕𝜕𝜕⁄𝜕𝜕𝑙𝑙𝑓𝑓 ≷ 𝜕𝜕𝜕𝜕⁄𝜕𝜕𝑙𝑙ℎ ). According to Deininger et al. (2018, p. 239),“family labor use was more efficient than hired labor in 1982 and 1999 but not in 2008”
in India when farms were highly mechanized. Furthermore, the use of combine harvesters
reduces both the demand for hired labor in harvesting and threshing and for family laborin supervision. Thus, we expect that 𝜕𝜕𝑙𝑙𝑓𝑓 ⁄𝜕𝜕𝜕𝜕 < 0 and 𝜕𝜕𝑙𝑙ℎ ⁄𝜕𝜕𝜕𝜕 < 0, so that the use of bothfamily and hired labor is lower on larger farms. Since labor inputs are no longer criticallyimportant, it is likely that x is determined primarily by credit access, which confers anadvantage to large farms. Thus, we expect that 𝜕𝜕𝜕𝜕 ⁄𝜕𝜕𝜕𝜕 > 0 . Finally, considering that
capital input is an indivisible factor of production, 6 its use is more effective on larger
farms, which means that 𝜕𝜕𝜕𝜕⁄𝜕𝜕𝜕𝜕 > 0.

Consequently, we expect to observe a positive relationship between farm size and yield
per hectare due to the efficient use of capital and the application of larger amounts ofpurchased inputs. Like the case of IR, such a positive relationship will disappear if theland or labor market works efficiently.

2.2 Methodological issues
I implicitly assumed that soil quality is the same between small and large farms in theconceptual framework. Soil quality, however, tends to be higher on small farms, which
may result in IR. According to Barrett, Bellemare, and Hou (2010), however, thedifference in the soil quality explains only a small part of IR. The meta-analysis of
Delvaux, Riesgo, and Paloma (2020) also point out that the inclusion of soil quality
reduces IR but does not eradicate it.
Another possibility is the measurement error. Smallholders may overestimate output andunderestimate farm size. According to Carletto, Savastano, and Zezza (2013), farm sizethat is actually measured instead of just being estimated by farmers strengthens IR rather
than weakens it. That is, farmers seem to consistently overestimate the land size of small
5 If a farmer rents the tractor, the tractor owner usually sends a driver along with the tractor.
6 If the machine rental market is developed, machine service can be a divisible input. Yet, larger machines
can be used more efficiently on larger farms.

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plots and underestimate large ones. On the other hand, Desiere and Jolliffe (2018) reportthat IR is strong when self-reported production data are used, but it disappears when cropcut estimates are used. While it is not clear how generalizable this finding is, it seems safe
to assume that the measurement errors of output do not entirely cause IR until further
supporting evidence is provided by additional studies.
Some authors argue that since the yield or gross value of output per hectare does not show
production efficiency, profit per hectare or total factor productivity (TFP) should be used
to discuss the issue of production efficiency associated with farm size (Muyanga andJayne 2019; Rada and Fuglie 2019; Delvaux, Riesgo, and Paloma 2020). 7 While I agree
that the gross value of output or yield per hectare is not an appropriate measure of
production efficiency at the farm level, I strongly disagree that one should examine only
the profit per hectare or TFP. Figure 1 illustrates this point. Acknowledging the findingsof Delvaux, Riesgo, and Paloma’s (2020) meta-analysis, Figure 1 shows strong IR for thegross value of production per hectare, less strong yet significant IR is drawn for the net
value of production, and a less clear relationship is shown between farm size and profit
per hectare. The source of the problem is that labor cost includes the imputed cost offamily labor, which is unpaid. Imputation usually uses the prevailing market wage rate,
but it can be questioned whether it is really an appropriate shadow price of family labor.
In other words, the estimated profit, which is obtained by deducting estimated familylabor cost as well as imputed costs of using other family-owned resources from the net
value of production, is subject to errors. If TFP is used, the estimations of factor shares
and amount of labor input (which is usually simply the sum of family and hired labortime) are subject to errors because family labor and hired labor are not perfect substitutes.
Therefore, it is risky to rely only on estimated profit or TFP when one analyzes therelationship between farm size and productivity.
---Figure 1 about here--It must be clearly understood that it is more relevant to analyze the gross value of
production, the net value of production, and profit per hectare simultaneously. Indeed, thefact that the gross value of output and the net value of output (which can be measured
accurately, at least in theory) differ between small and large farms provides clear
indications that resources are misallocated between farms, even though the extent of
misallocation cannot be immediately ascertained. It is also desirable to examine the
7 The estimated profit is supposed to show return to land and management efficiency, aside from errors of
imputing family labor cost.

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robustness of estimated profit and TFP by changing the assumed shadow wages of familylabor.
3

A Review of Empirical Evidence

Numerous empirical studies have found stable IR of yield or gross value of output per
hectare (see Lipton 2012 for a survey of earlier studies). Selected recent studies include
Barrett, Bellemare, and Hou (2010) on Madagascar; Li et al. (2013) on China around theturn of the century; Carletto, Savastano, and Zezza (2013) on Uganda; Larson et al. (2014)
on Malawi, Tanzania, Kenya, and Uganda; Wang et al. (2015) on India; and Rada andFuglie (2019) on Malawi, Tanzania, Uganda, and Bangladesh. Consistent with theconceptual framework, IR is found in low wage-economies, such as those in sub-SaharanAfrica, South Asia, and China during the early years. 8 Li et al. (2013) did not find any
relationship when TFP is used. Larson et al. (2014) also observed IR for family labor per
hectare and a positive relationship for hired labor per hectare.
More recent studies found the weakening tendency of IR in several Asian countries, manyof which experienced high economic growth and rising wage rates. While Wang et al.
(2016) discovered declining IR in China, Deininger et al. (2018) report similar tendencies
in India. Furthermore, Gautum and Ahmed (2019) and Liu et al. (2020) also found similar
phenomena in Bangladesh and Vietnam, respectively. These studies commonly report on
farm-size expansion and progress of mechanization, particularly through renting ofmachinery services, 9 which would lead to the lessened advantage of intensive familylabor use on small farms. This is consistent with Otsuka, Liu, and Yamauchi’s (2013)
finding from the cross-country regression that labor-saving mechanization has taken placesignificantly in countries where farm size is large.
Earlier, Hayami and Kawagoe (1986) found the emergence of scale economies in rice
farming in Japan since the mid-1960s when riding tractors were introduced. This suggests
the emergence of a positive relationship between farm size and productivity in thiscountry. Later, Kawasaki (2010) confirmed that the cost of rice production increases lessthan proportionally with an increase in output, implying the emergence of the positive
relationship in Japan. Rada and Fuglie (2019) report the positive relationship between
8 IR is found in sub-Saharan Africa even though land rental transactions have gradually become active(Holden, Otsuka, and Deininger 2013; Holden, Otsuka, and Place 2009).
9 In Vietnam, land consolidation has also taken place, which facilitates mechanization (Nguyen and Warr
2020).

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farm size and TFP in Australia and the USA. This is also found in emerging economies,
such as China (Wang et al. 2015) and Indonesia (Yamauchi 2016), as well as some areasin Vietnam where farm size is relatively large, farm size is expanding through land renting,and mechanization is taking place through machine renting (Liu et al. 2020). The upward
sloping curve portrays the positive relationship between farm size and productivity in
Figure 2.
---Figure 2 about here--There are several studies that found a U-shaped relationship between farm size andproductivity. Heltberg (1998) was the first to report the U-shaped relationship between
farm size and net output per hectare in Pakistan, where smallholders and significantly
large farmers coexist. 10 Later such relationships were reported in Brazil (Rada and Fuglie2019) and in China (Sheng, Ding, and Huang 2019), where small farms adopting laborintensive production methods and large farms using large machinery coexist. The dottedcurve illustrates such a relationship in Figure 2. Somewhat surprisingly, a U-shaped
relationship between cultivated area and profit per hectare or TFP was reported in Kenya
by Muyanga and Jayne (2019), where the bottom of the U-shape was around 5 hectares.
According to them, large farms have newly emerged and used highly mechanized farming
systems, in contrast to smallholder farmers who rely on labor-intensive production
methods. 11
To sum up, the traditional labor-intensive farming system tends to be subject to IR,
whereas capital-intensive mechanized farming systems are subject to a positive farm sizeproductivity relationship. When both farming systems coexist, a U-shaped relationshipbetween farm size and productivity is likely to be observed.
4

Future of Small Farms in East Asia

As shown, small farms in East Asia have been losing the advantage of using family labor,
as the wage rate has been rising, and mechanization has been taking place. If so, farm size
should increase to prevent the loss of comparative advantage in agriculture; otherwise,
food self-sufficiency will decline in this region. The issues of changes in farm size and
10 As far as profit per hectare is concerned, he found a positive relationship.
11 I have some reservations about their findings because half of the land owned by large farms is unused
but their study excludes such land and focuses only on the cultivated area. I believe that the entire landshould be considered if the production efficiency is analyzed. It is also unclear how the cost of using
owned large machinery is reckoned.

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grain self-sufficiency are examined in this section.
4.1 Changing farm size in East Asia
Figure 3 shows the changing operational farm size in six selected East Asian countries:
Japan, the Republic of Korea, China, Indonesia, the Philippines, and Thailand. The
average farm size was small in the early 1960s, ranging from 1 hectare in Japan andIndonesia, 2 hectares in the Republic of Korea, to 3.5 hectares in the Philippines andThailand. It has declined in subsequent periods in all these countries except in Japanbecause of rapid population growth and limited area expansion in rural areas. This isconsistent with the generally declining farm size in developing countries (Lowder, Skoet,
and Raney 2016). The decrease in farm size is particularly pronounced in the Philippines
partly because of rapid population growth and partly because of the failure of growth in
the nonfarm sectors, which can absorb rural labor. If this trend in farm-size reduction
continues and the economy sustains a fairly high growth rate, the agricultural sector’s
inefficiency can be a major constraint to further economic growth. Although farm size
increased in Japan, reaching three hectares in recent years, it is far below the average farm
size in Europe and North America, where farms larger than 100 hectares are common.
Considering the high wage rate in this country, it is obvious that Japanese agriculture islosing its comparative advantage.
---Figure 3 about here---The average farm size in China is tiny. However, it increased from 0.57 hectare in 2003
to 0.79 hectare in 2013 (Huang and Ding 2016), amounting to a 0.22-hectare increase per
decade. Since the wage rate has been rising sharply in the last few decades and a positive
relationship between farm size and productivity has emerged in this country, retaining
small farms could result in increased cost of domestic production and massive import offood. In fact, China is already a major importer of soybean. There is a possibility that
China will import massive amounts of other grains unless farm-size expansion and largescale mechanization take place.
Declining farm size in the Philippines, Thailand, and Indonesia; slowly increasing farm
size in China; and increasing but still small farm size in Japan cannot be compatible withrising wage rates and the actual or possible emergence of a positive relationship between
farm size and productivity, suggesting that agriculture in these countries is losing or will11

lose its comparative advantage (Otsuka, Liu, and Yamauchi 2016a, 2016b).
4.2 Changing grain self-sufficiency in East Asia
Figure 4 shows changes in grain self-sufficiency ratio, which is calculated by dividing
domestic production of rice, wheat, maize, and soybean by the sum of domestic
production and net imports of the above four crops. Since production, consumption, andtrade are evaluated simply by weight, the self-sufficiency ratio is a rough measure of
agriculture’s comparative advantage. It is also affected by the distortionary agricultural
policies of various governments. Thus, it should be interpreted with caution, even though
its large changes over time and large differences across countries indicate underlying
changes and differences in comparative advantage.
---Figure 4 about here--The estimated grain self-sufficiency ratio in Japan has declined rapidly since 1961,
attesting to the sharply declining comparative advantage of agriculture in this country.
The self-sufficiency ratio has also declined significantly in the Republic of Korea, almostin parallel with that of Japan. Farm sizes in Korea are slightly smaller than in Japan, andwage rates have increased continuously, similar to Japan. There seems to be little doubtthat one of the fundamental causes of the lost comparative advantage in these two
Northeast Asian countries is the preservation of labor-intensive small-scale agricultureamid high and rising wages. This is consistent with the cross-country regression analysis
findings by Otsuka, Liu, and Yamauchi (2013) that in Asia, the grain self-sufficiency ratio
decreased when GDP per capita exceeded a threshold level.
Thailand has been a net exporter of grains as its self-sufficiency ratio exceeds unity.
However, its self-sufficiency ratio has been declining and has fallen to slightly above theself-sufficient level in the 2010s. Although the average farm size in Thailand is fairly
large by Asian standards (see Figure 3), it seems that it is not large enough to maintain its
comparative advantage in agriculture.
Self-sufficiency ratios were close to unity in the 1960s to the mid-1980s but had beenslightly declining in the other three countries (i.e., the Philippines, Indonesia, and China).
The declining trend of self-sufficiency ratio since the mid-1980s in the Philippines is
consistent with the sharply declining farm size in this country. Slightly declining selfsufficiency ratios in Indonesia and China are worrisome, as these are large, populous
countries. Moreover, the average farm size in these two countries is even lower than in
12

Japan and in the Republic of Korea. If these countries become gigantic importers of grains,world grain prices will significantly shoot up, adversely affecting the well-being of
consumers throughout the world, particularly the poor consumers. These possibilities
cannot be denied unless farm size increases significantly, and large-scale mechanization
takes place (Yamauchi, Huang, and Otsuka 2021).
5

Changes in Rice Farming in Central Luzon

I would like to examine long-term changes in farm size, labor use, and mechanization
using the rice farming data collected by the Central Luzon Survey, carried out more orless every four years from 1966 to 2015 (Moya et al. 2015). This data set is valuable; notonly significant changes in paddy yield but also dramatic changes in family and hired
labor and machine use are reported. According to Estudillo and Otsuka (1999), who used
the same survey data, mild IR seems to have been observed in this region from 1966 to
1994. 12 Needless to say, Central Luzon is an advanced rice-growing region in thePhilippines and is regarded as its rice bowl. Similar changes seem to have taken place inother rice-growing areas in this country (Mataia et al. 2020).

As shown in Table 1, farm size in Central Luzon has been largely unchanged at around
two hectares from 1966 to 2015, except for a brief period in 1970 and 1974. Paddy yield
increased from 2.3 tons per hectare in 1966 to 4.1 tons per hectare in 1982, owing to theGreen Revolution. Yield has been largely unchanged from 1982 to 2015, even though
there were fluctuations in yield due mainly to climate variations. High-yielding hybrid
varieties were introduced around 2010, but their adoption rates remained very low inCentral Luzon. It is interesting to observe substantial changes in total labor used per
hectare; it increased from 1966–1970 to 1974–1982, gradually decreased until 1999, anddrastically declined toward 2015 after some increases in 2008–2011. In the following
subsections, what happened to the use of family and hired labor separately andmechanization in rice farming in Central Luzon during the last five decades is explored.
---Table 1 about here---12 A part of the reason could be the provision of credit with relatively low interest rates by traders to small
farmers.

13

5.1 Changing labor use by family and hired labor
Figure 5 shows changes in the family and hired labor used per hectare of care-intensive
activities (i.e., land preparation and crop care) and other activities (e.g., crop
establishment, harvesting, and threshing). Several important observations can be made.
First, traditionally in the 1960s and 1970s, family labor was used for care-intensive
activities significantly more than hired labor. As pointed out by Otsuka, Chuma, andHayami (1992) and Hayami and Otsuka (1993), the hired labor market does not seem towork for care-intensive tasks because proper care and judgment are required in these
activities. Clearly, family labor and hired labor are not perfect substitutes. Second, the useof hired labor has been dominant in other activities (simple tasks that do not require muchcare and judgment) and remained relatively stable from 1966 to 2010. Thus, it seems clearthat the hired labor market works for these activities. Family labor is used primarily forsupervision, which accounts for a small portion of these activities. It must be pointed outthat the dominant use of family labor for care-intensive activities and that of hired laborfor other activities are observed throughout rice farming areas in Asia (David and Otsuka
1994). Third, family labor use in care-intensive activities began decreasing in the late1970s: from 24.1 days per hectare in 1966 to a mere 7.5 days per hectare in 2015. Thus,
the advantage of small farms arising from the intensive use of family labor, if any, musthave eroded over time. This finding is consistent with the weakening IR in Asia discussed
in the previous section. Fourth, all of a sudden, hired labor use dropped in 2011 to 2015.
It appears that the increasing wage rate in the Philippines induced the introduction of
hired labor-saving technology.
I would like to postulate the hypothesis that drastic changes in family and hired labor use
can be explained mainly by mechanization, some of which save on family labor and others
save on hired labor. I will examine the validity of this hypothesis in the next sub-section.
5.2 Mechanization in Central Luzon
Threshing was traditionally carried out by large threshing machines, called tilyadora,
which were used to measure the quantity of paddy produced by share tenants (Hayami
and Kikuchi 1982). The adoption rate of tilyadora was 87 percent in 1966 and 74 percent
in 1970. As share tenancy declined due to the implementation of land reform (Otsuka
1991), the adoption rate decreased to 44 percent in 1974 and 31 percent in 1979. Suchchanges are consistent with low hired labor use in 1966 and 1970 and its increase in 1974
and 1979 (see Figure 5) because the tilyadora can replace hired labor. Small threshers
14

were almost completely adopted by 1986, and, thereafter hired labor use had been fairly
stable from 1986 to 2011.
---Figure 5 about here--Decreasing family labor use for care-intensive activities since 1974 can be explained
primarily by the increasing adoption of power tillers, as well as the gradually increasing
adoption of riding tractors and rotavators (see Figure 6). In fact, family labor use in land
preparation significantly decreased over time. The use of animals or water buffalos
decreased but did not become negligible because they were used for plowing the edge of
paddy fields. In contrast, hired labor use in land preparation increased from about 2 days
per hectare in 1966 and 1970 to 7.6 days per hectare in 2011 and 2015. This can be
explained by the fact that most farmers rent power tillers and tractors along with theirdrivers, who are also hired workers. Thus, family labor has been substituted for by tractors
and hired labor. It is no wonder that the advantage of small farms arising from intensive
family labor use no longer exists once tractors were introduced. This is similar to the caseof postwar Japan reported earlier.
---Figure 6 about here--Another major mechanization was the introduction of combine-harvesters. No farmer had
adopted this machine in Central Luzon until 2011, but its adoption rate jumped to 45
percent in 2015. As a result, hired labor use in other activities (i.e., harvesting andthreshing) precipitously declined from 2011 to 2015 (see Figure 5). It is likely that as the
adoption rate of combine-harvesters increased, hired labor use declined further. Thereseems to be no question that combine-harvester save on hired labor. This suggests that thedisadvantage of large farms associated with the supervision of hired labor decreases withthe adoption of combine-harvesters.
To sum up, it is reasonable to conclude that while tractorization reduces the advantagesof small farms, the introduction of combine-harvesters reduces the disadvantage of large
farms. This implies that the optimum farm size increases with the increased adoption ofagricultural machinery.
5.3 Need for redesigning land reform in the Philippines
If IR is observed and small farms are more efficient than large farms, the question is why
inefficient large farms do not lease out their land to smaller farmers. In India and the15

Philippines, the redistributive land reform program, known as the land-to-the-tiller
program, applied to tenant-cultivated land with the exemption of owner-cultivated land
using hired labor (Otsuka 2007). Thus, landlords were motivated to evict tenants in orderto undertake owner cultivation using hired labor. As a consequence, the land (rental)
market cannot allocate land from inefficient farms to efficient farms. Such a policy, which
suppresses the land rental market’s function, is responsible for both inefficient land
allocation and inequitable income distribution.
Setting a ceiling over which land is transferred to tenants also distorts land allocation(Adamopoulos and Restuccia 2014). In the Comprehensive Agrarian Reform Program(CARP) of the Philippines, the ceiling of 5 hectares is set for non-rice and non-corn landand 7 hectares for rice and corn land (Adriano 1991). This is detrimental to the efficiencyof land allocation when a positive relationship emerges between farm size andproductivity. Thus, in all likelihood, the positive relationship will be observed in thePhilippines in view of the large-scale mechanization of land preparation and harvesting
and threshing. Because of the failure of the CARP to generate an effective land rental
market, the land is inefficiently allocated in the Philippines even at present (Michler andShively 2015).
In the face of the changing relationship between farm size and productivity, it is criticalto recognize the role of land rental markets in reallocating land from the less productive
to the more productive farms. It should not be government law but the market that ought
to determine the desirable allocation of land. The Philippines is no exception, and if theland market continues to be distorted, increasingly large and serious inefficiencies willarise because of inefficient land resource allocation in this country.
6

Concluding Remarks

The world has been changing rapidly, and so has agriculture throughout the world. Otsuka
and Fan (2021) observe rapid growth in labor productivity in agriculture in all major
regions of the world due to rapid mechanization. According to this study, such changes
would have increased the advantage of large farms and decreased the advantage of small
farms. Nonetheless, if the small farms are preserved, as in Japan and the Republic ofKorea, the comparative advantage of agriculture will be lost, and, consequently, food selfsufficiency will decline.
I do not simply advocate the dominance of large farms, like Collier and Dercon (2014)16

and Adamopoulos and Restuccia (2014). When wage rates are low, and land is scarce,
efficient farms are likely to be small family farms. Thus, Larson, Muraoka, and Otsuka(2016) advocate promoting agricultural development based on smallholder farms in subSaharan Africa. Such smallholder-based development can potentially lead to a fullfledged Green Revolution in sub-Saharan Africa, judging from the Green Revolution
experience in Asia (Otsuka and Larson 2013, 2016). It is critically important to recognizethat such development is both efficient and equitable.
As the economy develops, the potential problem is that the wage rate increases, whichtends to induce mechanization. For effective mechanization, farm-size expansion musttake place. In the adjustment process of farm-size expansion, the positive relationshipbetween farm size and productivity tends to emerge. If the government wants to maintainor even strengthen comparative advantage in agriculture, land transfer from lessproductive small farms to more productive large farms must be promoted. This policy isdiametrically opposite to the policy, which was desirable when the economy was poor.
This policy shift is a significant challenge for policymakers who are interested insustainable economic development.
How can the government implement efficient land policy in the course of economic
development? The critical point is that the efficient allocation of land should be achievedby the land market, particularly by the land rental market. A land ceiling in the transfer ofland from land-rich to land-poor farmers may be set, but it must be lifted once land
redistribution has been completed. Similarly, the exemption of owner-cultivation fromthe implementation of land reform must be abolished to facilitate land renting. It must be
clearly understood that the land market ought to play the vital role of transferring land
rights from less productive to more productive farmers. Its suppression leads topotentially devastating consequences on the efficiency of agriculture, as has happened inJapan and the Republic of Korea. This is particularly the case in the Philippines and India,
where, historically, the redistributive land reform programs were extensively
implemented in favor of small farms.

17

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22

Table 1. Average farm size (ha), paddy yield (ton/ha), and labor use (persondays/ha) during the wet season in Central Luzon, 1966–2015
Year

No. ofSample Farms

Farm Size(ha)

Paddy Yield(ton/ha)Labor Use(persondays/ha)

1966

95

2.1

2.3

69

1970

62

2.5

2.5

68

1974

59

2.6

2.0

85

1979

148

1.9

3.6

82

1982

135

1.8

4.1

83

1986

120

1.8

3.5

71

1990

108

1.8

3.5

74

1994

100

1.7

4.1

71

1999

85

1.6

3.5

60

2003

116

1.9

4.3

61

2008

107

1.8

4.5

66

2011

95

1.9

3.9

71

2015

89

1.8

3.8

46

Source: Moya et al. (2015) and International Rice Research Institute (2016)23

Figure 1. Illustration of the inverse relationships between farm size andproductivity, measured by gross value of production, net value of
production, and profit per unit of land24

Figure 2. Conceptual relationships between farm size and productivity
under labor- and capital-intensive farming systems

25

4
3.5
3
2.5
2
1.5
1

0

1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016

0.5

Japan

Indonesia

Rep. of Korea
Philippines

China

ThailandFigure 3. Changes in average farm size (ha) in selected East Asian countries
Sources: FAO (2010); Huang and Ding (2016) for China; Ministry of Agriculture, Forestry,
and Fisheries (various years) for Japan

26

2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017

0
Japan
Indonesia

Rep. of Korea
Philippines

China
ThailandFigure 4. Changes in grain self-sufficiency ratio in selected East Asian countries
Note: Domestic production of rice, wheat, maize, and soybean divided by domestic
production plus net imports of the above four crops in terms of weightSource: FAOSTAT (2020)

27

60
50
40
30
20
10
0

Care-intensive activities by family labor
Other activities by family labor

Care-intensive activities by hired labor
Other activities by hired labor

Figure 5. Changes in family and hired labor use (person-days/ha) for careintensive and other activities during the wet season in Central Luzon,
1966–2015
Source: Moya et al. (2015) and International Rice Research Institute (2016)

28

120
%
100
80
60
40

0

1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

20

AnimalPower tillers

Riding tractors and rotavators

Combine harvesters

Figure 6. Tractorization in land preparation and the use of combine harvesters
during the wet season in Central Luzon, 1966–2015
Source: Moya et al. (2015) and International Rice Research Institute (2016)29