BLOG: The family farm is disappearing - or not?

At the same time, we see holdings constantly increasing in size: 50 hectares of tomatoes, 500 cows, 5,000 pigs spread across different sites. Will the family farm soon be consigned to the history books?

In order to answer this question, we have to ask ourselves why we have family farms in the first place instead of large-scale agricultural companies (such as plantations) or the other extreme: smallholders who produce little more than their own food.

The strength of family farms compared to large-scale agricultural companies lies on the one hand in their being satisfied with low returns and on the other in the uncontrollability of agrarian production processes. The low returns reflect the fact that family labour is unlikely to leave the sector - the family is more concerned about the total income from the farm than labour productivity. And these low returns keep the capitalists at bay; after all, they need to achieve high returns to satisfy the bank or the stock market, particularly if the risks are high.

Uncontrollability of production

Those risks are the result of the uncontrollability of production, with the possibility of bad weather and disease. This also gives rise to what we economists call ‘moral hazard’. Suppose you invest in a large-scale agricultural company in Eastern Europe; how do you know whether the manager is working hard for your investment? Bad results are easy to blame on bad weather or disease. Similarly, the manager cannot tell whether the employees at the other end of the plot are cutting corners. And so costs have to be incurred for supervision (referred to as transaction costs), whereas the independent farmer in a family firm is motivated to work hard even at weekends because it’s his own money at stake.

Back to the original question: will the family farm survive into the future? Now that much of the manual labour has been mechanised (and no longer requires supervision), increasing scale is an attractive option because it saves management work for the farmer and his business partners: it is just as easy to sell 1000 tonnes of potatoes as 100, certainly to retailers who want a nicely uniform batch.

What is still underestimated is the fact that ICT and modern genetics make the production processes ever more predictable and controllable. Hence, less moral hazard. In their famous analysis ‘The Nature of the Farm’ (2002), US researchers Allen & Lueck noted that ‘in those cases where nature’s seasons and uncertainty can be controlled, agricultural production tends to be organised as large-scale corporate farms as in much of the modern economy.’

Agricultural Family Firm

As such, I think the family farm is on its way to developing into an SME-type form which I would like to term the Agricultural Family Firm . But it would not surprise me if we were to continue to call them family farms, because other American research shows that the term has already been frequently adapted. Once you were only a family farm if you supplied all the labour and capital yourself, and therefore had no employees or bank loans, and also did not lease other land or hire in casual labour. With every innovation in the sector, the definition has been extended. Apparently, what primarily defines the family farm is taking decisions at the kitchen table.

The UN has nominated 2014 as the year of the family farm. I believe it is time to study the effect of ICT and modern genetics on the development of the family farm.