Farm Size and Efficiency Comparative Profit Analysis in Agricultural Cooperatives

Topics: Agriculture, Cooperative, Agricultural economics Pages: 8 (2426 words) Published: November 25, 2012
The largest and biggest contributor to Bangladesh’s economy is the agricultural sector. Seen often as the ‘unsung’ hero of our growth revolution, it still serves as the most significant industry in this country. In spite of its large contribution to employment, relatively speaking, its contribution to GNP falls short of expectations. Hence, as with other developing countries, the agriculture sector in Bangladesh can be classified as predominantly being ‘traditional’. This implies that it is mainly comprised of small households that suffer from technological stagnation, unskilled labor, and supply chain and market linkage problems. In spite of this, a modern agriculture sector does exists which enjoys substantial economies of scale. It is a well established fact that with increase in scale of output, efficiency increases up to an optimum point and this paper will put this to the test by investigating whether this holds true in the agriculture sector as well.

2.Problem statement
Ideally, government policy should be directed towards increasing the capacity of the traditional agriculture sector in order to transform it towards a more modern one. However, with a weak local government structure, lack of strategic planning and corruption, effective government support towards this sector cannot be expected. Even if policy makers could come up with viable policies to help rural farmers, it would be very costly as most of these rural farmer’s are too small and dispersed in remote areas. Therefore, any aggregate development would either fail in cost effectiveness or fail in implementations. This leads to the point that increase in farm size needs to take place in the grassroots level This paper therefore will look into the possibility of rural farmer’s joining together to ‘pool in’ their limited technology, land, labor and skills to achieve some form of economies of scale that can increase their efficiency and lower the costs. Such a framework could be done in the style of a producer’s cooperative. An agriculture cooperative is “a type of cooperative that unites agricultural producers for production or other activities needed by the members (such as processing, marketing of output, or supply of the means of production).” An increase in efficiency can be contributed to a variety of factors such as improvement in technology, more efficient use of land, increase in skilled labor etc. While individual quanitative analysis is beyond the scope of this paper, a single variable can be used to do a comparative analysis to see whether belonging to a cooperative, through which there would be an increase in farm size, actually lead to any increase in efficiency. In terms of the variable, net profit of individual farmer’s not belonging to cooperatives and that of cooperatives will be used. Hence, a hypothesis can be developed at this point:

The hypothesis will therefore test the probability that belonging to a ‘co-op’ leads to increase in profit holding output constant.

3.Literature Review
There has been extensive work done farm size and efficiency, and agricultural cooperatives as an extension. Oduol and Hotta examined the effect of farm size on the productive efficiency of smallholder farms in a land–scarce Embu district of Kenya. In particular, the study seeks to establish the relationship between farmsize and three components of productive efficiency, namely technical, scale and allocative efficiency, “ Farm Size and Productive Efficiency: Lessons from Smallholder Farms in Embu District, Kenya Judith Beatrice Auma ODUOL1*, Kazuhiko HOTTA2, Shoji SHINKAI2 and Masao TSUJI3” There has been extensive work done on cooperative movement in the agriculture sector by leading academics. However, a point to be noted at the very outset is that there is clear evidence of a lack of study in this field in the South Asia region. This is not only surprising but also indicates a clear need for research and...
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