Exploring the relationship between farm size and productivity: Evidence from the Australian grains industry

The effect of farm size on productivity remains to be one of the longest standing debates in the agricultural development literature. In this paper, we use farm level data for the Australian grains industry from 1989 to 2004 to investigate the relationship between farm size and total factor productivity and its potential determinants. We show that a positive farm-size productivity relationship could be linked to farmer capital choice. In particular, the productivity advantage of larger farms is likely to diminish as farms use contract services to replace self owned capital, suggesting that the hire of capital services (hereafter 'capital outsourcing') may lift the productivity level of small farms compared to their larger counterparts.