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On the costs of being small

Case evidence from Kenyan family farms

We analyze allocative efficiency of major input factors for farmers in Kenya. Marginal value products are estimated for land, labor, inorganic fertilizer and seeds, at the farm household level and compared with marginal costs as approximated by their prevailing market prices. Price efficient and inefficient farmers are identified and equivalent value losses are computed as shares of household income, per hectare and for the society. A very high proportion of farmers are characterized as allocatively inefficient and substantial equivalent value losses are estimated for all factors. In the case of labor, losses are sufficiently high that if labor is paid the market wage rate instead, income from agriculture would double. Among other factors, inefficiency levels are correlated with farm size; as farm size increases, losses as share of household income decline for labor but increase for land, fertilizer and seeds. Losses per hectare for all inputs decline with farm size. Finally the correlates of inefficiency levels are explored systematically. Overall, lack of access to resources is the major reason that some inputs are underemployed. On the other hand, lack of alternative opportunities is a basic reason that factors are overused.

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Author: Karfakis P
Other authors: Ponzini G, Rapsomanikis G
Organization: Food and Agriculture Organization of the United Nations (FAO)
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Year: 2017
ISBN: 978-92-5-109837-0
Country/ies: Kenya
Geographical coverage: Africa
Full text available at: http://www.fao.org/3/a-i7562e.pdf
Content language: English
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Type: Policy brief/paper

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