Eugenia Serova: Big and small farms will coexist in the future

22 October 2018

Large farms are getting larger – a trend that has been recently observed worldwide. Large farms use modern methods of irrigation and farming techniques and achievelower costs due to economies of scale. This way they may be considered to positively contribute to the society by providing food at an affordable price. However, there are a number of societal concerns related to large scale farms, in particular with regard to their impact on the environment and their sustainability. Eugenia Serova, Senior Economist at the Food and Agriculture Organization of the United Nations (FAO), Liaison Office in Moscow, Russia, shares her view on the trade-offs between the large farms’ needs to generate profits and provide benefits to society.

What do you think are the main drivers of large scale farming today?

In principle, the development of large scale farming is a natural way of farm owners and managers to act according tothe principles ofmarket economy and achieve economies of scope and scale.Another driver of large scale farming which is characteristic of the time after the break-up of the centrally planned system is big Soviet farms’ heritage.

Are large scale farms more efficient than medium or small scale farms in your opinion?

It is not about efficiency of the big farms; it is about efficiency of the entire value chain.The individual small farms can be much more productive then big farms. But, being included in an inefficient value chain, they can lose. To exemplify, for the dairy plant it is much easier in terms of transaction costs to collect milk from one big farm than from 10,000 small producers. However, to be honest, I wonder why agricultural economists always want to know whether a specific farm typeis more efficient than the others. Why do we always try to compare them and why do we try to define which one is more productive? I think that farms are diverse and different on purpose.

Is large scale agriculture in conflict with sustainability objectives?

It is dubious. On the one side, large scale agriculture seems to be better in terms of environmental, quality and safety issues because large farms have better management control systems, more financial resources to buy modern technologies ofdealing withanimal waste and plant diseases, as well as other technologies that make the environment clean and safe for the generations to come. Small farms are not so reliable in this respect. People think that the label “product from the farmer” means that the product is organic. However, small producers can abuse food safety requirements even more often than bigger farms. I recently visitedasmall Chinese farm participating in the organic value chain where Inoticeda massive use of antibiotics for chicken breeding. On the other side, lobbying power of the big farms may allow them to avoid the public environmental and safety control in order to reduce their cost. In the USA, there is a special term – ag-gag – describing legal resources of the big agricultural companies to affect the policy.

Do you see any differences or similarities between large scale farms in different parts of the world?

Large farms in different countries arequite different. They are established in different ways and drivenby different incentives. For example, if you look at the top ten largest Australian farms, you notice that their land area of one or two million hectares per farm is enormous in comparison to the land area of top ten Russian or Ukrainian farms. The biggest Chinese industrial farms operate even five to nine million hectaresper farm – really unbelievable. Then, if you take a look onthe number of employees such farms employ, you will notice that huge areas of land and huge herds of cattle on Australian farms are managed by only five to ten employees, whereas smaller farms in Russia or Ukraine employ 20,000 to 50,000 people per farm. The farm landscape is different in different parts ofthe world.

What do you think are the long-term perspectives of large farms?

I think that large farms will exist in the future and will continue to develop. Consolidation in the agricultural and food sectors will continue. But it does not mean that small farms will cease to exist. No. Small farms have their advantages. Small farms are able to produce products of special sorts and flavors which large farms are not able to produce. Large farms are specialized in producing large amounts of standardized products. So, in the future, there will always be a place for small and medium-size producers which can find their niches. I observe changing consumer preferences. Earlier consumers wante djust a tomato or an apple, but nowadays they increasingly want a tomato or an apple of a specific form or taste. They want variety and exclusivity. These attributes have their price. Small farms can specialize in production of such exclusive types of products in small quantities and at a special price.