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The economic forces that shape the organization of modern agriculture.

1. Introduction

Allen and Lueck demonstrate the power of the transaction cost approach in understanding many organizational features of agriculture. Nature's seasonal forces limit the gains from specialization and the ability of parties to monitor each other. Individual farmers are small relative to both the input and output markets. Changes in agriculture over the past century have been dramatic. Agriculture has largely resisted the transition to large corporate ownership. Farming continues to be dominated by small, family-based firms despite the tremendous changes that have taken place in agriculture. Murphy examines the wider scientific and social contexts of modern plant breeding and agriculture. Twenty-first century agriculture will need all the tools and scientific expertise that plant breeders can muster. Thompson defeats the environmental philosopher s assumption that agriculture presents no special problems for environmental ethics. Agriculture cannot continue indefinitely without an environmental ethic. The social critique of agriculture has been linked to environment. Agriculture needs an ethic of the environment.

2. Policy and investment decisions in agriculture

Allen and Lueck show how rather simple contracts persist in modern agriculture because of the absence of specific assets, and show the transaction cost approach to be a useful tool for understanding the choice of contracts for farmers and landowners in modern and historical agriculture. Agriculture and share contracting are important theoretical applications of the principal-agent model. The general absence of ratchet effects may be unique to agriculture. Allen and Lueck examine the choice of whether to own or contract for control over assets used in agriculture. A new inter-stage moral hazard problem emerges because of the timeliness costs that arise between stages of production. The pattern of contracts and organization in modern and historical agriculture is consistent with an effort to mitigate transaction costs. Cropshare contracts have a centuries-old tradition in vines and trees. Production agriculture has many complementary tasks across stages that reduce the effective number of tasks. (1) von Braun writes that agriculture requires strategic investment action. The food price crisis has increased competition for land and water resources for agriculture. The pressures on natural resources have renewed attention to foreign direct investment in agriculture. A number of countries have begun investing in agriculture overseas to secure domestic supply. von Braun claims that policy and investment decisions in agriculture should be geared toward exploiting new opportunities and building resilience for future challenges. (2)

3. Agrobiodiversity

As Murphy puts it, transgenesis is neither necessary nor sufficient for the greatest forthcoming challenge to world agriculture: how to feed adequately an extra 2.6 billion people over the coming half century. Public debate on agriculture has tended to be informed by the traumatic effects of recent food scares. Agrobiodiversity is that component of biodiversity that contributes to food and agriculture production. (3) Smith states that agriculture plays a pivotal role in international trade discussions. As Smith puts it, the problem of international agricultural trade can be described as the trade rules' lack of recognition of the critical relationship between trade, agriculture and the environment. "Trade" and "agriculture" can be understood in several ways which overlap in line with an individual's knowledge and understanding of the subject as a whole. Smith pursues how meanings of market access are shaped by understandings of agriculture and trade as cultural ideas. the definition of "agriculture" has not changed from the expansive idea of all products grown or reared on the land. (4)

4. Measurement of productivity for agriculture

Thompson contends that animal agriculture is a positive contributor to environmental quality and ecosystem health. Human agriculture is a part of the life of the earth. Farming technology has increased the productivity of agriculture. Agriculture has been controlled by commercial interests since the decline of the feudal system in Europe. Agriculture is a good and worthy human activity to the extent that it is successful in the production of food and fiber. Successful production is a necessary condition for responsible agriculture. Thompson examines the historical and cultural roots for productionism as a philosophy of agriculture. Stewardship as it emerges in traditional agriculture has never addressed the full range of environmental values (it emerges as a constraint on productionism). Economics does not in itself complete the reconstruction of stewardship to create an adequate philosophy of agriculture. The package of price policies that govern much of agriculture establishes a complex web of incentives. Agriculture is socially evaluated with respect to its ability to provide enough food. Measurement of productivity for agriculture is a difficult economic problem because so many factors are used, and because the outputs are diverse and difficult to measure.

Thompson holds that efficiency may not be particularly applicable to an ethical evaluation of the more contentious issues in agriculture and environmental policy. Efficiency is a qualified norm for evaluating the environmental dimensions of agriculture. Producers and consumers in developed countries have collectively chosen to accept existing environmental impacts of agriculture. Traditional agricultures are less environmentally intrusive, at least when population remains stable. Thompson interprets the true cost of food as an ethical concept, and examines its strengths and weaknesses for an environmental ethic of agriculture. Industrial agriculture has far less energy efficiency than traditional subsistence agriculture. It is possible that industrial agriculture remains a wise and valid use of energy resources. An agriculture is right when it tends to preserve the integrity, stability, and beauty of the biotic community. Thompson argues that agriculture is the most thoroughly invasive and disruptive of all human impacts upon natural ecosystems. The preservation of the biotic community cannot call for the elimination or even the minimization of agriculture. Agriculture is an ecosystem unto itself. The agriculture of a region or watershed can be readily analyzed according to ecological principles. The biotic community is to include agriculture. Any truly sustainable agriculture would need to be adapted to the human communities it was intended to serve. The economic history of agriculture and its relationship to capitalism provides important background for understanding the emergence of productionism. (5)

Lampietti et al. emphasize that agriculture has tended to become an economic activity of last resort, and can be part of the solution to limited growth in rural areas. The Western Balkan countries have 20-60 percent of their workforce employed in agriculture. Lampietti et al. write that climate change creates major challenges for agriculture (the impact of climate change on agriculture remains uncertain). Governments in the Western Balkans should use EU agriculture and rural development policies as a reference in building their adaptive capacity. Spending on agriculture and the rural sector has risen significantly in all Western Balkan countries (Albania has yet to adopt a strategy for investing in agriculture and rural development). Agriculture and rural development strategies estimate only implementation cost. Several cross-sectoral actions affecting agriculture and rural development need to be taken outside ministries of agriculture. (6)

Hammoudi et al. maintain that public and private standards influence how safe the final goods are and affect the internal organisation of firms, their strategic behaviour and the organisation of the supply chain. Food safety in the final market depends on several stages of the supply chain. Hammoudi et al. argue that analysing the effects of standards, whether public or private, requires the perspectives of both (i) public economics and social choice (provision of a socially desirable level of food), and (ii) industrial economics (cost efficiency and competition). The benefits of improving food safety must be weighed against the potential costs associated with market distortions resulting from public interventions. (7)

5. Conclusion

Allen and Lueck's model explains both important historical trends in agriculture and more subtle differences in farm organization. The family farm dominates agriculture whenever Mother Nature remains unchecked. The classic trade-off between risk and incentives does not explain the choice of contracts or organizations in agriculture. Murphy takes a critical look at the past performance and future prospects of agbiotech. One of the primary concerns of global agriculture over the coming decades should be to provide sufficient food to sustain increasing human populations. Thompson points out that people in agriculture will never be able to assess their own interests so long as they remain uncritically attached to a product oriented mode of thinking. Sustainability applied to agriculture entails a suggestive model for conceptualizing a host of problems in which imperatives of production clash with the desire for preservation. Conventional agriculture science sees agriculture as a problem oriented response to an immediate need.


(1.) Allen, D.W. and Lueck, D. (2002), The Nature of the Farm. Contracts, Risk, and Organization in Agriculture. Cambridge, MA: MIT Press.

(2.) von Braun, J. (2008), Food and Financial Crises. Implications for Agriculture and the Poor. Washington, DC: International Food Policy Research Institute, December.

(3.) Murphy, D.J. (2007), Plant Breeding and Biotechnology. Societal Context and the Future of Agriculture. New York: Cambridge University Press.

(4.) Smith, F. (2009), Agriculture and the WTO. Towards a New Theory of International Agricultural Trade Regulation. Cheltenham-Northampton, MA: Edward Elgar.

(5.) Thompson, P.B. (2005), The Spirit of the Soil. Agriculture and environmental Ethics. Routledge: London-New York.

(6.) Lampietti, J.A. et al. (2009), The Changing Face of Rural Space. Agriculture and Rural Development in the Western Balkans. The World Bank: The International Bank for Reconstruction and Development, Washington.

(7.) Hammoudi, A. et al. (2009), "Food Safety Standards and Agrifood Supply Chains: An Introductory Overview", European Review of Agricultural Economics 36(4): 469-478




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Author:Zaharia, Ioana; Zaharia, Constantin; Tudorescu, Nicolae
Publication:Economics, Management, and Financial Markets
Date:Dec 1, 2009
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