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Moving off the farm: Does farming efficiency matter? Insights from panel data for Thailand

Leibniz Universität Hannover, Inst. for Environmental Economics and World Trade, Germany

Abstract

As an essential part of economic growth, agricultural transformation is characterised by the reallocation of labour from farm to non-farm sectors. However, there is limited evidence on how farming efficiency affects the allocation of labour from farm to non-farm sectors at the household level. In this study, we explore the effects of farming efficiency on agricultural transformation and investigate the influence of farming efficiency on the shift from full-time to part-time farming at the small-holder farm level. We use panel data from the Thailand-Vietnam Socio-Economic Panel (TVSEP), a long-term project funded by the German Research Foundation, for empirical analyses. Our sample includes 10,549 observations collected in Thailand from seven survey waves between 2007 and 2019. We first estimate farming efficiency of rural households by employing a stochastic frontier model with true random-effects and Mundlak's adjustments. Then, we employ a heteroscedasticity-based approach with instrumental variables to examine the effects of farming efficiency on six indicators of agricultural transformation, reflecting labour allocation, livestock development, and agricultural mechanisation. Our results reveal that farming efficiency positively and significantly affects the share of farm income, per capita income from farm activities, and per hectare expenditure on mechanisation. We also find that farming efficiency has a negative and significant effect on the share of non-farm income, per capita income from non-farm activities, and the share of livestock income in farm income. These results imply that more efficient farmers tend to stick to farming and apply mechanisation in crop production, while less efficient ones shift to non-farm sectors. The results remain consistent when we consider different levels of household’s engagement in non-farm employment. Policies designed to support and encourage farm enlargement (increasing farm size) and labour allocation (less efficient farmers move to non-farm sectors) should be stimulated to accelerate agricultural transformation.

Keywords: Agricultural transformation, full-time to part-time farming, heteroscedasticity-based approach, instrumental variable

Contact Address: Kasem Kunasri, Leibniz Universität Hannover, Inst. for Environmental Economics and World Trade, Königsworther platz 1, 30167 Hannover, Germany, e-mail: kunasriiuw.uni-hannover.de