LACK OF ADAPTABILITY IN AGRICULTURE : AN ECONOMIC SURVEY

LACK OF ADAPTABILITY IN AGRICULTURE

AN ECONOMIC SURVEY

I. Need for Adaptability. 11. Reasons for Lack of Adaptability:

(a) Noneconomic factors; (b) Ignorance; (c) Economic factors:

(1) Land tenure, (2) Lack of additional capital, (3) Overhead costs.

111. Statistical Verification: Survey in Hundred of Belalie: (a) Land use in Belalie; (b) Overhead expenses and the composition of production; (c) Expectations and the number of transfers; (d) Overhead costs and soil erosion.

IV. Implications for Policy.

The purpase of this paper is to re-examine, for the purpose of statistical verification, some of the economic reasons why the agricultural industry is slow to adapt itself to changes in the conditions which govern its profitableness; to offer some statistical evidence drawn from a survey in the Hundred of Belalie in South Australia ; and to direct attention to some implications for policy.

I Given the conditions of demand for farm products as a whole

and for the different farm products in relation to each other, and given the relevant conditions of supply, including the state of knowledge of farming technique, there is, for each class of land, an optimum blend of farm products (an optimum “composition of production”) and an optimum technique of farming, and, given these and other factors, there is an optimum size of farm. As the conditions of demand and the knowledge of technique alter, so do these various, long-term, optima. Thus there will be a resulting change in some or all of them whenever a change occurs in the demand for the different farm products (involving a change in relative prices), in the demand for agricultural products as a whole (involving a change in the general profitableness of farming), or in knowledge of farming technique or of the effects of different tech- niques on soil feirtility and conservation.

Not all of such changes provide farmers with an incentive to modify substantially their farming practice. Some may be too short-lived for substantial modifications in farming to be

18

JUNE, 1944 AGRICULTURAL SURVEY 19

either profitable to the farmers concerned or beneficial on balance to the community a t large. Again, some modifications which are desirable from the point of view of the whole community may not, owing to there being a difference between the marginal social and the marginal private net product of the resources which would be invested in introducing them, be directly profitable to the farmers themselves. Thus a particular composition of production, involving a particular technique of farming, may be bad from the social point of view because it leads to soil erosion but yet be the most profitable, a t any rate over a relatively short period of time, for the individual farmers. Nevertheless, changes (other than purely temporary variations) in the conditions of demand for farm products, and advances in technical knowledge relating to farming, do, as a general rule, make it socially desirable for the farmers concerned to alter their farming practice by altering one or more of the constituents of it, namely, the composition of production, farming technique, .and the size of farms. Furthermore, these alterations in farming practice, if carried out, would, as a general rule, increase farmers’ profits. Hence it can be taken for granted that they will normally be adopted to the extent that farmers both know the facts and are able to act on their knowledge.

It is well known, however, that the various elements of farming practice distinguished above respond to changes in the corresponding optima only very slowly and painfully. Thus, for example, disequilibrium between the world conditions of demand for and supply of wheat, becoming acute by the end of the 1920’s, persisted throughout the 1930’s, and will probably still exist after the war unless a permanent increase occurs in the hsiatic demand. The price of wheat did rise in the middle ’thirties, but mainly because of a series of droughts in North America. I n Australia palliatives have been applied in the form of “drought relief” and “farmers’ assistance,” but little has been done to correct the basic maladjustment. The wheat acreage was 38 per cent. bigher on the average during the decade ending in 1939-40 than during the preceding decade,. and it was markedly higher in the first half of the decade, when the price of wheat was a t its lowest ebb, than in the second half. Having large commitments to meet, farmers, far from reducing the acreage under wheat, responded to the fall in price by attempting to increase their’ wheat production, even though many of them knew that in doing so they were “dogging the 1 a n d ” m a i n -

20 THE ECONOMIC RECORD JUNE

taking such a narrow rotation of crops as to undermine soil fertility.

On the one hand, because of changes in demand and advances in technical knowledge, it is continually becoming profitable to alter the composition of farm production, farming technique and the size of farms. On the other hand farming practice responds to these stimuli only very slowly. Many farmers either fail altogether to make the appropriate adjustments or make them only partially and after long delay. This is particularly 80 when the adjustments concerned do not promise to yield high immediate profits to the farmers, being more important to the community than to the indlividd; such as changes in farming practice for the purpose of avoiding soil eryion. For it is still true of a great many Australian farmers that they are miners rather than husbandmen. But farmers do not readily modify their farmipg practice even when by doing so they could earn much larger profits. Hence the obstacles to change must be very powerful. Hence, also, it is important to both farmers and the general public that these obstacles should be understood and overcome.’

In Section I1 we examine some of the economic obstacles t o adaptability, in Section 111 we record the results of a farm survey which we made last year in order to gauge their prae- tical importance, and in Section IV we indicate the kind of remedial action which is suggested by our findings.

The plain facts, therefore, are these.

I1 When individual farmers fail to alter the cornpodlition or

scale of their production or their farming methods, although it would pay them to do so, it must be because either (1) they do not, owing to non-economic considerations, wish to make the appropriate changes, or (2) not understanding that certain changes would be profitable, the idea of making them does not enter their headk, or (3) though wishing to make the desirable adjustments, they are prevented from doing 50 by economic, institutional, or other, obstacles.

(a) Nokecolromic factors. The first of these possible reasons may perhaps partly account for the failure of wheat farmers on marginal lands to’give up, OE reduce, wheat production. On

1944 AGRICULTURAL SURVEY 21

the basis of their existing knowledge the choice may seem to them to be wheat or nothing; and since the farm is also the home, and farming a way of life, they may decide to go on producing wheat rather than turn to some more profitable livelihood. Even in cases such as this, however, other factors, such as ignorance of alternative uses of the land or lack of capital with which to begin them, certainly d e c t the decision and may, indeed, be the main determinants of it. Neither o prim. reasoning nor factual evidence suggests that farmers to any 'appreciable extent decide on their production programmes and methods without taking into account the effects of their decisions on their future profits..

(b) Ignorance. The appropriate adjustment of production programmes and farming methods when conditions have permanently changed is likely t o be hindered somewhat by the farmer's ignorance of what the new conditions are. In general, he knows them, a t any rate in the early stages, only by their works-that is, through their effects on prices. Hence he normally takes no action which would involve a substantial capital outlay till he is satisfied by personal observation that the conditions defhitely have changed.

In Australia this period of delay on account of ignorance is needlessly long. Firstly, agricultural extension semices are inadequate, so that advances in technical knowledge are not quickly brought to the farmer's notice. $econdly, neither the governments nor the universities provide services in farm economics, and so the farmer can only fhd out the relative costs and profitableness of different products and processes by personal experiment. Thirdly, in the past there has been no machinery for effecting the regular exchange, between different countries, of information about factors promoting local changes in the demand and supply conditions. It is to be hoped that the permanent commission recommended by the Hot Spribgs Con- ference will make good this deficiency, and that machinery will be set up locally for drawing inferences from, and disseminating among farmers, the infom%tion so obtained,

It would be easy to exaggerate the part played by ignorance in causing the existing lack of adaptability in farming. For it is the etfeetive cause only to the extent that but for it the appropriate adjustments would always be m a d m n l y to the extent that no effective obstacles remain after the facts have become known. Ignorance of the potential advantage to be gained probably in fact'is the effective obstacle to many minor


adjustments, whether in the composition of production or in farming methods, and for some favourably situated farmers it is probably thq only real obstacle even to major changes. But we must not imagine that by merely securing international pooling of information and by creating machinery for sifting and drawing inferences from that and other information, and making the results known to farmers, the problem of agriculture’s lack of adaptability to changing conditions would be substantially solved. Though farmers do not generally anticipate changes in demand, they come to know of them, even if belatedly, through the effects on prices; they eventually get to know of advances in technical knowledge through agricultural extension services, personal contacts, etc.; ancT though the need to avoid the kind of farming which leads to soil erosion was for long overlooked or regarded as hn American problem, many farmers are now becoming painfully aware of it. Thus the facts do eventually become known. Farmers do eventually learn of changes which it would pay them to make in their production or farming methods. And yet in many cases they do not make them. Thus the existing lack of adaptability cannot be explained by ignorance alone, a fact which came out very clearly in our dis- cussions with farmers in the Hundred of Belalie. Part of the problem has its roots in the economic obstacles forming the third group of causes distinguished above. To these we now turn.

(c) Economic factors. (1) Aand tenwe. Lack of responsive- ness to changes in the governing conditions is likely in some instances to be caused by an unsatisfactory form of land tenure, under which the tenant stands to gain not from good husbandry but from mining the fertility of the land. Such a result is particularly likely if the tenant lacks security against arbitrary eviction or is uncertain of receiving compensation for improvements. Thus security of tenure and adequate compensation for improvements are of vital concern to the community as well as to the farmer. Our Belalie investigation, so far as it went, showed that the system of share-farming is unsatisfactory from this point of view.

Insecurity of tenure hinders the adjustment of farming to changing conditions by preventing the appropriate changes from being profitable to .the farmers. I n the more general case, however, farmers are unable to make changes which it would pay them to make and which they therefore wish to make. They are nnable to do so because of two related causes, namely, the lack


of capital and the burden of past commitments. This is the heart of the problem as it exists in Australia.

It is well known that in most industrial countries the general facilities for providing both fixed and working capital-the capital market and the banking system-are better fitted for supplying the needs of industry than they are for supplying those of agriculture. On the one hand, the company form of organization is not generally suitable in agriculture and the risk involved in supplying farmers with fixed capital is not one which the ordinary investor is competent to assess for himself. On the other hand, there is generally more risk involved in lending working capital to farmers than to industrialists, and the turnover is usually slower, so that banks tend to prefer industrial to agricultural advances. Hence the stream of both forms of capital to agriculture tends to be relatively smaller than that to industry, and the rate of interest tends to be higher. It must be noted, however, that to some extent governments, in some countries, have deliberately offset the tendencies by making loans available to farmers at less than the market rate of interest for loans of the duration and degree of security involved.

Looking a t the matter from this general point of view of the flow of capital into agriculture from without, the main thing is to increase the stream of capital from which farmers can draw in order to pay for their land and the permanent improvements on it. The institution of a mortgage bank for this purpose is therefore to be welcomed. But so far as the problem of increasing the adaptability of agriculture to changing conditions is concerned, the main deficiency is in capital with which to start new processes. I n most cases some investment must be made in additional fixed capital in the form of implements; and in all cases substantial investment must be made in working capital, such as stock, in oriler to get the new processes into operation.

The chief difficulty is not in getting the additional fixed capital, which provides its a w n security in the form of tangible instruments, but in getting the necessary additional working capital, especially because a substantial part of it usually takes the intangible form of income consumed by the farmer and his family. Thus suppose, for exampIe, that a wheat farmer learns that a two-year rotation of wheat followed by fallow, which unfortunately is still common, is destroying the fertility of his land through soil erosion, or even that it is not yielding him the

(2) Lack of additional capital.


maximum profit in the short run; and suppose that he therefore wishes to change to mixed farming, and to lay down permanent pastures on part of the land while adopting a wide crop rotation on the part left arable. Iwnd taken out ofi crop, especially if it is to be sown with pastures, earn little or nothing fo r one or two years. Hence the farmer wiU need to borrow, or supply out of his own savings, enough working capital to enable him to buy not only seed and fertilizers for sowing the pasture, and animsls for grazing on it, but also goods and services for his o m and his family’s consumption in the meantime.

Farmers usually have diflicdty in getting enough money for all these purposes by borrowing it ; for, from the point of view of both outside, private investors and banking institutions, such investments appear very w. Moreover, when farmers wish to change t o a different form of production or a Werent technique, it is because either a change in demand or an advance in technical knowledge has rendered their existing production or technique relatively unprofitable ; and hence the very reason which makes change desirable also makes it hard for them, or even impossible, to save the necessary amount out of their own profits. Few farmers can &or& to reduce their present income for the sake of a larger income in the future. Thus a land- mortgage bank, while it would help indirectly by increasing the total flow of capital into the farming industry, would hardly touch the padicular problem of agriculture’s unresponsiveness to changing conditions, unless it made provision for supplying the necessary working capital.

(3) Overhead Costs. But the problem of agriculture’s unresponsiveness is far more difficult than we have 80 far indi- cated. There is much more to it than the mere fact that the institutions of the capital market are not well adapted to cater for the spe6ial needs of agriedtnre. For in trying to modify their production or their methods in response to changing conditions, many farmers find themselves in a strait jacket consisting of their overhead costs.

Overhead costs tend to hinder adaptability, and cause or per- petuate farming practices which are detrimental to the land, by the mere fact of their being large and &ed for a long period of time. They do 80 in two ways: M y , even if appropriate on the baaia of earnings when first incurred, they tend as conditions change to become inappropriate ; and, secondly, even when based on a reasonable expectation of profita over good and bad


times taken together, they tend to be so high as to ruin many farmer-d, by promoting bad farming, to ruin the land-when conditions of slump are severe or protracted. Moreover, in practice, capital charges tend to be fixed at an uneconomically high level in the first place. For more farms change hands in time of boom than in time of dump, and hence many farmers pay more for their land than the normal expectation of earnings a t the time of purchase would justify. But the fundamental fact is that farmers with fixed charges cannot alter their farming practice unless they can get enough working capital to meet those charges, in addition to the amount required for the purposes enumerated above.

A farmer’s overhead costs are fixed, for the most part, when he borrows the capital with which to pay for his land, implements and initial stock, or enters into a contract of rental. Thus each farmer’s overhead costs were determined on the basis of his expectations a t some particular time in the past- i.e., on the basis of what the conditions then were or were expected to become. They were therefore fixed on the assump- tions: (1) that some particular technique of farming (e.g., a wvheat-fallow rotation) would continue to be appropriate; (2) thaO some particular level of fertility (e.g., that of virgin soil) would remain unimpaired; (3) that some particular level of farm prices would continue to rule; and hence (4) that some particular: composition of production would continue to be the most profitable. So long as there is no divergence in any of these respects between the state of affairs which was expected and the actual state of affairs, the farmer’s overhead costs will continue at the equilibrium level, on the basis of his average earnings, and there will be no problem of readjustment. As conditions change, however, such divergences are. bound to appear-

Let us suppose that the changing factor is soil fertility : that because the land has been worked on a two-year rotation its soil fertiliv and structure hive been impaired and that erosion is consequently taking place. This assumption is not unreason- able. For, on the one hand, there are s t i l l farmers whose present fixed costs are appropriate t+i.e., were determined on the assumption o€-a two-year rotation, a complete reliance on wheat, B price of 6 shillings per bushel, and agricultural methods which predicate the continued existence of virgin soil to exploit. On the other hand, there h ample scientific evidence to show that a

26 THE ECONOMIC RECORD J U N E

narrow rotation does cause soil erosion. If, then, the farmer bought his land at a price based on the confident expectation that he could go on cropping continuously without reducing the land’s fertility, and borrowed heavily,for the purpose, he is likely to find himself in a dilemma. He may have the choice of con- tinuing to crop heavily in order to meet his fixed costs, and thereby spoiling his land, or of ceasing to crop heavily and consequently failing to meet his commitments; he may have to choose between bankrupting the land and bankrupting himself.

General improvements in technique which a particular farmer is unable to adopt because of his heavy fixed costs, make those costs harder for him to bear by increasing total production and thereby lowering prices. Indeed, if the demand for the particular product concerned is fairly inelastic, such improvements will m a k the existing level of fixed costs uneconomically high even for those farmers who are able to adopt them, though that will not matter greatly if their fixed costs are small in total.

We have been arguing that, owing to changes in the governing conditions, overhead costs tend in the course of time to become uneconomically high, and that in oraer to meet such commitments farmers are led to indulge in unsound farming practices, or at any rate to put off introdhcing desirable improvements. Similar results are likely to occur during a severe or protracted slump even if farmers’ overhead costs are not uneconomically high on the basis of average earnings over good and bad times taken together. In fact, in many cases, overhead costs are higher than that-and change is hindered and bad farming encouraged all the more-because many farmers buy their land in time of boom. Owing to speculation and undue optimism land values a t such a time become highly inflated. Farmers who buy in such conditions are likely to find themselves saddled with debt charges or rentals which the land will not bear in normd times unless it is to be stripped of its fertility. And, in fact, land transfers tend to be more common in times of boom thaii at other times. For many farmers, especially if they are about to retire, are willing to sell out a t boom prices to the many others who are deluded by the high prices of farm products. But few are willing to sell at slump values. They only sell in such conditions if they are forced to do so by i d v e n c y . The inference from these facts is that, by making farmers bear all the risks of changes in world prices,


we impede change and force farmers, periodically at any rate, to “flog” the land.

A change either in the technique of farming a particular crop or in the relative demand for different products will cause a change, other things being equal, in the optimum size of the farm. Thus, for example, if it becomes profitable to make a general change from wheat production on a narrow rotation to mixed farming with a wide rotation of crops and sown pastures, the optimum size of the farm will probably increase. Here again, however, the individual farmers may be powerless to make the change. Some may be rich enough to buy out their neighbours at prices which will encourage them to sell. But, in general, farmers will be struggling to meet their fixed commitments on farms which have been rendered‘ uneconomically small by the postulated change in conditions. Hence, as a rule, one farmer will not be able to increase the size of his holding until his neighbour has gone insolvent, and meanwhile the land itself may be rendered bankrupt. The State cannot afford t o leave changes to occur in this disastrous way.

I11 In August, 1942, we made an agricultural survey in the

Hundred of Belalie with the idea of finding out whether the above a pr;Ori conclusions have a firm basis in fact. The Hundred of Belalie centres around‘ Jamestown, a village lying some 140 miles north of Adelaide and 35 miles to tha east of Port Pirie. This area was chosen because it is representative of the best wheat land in South Australia, and becadse a survey had just been made of the extent of soil erosion. We investigated 31 farms, selected a t random, out of approximately 120 in the hundred. We had meant to enlarge the sample by doing another 30 farms during October, but were unable to do so because of other work. While it must, therefore, be stresbd that the sample is too small for full statistical analysis, the results substantiate the a p r i o e reasoning as far as they go.

(a) Land use in the Hwndwd of BeWie. It is helpful, in reviewing the evidence disclosed by our survey, to have in mind a general picture of land use in the whole of the hundred from which we drew our sample. Fo r such a picture we are indebted to Mr. R. I. Herriott, Soil-Conservation Officer of the S.A. Department of Agriculture. In connection with a stndy which he is making of the relationship between land use and soil


erosion, Mr. Herriott has prepared, from data published in the South Australian StdisticaJ. Register, a diagram showing land use in the Hundred of Belalie from 1907 to 1940, and has kindly giyen us permission to reproduce this diagram (Chart I) from his unpublished MS.

The main facts to observe from this chart are: (1) The large, and increasing, proportion of the land

devoted to wheatgrowing (i.e., in terms of the diagram, subject

CHART I Land Use, Hundred of Belalie, 1907-40

NATURAL N Y

PASTURE

M?


to minor qualifications, wheat plus fallow plus some part of temporary pasture since on some farms wheat is grown on a three-year rotation of wheat, natural vegetation, fallow) ;

(2) The small proportion of wheat land left out of actual cultivation-as temporary pasture of natural vegetation-for soil-building purposes ; indicating that a two-year rotation must st i l l be fairly common ;

(3) The insignificance of other crops such as oats and barley ;

(4) The gradual but persistent increase in arable land at the expense of natural pasture;

(5) The small, but in recent years increasing, proportion of the land sown with lucerne, which is the only artscial pasture that is technically practicable in the district; and

(6) The large proportion of the land each year kept com- pletely bare and, therefore partkularly vulnerable to the forces of erosion.

(b) Overhead Ezpelrses and the Cmpositwn of Productwn. Chart 11, which is based on Table I in the Appendix, shows for each of the 31 farms the relationship, in 1941-42, between the size of fixed capital expenses, calculated as an amount per acre, and the proportion of the farm mwn with wheat or other cereals.

It will be seen from this chart that, in general, farmers

CHART I1 Overhead Expenses and Land Use, 1941-42 (Belalie Survey)

30 T H E ECONOMIC RECORD J U N E

sowed a large or a small proportion of their land with wheat according as their fixed expenses per acre were high or low. This is an indication, though not in itself a proof, that farmers who have to meet high overhead costs are being prevented by that fact from changing, as others more favourably situated are changing, from the earlier, two-year rotation of wheat f d - lowed by fallow, to mixed farming based on a wider rotation of crops and permanent pastures. Act,ually, discussion with these farmers revealed, in almost every case, that they knew such change to be desirable, both in order to stop soil erosion and because i t would pay them in the long run quite apart from that, but they were prevented from effecting the change because they could not afford to make the immediate sacrifice of income.

Chart I1 contemplates the relationship between fixed costs and adaptability by exwining the position of differently- situated farms at a point of time. The survey was also designed to show the degree of change, in relation t o the size of fixed costs, over a period of time during which strong forces were at work making for change. Thus particulars were obtained of the acreages devoted to each of the five main uses--namely, wheat or other cereals? fallow, temporary natural pasture, sown pasture (lucerne), and permanent natural pastarein the two seasons 1939-40 and 1941-42. These various acreages are shown in Table I1 (Appendix) as percentages of the total farm.

It is assumed that, in general, the profitable kind of change in land use between the two years compared was the change from wheat production on a narrow rotation to mixed farmings Unfortunately, however, there is no objective measure of this

2. Other cereals were nenligible except in one uaa (see noted to Table 11). 3. For the ulra of l0~ic.d compltenetw It would be d a M b to offer 8 acient.i8C

Pmof of the mowsition that a change from wheat production on a n m w mtatl~l to m5xed fanning. u well M being in. the interests of soil eolwrrntion w d d have been Profitable, siven the actd and prospective conditions of demand for'the merent Products concernad. in the technical and inatitntion.1 eonditiDN of prodwetion in the Hundred of Belalie. But for two reawns it k impncticsble to d e r snch a proof here. FiW. mince what we are concaned with b the Ions-period optimum commaition of pmdnction4.e the unnprmition of prodnction rppropriate to eh8nsed conditions of dmund or sums& after the fixed instrument. 02 pmduetion. and even tho sizes of farms. hroe been modified accodingp-ir would be n-r~ to present an annl~~id of the .chul and potential conditiow of world demand for the different ~rOdn~t.6. as well an of the existing loal conditions of dcarand: and tbt dona would carry u11 far beyond the limb of I ainde arricle. Secondly, scientific pmof of the promition would n-itate controlled experiment conducted by a&cdturi.tm over a period of time to uesrtaia the yield and wetagof the different prodoeta in the rmtiollor technical mud inatitutiond conditions existins a t Belalie. The mthord had neither the time, the tdning. nor the reeonm tkrt wodd hrvt bees r e a n i d for auch experiment. What thcJc did instead wan Cli to wneultl agricnbrd efperes familiar nitb the Boblie conditions. (2) to examine the armnuntm and catins of nevelrl farmen who had already chutged from w h a t to mixed farming. and (a) to And out the opinion of the f-m t h d v c s . All three lima of invntigation

the chanrr wae a8tis6ed that it was pmntrbk' and among otbcn there wan. .d alrad9 stated, general agreement that it would de PrOgtable i2 they d d afford to make it. Ibomover, the Oman mponeIMe for the .oil-conaervation s w w comxoktcd just prior to our economic ssivcp. rcre ut*tied f m tbs evidence at th& disposd that wheat farming. M practised in Belalie. had ban an imporbnt cause of the mil emion tbat bad taken place.

uneqnivod& S n D p d the DCStUbk of the tcXt. %rDltm W h o b8d dmdF IDZ&


change wbich is wholly satisfactory. The index we have devised is a direc! i-dex of land use based on the proportion of the farm devoted to pasture. For this purpose me have expressed the acreage d.eroted to lucerne and temporary pasture, in each of the two years, as a percentage of the total farm in each case, and have taken the excess (positive or negative) of the percentage in the second year over that in the first as our index of change (Table 11, Appendix). This index, however, is only a rough guide. For it ignores such a change as an increase in the production of cereal crops to be used as dry fodder for stock, and it wholly misrepresents such a change as the conver- sion of temporary pasture into fallow that is to be sown with lucerne in the following season. In framing our questionnaire we had it in mind to construct a supplementary index based on changes in the proportion of total receipts derived from the different products. But we found that there had been too little time for the changes made to demonstrate themselves in that way. BeGdes, though some farmers kept adequate accounts, that was not true of all.

Subject to the warning that it is not wholly reliable, OW index of change can be shown against overhead expenses. This is done in Tables I1 and I11 in the Appendix. The former shows that, broadly speaking, the index of change increases as overhead cost decreases. The latter shows that the eleven farms which experienced no change had an average overhead cost of 5/8 per acre, while the eleven which showed the biggest change had an average overhead cost of 2/9 per acre. While it must be stressed that this is not a full statistical proof, the figures in these two tables strengthen our theoretical conclusion that lack of adaptability in agriculture is a function of overhead expenses.

This is not to deny that agricultural adjustment to changing conditions is hindered also by powerfiul non-economic forces, particularly by institutional factors and the inertia of custom. Nor is it to deny that farmers would be unwise to make a permanent adjustment while there is still good reason for doubting whether there has been a permanent change in conditions. Nor, again, is it to deny that the appropriate adjustment during the short period4.e. before there has been time to disinvest fixed capital in the form of implements, etc.-may differ substantially from the appropriate long-period adjustment. Indeed, it was mainly in order to overcome the difficulties of statistical analysis presented by the'nndeniable existence and importance of these factors that we chose for the scene of our investigation a homo-


geneous and compact farming area in which the usual type of farming practised had heen wheat production on a narrow rotation, In such conditions institutional and short-period hind- rances to adaptability could reasonably be expected to bear on farmers with low overhead costs as heavily, in general, as on farmers with high overhead costs. The idea was in this way to imprison them within the pound of ceteris paribus, in order that in andyzing the effects of overhead costs they could be ignored. However, as we keep on pointing out in stating our results, the assumption that they remain constant is rendered somewhat unreliable by the smallness of the sample.

( c ) Ezpectatiolrs and the Number of traasfers. The statistical evidence so far adduced lends support to the general argument of Section I1 that overhead expenses (on account of either indebtedness or contracts of rental) hinder change by the fact that they are fixed, and thus impose on the farmer all the risks of price variations, whereas in order to ensure adaptability of farming they would need to be variable. But it was also argued that the farmer tends in fact to underestimate the risks of price variations and, by buying his land in time of boom in the expectation that boom prices win last, t o load himself with a burden of debt out of proportion to his prospective earnings. In order roughly to test this argument, we had to supplement our survey, so far as some of the fa- were concerned, by making a search of title-deeds. The resnlts are given in Table IV, which shows the number of transfers (of the farms included in the survey) in relation to the price of wheat.

The following is a summary: Ten Years Ten Years 1920-29 1930-39

Average annual price of wheat . . .. 5/11 3/6 Average number of transfers per annum 3.4 1.1

It will be seen that three times aa many farmers bought farms during the prosperous 'twenties as during the lean 'thirties. So far as it goes, therefore, the evidence, supports the argument. But it must be emphasized that in such a small sample the relationship between transfers and price is liable to be seriously distorh$ by such chance causes as the death or retirement of a few farmers.

Our statistical survey has shown that high i5xed costs do hinder the adjustment of farming to changing conditions, and, in particular, it has shown that high fixed costs are at the present time cawins

(d) Ooerhead Costs a d 804 Erosion.


wheat farmers, so encumbered, to cling to a narrow crop rotation instead of changing to mixed farming with wider crop rotation and improved pastures. Moreover, soil experts have proved that a narrow wheat-fallow rotation leads to soil erosion. Hence, in present circumstances, high Gxed costs lead to soil erosion.

Since many farmers are still unaware of the extent to which their farms have been eroded, it was impossible to verify this conclusion by means of our questionnaire. Accordingly, Mr. Hemott, who had personally inspected all the farms in. the Hundred of Belalie, kindly supplied us with two lists of farms: Group I consisting of 13 farms worked on a narrow rotation ( d e r i n g from soil erosion), and Group I1 consisting of 15 farms worked on a wider rotation (less affected b s soil erosion). We then investigated the size of their overhead’costs. But since only a few of the farms concerned were included in our survey, we had to do this by searching the relevant title-deeds. In consequence the figures can be regarded as no more than indica- tive. For, fhtlp, only registered’mortgages can be traced; secondly, amounts paid off mortgages are not necessarily recorded on the title-deeds; and, thirdly, titles may be surrendered as security for unrecorded overdrafts.

The summarized results are as follows :

Oa 13 eroded farms with narrow rotation

(1) Average overhead expenses (in- teFest and rent) per acre . . . . 7/-

(2) Total number of transfers since 1920 . . . . . . . . ,. . . . . . . 17

(3) Average time of occupancy by present owner8 . . . . . . . . . . 16yrs.

(4) Number of pre&nt owners who obtained land by inheritance .. 1

On 1S.eroded farms with

wider rotation

4/9

10

24 yrs.

7

So far as they go, these results support the conclusion that high overhead costs are causally linked with soil erosion by way of land use.

Iv The object of this paper has not been to propound remedies,

but to analyse causes. Nevertheless, it seeme desirable in conclusion to draw attention to the ,main implications for policy. For if the analysis is correct, adaptability in agriculture is

a


being hindered by two economic factors, which it is the vital concern of the commnnity to remove.

The fist is the farmer's ditscnlty in obtaining the necessary working capital with which to pay for any desirable change, both to Gnance the new enterprise itself and to meet living expenses during the considerable period required fo r establishing it. In its essence this is a problem of risk, and it wil l continue to exist until the Government makes adequate arrangements for advancing the money (for example, through a mortgage bank) on special terms.'

The second obstacle consists in the fact that many farmers are prevented from introducing desirable changes by their having large fixed commitments on account of interest or rent; they are prevented from taking the appropriate action now because in the past they have decided upon, and borrowed money in order to engage in, a type of farming which may have been suitable then, but is so no longer. Their high fixed costs do not indicate that they are bad farmers, but only that they have to shoulder risks which they are not competent to estimate or bear. Farmers generally are not competent to foresee changes in the world conditions of demand and supply, and the resulting changes in the value of land, and they are not competent to foresee how the prices of the H e r e n t farm products, and hence the value of the land, will be affected by changes in domestic policy. These risks should therefore be taken off their shoulders. If agriculture is to be made more adaptable, the farmer's annual payment on account of his land must be converted into a variable charge, depending on the general profitableness of farming.

But private banking and investing institutions cannot be expected .to take over these risks by charging a varying rate of interest on capital lent to farmers. If the farmer is to be relieved of this part of his entrepreneurial function at all, he must be relieved by the State, and there can be no doubt that it is in the interest of the State that he should be. For the fundamental fact is that when, owing to a change in the conditions of either demand or supply, it would pay farmers to increase their production of certain things, or to adopt new methods, their existing production or method does not ~ w d Y remain as profitable as before, but becomes unprofitable. Farmers who are unable to change their production or their methods

4. tb. ~ m m n u ! t b wrtgwe %nt no doubt b. of m t bY m D C * bm Of U D W to th D W m m it b at D-t too Umlhd in it. mt!OPa to dalnlth tbL p m b b d working apft.l (M cmnwa- WSJII ~d A& ism).


s. d. 9 0 8 6 7 6 7 4 6 6 6 4 6 3 6 2 5 11 5 6 5 6 5 0 5 0 4 6 4 3 3 7

(as the case may be) will therefore find it harder to earn a given amount of income and will tend to over-crop or over-stock their land in order to meet their b e d commitments. The State cannot aiTord to let this happen because the land is bound to d e r permanently as a result. The clear inference is that the State must be prepared to take over the risks of change in the general profitableness of farming, by charging the farmer a variable annual amount for the use of the land. Clearly this involves it in assuming the risks of ownership. But the State need not on that account undertake the immediate nationalization of all the land. It would' be sufficient for the purpose, if, in the first instance, it entered into the suggested arrangement with those farmers who wished it to do so, and a t the same time decreed that all future sales of land should be to it alone. Since the competitive market for land would in that way be abolished, machinery for determining the purchase price according to the yield value would have to be created. It is not our concern-in this article, however, to discuss the problems involved in putting such a policy into effect.

University of Adelaide. K. S. ISLES. A. M. RAMSAY.

0 52 42 51 46 67 24 31 30 48 29 26 17 33 6 37

APPENDIX TABLE I

Ovcrhead Expenses (Interest and Rent) Per Acre, and Percentage of Total Farm flown with Wheat or Other

17 18 I9 20 21 22 23 24 25 26 27 28

. . 3 Cereal2

I I

s. d. 3 7 3 5 2 9 2 0 2 2 1 9 1 7 0 7

0 0 0 0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1941 -42 I

0

8

19 31

I 33 34 12 13 16 26 16 31 48 29 0 0

-

a

Blp

*ua

prAm

rd.

90

8

6

76

7

4(d

66

6

4

63

6

2

6 11

66

60

6

0

46

4

3

37

3

7

36

2

9

28

2

2

19

1

7

07

(m)

(4

(4

E 8 -

TA

BL

E I1

Land

Use

on 31 F

arm

s, 1939-1940 an

d .11)41-19i2

Perc

enta

ge o

f To

tal A

crea

ge o

f Fa

rm D

evot

ed to

Each

Une

(P)

-

62

42

61

46 (4

24

46

so

48

29

32

36

31 6 42

28

46

11

20

46

17

17

16

26

16

31

20

37

14

- 62

42

61

67

4e

24

31

30

48

29

26

17

33 6 37

19

31 7 38

34

12

13

16

26

16

31

46

31

I 2i -

1-

31

99

37

37

38

46

28

46

84

32

26

31 4 42

13

44

29

34

17

13

18

16

24

27

31

26 -

(4

2o

ie - - -

31

20

37

37

38

31

28

46

34

60

17

33 3 34

13

27 6 7 34 8 18

16

13

16

24

16

13 - -

16

I 13

13

12 2 26

28

61

28

-

-

-

-

-

-

12

29

19 6 2 1 7 16

13

16

16

10

26

14

-

31

I 1

1941

4 76

4 16

10

28

10 6 - -

-

-

3 16 1 14

11

18

16

62 7 22

32 4 2 3 68

38

-

- -

-

- 19

89-4

0

7 -

-

-

6 (4

37 3 11 7 37 4 23

38

77 6

20 9 30

60 8 48

68

63

48

48

18

27

32

28

30 - -

7 - - 6 6 37 3 11 7 37 4 23

37

77 6

20 9 30

63 8

48

68

63

46

48

18

27

32

28

w

Q, 8 M

w 0

w U ?4

1944

1 2 3 4 5 7 9

10 11 24 27

AGRICULTURAL SURVEY

s. d. 9 0 8 6 7 6 7 4 6 6 6 3 5 11 5 6 5 3 0 7 0 0

37

TABLE I11 Annual Overhead Costs (Interest and/cr Rent) and

Index of Change

Index of - 0 0 0 0 0 0 0 0 0 0 0

FUm NO.

31 18 12 8

13 29 I9 30 22 13 21

h u a l ovu? head cab pa-

s. d. 0 0 3 5 5 0 6 2 5 1 ) 0 0 2 9 0 0 1 9 3 7 2 2

s. d. Average: 5 8

s. d. Average: 2 9 I

YCU ~

1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932

1. The

aud &h fortber

TABLE IV Wheat Prices and Land Transfers

s. d. 5 6 9 0 5 9 5 5 4 8 6 8 6 4 5 7 I 6 4 10 K O !2 6 ) 3 0%

1933 1934 1935 1936 1937 1938 1939 .1940

s. d. : 3 I t 4 1) 5 * 3 4)

7

2 O I I 1 I

Documents

LACK OF ADAPTABILITY IN AGRICULTURE : AN ECONOMIC SURVEY