ABSTRACT. This paper investigates the evolution of the size
distribution of more than 40,000 farms in the Upper Austrian
farm sector over the period 1980–90. Using Gibrat’s Law as
our point of departure, we find that smaller farms grow much
faster towards some minimum efficient scale of production
than farms at or above this threshold size. We furthermore find
evidence for the existence of two separate “centres of attrac-
tion” of farm size supporting the notion of a “disappearing
middle” and the emergence of a bimodal structure of farm
sizes. Correcting for size-related attrition bias had very little
effect on our results.
Agriculture in industrialised countries has under-
gone dramatic changes during the last century.
Notable characteristics of this change are (a) the
shrinking of the agricultural sector in terms of
contribution to GDP, the share of agricultural
employees and self employed in the whole labour
force as well as the number of farms, and (b) the
significant increase in farm productivity and
average farm size.
Obviously, the evolution of agriculture has
important impacts on individual farmers. The
rising size of a farm necessary to provide a rea-
sonable level of farm income forces those with
smaller holdings to expand beyond a single family
operation, seek off-farm employment or exit from
the agricultural sector altogether and thus consti-
tutes a direct link between farm structure (struc-
tural change) and individual producer welfare.
But agricultural structure also affects societal
welfare in a number of important ways. Larger
farms may be more efficient and more inclined to
adopt new technologies since they can apply it to
a bigger resource base or spread its cost over more
units of output. Cheap supply of food directly
improves consumer welfare. On the other hand,
there is also a significant debate about the effects
of farm structure on the environment as well as
the safety of food and food products (Atwood and
Hallam, 1993). Furthermore, the decline in the
number of farmers has been associated with a
depopulation of the countryside which may have
unfavourable effects with respect to tourism
industry. Many current urban dwellers, for
example, attach some value to rural areas as places
to visit and enjoy nature and some of these
activities are viewed of being more enjoyable in
a countryside dotted with small well kept farms,
as opposed to large industrialised farms. And
finally, the size distribution of farms also has some
implications for the political economy of agricul-
ture in that operators of large farms may be more
motivated and better able to lobby for economic
support than operators of small farms.
Studying changes in agricultural structure is
interesting in its own right and furthermore may
be helpful for policy makers in designing
programs to direct changes towards desired ends.
How the present farm structure has evolved and
will continue to evolve over time constitutes the
major purpose of this paper.
Do small businesses
in the farm sector grow as fast as (or even faster
than) large ones? Are there empirical trends
crystallising from past performance of farms?
What are the implications for the future size dis-
tribution of farms? In particular, we test a simple
stochastic model which, in many other empirical
has been found to explain many of the
key aspects of firm (farm) size and growth. This
model has that farm growth is determined by
random factors that are independent of farm size
(i.e. Gibrat’s “Law of Proportionate Effects”).
Size, Growth, and Survival in
the Upper Austrian Farm Sector
Christoph R. Weiss
Small Business Economics 10: 305–312, 1998.
1998 Kluwer Academic Publishers. Printed in the Netherlands.
Final version accepted on October 10, 1996
Department of Economics
University of Linz