Comparing Technical and Allocative Efficiency between Family Farms and Agricultural Corporations: Evidence From Japan’s Rice Sector

Abstract

Is an agricultural corporation more efficient than a traditional family farm? This paper attempts to answer this question by examining the technical and allocative efficiency of family farms and agricultural corporations. To do so, it applies the stochastic production frontier method in panel data built on the family farms and agricultural corporations in the Japanese rice sector and focuses on comparing the technical and allocative efficiency of the two production forms at the same scale of operation. Results reveal that family farms have a significant advantage over agricultural corporations in technical efficiency at each level of scale of operation. In both production forms, as the scale of operation increases, the technical efficiency correspondingly rises. However, the disparity in technical efficiency diminishes between the two production forms as their land size increases. In contrast, the allocative efficiency of different factors differs between family farms and agricultural corporations at different scales of land size. Overall, family farms show superiority in the allocative efficiency of labour, and agricultural corporations exhibit superiority in the allocative efficiency of agricultural capital. Last, decomposition of total productivity progress (TFP) reveals that family farms have positive TFP change which is mainly attributable to a positive and large allocative component, while agricultural corporations undergo negative TFP change due to its negative and large allocative component. Moreover, the results intimate that technical progress and technical efficiency improvement are faster in agricultural corporations than in family farms.