Land fragmentation and its implications for productivity: evidence from Southern India

In developing economies land reform, in particular land redistribution has occupied a central role in debates about poverty — particularly chronic poverty — alleviation in rural areas. Even if it were accepted that land redistribution could alleviate poverty the enthusiasm for such redistribution needs to be tempered with consideration of the potential efficiency effects of land fragmentation. The fragmentation of land holdings could rise with land fragmentation. In turn, land fragmentation could lead to sub-optimal usage of factor inputs and thus to lower overall returns to land. The factors contributing to this could be losses due to extra travel time, wasted space along borders, inadequate monitoring, and the inability to use certain types of machinery such as harvesters. Fragmentation of land is widespread in India and it is believed that fragmented nature of land holdings may play a major role in explaining low levels of agricultural productivity. Despite substantial rise in yields India ranks 34th in yields for sugarcane, 57th for cotton, 118th for pulses, and, 51st for rice although India is a leading producer of each of these crops in aggregate terms. Further, there is evidence of inefficient use of resources in agriculture and the resulting increases in costs, e.g., 25 times more water/tonne of output is being used to irrigate Cotton in India than in Egypt. In response to the perceived adverse effects of land fragmentation the then Finance Minister allocated Rs. 5 million over a period of five years, as an incentive for land consolidation, in his 2000 budget speech. However, the Planning Commission of India has indicated a near complete failure on this front. To date, however, there has been no systematic attempt at quantifying the effects of land fragmentation and understanding the channels through which these effects operate. The present paper attempts to fill this void. In this paper, we undertake a detailed assessment of the consequences of land fragmentation using a unique panel data set from Southern India, with comprehensive information on all landholding households in two contiguous villages over a five-year period. In particular, we examine whether technical efficiency of farm production is significantly related to farm size, whether yield is importantly impacted by the degree of fragmentation as measured by the number of plots, average plot size, and an index of fragmentation,2 and whether such fragmentation impacts upon labor allocations. We then use stochastic production function methods to measure the degree of technical efficiency and relate this to the degree of land fragmentation. Our results show clearly that land fragmentation has a significant adverse effect on land productivity. The plan of this paper is a follows. In section II we review the literature on this issue whereas section III discusses the data asset. Section IV details the methodology and estimation procedure, section V presents the results and section VI concludes