Land reallocation and the structural transformation of the French agriculture

I have recently started to work on an exciting new project about land reallocation and the structural transformation of French agriculture. In this post, I'll present the motivation for the project and how I plan to conduct  it.

Motivation

Understanding why countries are poor or rich, and how to unleash their growth opportunities is a key question in economics, for obvious reasons. One theory explaining why some countries are poor is factor misallocation. For some reason, factors as land or capital may end up being distributed unefficiently - maybe divided in too small farms or too scattered pieces, or not allocating enough land or capital to the more able managers. According to this theory, reallocating factors in a more efficient manner would unleash strong growth. There is growing evidence that  some kind of factor misallocation is at play, but we lack direct evidence that a policy of active reallocation of factors of production can indeed increase productivity. This is key because providing evidence of factor misallocation does not mean that a policy of reallocation would increase productivity. Moreover, studying an actual event of land reallocation might help in undertsanding how factor misallocation impairs productivity growth. Is that because of poor organization of factors of production, as for examples farms divided in scattered pieces, or because very productive farmers were not allocated enough land, or because it unleashed the realization of more productive investments? Finally, such an approach might also shed light on the sources of misallocation: why the market forces were not enough to allocate the factors of production efficiently?

To shed light on this issue, my project is to use a major land reallocation experiment that took place in France, called "reparcelling" (remembrement) . Between 1944 and 2006, roughly 18 million hectares of agricultural land - more than half of the French Usable Agricultural Area -  have been reallocated in France. This is, I believe, the major land reallocation event in France since the French Revolution. The basic principles of land reallocation have been edicted by the Vichy government in March 1941. The main aim was to decrease morcelling by regrouping land around each farm in order to decrease the transportation time between plots of land and to have larger and more regular plots of land more suitable for the adoption of modern technologies as the tractor and the plough. Concretely, the process of land reallocation takes place at the commune level, the smallest administrative unit in France, roughly of the size of a US census tract. Each plot of agricultural land is attributed to a class reflecting is quality. The project of land reallocation is proposed by a professional surveyor and has to satisfy an equivalence constraint: the area of each class of land that each farmer possesses has to be the same in both the initial and the final allocation. After reallocation, each farmer thus possesses the same amount of land of the same quality as before, but regrouped in larger plots around his house.

The first key question that this project seeks to answer is whether land reallocation has caused a surge in agricultural productivity. At first sight, the evidence seems extremely favorable. Over the same period as that of land reallocation, French agriculture has undergone a deep structural transformation. Between 1950 and 1997, the number of tractors has increased ten-fold, the average farm size has almost tripled and yields have skyrocketed (multiplied by 6 for maize, by 4 for wheat). At the same time, the share of the active population working in the farming sector decreased from 27% to 4% and the number of farmers decreased from 2.3 million to .7. This phenomenon has been coined "The End of the Paesants" by the French sociologist Henri Mendras and "The Quiet Revolution", by the leader of farmers' unions Michel Debatisse.

Without further investigation, though, it would be misleading to attribute the bulk of the structural transformation of French agriculture to land reallocation. Indeed, many other changes might explain part of the exceptional structural transformation. First, other agricultural policies where put in place at the same time as land reallocation was encouraged. The very important Laws of Agricultural Orientation of 1960 and 1962 due to the General de Gaulle and his Ministry of Agriculture Edgar Pisani have not only facilitated land reallocation, they have created a host of other policies aiming at increasing farm size and spurring investment in agriculture. A first set of policies altered the land market, favoring renters over owners. Starting in 1945, land rents were supervised with limited price increases, investments could be decided independently by the tenant which had to be compensated in case the investment was not fully amortized at the end of the lease agreement, and the tenant had the right to preempt the land he rented in case the owner wanted to sell. In 1970, longer lease terms of 18 and 25 years were introduced. A public structure (the SAFER) could preempt any land transaction and sell its holdins to a candidate of its choice. A second set of policies favored the installation of younger farmers on farms of larger sizes. A minimum installation size (MIS) was defined and the SAFER had to sell their holding favourably to farms larger than the MIS. Starting in 1962, a set of subsidies for early retirement was put into place, with the aim of freeing land occupied by small farmers for young farmers. Subsidized loans were also directed towards farmers with the larger farm sizes. Starting in 1973, a subsidy for the installation of young farmers is created. In 1962, subsidized prices were introduced as part of the Common Agricultural Policy. Over this period, a strong movement of adaptation of (mainly U.S.) agricultural innovations was set into motion with the creation of INRA in 1946 and of the CNEEMA in 1955. These innovations were then transferred to farmers by a very dense network of farmers' groups, the CETA.  (And yes, the French love acronyms.)

In order to separate the effect of land reallocation from that of other concomitant policies, I plan to use the slow progression of land reallocation over time and space. By comparing the evolution of agricultural productivity of similar communes over time, some undergoing reparcelling and some not, or at a later date, I can separate the effect of land reallocation from that of other concomitant policies, since these other policies should affect these similar communes similarly.

An interesting feature of reparcelling is that it has affected land allocation in two ways. In the short run, it has reallocated land keeping total hodlings and quality constant. The only effect has been to regroup land into larger plots closer to the farm headquarters. The first effect of reparcelling is thus to correct for misallocation of land across space. The second effect has been (I suspect) to increase farm size by facilitating land transactions between old and young farmers. The first type of reallocation effect has never been documented to my knowledge. It would be interesting to disentangle both, but in a first step, I only plan to study the combined effect of both these types of reallocation.

Next steps

The first important step is to build a database of all the land reallocation operations in France since 1945 at the commune level, with information at least on the date of the operation. This has been kindly provided by Nadine Polombo, who has worked extensively on this topic with her colleague Marc-André Philippe. They have compiled and updated a database maintained by the French Ministry of Agriculture.

The next step for me is now to study in detail the progression of land reallocation over the years and over space and to relate it to several characteristics of farms. One easy thing to do is to look at the differences in farm structure in 2000 between communes that have been reparcelled and commune  that have not. One problem is that these communes may differ for reasons other than reparcelling. One important fact about reparcelling is that it is mainly confined to the northern part of France. Several possible explanations have been given for this fact. For example, land reallocation operations took place preferentially in open flat land of homogeneous quality. It also seems that regions with a long tradition of land rental witnessed more reparcelling and started it earlier. As a result, communes that have reparcelled were initially different: flat land favorable to crops and high yield varieties, maybe already larger farms. Even in the absence of reparcelling, these communes would have evolved differently. We say that these differences confound the effect of reparcelling. 

In order to minimize the impact of the confounding differences, I plan to use strategies:

1/ Compare communes located closely enough to each other, in areas with similar productive characteristics,

2/ Compare the evolution over time between communes that have reparcelled and communes that have not. This approach is called "difference in differences," since we compare how differences between communes change over time. Difference in difference works when the effect of confounding factors remains fixed over time. This might not be an attractive assumption since it might very well be the case that structural change would have been quicker and steeper in reparcelling communes. I will have to explore other strategies for modeling the evolution of modernization in the absence of reparcelling. There are several econometric techniques around which might be suitable. One key condition for applying this method is to access data on older farm censuses. Accessing the first farm census of 1955 would be ideal, since the bulk of land reallocation took place after that date and we thus have an initial benchmark to which to compare the subsequent evolution.

3/ Compare communes that have been reparcelled to communes that have not for reasons uncorrelated with the modernization of agriculture. For example, around 10% of all reparcelling operations have taken place along major infrastructure projects as roads or railroads. It is possible to estimate the effect of reparceloing by comparing communes located close to infrastructure projects to communes located farther away.

TBC.